The community is in unanimous agreement that blockchain and cryptocurrency, as underexploited subsectors, are maturing. They are no longer in their infancy. The reason? Well, there are several indicators that support this overview.

The first is the recent influx of big money institutions, and the second is that regulators are getting the hang of blockchain and its derived applications, including cryptocurrencies and dApps. They are no longer uptight, and as policy makers formulate supportive laws, their liquidity depth increases as infrastructure is built and fortified.

Introduction to Cryptocurrency Day Trading

Nonetheless, cryptocurrencies, like other tradable assets, are subject to supply and demand dynamics. By extension, that means there are some market participants who are not interested in the underlying technology but are just in the game to make money.

Each applying a different strategy, traders are vital for the back-and-forth transfer of cryptocurrencies. They represent interest, from which sentiment can be drawn, ultimately affecting liquidity in one big circle.

Trading styles vary, but one main misconception is day trading. It’s pictured as an avenue for quick riches – a misconception, and a hard one to crack at that. Here, we break down what day trading is all about, weeding out the lies and myths surrounding this trading style.

What is Day Trading?

To understand cryptocurrency day trading, you must view this style from the trader’s perspective. A basic requirement for day traders is to “understand themselves” and let their emotions “flow” with their chosen trading strategy.

By scalping the market and holding a position for no more than a day, day traders are masters of picking out high-value intraday trading opportunities and profiting from market inefficiencies.

Their overarching objective is to make a profit by buying low and selling high or selling high and buying low. They do this by skillfully identifying high-probability opportunities where the odds of booking profits are high. The traded asset can be anything: an index, a digital asset, or a fund. It doesn’t matter. If there is active money open to retail traders, then a day-trading strategy can be put to good use.

Here is an example where a day trader, using Bollinger Bands, buys a BTC position and exits after three hours, as signaled by the indicator.

Using Bollinger Bands in Day Trading

Day traders can hold their positions for a few seconds to several hours, depending on the prevailing volatility. Even so, most cryptocurrency day traders gravitate to Bitcoin (BTC), Ethereum (ETH), and other highly liquid digital assets.

Understandably, day trading is attractive to many traders because:

  • There are no dull moments, and especially with the volatility of the market, where abrupt 30% swings are prevalent, there will always be interesting discussions around market events. The rush, fear, and joy of timely nicking the market and riding the trend to the moon or getting rekted is part of the experience.
  • You can transport your stock market, index, or Forex trading experience over to cryptocurrency and start trading right away. Within the crypto space, there are over 2,000 different currencies to choose from, meaning a trader has no shortage of choices.
  • Trading is continuous. There is price action every day of the calendar year with no breaks.
  • Trading liquid cryptocurrencies attracts low fees.

But that’s not to say day traders are overwhelmingly successful. Yes, while a few deserve all the bragging rights, statistics show that up to 95% of beginner traders lose money. Like every life skill, trading is an art that requires patience.

The disadvantages of day trading are as follows:

  • To stay ahead, scalpers, who are day traders who open more than one position at a time, need to make informed, split-second decisions whenever a high-probability trade presents itself. You can’t be a day trader if you are reluctant to quickly analyze the charts and are not willing to commit.
  • It’s nerve-racking if you are not emotionally prepared. That is why day trading is not suitable for everyone. Dedication and patience are the basis of this style.
  • Day trading can be boring and emotionally draining. Imagine sitting in front of a computer the whole day and – worse – holding on to a losing trade.
  • Statistics are against day traders. Several research findings indicate that day traders lose money. This trading style is unforgiving for those who are not ready to develop a plan and stick with it.
  • Fees and commissions can stack up quickly. In the US and other jurisdictions where cryptocurrency capital gains are subject to annual tax filing, you will need to consult a tax expert before immersing yourself. That’s another expense.
  • There are capital impediments. Capital requirements vary across exchanges, and in certain areas, willing traders from certain jurisdictions cannot access the exchange at all.

