Cryptocurrency Day Trading Strategies

3 Strategies For Day Trading Cryptos

Last Updated July 23rd 2021
22 Min Read

Day trading cryptocurrencies is not for the faint-hearted. At the best of times, cryptocurrencies are volatile and unpredictable. Becoming a crypto day trader takes quick-minded trading skills and the mental discipline to resist trading cryptos impulsively.

Is day trading crypto worth it?

It depends on your expectations. The risk concerns of trading cryptocurrencies are genuine. But the potential to make money from day trading cryptocurrencies is vast.

The truth is that crypto markets are speculative.

Cryptos are sensitive to news and media announcements. Warren Buffet makes it no secret that he despises cryptocurrencies. Many people note his observations as a respected investor and formulate opinions of trading cryptos with no basis in truth or facts.

Buffet regularly disparages cryptocurrencies as fake currencies that will never replace centralised currencies.

Who knows why Buffet has such a biased view of cryptocurrencies. The emerging technology behind cryptocurrencies is incredible.

We'll not comment on Buffet's bias!

Nope, we changed our mind.

Let's look at why cryptos are here to stay.

  • Facebook is launching Libra cryptocurrency and open-source blockchain, partnered with Visa, Mastercard, Spotify, Uber, Lyft, and eBay
  • New Zealand has issued legislation allowing companies to pay employees with cryptocurrencies
  • Bill Clinton said recently, "The permutations and possibilities [of blockchain] are staggeringly great."
  • IBM has partnered with Stellar Lumens (XLM) for cross-border payment solutions.
  • JP Morgan and Morgan Stanley bought Bitcoin ETNs. They followed by launching a JPM coin!
  • Coinbase, the largest crypto exchange, is valued at $8 billion
  • Amazon Web Services has partnered with QTUM.
  • Yale's endowment has invested $400 million in crypto-asset funds.
  • Richard Branson believes Bitcoin will launch an economic revolution

We could go on.

There is a massive list of notable public crypto investors with the foresight and innovation to perceive a future for investing or trading cryptocurrencies.

Yes, we think Warren Buffet is wrong.

Elon Musk recently tweeted an announcement to withdraw Bitcoin payments for Tesla vehicles. His objection is the energy-intensive proof of work (PoW) protocols for mining Bitcoin. Indeed, mining Bitcoin is not environmentally friendly, and, in time, it must surely change.

Elon Musk is not a Bitcoin hater. Indeed, he holds $29 million of Bitcoin, and he has expressed interest in other cryptocurrencies.

But his tweet wiped 10% off the price of Bitcoin overnight.

When day trading cryptos, you have no control over unexpected crypto news. It's a risk that never goes away. But, it's not all doom and gloom. The objective with day trading cryptos is to find a strategy or two that minimises risk and maximises profit.

In this article, we will explore the potential for day trading cryptocurrencies. We'll look at the best cryptos for day trading in 2021 and talk about three of our favourite strategies for day trading cryptos.


How To Pick Crypto For Day Trading

Where do you start? How do you know what cryptos to day trade?

The first thing to note is that if you have no experience of trading, cryptos will eat you up and spit you out. Trading any financial instrument is challenging, but trading cryptocurrencies requires higher levels of understanding of trading.

Most traders end up failing. Generally, there's a 95% failure rate for traders. It takes time and mental prowess for trading before you can move with the markets, knowing when to get in and when to get the heck out.

Cryptos are still relatively new compared to the Forex market or the stock market. Consequently, price movements are significantly bigger than you'd experience in other financial markets.

As a crypto day trader, what this means for you is:

  1. Risk management must be a priority
  2. Holding crypto trades overnight or longer is not ideal
  3. You must trade with the prevailing market sentiment
  4. You must be flexible and able to react quickly to shifting market conditions

You could say these four things are prevalent for all financial markets, and you'd be right. But with crypto trading, everything is amplified.

It's like comparing driving a 1.6L Ford Escort hatchback with driving a top-of-the-range 6.3L V12 engine Ferrari, and you've only just passed your driving test.

Good luck.

We're not trying to rain on your parade. Having realistic expectations for day trading cryptos can help improve your trading performance. When you understand what you are up against, you can prepare.

