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Day Trading Cryptocurrency: The Complete Guide

Cryptocurrency markets have come into their own in the past year, growing into a viable option for investors seeking value and high return on investment. The industry as a whole is still going through some growing pains, but it appears that 2018 will be remembered as the year that cryptocurrencies went completely mainstream.

crypto day trading tips

The only downside for individual investors looking to earn a profit in the cryptocurrency market is that there’s still quite a bit of volatility involved. That’s understandable considering the relative newness of the market, but it should begin to smooth out over time. Right now though, many investors remain spooked by the big price swings that have been evident in the market.

There is one type of investor that is thriving through the uncertainty, though – the cryptocurrency day trader. Day trading cryptocurrency is a great way to turn market volatility to your advantage and make a profit. For new investors, we’ve prepared a guide that will tell you everything you need to know about day trading cryptocurrency, and how to tell if it’s right for you.

What is day trading cryptocurrency?

In a nutshell, day trading cryptocurrency refers to the practice of investing in a cryptocurrency with the goal of intraday selling based on small price fluctuations. Day traders may make dozens of trades per day (and many times more on occasion) in reaction to the real-time data they see regarding the prices of the coins they hold. The fact that the cryptocurrency market is still volatile can work in the day trader’s favour since their whole aim is to capitalize on price swings.

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Downsides of day trading cryptocurrency

It is possible to earn substantial profits through day trading cryptocurrency, but it is not without significant risk. Anyone who has looked at a recent price chart of the major cryptocurrencies over the last few months should be able to tell you that. Bitcoin alone has lost more than half of its value since January. In that kind of environment, it is very easy for an investor to lose money if they’re not careful. Day traders, though, can still turn a profit even during a market downturn.

Benefits of day trading cryptocurrency

As previously stated, a cryptocurrency day trader aims to profit on small price fluctuations that occur throughout each day. For example, even though the Bitcoin cryptocurrency has been trending downward this year, it still experiences small rebounds throughout each day. On the day of this writing, a day trader could have purchased Bitcoin in the morning for approximately $6,200 and sold it late in the day for over $6,700.That represents an 8% return on investment in a single day, which is a more than respectable profit.

The tools of the trade

day trading cryptocurrency

Day trading cryptocurrency requires a fair amount of time and dedication on the part of the investor. To do it successfully, a day trader also needs the right tools and apps to get the job done. The tax implications alone make careful accounting and trade management a must. Here is a list of some of the popular tools and apps that day traders use every day:

  • Coinigy – A multiplatform, multi-exchange trading system with secure access and 24/7 portfolio monitoring
  • Coin Stats – A portfolio tracing app with built-in currency price conversion
  • CoinTracking – A comprehensive accounting platform to track profit and loss and create tax reports across several jurisdictions
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There are far more cryptocurrency day trading tools than we could ever list here, and the list of best-in-class software is always evolving. Each trader will typically find the best combination of tools and apps to fit their trading patterns and needs over time.

Managing risk

One of the most important skills that a cryptocurrency day trader needs to succeed is the ability to manage risk. In a market with the potential for big gains, it’s easy to lose a fortune. To keep that from happening, cryptocurrency day traders must make use of a variety of strategies to stay out of the red. They most often decide on predetermined amounts of acceptable risk and use that information to set specific limit orders and stop orders to try and stay within the right price ranges. It’s the same kind of strategy that stock brokers use to guard against losses in traditional markets.

To keep risk management strategies effective, a cryptocurrency day trader must avoid making changes to their limit and stop orders based on emotional responses. That means resisting the urge to raise a limit order when prices spike, or lower a stop order when playing a hunch. Failure to do so is the most common reason that cryptocurrency day traders fail, often losing a great deal of money in the process.

The bottom line

Day trading cryptocurrency offers investors the opportunity to make profits that would otherwise be difficult to attain. It’s a great option for those that aren’t risk-averse, and are willing to commit to a strategy for the long term. For investors that are prone to rash decisions or panic selling, day trading cryptocurrency is a very bad idea. If you’re not sure which category you fit in to, try Bitcoin Flip to simulate some trades and see if you’ve got what it takes to succeed as a cryptocurrency day trader.

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