Day trading attracts many traders from all over as this is an opportunity to earn more money in a relatively short period of time. Unlike long-term investing, day trading means placing orders every day and close positions within 24 hours.
Day trading may be compared to a full-time job. A trader places an order within a short period of time and closes them once his targets are reached. With the development of cryptocurrency trading, this style became even more popular due to the high volatility of digital assets.
Main features of day trading
When a trader wants to practice intraday trading, he or she needs to understand the main specifics of this trading style. They are the following:
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All positions should be opened and closed within one day. Most day traders prefer to hold their orders for a couple of hours. Once the signal comes, it works for a couple of hours before the momentum fades.
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High speed of decision making. Day traders have to think and act fast as they have not much time to place an order. If they have lost an opportunity to enter the market, they will have to wait until the next signal comes.
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Precise entry points. Day traders have to find the best entry points ever. This style of trading means that you don’t need to stay in the market all the time. The only thing you have to do is to find the best entry points, to place orders and to close positions once your signal is done.
Seven pieces of advice for cryptocurrency day trading
There are several secrets and strategies of intraday trading that may be useful for every investor. We are going to cover the most important ones.
Imbalance of supply and demand
Cryptocurrency day trading means that you need to find entry points within one day and profit from them. In order to find the best entry points, one has to look for the imbalance between bulls and bears as such situations may provoke huge price changes.
In case of the rise of demand, cryptocurrency runs higher and traders have an opportunity to buy. When supply exceeds demand, cryptos decline to offer opportunities for short sellers to get profit.
Price targets setting
For beginner crypto day traders, it is crucial to set price targets meaning you always need to know where you will jump off the market. By calculating your trading reward in advance you may set your risk level as well in order to follow risk/reward ratio, established in your trading strategy.
Let’s say you see that BTC/USD will run upwards from $6,500 for a couple of hours. Before you jump in the market, you need to find the closest resistance point on the hourly chart in order to calculate your trading potential. For example, the closest resistance on the hourly chart is at $6,350. This means that your target level will be there.
Risk/reward ratio 1:3
Cryptocurrency day trading is similar to traditional intraday speculations meaning you best money management strategy is when you risk less and can earn more. Several beginner traders do the same mistake when they put risk/reward ratio at 1:1.
This strategy is wrong as you don’t know the percentage of your winning and losing trades in advance. By increasing the reward component in your money and risk management strategy, you simply increase your chances to be above zero in long-term even if your strategy is not the best one.
Be patient
When you look streams from exchanges or some movies on trading, you may see that speculators are always on the run and they can do many things in just one second. However, the truth is out there as a trader has to be patient and wait for a good opportunity to come before taking any decision.
Cryptocurrency traders do not trade every minute of a day as it is impossible. To tell the truth, there are few trading opportunities within 24 hours as the price may make a couple of serious movements during the day. The rest of the day, trader will do other things related to his family, official job or even hobbies.
Don’t be afraid of trading
One of the most important thing cryptocurrency day trader needs is to fight his own fears and avoid situations when he or she is paralyzed by his own forecasting results. Crypto day trading requires speed from investors meaning you have to act in a fast manner once you have found a trading signal. If you wait too much or start thinking too much, you will simply lose the signal and will have to find another one, which may came the next day.
Do not overheat your funds
Cryptocurrency day trading is a good opportunity to earn more money. However, some traders forget about money management and place orders risking more than they can afford. This may lead to both high profits or huge losses.
Professional traders are not gamblers. They always think about how to protect their money before doing anything on the market. The first rule of a successful trader is not to earn, but to save his funds.
Avoid investing too much in a single trade
Intraday trading is full of opportunities. There are several crypto coins that may attract your attention. However, if you invest too much into one of them, you will lose the opportunity to trade the others. In addition, risking too much per one trade leads to bigger losses as we have already mentioned.
Those are the main advices and strategies for intraday trading. However, we would like you to pay attention to some other important things that every successful trader needs to follow.
Self-discipline
We have already mentioned self-discipline in our previous articles speaking about trading psychology and other important trading features. However, for intraday cryptocurrency traders, self-discipline is the key factor of success.
