Day trading as a concept originated in the stock market where active trading only took part on weekdays during regular business hours. Unlike the stock market, cryptocurrency markets are open 24/7, 365 days a year. For aspiring day traders, it is important to grasp foundational day trading concepts and develop or learn a viable trading strategy.
What Is Day Trading?
Day trading or intraday trading is a trading technique that involves buying or selling a commodity in reaction to short-term changes in its prices. Day traders aim to close all their positions before the end of a trading day, having appreciated the value of their holdings. The simplest way to start trading crypto is to create an account with a reputable crypto exchange, e.g., a bank account with SoFi, fund the account using Fiat currency, then buy or sell a cryptocurrency.
Strategies to Start Day Trading Crypto
The difference between a consistently profitable trader and a gambler is a viable strategy. Different situations often call for different strategies; a good trader should understand their competencies and the prevailing market conditions, then use the information at hand to pick the most suitable approach. Here are the most common day trading strategies in crypto, futures, equities, and other markets.
1. HFT (High-Frequency Trading)
HFT is arguably a reflection of society’s increasing reliance on technology. It is a technique that involves using complex algorithms programmed to execute multiple trades in fractions of a second. According to the experts at SoFi, “this method requires knowledge of advanced trading strategies and programming.”
Thanks to trading bot dealers, it is possible for the average retail trader to adopt HFT. That said, relying on premade bots alone might not be the soundest of strategies; the trading logic that makes bots enticing might work against them when the market conditions exceed their scope of intelligence.
Scalping is an ultra-short-term strategy that capitalizes on market inefficiencies, e.g., gaps in liquidity or a wide bid-ask spread. Scalpers aim to make small profits from a large volume of trades, eventually leading to massive gains. While time horizons vary, most scalpers spend no longer than a few minutes in a trade. Visit VectorVest to know more about scalping.
3. TA (Technical Analysis)
TA is a statistical strategy that combines chart patterns and mathematical indicators to help traders determine where prices might move next. Technical traders believe that past price action affects future price movement. Some popular chart patterns and indicators include:
- The cup-and-handle
- Moving averages
- RSI (relative strength index)
- Breakout pullbacks
4. Sentiment Analysis
Although less popular among day traders, making decisions based on the news and overall market sentiment can work in crypto day trading. Major news items can cause rapid price fluctuations in markets as volatile as crypto. Promptly acting on such news and staying on the right side of the market can yield positive long-term returns. Reliable news sources include exchanges like SoFi, social media, major news outlets, and crypto trackers.
It is possible to earn a fortune in day trading crypto with a sound strategy, discipline, and patience. Nevertheless, trading is a high-risk, high-reward, zero-sum game – day trading can be as dangerous as lucrative. Understanding the finer details of crypto day trading and sticking to a proven strategy is paramount to making long-term gains.