Crypto markets are open 24/7 and are constantly moving, which contrasts with stocks, bonds, options and other investments that trade during weekdays and are closed in the early morning and late evening. With more time to trade and sometimes more volatility, crypto day trading provides a huge opportunity to profit. However, it’s important to understand the basics of day trading before you start.
What is Crypto Day Trading?
Day trading is the act of buying and selling different investments throughout the day to profit from daily price movements.
Crypto day trading is buying and selling cryptocurrencies and other crypto-related products on a short-term basis. Since crypto markets never close, the term day trading is more loosely defined. However, trades held for less than 24 hours are considered to be day trades.
Additionally, crypto day trading is not limited to just cryptocurrencies. Investors can trade a variety of products, such as futures and other derivatives on cryptocurrencies. These products allow for more advanced trading strategies and can provide leverage.
How to Day Trade Cryptocurrency
- Practice: A variety of platforms, like eToro, allow for crypto paper trading in addition to real trading. Paper trading allows you to enter and exit trades without the pressure of using real money. It is essentially a market simulation, where you can test strategies and get acquainted with day trading.
- Find a strategy: Once you have some practice with how day trading works, you can come up with a strategy for how to trade.
- Open an account: Each platform has unique features. This article covers a few of the more prominent platforms to help you with this decision.
- Start trading: With some practice, a strategy and an account, you are ready to start day trading.
Top 5 Crypto Day Trading Strategies
You need a strategy before you start day trading to have an easier time looking for trading opportunities and defining risk limits.
1. Range Trading
Certain cryptocurrencies can tend to trade within a general price range. It is not guaranteed that the price will fall at the top of the range and appreciate at the bottom of the range because other factors like traders placing limit orders at the range bounds or the lack of a clear trend in the market can affect a range.
One way to potentially see ranges is by using the Relative Strength Index (RSI). This indicator tells if a cryptocurrency is overbought or oversold. While it is not correct all the time, it can provide some sense of market sentiment.
Cryptocurrencies can be extremely volatile, with prices moving multiple percentage points within minutes. This factor allows for lots of investment and trade opportunities. Scalpers may exit a trade seconds after entering, and many use automated bots to increase the frequency of their trading cycles. Typically, they try not to hold on to trades for long.
Scalpers do not look to make huge profits on each trade; instead, they focus on building up many small profits over time.
Arbitrage is the most difficult to find and act on, but it is the most consistently profitable trading strategy on this list. Arbitrage involves buying an asset in one market and selling it in another market at a higher price, or vice versa. Arbitrage is more likely to appear in crypto, as there is less regulation and it is globally available.
FTX founder and former CEO Sam Bankman-Fried made his initial fortune from buying Bitcoin in the U.S. and selling it abroad for a small gain.
However, with trading fees and the continued rise of interest in crypto, arbitrage is more difficult to find and act on.
4. Technical Indicators
Technical indicators use a variety of statistical measures to create metrics and indicators for financial instruments. While these tools are not always correct, they can give a lot more information than just the underlying price. Here are some of the top technical indicators:
- Bollinger Bands: Show plus and minus two standard deviations from the price; used to define a moving range of prices
- Moving average: Takes the average price over a certain period and can serve as support/resistance levels
- Moving average convergence divergence (MACD): Shows trends and the momentum behind those trends
- Stochastic oscillator: Measures the current price and relates it to past price movements and ranges and can help define trends
These indicators are usually not profitable on their own, but they can be with the correct combination of indicators, as well as proper discretion from the trader.
5. Volatility Trading
Crypto has 5X the volatility of traditional asset classes. The Chicago Mercantile Exchange (CME) offers options on Bitcoin futures, opening up a variety of volatility strategies for traders. Most volatility trades are delta-neutral, meaning that it is possible to make money if the underlying assets go up or down.
An example of a volatility trade is a long straddle. To initiate, you buy a call and a put option at the same time for the same strike price and expiration date. The Bitcoin straddle is profitable when Bitcoin falls or rises away from the strike price by more than your premium. To exit the trade, you sell the call and the put at the same time.
