Before starting any trading journey, it’s always important for every trader to formulate a trading strategy, as doing so may help minimize losses.
When it comes to trading cryptocurrency, there are a number of tactics to choose from—long-term investing, swing trading, position trading, scalping, and day trading, to name a few. In this article, we’ll be going over what day trading is, how it works, and how you can get started.
Day trading definition
So, what is day trading? It is one of the most well-known trading strategies not only in the cryptocurrency realm, but also in the world of stocks as well.
The act of trading refers to the buying of an asset at a certain price, waiting for the value to appreciate, and then selling it at that higher price—hence earning yourself a small and quick profit. In any case, the aim is to earn that profit before the day ends.
In essence, day trading is very short-term trading, especially when compared to its long-term cryptocurrency counterpart: HODLing. Day traders can hold an asset for as long as a couple of hours and as short as just a few seconds. Cryptocurrencies and day trading strategy go hand in hand. Since many cryptocurrencies are notorious for being volatile, it provides many money-making opportunities for day traders.
Before you start trading
Whether it’s stocks, precious metals, or cryptocurrencies, there are always risks involved when it comes to any form of investing—risks that could result in you losing your money. So before you even think about crypto day trading, there are some things that you should probably know.
The first thing you need to know is that losses are a part of the experience. Even the most successful traders in the world have experienced losses—it’s impossible to be correct 100% of the time. Sometimes, investments will not go according to plan and the sooner you accept that, the more accustomed to the market you’ll become. Traders may have a tendency to invest in high-risk assets after losses to compensate—this is called “chasing your losses” and may lead to even more losses. This notion is especially true in the case of cryptocurrencies, which leads us to the next thing you should know:
Cryptocurrencies, as mentioned earlier, can be extremely volatile. The volatility of an asset refers to how quickly its value can rise and fall—and when it comes to cryptocurrencies, that rate can be extremely high. Take E-Coin as an example. A few years ago, an obscure cryptocurrency called E-Coin experienced a 4,000% increase in value over a short period of time. In the span of a day, it went back to its original value. Anyone who bought E-Coin before its spike would have made an incredible profit. However, people who bought it at its peak experienced a heartbreaking loss. Examples of price spikes like this are what make volatility a double-edged sword for investors.
Learning a new strategy like this can be difficult, which is why for traders, knowledge is power. Before you start trading, it’s important that you read up and research all you can—it’ll help you minimize all of the risks involved. Aside from researching from all the available resources on the Internet, you can also practice on trading simulators—but don’t get too confident if you conquer those, it’s an entirely different thing when real money is on the line. They may sharpen your trading skills, but day trading will test your mental strength.
Another thing that may help you minimize your losses is to set a goal. Once you’ve done your research and have some basic knowledge of how the markets work, it’s important to set a goal for each of your trades. Let’s say you see something you want to invest in, at what point, both positively and negatively, will you start selling? Setting a goal can protect you from the mental stress that fear and greed usually bring.
The first step to getting started with day trading for crypto is to look for a good exchange to work with. Cryptocurrency exchanges and marketplaces will allow you to buy and sell assets 24/7, giving you an opportunity to maximize your trades. There are two main types of exchanges: traditional exchanges and peer-to-peer marketplaces.
In short, traditional exchanges are more popular and easier—the platform will often act as a middleman to help mediate trades and users are often required to link their banks to their accounts (allowing for easier trades). On the other hand, on peer-to-peer marketplaces, the platform usually has little to no interaction with the trade (unless there’s a dispute)—effectively personalizing the trading experience (which, in turn, can make trades more cost-efficient). Choosing the right exchange or marketplace is crucial for day trading cryptocurrency strategy, as you’ll essentially be choosing where to spend most of your time.
By researching different exchanges and marketplaces, you’ll be able to get a grasp of how trading works on each specific platform. Once you find one you’re comfortable with, make sure you learn all of the platform’s ins and outs to avoid any losses on simple mistakes.
The next step is to deposit funds into your desired platform. The amount is entirely up to you, but if you’re just starting out, it might be better to start small (using low amounts). Then, once you get the hang of it, you may start putting more money in (and potentially earn more).
Although this step may be optional, you can also look for additional trading tools to help you better analyze the price movements of specific assets. These tools may help you find the right times to enter and exit the market.
Is day trading for you?
With all that has been said, it’s easy to see why this strategy can often be considered as a full-time occupation—it can take up a lot of your time and energy. There are a lot of things you need to consider before you start cryptocurrency day trading—and even when you do start, it may take a while before you are able to consistently trade successfully. It’s a slow process that you’ll need to build up slowly, with each mistake providing you with a new lesson to learn.
It’s amazing to see how far cryptocurrency trading has come—it’s no longer part of a niche market. It has now grown into something that not only allows people to make money online, but also provides many real-use cases (especially for struggling economies) around the world.
As the market grows, more opportunities are being presented to traders all over the world. And if day trading isn’t for you, there are a lot of other strategies to choose from. The important thing is that people get a chance to participate in these types of transactions, providing financial inclusion to anyone that seeks it out.
*The content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.