What is Day Trading?
Day trading is a short-term trading strategy that entails purchasing and selling cryptocurrencies within a short time span. Day trading as the name suggests requires creating and dissolving crypto trading positions within 24 hours.
The day trading technique is also used by traditional financial investors; however, the main difference is that digital currency markets stay open 24/7. On account of its design and structure, day trading is also called intraday trading. Day traders can generate profits from price changes taking place in a particular trading asset.
Factors Associated with Cryptocurrency Day Trading
Here are some important aspects associated with cryptocurrency day trading:
Liquidity
Cryptocurrency investors need to create and dissolve trading positions within the sector at a rapid pace. Therefore, liquidity can take center stage to ensure that investors are able to purchase and sell trading assets without any obstacles.
At the same time, low liquidity can lead to higher slippage meaning a given order does not execute fully on account of constant price fluctuations that can diminish the overall profit percentages.
Volatility
Volatility refers to price changes taking place in the price of a cryptocurrency. If the market is saturated it means that prices are not moving and there is a lack of volatility. Such a scenario can be a problem for day traders on account of price consolidation.
Mining can also impact day trading if miners decide to sell the mined token reserves. It can lead to price decline and affect the trading strategy of day traders.
Top 5 Crypto Day Trading Strategies
Cryptocurrency investors can adopt the following 5-day trading strategies:
Technical Analysis
Technical analysis or TA is the usage of mathematical indicators and charting techniques to project price changes for cryptocurrencies. There are various technical indicators that are automatically calculated and updated by programming software.
However, there are also many indicators that require manual input and analysis. RSI is one of the most popular technical indicators.
It is a single-line benchmark. It tracks the value of a given cryptocurrency between 0 and 100. When the RSI reading moves towards 100, it indicates overbought and vice versa.
Sentiment Analysis
Day traders also keep an eye on the latest market sentiment and latest news. In this manner, the investors are able to discern the possible direction of an existing price trend and ratio of fluctuations. There are also quantifiable trackers to measure market sentiment such as Fear and Greed Index.
At the same time, day traders can use algorithms and programs to measure social media mentions and search engine frequency to track the price movement. In the same way, day traders subscribe to various news sources to stay updated regarding all latest changes taking place in an invested digital currency.
Range Trading
Day traders can also conduct day trading using the range trading method. In this strategy, investors make use of range bound indicators such as candle stick chart and support/resistance levels.
There are various different types of indicators that allow investors to understand various dynamics associated with a given price range. Furthermore, investors also identify pivot points that allow investors to understand probable reversal points for a given cryptocurrency.
Scalping
Scalping is another short-term trading technique that day traders often employ. Scalping involves increasing the volume of total new positions within a short span of time. In this manner, investors increase the probability of realizing a profit.
Day traders can use bid-ask spread or liquidity gaps to determine entry and exit points for various orders.
In the same way, scalping also makes use of heat maps that trace trading volume, order book analysis, and technical indicator range to improve their trading positions. However, scalping is a high-risk trading strategy that requires technical knowledge and market exposure.
Bot Trading
Automated bots allow investors to automate the process of investing based on predetermined parameters. Day traders can perform high-frequency trading or HFT using bots.
However, in order to be successful, the investors need to devise a successful trading strategy that bots can use as a baseline for conducting trades. At the same time, bots require active monitoring to prevent technical errors on account of unwarranted price changes.
Conclusion
Day trading is one of the fastest and most effective ways to generate profits from investing in cryptocurrencies. However, it is also a high-risk endeavor; therefore, it is not suitable for investors who have a small risk appetite or do not have sufficient trading experience.
