Pros and Cons of Day Trading Crypto

Pros and Cons of Day Trading Crypto

Day trading has become one of the most popular trading methods in the world of cryptocurrencies and conventional markets like stocks. And the cryptocurrency market attracts investors’ attention because it provides one of the most rewarding conditions for trading. With their high volatility and constant accessibility, digital assets have historically offered day traders several ways to make quick profits. However, it could quickly become a risky trading journey.

In this article, we will take a closer look at what day trading crypto is, how it works, and what pros and cons it has. Furthermore, we will share some tips on how to get started with day trading crypto and become successful while trading it.

What Is Day Trading Crypto And How Does It Work?

The main idea of day trading crypto is to speculate on the price of a particular asset before execution, and the main objective is to make as much profit from the movement as possible. Additionally, opening and closing all trades on the same day is the core of the day trading principle. That said, cryptocurrency day traders mostly do not leave their positions open during the night or when they are not behind the terminal. The whole point is to be present and to watch the trade open and close.

You might wonder if buying and selling cryptocurrencies on the same day qualifies as day trading based on the definition. Theoretically, it does, but it is more complex than that. Day trading means having the ability to consistently make money off of short-term price movements, which is a difficult task for many, especially for novices. According to statistics, at least 70% of day traders quit within two years and lose most of their capital for various reasons.

Crypto day traders generally use leverage and other strategies to increase their prospects of making money. Leverage is employed to open positions using borrowed money or hedge funds.

Remember that the day trading strategy is very hard since traders must remain extra cautious when positions are open. This is particularly the case since day trading cryptocurrencies is much more volatile than fiat currencies or stocks. Consequently, for this reason, you should always put aside some time exclusively for day trading, even though stop orders and losses can effectively automate the whole process.

How Does The Process Of Day Trading Crypto Look Like?

A day trader needs to be fully aware of the crypto assets he is dealing with and the market’s peculiarities. A day trader’s objective is typically to purchase cryptocurrencies whose value is expected to rise or fall over the coming hours. After that, you should start “short” or “long” positions on cryptos whose prices are anticipated to move on either side. 

Most importantly, cryptocurrency day traders are not primarily concerned with the profit of each trade. They are instead concerned with the overall profitability of the trades.

The latest news is also essential to most day traders’ techniques. However, the majority of traders use technical indicators. These procedures entail chart monitoring to make judgments based on specific indications that enable traders to see historical movements from multiple angles.

When it comes to day trading crypto, every trader that wants to try this method should be aware of the following:

A) Know The Essentials of Crypto Platforms

Charts are crucial for day traders since they give them access to price action, forecasting indicators, and timeframes to conduct proper market analysis. Different tactics use price movements to predict specific actions based on their distinctive patterns. In addition to the chart analysis, many other components are crucial for day trading crypto, without which it would be challenging and lead to losses.

B) Leverage

All methods of margin trading involve leveraging, which is buying or selling cryptocurrencies and other assets using borrowed money. For newcomers, the idea of leverage can sometimes be confusing, yet it is crucial to comprehend the concept and use it only with proper planning.

Indeed, leveraging can bring nice gains, but it also can lead to massive losses, so traders need to be careful with margin trading.

Now that you know what day crypto trading is about, let’s take a closer look at the pros and cons of this trading strategy.

The Pros Of Day Trading Crypto 

A) Trading is available day & night

There are many rules and regulations that apply to day trading in fiat currency or other assets. The most important of these is the restriction to trade on weekdays and non-business hours. But, since cryptocurrency markets are open 24/7, traders can profit from current market conditions or opportunities at any moment, every day of the year.

B) Exceptional volatility

The tremendous volatility of cryptocurrencies is well-known to every market participant. Coins like Bitcoin and other crypto assets can surge several percent at any moment. It means that day traders have numerous chances to make money. Cryptocurrency day trading does, of course, include some risk due to the market’s unpredictability. However, cryptos provide potential gains that can be difficult to find in other markets, like Forex or stocks. For a trader to be successful, risk management must be implemented correctly, and a decent strategy must be undertaken.

C) It is still a young market

The barriers to entry to the cryptocurrency market are lower than for Forex or commodities. There is an increasing number of novices since it is relatively simple to get started. Due to this, it is a little simpler than in conventional financial markets to outperform the competitors. Traders that are disciplined and eager to learn might get an advantage immediately.

D) Reduced limitations and regulations

The regulation of cryptocurrencies is less strict than that of traditional financial markets. This gives day traders more flexibility to conduct their transactions profitably since their account size is not restricted. That said, compared to other asset classes, cryptocurrencies have lower entry obstacles, making crypto engagement even more attractive.

Now, let’s take a look at the other side of the coin. Below are the most significant dangers associated with day trading cryptocurrencies.

The Cons Of Day Trading Crypto

A) High volatility

One of the largest benefits of day trading in cryptocurrencies also carries one of the main dangers. Day traders have access to amazing possibilities in highly volatile markets that are unique from other markets. Sadly, this turbulence could work against unprepared traders.

Dramatic fluctuations in price action can occur in the cryptocurrency markets at any time. These occurrences can take place rapidly and cause sharp price swings. It frequently happens that particular coins lose more than 10% of their value. When traders have their positions opened with leverage, they are exposed to even more significant risks of immediate loss of their funds.

B) Vulnerability to cyber threats

Security breaches and cryptocurrency hacks are common in the current cryptocurrency market. Even the best reputable exchanges are susceptible to these attacks, which can result in the illegal movement of millions of dollars off the markets. It’s doubtful that you will ever see your coins again in this scenario, since cryptocurrency is unregulated, and transactions are irreversible.