Therefore, if you have thought about day trading and want to proceed, then it would be best to first understand the concepts we discuss here.

Remember, experience cannot be bought, and every mistake should be a learning experience. In general, these day-trading rules will help hone your skills:

  • Learn to control your desire to overtrade
  • Stick to your trading plan
  • Always trade with the prevailing market trend, not against it
  • Learn from profits and, more importantly, losses
  • Catalogue and keep track of your profits and losses
  • Be objective as you can. Avoid being emotional.

This section will discuss different safe trading strategies that a trader can use, as well as capital, hardware and software requirements, the best day-trading platforms, and profit expectations. It will also touch on hurdles traders face and how, on your path to becoming a successful day trader, you ought to handle them.

Select a Digital Trading Platform

We could jump right in, but before that, it is important that you understand that the exchange you choose for your day trading is crucial. Cryptocurrency, as mentioned earlier, is evolving but remains largely unregulated. However, with the right tools and support, it can be smooth sailing. Xena Exchange is an option a trader should consider. Envisioned and created by experienced traders from JP Morgan, it is built for traders. Their pairs are liquid, their operations transparent, and their fees low. Furthermore, it is compliant with the regulations, implementing KYC/AML rules.

Kirill Khodakov, Head of Support at Xena Exchange, said:

“We sought a robust solution that could help us strengthen our legal framework and keep the demanding regulators satisfied, processing an immense number of applications, with the access to manage them when needed, while keeping clients engaged with identity-verification algorithms on the other side.”

Depending on your needs, your exchange of choice might need to be regulated more, such as if it supports fiat deposits and withdrawals. Other than that, ensure you check the following points:

  • Speed of execution: the faster, the better. Speed translates to first order matching and filling. The slower, the more slips – and that will cost you.
  • Associated trading fees: active day traders are after small but consistent profits. Higher fees, assuming you are on a winning streak, will eat into your profits.
  • Customer care support and maintenance frequency: support should be reachable at all times. Although maintenance may be frequent and scheduled, it ought not to be inconveniently frequent, or worse, unannounced.
  • Leverage and margin: check the maximum leverage allowed and the margin requirement. Most exchanges support these features, and should you settle for one that does, the appropriate educational materials should also be available, as different exchanges have different conditions for leverage and contract trading.

After identifying potential cryptocurrency exchanges, it is a good practice to check their coin offerings. Almost all support Bitcoin (BTC) as their base currency, pairing it with ETH, fiat, and other liquid pairs or even the exchange’s native currency.

A rule of thumb, and this applies when you are very specific about what you want to trade, is to make sure your exchange lists your preferred coin and pairs and that the coin on the exchange is liquid enough that it has the trust of the community.

Afterward, register and deposit your funds. You can link your bank account and buy your preferred coin if you don’t hold any of it, or you can directly deposit funds to your spot or margin account if you hold coins elsewhere, such as in a wallet or on another exchange.

Developing a Day-Trading Strategy

To start trading cryptocurrency, research and develop a safe day-trading strategy, be strict and regimented, and adhere to your money and risk-management plan.

As a day trader, learn this before jumping in:

Learn how to accept losses

Whether you’re speculating or basing your trading on technical analysis, making losses is part of the game. Every trader in the world has made a loss. Those who claim otherwise are undoubtedly lying. It’s inevitable, regardless of how perfectly a trader plans the trade.

Therefore, to be a masterful day trader, keeping your emotions in check and taking losses gracefully is all part of the tempering process. Don’t chase losses.

If you do chase losses and take even bigger risks, you could end up compounding your losses and wrecking your account. Be strict in your trading discipline, cut and absorb losses, and search for other opportunities.

Practice, Practice, Practice

Before depositing funds, perfect your skills by trading on a demo account using fake money.

When you’re ready, deposit funds. However, start with small amounts you can afford to lose. Don’t take out loans. Also, know that software and other products that promise quick riches have a low shell life in trading. Not only do they fail, but at times, they also require modifications that suit your trading pair. If you have zero experience in coding, you may end up just abandoning the product.