How to Choose Cryptocurrencies for Day Trading
The cryptocurrency that you choose for day trading can have a huge impact on your potential earnings. When picking a specific currency, there are a few important metrics to look at.
Volume is a factor to consider. The amount of dollars traded every day can tell you how liquid a token is. If a token has high volume, it should be relatively easy to get in and out of trades for a good price.
Another factor is volatility. Some tokens can be much more volatile than others. So, it is important to consider the strategy that you are using. If you are looking at scalping or volatility trading, more volatile stocks could be a good option. However, other strategies may not perform well in volatile markets.
There are other factors, such as past performance, token community and access to derivatives that are also important to consider.
Online Cryptocurrency Trading Platforms
Now that you have an idea of what day trading is and some potential strategies, the next step is to find a place to trade.
Benzinga’s Choice: Coinbase
- securely through Coinbase's websiteBest For:Coinbase Learn
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
Coinbase is the most popular cryptocurrency broker in the U.S., with over 100 million users, 3,400 employees and $114 billion in safeguarded assets. Coinbase enjoys a renowned reputation for its security measures and regulatory compliance. Its platform allows trading of more than 250 different cryptocurrencies via solid trading tools while ensuring safety standards are exceeded.
- Lots of rewards available
- 250+ cryptocurrency offerings
- Large user base
- Has been hacked in the past
Best for Mobile Users: Plus500
Plus500 is a European crypto broker that offers contracts for difference (CFDs). These derivative products allow traders to take directional views on assets, usually with leverage. There are no commissions on Plus500, and the platform only profits from the spreads that you pay. If you're looking for a powerful mobile app, an unlimited demo account and the potential to diversify your portfolio massively, Plus500 could be a great option.
- No commissions
- Advanced trading products
- Powerful mobile app
- Not suitable for beginners
- Not available in the U.S.
Pros and Cons of Crypto Day Trading
Let’s take a look at some of the pros and cons of crypto day trading.
What Are the Benefits of Crypto Day Trading?
The main potential benefit of crypto day trading is that it can be lucrative. For some, trading is a full-time job, allowing them flexible hours and a luxurious lifestyle. Other benefits include interesting and fast-paced trades, the ability to work for yourself and minimal stress outside of trading hours.
What Are the Drawbacks of Crypto Day Trading?
While day trading is profitable for some, most fail and end up losing money. The biggest drawback of day trading is that you could lose your initial money. Other disadvantages include high stress with open trades, time commitment to improve, fees and taxes that can add up and high capital requirements to get started.
Tips for A Successful Crypto Day Trading
While there is no recipe for success when it comes to day trading, there are some tips that can improve your profits.
- Learn how to read charts: Reading charts is essentially for understanding where the market has been, where it is and where it could go in the future. With an understanding of charts, you can better execute your strategies.
- Trade with a proven trading strategy or a combination of strategies: A great way to learn about strategies is to backtest them and see how they have performed in the past. This process can allow you to have more confidence in your trading strategies.
- Have a solid trading system: Once you have a strategy that you like, you can begin to buy and sell in line with the overall trading plan that has been proven to work. A system can also limit the interference of human emotion in the trading process.
Trading Crypto: High Risk and (Potentially) High Rewards
Crypto day trading is an emotional test — one you can win with practice. Its volatility can lead to immense gains if you are on the right side of a trade, but it can also result in big losses. Additionally, the human emotional and psychological aspects of trading can result in losing trades. Set clear rules for entry and exit, allowing for the human element to be mitigated.
Frequently Asked Questions
Is day trading crypto profitable?
For most, day trading is not profitable. However, some traders make successful careers out of day trading crypto.
Can you legally day trade crypto?
Yes, you can legally trade crypto in most countries.
How to make $100 a day trading cryptocurrency?
To make $100 a day trading crypto, assuming you can make 0.5% a day, you will need to have a starting balance of $20,000.
Is it better to day trade stocks or crypto?
It depends on your trading strategies. For example, volatility strategies may work better on crypto, as it can be more volatile.
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About Caden Pok
Caden has been involved with cryptocurrency for several years. He began trading and investing in crypto in 2018. Now, we mines multiple coins and holds positions in Cardano and Ethereum. He is very experienced with DeFi technology.