C) Illiquid exchanges

Certain positions are simple to enter but difficult to leave. Several exchanges and coins are exceptionally illiquid, meaning there aren’t enough buy orders to sustain selling your position at any time for a reasonable cost.

Being forced to hold your trade open longer than expected by being locked in an illiquid position may lead you to miss out on an excellent opportunity to make some money. Eventually, such a trade could easily wipe out your whole trading balance. 

Now that you are familiar with the idea behind day trading crypto, it is time to find out how to be a part of it. 

How To Get Started With Day Trading Crypto

The first question many new traders may ask themselves is if they can trade cryptos even if they have no prior experience and want to earn some extra cashThey indeed can if they demonstrate a high level of seriousness and self-control and let emotions aside. 

Below are the main points on how to get started with day trading crypto.

A) Comprehend every aspect of the crypto industry

The cryptocurrency market’s ins and outs must be wholly understood by traders if they want to be successful. Purchasing some cryptocurrency first and then selling it, expecting an easy profit, may seem straightforward on paper, but cryptocurrency trading is anything but easy. Every experienced trader will tell you that it is difficult and dangerous, and successful crypto day trading demands in-depth expertise, dedication, and proven techniques. Besides that, trading psychology is another crucial aspect without which remaining on the crypto market will be simply impossible.

B) Choose a solid trading platform

The following step is to create an account with a trading exchange that suits your demands for day trading. Because the cryptocurrency markets are divided, and various international laws monitor trading activities, you must select a cryptocurrency trading platform supported in your jurisdiction. Prior to that, you must do proper research and consider several factors to make sure that you choose a smooth trading exchange, such as:

  • Experience and general reviews from other traders
  • Included commissions and extra fees
  • The reputation and level of exchanges security
  • Amount of accepted crypto assets

As you might already be aware, there are numerous cryptocurrencies available. As of August of 2022, more than 20 000 crypto assets are available to invest. However, choosing the most respected and widely recognized crypto assets is highly recommended because others, less known, could get highly volatile and cause significant losses.

C) Try a demo account and then deposit the initial capital

Trading cryptocurrency is not complicated and will not take long to accomplish all steps prior to actually executing a specific trade. However, before choosing which cryptocurrency to invest in, make sure you’ve done a ton of research. What is also essential and highly recommended is to try a demo account of the specific platform you have chosen. With a demo, you can see how it works and whether the design and UI fit you, together with other nuances. Once you’ve selected a reputable crypto exchange, it’s time to fund your adventure by making the first deposit. Theoretically, it might not cost you that much to invest because the majority of cryptocurrency exchanges have a minimum trade amount, say 100 USD. But remember, never put more than you can afford to lose. 

Now that you know the main steps to get started with crypto day trading, let’s take a look at some tips to follow if you want to be among successful crypto traders. 

Tips For Success When Day Trading Crypto

A) Managing the risk

Due to the extreme volatility of cryptocurrencies, day traders must practice proper risk management to secure their trading accounts. As already mentioned above, never spend more cash than you can afford to lose, and always try to stick to effective risk management.

B) Size of your position

Another important tip is position sizing. To put it simply, you shouldn’t put more than a small percentage of your account balance into a single transaction. The world’s best traders are focused on the process and don’t let feelings control them, despite the fact that the desire to spend more money is generally tempting.

It is recommended to never put more than 2-5% of your account into a single trade. This is a decent all-around rule to follow. Moreover, do not spend more than 5% of your total balance in a single session. Be ready for losses, but avoid the temptation to chase them because doing so could seriously harm your account.

C) Stop loss & Take profit

An execution order known as a stop loss (SL) terminates a trade if the price falls to a specific level when the trade is going against you. A different execution order called a “take profit” liquidates an investment when prices increase to a given level when a trade is moving in your favor. You can avoid suffering excessive losses on every trade by using these orders in a structured manner.

For instance, say you want to long Litecoin (LTC) at 150 USD, and you set a TP at 250 USD and SL at 100 USD. Following similar strategies would lead to only losing a small percentage of initial investment even if the market sways sharply against the trader.

D) Look for coins with high liquidity and proper volatility

There are numerous cryptocurrencies, and they all differ. Even though the majority of them are incredibly liquid, not all of them are that unstable. Trading minor cryptocurrencies can be profitable, but the risk is considerably higher. The coin must have liquidity if you are entering a day trade so that you may get out of the position. Remember that your account will suffer if you don’t exit when you should.

E) Set your SL below the day’s low

Last but not least, you might consider setting your SL below the day’s bottom. If the market declines further than this low, it may indicate a shift in price action. In that situation, it would be preferable to leave the trade and seek alternative trading opportunities. There are and will be many of them; therefore, never rush to catch a trade. Chasing a trade will end badly for you.

Bottom Line

Cryptocurrency day trading is definitely an attractive alternative revenue source. The tremendous volatility of cryptocurrencies can turn even a small starting capital into a large profit. But this volatility can also pose a risk that can lead to substantial losses.

Trading methods can be successful if traders use a systematic approach and set proper profit and stop loss levels. Traders can develop profitable market predictions with the correct strategy, commitment, and repetition. Thus, day trading can be a respectable and profitable occupation if it is accompanied by a solid risk management approach.


NO FINANCIAL ADVICE – The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. 

You should not make any decision, financial investment, trading or otherwise, based on any of the information presented in this article without undertaking independent due diligence and consultation with a professional broker or financial advisory.

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