That’s why, regardless of what’s being marketed, the art and the skill of trading will inadvertently take time. Invest in yourself from the very start.

Create a risk-management plan

In a risk-management plan, it’s all about targets and placing stop losses. Depending on what you are day trading, the maximum risk of any trade should not be more than 5 percent.

Based on this, targets should be 3X that amount. That means for a 5 percent risk, the maximum reward is 15 percent. Make use of stop losses, and place limit orders, trailing stop orders, or even attempt zero loss orders to protect yourself against market swings. These special orders act as safety nets in case your calls are wrong.

Always know that there is an alternative

Unless you have deployed a trading bot, day trading requires you to sit in front of a computer for long hours. If you have the time, then why not? However, those who are restricted and have a day job must consider using other strategies.

Long-term traders can place a position and hold it for weeks or months before exiting with profits or losses. Holding is less stressful, and the good news is that these traders can use the same orders accessible to day traders.

Getting Started with Cryptocurrency Day Trading

Armed with this knowledge, if you’re certain that day trading is for you, this is how you should get started:

Build a Trading Strategy

You have practiced on a trading simulator, are confident, and have deposited funds to your home exchange. You are online, excited to get going, but you should slow down for a moment. There is research that ought to be done when picking a strategy. Before you develop a safe trading strategy, setting ground rules should supersede everything else. Also, getting access to the exchange’s data feed is essential. With data, you can confidently place positions at the appropriate time. Xena Exchange’s Xena Pro is feature-rich with different functionalities suitable for all types of traders.

Develop a Risk-Management Plan

Since cryptocurrencies are volatile, the hard and fast rule is to decide on the maximum risks and targets. As mentioned above, the maximum risk should be anywhere between 1 and 5 percent, with a 1:3 risk-reward ratio. In the long term, it is better to make small but consistent rewards than place a single highly rewarding but risky bet. Discipline is key in such a scenario and will show when the rubber meets the road when taking profits. Profits will be hit by fees, and if you are in the US, taxation must also be factored in.

Deploy Trading Bots or Use Technical Analysis

Traders can either decide to deploy cryptocurrency trading robots or use technical analysis. There is a word of caution, though: Cryptocurrency trading robots, which are designed to analyze incoming market data feeds and place positions, are only as good as the programming behind them. There are some exchanges that allow launching, but it’s important to understand the strategy deployed by the bot’s creators. If the trading bot can be modified to suit the trader’s needs, that’s even better. All the same, bots are not perfect, no matter how they are advertised. Also, don’t be tempted to “run and forget.” If you decide to automate, ensure that you maintain close supervision.

Consider the following when selecting a cryptocurrency trading bot:

  • The trading bot should be as trusted and impervious as possible. Read the bot’s online reviews before installing it. You don’t want to use a free trading bot that tracks your keystrokes and transmits the data back to a hacker who then empties your account.
  • Not everyone is a programming guru, and if you fall into this category, it makes sense to use a trading bot that is easy to install, run, and modify.
  • Vendors should clearly explain the trading strategy employed by the trading bot, and that strategy should align with your initial trading plan.
  • A good and back-tested strategy that has been proven to be profitable means the recovery period is also lower, assuming the trading bot is premium.
  • Reliability and transparency also come into play when using trading bots. As a rule of thumb, use a trading bot from a trusted company with verified experience. There could also be emerging companies that offer profitable trading bots, but should you settle on them, it’s important to vet them accordingly. Look for recent positive reviews where customers speak highly of their expertise and service.

