Crypto Day Trading ― Tips and Strategies

Source: admiral markets

What is Day Trading?

Day trading means any trading technique that aims to produce profits from trade decisions concluded within a day. Day traders spend time monitoring the charts after they have made an entry so that they can cash out on price movements in their direction. Because of the amount of time and effort required to monitor the progress of the trade, day trading is more suitable for people who can devote their time to observe their dealings and make trading decisions on the go.

How to Day Trade Crypto

Trading instruments are the various securities or markets through which traders implement their trading decisions. Not all financial market instruments are suitable for day trading based on their framework. We will look at some crypto market instruments that day traders use for trading.

Crypto Swap: This is one of the most common types of crypto trading instruments found in the market. Crypto swap is the process of exchanging one crypto for another crypto.

The two currencies are listed in pairs and the price action goes in the direction of one coin in crypto swaps. Therefore, as the price of one currency goes up, traders exchange their pair depending on the type of position that was set, whether long or short.

Another distinguishing aspect of swap trading is that the trader owns the unit of those cryptocurrencies that were swapped. They can withdraw it to their wallets.

credits: the merkle

2) Crypto CFD: Contract for difference (CFD) refers to a type of financial instrument that allows people to trade assets without actually owning them. Compared to crypto swaps where the trader holds the assets and they can choose to withdraw it into their wallets and spend as they like, crypto CFD (and all other types of CFDs) does not provide outright ownership of the asset.

Advantages of Crypto CFD'S

So what advantages does trading crypto CFD provide when compared to swap trading? With CFD, the trader can take either long positions or short positions. Minewhile crypto swaps only allow the trader to take long positions. This flexibility means that a trader can make money in any direction that the market goes.

Source: coincodecap

3) Crypto margins and leverages: These kinds of trades allow the individual to trade with more capital than they own by borrowing extra funds from the exchange. Other financial markets like forex and stock markets also use the leverage trading instrument. Because traders borrow the amount used as leverage, it usually attracts some interest payment. This situation makes leverage trading unsuitable for other types of short term trading as some exchanges will charge overnight interest on open positions.

Types of Orders

Now that we have looked at some of the instruments for day trading. Let us take our discussion further by examining the types of orders. An order is an instruction that is given to the exchange to execute a trade. It could be an instruction to buy or sell. The major types of trading order are:

1.Market order: This is an order to enter or exit a trade at the market price. If a trader chooses this option, the trade will be executed immediately at the prevailing market price.

2.Limit order: This type of order comes into play when the trader does not want to enter or exit the trade at the prevailing market price. Limit orders are recorded in the order book and executed when the price reaches the limit set by the trader. Because the order book displays this kind of order, other traders can see areas of crucial resistance or support before they happen sometimes. Also, when a trader places a limit order to buy, the funds are reserved in the account until trade execution.

3.Stop order: A stop order is very similar to a limit order in the sense that the execution is not instant. A stop order refers to a request to buy at a specific price. The order is executed once it gets to the stop price. However, stop orders do not appear in the order book and funds are not reserved for the trade.

Technical analysis for day traders:

Technical analysis is the process of using statistical tools like charts and indicators to observe the market trend. It determines the most appropriate entry or exit price.

The aim is to understand the sentiment of the market by observing the trade history on charts. The information from the analysis aids to predict what direction the market will go. The analysis uses tools like charts and indicators. Some traders use only charts, some indicators and others a combination of both tools.

Types of Charts

The most common types of charts used for technical analysis are

1. Line charts:

credits:coindesk

A line chart connects all the closing prices for the period to form a continuous line. With the use of line charts, a trader can easily spot the trend that the market is going. The straightforwardness of line charts makes it reasonable for new traders to utilise and comprehend.

However, due to the restricted data used to build the diagram, experienced traders will utilise this graph alongside other mathematical tools to formulate their own strategy..

2. Candlestick:

A candlestick chart shows the opening and closing price per time or period. For instance, if a trader chooses a 30-minute candle period, each candle on the outline will speak to a time span of 30 minutes, with the lower end demonstrating the lowest price at the time and the upper end indicating the highest price at the time. The blue and red shading are used to illustrate the sentiment of the market for that period. The blue shading speaking to a bullish market and red a bearish market.

3. Bar (HLOC) Charts:

credit:www.ig.com

Bar charts are fundamentally the same as candlestick charts in the way that it likewise shows the opening and closing cost per period. The only difference between bar charts and candlesticks is that candlestick charts use the colour on the candle body to show the relationship between open and closed positions. In contrast, the bar chart focuses more on the closing price of the asset in connection with the previous periods.

However, these differences are minor, so as such, both chart patterns can be used for the same type of technical analysis.

Short-term Day Trading Strategies

We will look at some strategies that a short-term trader can apply in trading cryptocurrencies. With short term strategies, the goal is to make profit within the shortest possible time. A day trader can implement a trading strategy through any of the following approaches enumerated below:

1.Scalping: This is one of the most popular trading strategies used by day traders. Scalping means looking for small changes in price movement and skimming off the little profit on top.

A scalper does not hold the trading asset for long and does not wait for significant changes before they sell. The scalper aims to make as many trades as possible within a day, with every little difference in price.

Scalping does not take the risk of holding on to a trend to make one huge profit. It takes advantage of little price movements and picking small profits per trade,

From the above diagram, a trader that uses this scalping strategy can monitor the charts using the 30-minute window after looking at the market direction from a longer time frame.

The benefit of this strategy

The support zones above are good entry points for a long position based on the direction of this chart. Using this strategy, the trader can complete at least three profitable trades in a normal day when the trend is not turbulent.

2.Arbitrage trading: This is another strategy used mostly by traders in crypto markets, especially in swap transactions. For this strategy, the trader looks for differences in selling or buying price across exchanges.

For example, if exchange A buys bitcoin at a higher rate than exchange B, the trader can purchase bitcoin from exchange B, any other exchange that sells it cheaper and withdraw his coins to exchange A to sell.

Arbitrage trading is one of the most guaranteed ways to make money trading cryptocurrencies daily. A trader that has access to quick information on these price differentials that happen almost every day can take advantage of them before any correction takes place.

However, the only drawback to this method of trading is that, sometimes, there may be a delay in withdrawing funds from one exchange to another. By the time the funds arrive at the closing exchange, the price may have corrected itself and that opportunity may be lost. The diagram below shows how this strategy works.

Credits: medium

3. Swing trading:

This strategy is the longest of the three short term strategies and the one with the highest potential for massive profit from a single trade. For this strategy, the trader usually holds the position for more than a day. This hold sometimes even spanning into weeks and a few months.

So what does a swing trader do basically? While there may be several types of swing trading strategies, a swing trader looks at the market trend for a period--usually more than a day. They spot critical support and resistance zones.

After reviewing these zones for trend reversals, the trader executes his trade at a position where he can move in the direction of the new trend.

credit: medium

Looking at the diagram above, the swing trader stays on the trend to pick up the most profit from that trade. Compared to scalping, the swing trader does not look for multiple opportunities of picking little profits. Instead, the trader waits on trend reversal opportunities after studying the market direction for the period.

One of the advantages of swing trading is that the trader does not have to monitor the screen so actively within a single day like some other short term strategies.

Which is the Best Short-term Crypto Trading Strategy?

The answer to this question is none. All strategies in the above can be employed to make money from the crypto market. Therefore, the trader should adopt the strategy that aligns well with his trading appetite.

To crown it all, someone who has the time and patience to monitor charts can use scalping strategies. Minewhile someone who does not have much time to watch their trades actively can adopt swing trading strategies or arbitrage trading.