As a day trader, you want to capitalise on market volatility in a short period, hours rather than days or weeks.

OK, you've got the point, so how do you pick cryptos for trading?

The First Steps To Day Trading Cryptos

Before thinking about what coins to trade, there are a few pre-trading checks that might help you with day trading cryptocurrencies

  1. What's your motive – what do you hope to gain from trading cryptos, apart from the obvious? Are you clear that day trading is your preferred strategy, or would scalping cryptos be better for you?
    Much like the centralised currencies of the Forex market, the big boys influence the cryptocurrency market.  They are eager to take your money, trusting in your inexperience. Imagine if Elon Musk suddenly dumped his $29 million of Bitcoin in the market. The price would go nuts, and the trades of thousands of crypto traders would nosedive into a loss.
    Know you're game and stick to it.
  2. Always use a stop loss and set targets for profit – don't be greedy. With cryptos, it's better to take small regular profits instead of wanting the big market moves. Know where to get in and where to get out. Understandably, the positioning of stop losses can be tricky. But, if you can't stick to a 1% risk on your account, it's probably not worth taking the trade.
    Whatever you do, never take a crypto trade without a stop loss.
  1. Be aware of FOMO – the fear of missing out is a killer with cryptos. So often, you'll look back at the charts and see you missed a whacking great opportunity. But there are 5,000 listed cryptocurrencies, so there are always opportunities.
    When you see a big movement in the market, avoid jumping in. Give the market time to settle. FOMO will empty your trading account.
    Practice watching and waiting and not getting upset if you feel you missed out.
  1. Risk Management – it's tempting to want the massive profits from trading cryptocurrencies. But chasing the big wins rarely works out in the long run, primarily because they come at a cost.
    You don't have to trade Bitcoin to make profits from day trading cryptocurrencies. You can go further down the crypto list for cryptocurrencies that aren't as volatile. You may have to wait longer for profit, but you can decrease your risk with a tighter stop loss.
  1. Don't buy just because the price is low – some altcoins are ridiculously low-priced, but that doesn't mean they are a good buy. It's better to pick cryptos with a high market cap because the higher it is, the cryptocurrency has more trading volume and liquidity.
    As an example. Binance coin (BNB), listed #4 has a market cap of $48,616,248,263, and Stella (XLM), listed #21 has a market cap of $6,015,716,274. That's one heck of a difference.
    You can check listed cryptocurrencies at CoinmarketCap
  1. Bitcoin creates volatile market conditions - The prices of the majority of altcoins react to the Bitcoin price.
    The price of some altcoins drops as Bitcoin price rises. And, surprisingly, Bitcoin can be reactive to whatever is happening with fiat currencies.
    So when Bitcoin is particularly volatile, it might be best to avoid trading other cryptocurrencies. Bitcoin does eventually settle down, and you can recommence buying and selling cryptocurrencies.
    Many novice crypto traders have little idea how the cryptocurrency market works, and their trades are random and speculative. Understand this one basic fact, and you will avoid day trading cryptos during high-risk periods.
  1. Don't put all your eggs in one basket - Trading and investing are unpredictable. There are no guarantees for a positive return. With crypto day trading, you could be looking at a $500 gain in one minute and a $500 loss the next minute.
    It's tempting when you think you have found a great setup for a crypto trade, but don't throw the bank at any one trade.
    In 2017, Bitcoin made a lot of millionaires and billionaires when the price touched $20k.
    Between 2017 and 2018, Bitcoin made a lot of people much worse off. The uneducated public threw their money at Bitcoin because rumours flew around that Bitcoin was heading for $100,000.
    If you are going to day trade cryptos, diversify your range of cryptos. But, always remember to keep one eye on Bitcoin because, as mentioned earlier, the volatility of Bitcoin affects all other cryptos.
    The fact is that the price of all cryptocurrencies are measured against the value of the dollar, and that's something often forgotten by crypto day traders

Read Also: What Are The Best Cryptocurrencies To Trade

Risk To Reward Ratios (RTR) For Trading Cryptos

Where most traders go wrong is they have a poor RTR.