These are the top 5 trusted Bitcoin day-trading bots widely used in Bitcoin day trading:

  • GunBot is a desktop-based bot that can be used on different exchanges, including Binance, Bitfinex, and Trading View. A lifetime license is available for 0.1 BTC. There are 32 different trading strategies available and 120 different settings that allow users to create a unique trading robot.
  • 3commas is cloud-based and subscription-based. Basic accounts support manual trading only, while premium accounts, at $24 per month, offer four pre-programmed trading strategies.
  • LiveTrader is both desktop- and cloud-based with tiered subscription plans starting at $15 per month.
  • Cryptohopper is cloud-based and costs $19 per month. It also supports external signals and can be launched on different exchanges, including Bitfinex, Binance, Poloniex, and Bittrex.
  • Cryptotrader is cloud-based and costs 0.0043 BTC per month. It can be deployed on different exchanges, including KuCoin and Coinbase Pro.

On the other hand, technical analysis requires a day trader to manually read and analyze candlestick arrangements of historical price action. Put simply, traders use past price data to make future predictions. If perfected, this technique can identify high-probability, low-risk trading opportunities from which a trader can profit.

In general, when building a cryptocurrency trading strategy, aim to:

  • Diversify your trades by combining different cryptocurrencies in your portfolio. This way, the risk associated with one coin will be reduced or eliminated by the potential of the other.
  • Minimize costs. This is pretty straightforward: The lower the commissions and trading fees, the higher the profits. Transparency comes into play here: You don’t want to get involved in an exchange where fees are charged opaquely.
  • Time the market. Liquidity fluctuates. Trade when there are many participants. Trade during the NY and Asian sessions, as most traders are from the US, Japan, and South Korea.
  • Keep tabs on the latest trending news. Cryptocurrency trading is dynamic, and there are many factors that can trigger dumps or surges. More importantly, don’t find yourself on the wrong side of the equation when day trading. Rewards are small, and one big loss can be devastating.
  • Choose a time frame and back-test your strategy. A few platforms offer a desktop terminal where you can launch trading bots or even back-test your strategy. Xena Pro is one such product designed for traders by traders.

Decide on the market to day trade

Each market has its own nuances. Cryptocurrency spot trading, for example, has no leverage and is basic.

On the other hand, contract trading introduces leverage and other technicalities. The more leverage, the higher the rewards – and risks. You need to learn about settlement, liquidation requirements, and much more. That’s why, before settling on any market, whether spot, leverage, perpetuals, or options, understanding the specific details of each is necessary.

In day trading, positions are usually closed within a day or maximum two days. Day traders should avoid at all costs trading assets that demand constant research to identify a trading opportunity.

Bitcoin or Ethereum Day Trading

If you are just starting out, day trade Bitcoin (BTC), Ethereum (ETH), or any of the top 10 largest coins/tokens by market capitalization. These are digital assets offered by most exchanges to retail and institutional traders. Bitcoin and Ethereum are also well-developed and are the two most liquid cryptocurrencies, with low associated fees. Furthermore, these two are base currencies on most cryptocurrency exchanges and can be paired against fiat, other cryptos, or Tether (USDT).

In Summary

Trading is hard work and requires an emotional and financial investment. You have the freedom to settle for any trading platform depending on your requirements, but Xena Exchange is ahead of the curve simply because of their trading terminals.

There are various web terminals with attractive features, but Xena Pro, an advanced desktop terminal that supports trading bots, stands out. With it, you can launch cryptocurrency trading bots and stay adequately informed by the Xena Market Barometer, a complex analytical tool inspired by Bloomberg instruments and traditional market practices made up of nine different indicators that aggregate data from five exchanges: Huobi, Kraken, Coinbase, Bitstamp, and Bitfinex. Aside from that, day traders can take advantage of Xena Exchange’s proprietary indicators, low capital requirements, and, most importantly, transparent and fast platform with low trading fees.

If you plan to make day trading your primary source of income and are just starting out, then have a sufficient capital buffer while investing in yourself. It could take anywhere between six months to a year before you register consistent profits.

At the end of the day, it’s worth it. The bottom line is that trading, regardless of the style, is not a get-rich-quick scheme. It takes time, a year or longer, depending on your discipline. However, to fast-track your progress, make sure to settle on the right exchange. Also, don’t risk more than you are willing to lose, stick to a trading plan, learn from your mistakes, and have the guts to cut your losses.