Day trading cryptocurrencies can seem like a daunting task, but day traders have been using this strategy to profit from the volatile crypto markets for decades.
Our article will discuss day trading cryptocurrencies in-depth. I aim to provide you with all the knowledge necessary to start day trading cryptocurrency yourself!
Is Day Trading Cryptocurrencies Profitable?
The numbers would suggest a resounding “yes!” If you look through our previous day trading results, the numbers are clear: You can make a steady income even in a volatile market.
See our full history of cryptocurrency day trading results here.
Since January 2021, the crypto market cap has increased from $169 billion to an all-time high of over $2.45 trillion, a 216% increase. Approximately 10,744 cryptocurrencies exist currently, according to CryptoMarketCap.
Many cryptocurrency exchanges receive $billions in transactions per day, and notable institutions and funds have dedicated significant capital to cryptos and crypto-related projects. If you thought the crypto trading game stops at Bitcoin and Coinbase, you’d be very wrong!
This explosive growth attracts traders worldwide to cryptocurrency trading. Even with the extreme volatility, cryptocurrencies such as Bitcoin continue to drastically outperform the S&P 500 index ($SPX) and gold ($GC.1)!
However, crypto trading works a bit differently than traditional stock trading. For starters, it’s important to note that cryptocurrencies are very new and have a highly volatile market.
They are only loosely regulated by the SEC, CFTC, and other large regulatory bodies that protect day traders in stock trading from fraud and illegal practices (that’s all changing fast, but the nature of some cryptocurrencies make them more difficult to control).
Don’t get us wrong: day trading cryptocurrencies can be profitable if done correctly! But it is up to you as an individual to do your research before diving headfirst into cryptocurrency day trading (or any day trade, for that matter).
Another note on cryptocurrency trading is that, unlike traditional markets, you can trade cryptos 24-7; there is no closing bell!
While traditional markets and time zones still significantly affect crypto markets, the market itself has no closing period. For some traders, this is a game-changer, but most day traders find it most lucrative to trade during weekdays and between hours when the volume is highest.
Day Trading Cryptocurrencies Overview
You can trade cryptocurrencies just like stocks. The day trader carefully watches the market for emerging trends, identifies opportunities to buy low and sell high. We’ll focus on the basics, though there are more complex forms of trading, such as trading futures and options, using leveraged trades, and “short selling” or “margin” trading.
The rabbit hole runs deep, with other ways to trade cryptos, such as trading on decentralized exchanges (DEXs), locking up or “staking” your assets to earn interest and rewards, and even lending your cryptocurrencies and similar digital assets in return for a fee.
But let’s circle back to level one of day trading cryptos, as all that extra detail can become confusing and overwhelming quickly.
The day trading process is divisible into three steps – technical analysis, trade execution, day-end administration.
Technical analysis is the process of examining charts of a particular currency’s price history; it’s an opportunity to identify patterns that might lead to profitable trades.
When day trading crypto, you’ll need to identify the most liquid and reasonably volatile assets to secure the highest profits and capture the most trade setups. You can do this by checking the 24-hour volume on any asset via Coinmarketcap.com or directly on your chosen crypto exchange.
Illiquid assets may expose you to extreme slippage, leading to greater losses.
The next step is to use TradingView’s Crypto Screener tool to identify the best current setups based on several indicators, such as oscillators, volume, and price changes.
The Crypto Screener tool lists buy and sell signals for more than 1400 cryptocurrency pairs in real-time. The data you get feeds from several popular cryptocurrency exchanges.
You can use this powerful tool to surmise market strength and direction or spot abnormal action in any crypto pair listed, based on multiple time frames from one minute up to one month.
The more the signals line up with different time frames and correlate with the price action of the largest assets ($BTC and $ETH), the stronger the signal.
Once you’ve opened the main Crypto Screener interface, you can press the “Filter” button in the top right. Find the “Market Capitalization” slider and crank it up to one million. Anything with a market cap below that is too illiquid.
Exit the Filter menu, and you’ll then see a list of cryptocurrency pairs, which you can sort based on different parameters. The main signal will come from the “Rating” column, listed as “Buy,” “Strong Buy,” “Sell,” “Strong Sell,” and “Neutral.”
Navigate to the search bar at the top of the interface and type any cryptocurrency for which you’re interested.
In the following example, I searched for “ALPHA,” changed the time frame to 15 minutes, and ordered the Rating column with buy signals at the top. You may not find your exchange here (I use FTX), but you can use other popular exchanges such as Binance as a proxy.
Trade execution involves placing an order on one or more exchanges, including your anticipated entry point(s) and the desired exit point(s). You’ll also need to map your stop loss.
Never skip the stop loss, but you can adjust it to break even or higher if your trade begins to meet desired take-profit levels.
Once you’ve identified a strong signal via the TradingView Crypto Signals tool and identified any important trend structures, your trade setup may look like this –
When day trading, the hourly and higher time frame close can significantly affect market sentiment. Therefore, many day traders choose to close their profits within an hour of opening the trade and keep their stop-losses near recent lows or previous daily closes.
Day-end administration requires recording all day’s transactions in a ledger containing values like cash flow and profit/loss figures. You can check all of our public trades here for an example.
You must keep a record of your trades, as this helps you not “overtrade” and give back all of your profits. If you notice a negative pattern in your trading performance, that’s a signal to back off for a few days. We’ve all been there, as day trading can be emotionally taxing.
