Day trading refers to the practice of buying and selling assets within a single day window, usually to take advantage of short-term price swings and market opportunities.
While there are many different types of traders, day traders form a sizable yet special breed of investors who derive profits from perpetually buying and selling within a daily window.
Successful day traders must be able to spot potential opportunities, manage risk, capitalize on volatility, and be able to generate sustainable profits while accepting any losses incurred along the way.
Due to the levels of knowledge, time, dedication, and even temperament that day traders must possess, not all people succeed as day traders. In fact, some estimates claim that only a small fraction of day traders are successful, and even less when benchmarked against the performance of the overall market.
In this blog post, we'll share the basics of day trading Bitcoin and other cryptocurrencies.
A quick intro to day trading cryptocurrency
Day trading means buying and selling assets within a one-day window, usually to take advantage of short-term volatility, or price swings, in order to score sustainable profits while protecting trading capital from suffering undue losses.
Day trading dates back to the 1870s, but the practice took off with the rise of internet-enabled online trading in the 1990s. Before the tech boom, day trading was largely confined to big financial institutions that had the means to engage in this type of trading.
While day trading traditionally referred to buying and selling stocks, bonds and other securities and commodities, it now encompasses trading in Bitcoin and other cryptocurrencies.
How do day traders make money?
Day traders usually derive profits from buying assets, like Bitcoin, at a low price and selling it within a single or multiple trading sessions at a higher price. Unlike HODLers, day traders do not typically rely on holding onto assets for a long duration of time to increase profitability.
While advanced traders have the best odds of making a living as a day trader, they must first amass a sufficient amount of trading capital, have a great tolerance for risk, and even greater patience to improve their chances at success. Furthermore, anyone looking to start day trading needs to lay out a solid strategy for a career in day trading. If prospective day traders aren’t willing to prepare themselves for full-time day trading and to stick to a strategic plan, they could find themselves jeopardizing every asset in their portfolio.
Common day trading strategies
Strategies for day trading cryptocurrencies typically falls into three buckets:
- Scalping: Scalping focuses on finding profit opportunities when assets endure small fluctuations in price. To do so, crypto day traders must move quickly to buy and sell assets, as windows of opportunity are never open long
- Range trading: With this strategy, a day trader picks a price range derived from techniques like charting and technical analysis, and buys and sells only within that price range.
- High-frequency trading: High-frequency trading relies on sophisticated algorithms to rapidly execute numerous trades throughout the day.
Getting started with day trading cryptocurrency
Aside from researching day trading and cryptocurrency, here are some tips for getting started with crypto day trading:
- Choose your crypto exchange or platform. Various exchanges let you buy and sell Bitcoin and other cryptocurrencies. When selecting an exchange, look at factors such as fees, coin availability and minimum trade amounts. Binance.US offers user-friendly features for day traders, from deep liquidity and low slippage on more than 95+ cryptocurrencies at the time of writing, to some of the lowest trading fees available in the U.S. (in some cases, up to 10X lower than competitors!)
- Develop a strategy. Once you’ve picked your crypto exchanges, settle on a day trading strategy. The No. 1 component of your strategy could be to limit a single trade to no more than 1% of the money you’ve earmarked. Also, you should set stop-loss limits that let you exit a position at a certain price in order to minimize your losses.
- Conduct technical analysis. When you perform technical analysis, you study past price patterns and trends for the cryptocurrencies you’re trading. This analysis can help you adeptly identify trading opportunities on an ongoing, daily basis.
- Keep taxes in mind. Every crypto trade that brings a profit is subject to taxes. Therefore, it’s critical to take your tax burden into consideration so that your tax bill doesn’t wipe out your profits. It’s smart to consult a tax professional before you dive into crypto day trading.
Other things to consider before day trading cryptocurrency
Is day trading Bitcoin profitable?
Day trading Bitcoin and other cryptocurrencies can be profitable. However, you’ll turn a profit only if you follow a carefully thought-out trading strategy. Only you can assess whether you should take up day trading, though it helps to treat it as a serious venture, rather than a hobby.
Which cryptocurrency is good for day trading?
There’s no one-size-fits-all answer to which cryptocurrency is ideal for day trading. Your decision about which cryptocurrency to buy and sell as a day trader depends on factors like how much money you have to buy and how much tolerance you have for risk.
How much money do you need to day trade crypto?
You don’t need a specific amount of money to day trade crypto. However, some day traders swear by never risking more than 1 percent of their “bankroll” on a single trade. So, if you’ve bankrolled $5,000 to buy cryptocurrency, you’d never allocate more than $50 on a single trade. Various crypto exchanges do require minimum trade amounts, though.
If you’re a U.S. day trader in the stock market with a margin account, due to FINRA rules, your trading account must contain at least $25,000 if you make four or more day trades within five business days, among other stipulations.
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