What does it mean to stay self-disciplined in intraday trading? First of all, to stick to your strategy in order to avoid overtrading and placing orders when there is no clear signal.
Why do so many traders lose their intraday cryptocurrency battle? The main reason here is that they simply break their own rules. In general, most of unsuccessful trades are results of lack of discipline.
Be ready to adapt to any situation
Short term intraday cryptocurrency trading requires adaptability from every trader and investor. There are no two trading days that are alike. This may pose big problems for those who just use their strategies according to their textbook “prescription”.
It is to mention that every strategy has its examples in the past, but when you deal with it in real-time, the result may be pretty different. Professional crypto traders always know where to use their trading strategies and where to avoid using one or another.
When there is a trend, it is better to apply trend following system while during the range fluctuations, traders need to implement special flat strategies.
Using this or that trading system does not mean that you will be in the market 24/7. Traders need to make a kind of premarket analysis meaning they have to understand whether the current conditions allow them to trade or it is better to do nothing “sitting on the hands”.
Be mentally tough
Day trading cryptocurrencies is not a simple task to do. You will have to face many issues including losses. Losing trades accompany every trader on his way to fortune. Moreover, trading cryptos every day, you will have losses almost on daily basis.
What is the main difference between successful and unsuccessful traders? It is not about winning all the trades or being unbeaten for long period of time. It is about taking more money in profit trades and losing less when the forecasts are wrong.
What does it mean for trader to be mentally tough? First of all, investor needs to squeeze every drop from a trend meaning to stay in market until the opposite signal comes. Many beginner traders attempt to close their positions once the price rises above their breakeven level. However, this approach is totally wrong as the most you take in one single trade, the better your results will be.
It may seem strange but traders are able to have stable profits even if they lose trades. Let’s say you have one loosing and one winning trade within one day. If you stick to 1:3 risk/reward ratio, you will end be earning as your losses will be less significant than profits.
Let’s suppose you have lost $100 in your first trade but won $300 in the second. You net profit will be $200 (without trading fees naturally as we do not treat them in this article).
When trading cryptos on daily basis you need to be prepared for losing streaks as well meaning there will be times when you will close several trades without profits. This is another serious test for your mental skills as well. Only those who have ability to resist to emotions are able to overcome all the issues.
Have your own opinion
Intraday cryptocurrency traders have to rely on themselves only as they have not enough time to consult experts opinion or look for some outer signals and trading alerts. When a trader is in the beginning of his career, he always need some help coming from books, articles, videos etc. However, once he is able to create his own strategy, he is to start working independently.
To tell the truth, a trader is a lone wolf who is searching for his prize alone without any help. Best crypto traders have their own market opinion and are able to forecast quotes without paying attention at what experts will say.
Independence from others’ view is important not only for the reason that you will have to take fast decisions. When you rely on some people who do forecasting, you almost avoid to use your own strategy. This may result in having serious issues once those who provided you with signals disappear.
You should be independent not only from the outer opinion or recommendations, but from the indicators and different trading techniques as well. What does it mean? Cryptocurrency day traders should never forget that the price is the key to any analysis.
Sometimes you can find those investors who rely on their indicators more than they rely on price. This way is wrong as only the price matters when you trade cryptos especially when you work with hourly charts.
Plan your next steps in advance
Intraday trader has to plan his steps in advance as he needs to take decisions in a very fast manner. Naturally, day trading is much harder than any other strategy as it requires more skills and full control over emotions.
Those who stick to the past, have fewer chances to win. Planning the next step in advance means you need to have a strategy that will allow you to find entry points when you finish your last trade.
KISS (Keep it stupid simple)
This is one the most popular rules among professional traders. Many beginners think that successful traders use some kind of Holy Grail strategies that are very difficult and are built on several trading tools. However, the truth is that the most profitable strategies are the simplest ones, especially for intraday crypto traders.
Successful traders use KISS method as they have lots of things to do while trading and they need to significantly simplify their systems in order to make decisions right in time and not several minutes after the signal comes.
Final words
Intraday cryptocurrency trading is not as easy as it may seem at first glance. Many beginner traders try it but they lose as they are not prepared for this rhythm of trading.
Alex Dovbnya
Valeria Blokhina
Dan Burgin
Vladislav Sopov