Sometimes, the only real way to recognize it is to see a long string of losses, all carefully listed in a spreadsheet. The time between recording the trade and taking the next one can be just the time you need to cool off and collect yourself for the next position.
If you notice a long string of wins, it may be time to evaluate market direction. Is the cryptocurrency market in a general trend? Perhaps it’s time to consider a different trading strategy, one that may even save you time and losses.
In a strong trend, day trading may not be the best option! Consider other options, like swing trading or investing some of your day trading profits into longer-term positions.
Day Trading Cryptocurrency Strategies
There are tons of different strategies you can employ when day trading cryptocurrencies. There are a few strategies that many new traders gravitate to due to their long history of usefulness, established online trading communities, and breadth of online information available largely for free. One of the best for crypto day trading is scalping.
Though there are tons of different strategies to employ, the most popular is what’s known as “scalping.”
Scalping involves taking advantage of small price movements in cryptocurrencies by buying and selling quickly and often.
The quickest way to start day trading crypto using this strategy would be to create an account at one of many top cryptocurrency exchanges like Binance or FTX. These exchanges will allow you access to all kinds of cryptocurrencies that can offer opportunities for quick gains!
Scalpers don’t carry positions overnight because they often focus on lower time frames where the market direction and structure can shift rapidly within minutes.
Another reason is that scalpers often use higher leverage, meaning they take on more risk by borrowing crypto to trade. While that is highly risky, it can make the small percentage moves scalpers rely on much more rewarding.
This strategy thrives in volatility, meaning there is no better place than in the most liquid cryptocurrencies, such as Bitcoin ($BTC) and Ethereum ($ETH).
Know the crypto trading psychology
No one can predict what will happen next with cryptocurrencies! Day traders must remain rational and grounded when it comes to making trades. The market is volatile enough without adding emotions into the mix.
Day traders should never invest what they cannot afford to lose. Day trading with riskier assets such as Bitcoin might provide higher rewards than traditional stocks, but with that comes a greater deal of liability.
Using proper risk management, such as using stop losses and being very careful with leverage, are the bare minimums for improving your trading psychology. If you do that and stick to your strategy for the long haul, you will progressively improve and avoid crypto day trading taking over your life.
The main takeaway we want people who are considering day trading cryptocurrency or those already day trading crypto is this: it’s best to start small and see how well things go before committing more money or your time.
Reducing Risk in Day Trading Cryptocurrencies
Believe it or not, there is a way to keep day trading cryptocurrency largely risk-free. Though day traders have many strategies at their disposal, the most important thing is to keep your funds safe and minimize loss by using stop losses. That means setting the price at which you’ll know it’s time to sell.
In addition, make sure that your funds are in a secure wallet (the method by which users store their cryptocurrencies), and keep them on an exchange only as long as you need to day trade.
We call exchange wallets “hot wallets” because they’re more subject to problems you cannot control, and importantly, any funds you hold on an exchange are not entirely under your control.
They can be confiscated, stolen, lost, or locked. That’s where the common mantra “not your keys, not your coins” comes from, and it’s why we highly suggest exploring some of the best cryptocurrency wallets to keep your investments safe.
You’ll also want to avoid low-volatility and “meme” cryptos like Dogecoin ($DOGE). These can easily trap a trader in a losing position for which it is very difficult to climb out.
Be wary of what YouTube and Twitter influencers tell you, always do independent research, and in general, stick to trading cryptos with a good team and project behind them and plenty of daily trading volume.
Always ask yourself, “is there any good reason for this crypto to exist or be at higher prices a month from now? What about a year?”
While you may be day trading, these are important questions you must ask no matter what you trade. There’s no need to get into something risky because there’s plenty of opportunities out there!
Choosing the Right Cryptocurrency Exchange
Choose a cryptocurrency exchange with several different cryptocurrencies or altcoins (anything other than Bitcoin). You’ll need to do some research on which exchanges offer the most variety and trading volume, as there are currently almost 400 to choose from). However, many traders gravitate toward FTX, Coinbase Pro, Binance (or BinanceUS), Bitfinex, or Kraken.
There are also the DEXs, as mentioned before (e.g., Uniswap and Sushiswap), but that’s a whole other level. For now, stick with the centralized exchanges to get your feet wet.
The next thing is picking your day trade period, or “time frame.” There are two main strategies: one hour and four hours (sometimes higher if you have just started).
It all depends on how much time you want to spend day trading crypto! It may make sense for beginners to start by choosing longer periods like a daily time frame to get used to everything before moving into shorter ones like four hours.
A note on lower time frames: Even professional day traders often avoid and advise against going any lower than a one-hour time frame. The reason being that when you expand a chart layout like that, you’re introducing a lot of “noise.”
What may look like a juicy trade setup on a lower time frame may be the edge of a cliff from a higher time frame. Not to mention, lower time frames tend to come with more volatility, at least from your perspective.
It can be easier to get addicted or obsessed with trading once you begin dabbling in anything lower than a 15-minute time frame. While you may find hints of market momentum down there, it’s the equivalent of not seeing the forest for the trees when looking for the bigger picture.
This article offers a brief overview of how day traders make money in the crypto markets and then goes over some key tips on what new crypto day traders need to know about making money with these types of trades.
Are you ready to start day trading cryptocurrencies? Don’t go it alone! Join our active and profitable crypto trading community, where you can learn from the best and follow crypto signals with a high hit rate.
Cryptocurrency trading doesn’t have to be difficult, and you can get started with AlphaTradeZone today.