They trade with a bigger stop loss than their profit target or trade with a 1 to 1 RTR. The first scenario is guaranteed to blow your account. The second scenario is also likely to wave bye-bye to your account or, at best, end up at breakeven.

When selecting crypto to day trade, aim for a minimum of 2 to 1 RTR. Ideally, a 3 to 1 or 4 to 1 is preferable.

As crypto is so volatile, these RTRs are easily achievable.  With a 4 to 1 RTR, you can lose four trades in a row and still be at breakeven. But, for instance, if you won two 4 to 1 trades and lost two trades, you'd be six trades ahead and with a nice profit.

It's common sense, but sadly, most crypto traders don't wait for the 4 to 1 trades to appear. Instead, they get caught up in the moment and jump into the market impulsively. Overtrading is a genuine issue for many cryptocurrency day traders. But armed with the information in this article, you now understand how to reap the benefits from day trading cryptos.

Good risk management and risk to reward ratios are powerful when you have effective crypto trading strategies. In the next section, we detail three of our favourite crypto trading strategies.

Three Strategies For Day Trading Cryptos

It's essential to have a few backtested strategies for day trading cryptos.

There are multiple strategies for day trading cryptos. We think the best strategies are the easiest to implement and those that work with specific market conditions. That way, it's easy to spot a signal, make a few checks and execute your trade.

The crypto day trading strategies below work independently or combined for further confirmation before taking a trade.

Practice with all three crypto day trading strategies and see which one suits you best.

1. Moving Averages Strategy For Day Trading Cryptos

Many crypto day traders underestimate moving averages strategies. There are two types of moving averages:

  1. Simple moving average (SMA)
  2. Exponential moving average (EMA)

Moving averages are a measure of the number of closed candles. So an SMA of 9 is a measure of the last nine candles. For day trading cryptos, working with higher timeframes, you use higher numbers.

Moving averages are lagging indicators, which means they follow the price, tracking direction. For this reason, traders often think they aren't helpful for day trading cryptos.

However, with a bit of ingenuity, moving averages can be part of an uncomplicated, workable strategy for day trading cryptocurrencies.

btc/usd chart

The above image is BTC/USD using the 50 EMA and the 200 EMA.

The red line is the 200 EMA, and the blue line is the 50 EMA which are the most accurate for the higher timeframes. The concept of the moving average strategy is simple. When one line crosses over the other, you trade in the direction of the cross.

On the chart above, BTC/USD is stuck in a range at the top. Then the price drops through, causing the 50 EMA and the 200 EMA to cross. As momentum builds, the gap in-between the two lines gets wider.

There are a few rules to apply for the moving average strategy

  1. Use an EMA rather than an SMA
  2. Wait for the candle to close after the cross before taking a trade
  3. Have a clear target or exit the trade when it stalls (the range at the bottom)
  4. Don't trade where the lines twist backwards and forwards (at the top of the chart)

Despite being a simple strategy, if you follow the rules and commit to taking the best setups, the moving average strategy can reap the rewards for day trading cryptos. For this strategy, it is better to work with the 4-hour or daily chart.

2. Breakout Strategy Day Trading Cryptos

Breakout strategies are not always popular with day traders because they think that most breakouts are false moves in the market.

But, with a few rules, breakout trading can capture substantial market moves.

eth/usd chart

The above image is the 4-hour chart for ETH/USD

At the top of the chart, in the box, is a two-week range. But then the price reaches for the top of the range and fails. The last red candle in the box indicates significant rejection. Then the price drops out of the box. Now is not the time to take a trade and is where most traders go wrong.

There's a mini range under the box. But, following a retest of the bottom of the box, the price rapidly drops. The significant rejection is a signal to get ready to enter the market. When the next candle closes under the red line, take the trade.

In this situation, the price of ETH/USD dropped from $3004 to $1859 in one day.

The main criteria for the breakout strategy for day trading cryptos are:

  1. Be patient, even if it means waiting a few days. Don't be tempted to enter the market at the first breakout
  2. Wait for the retest. 95% of the time, the price will retest.
    95% of traders fail because they cannot wait. They enter the trade too soon and get spiked out. A spike out with cryptocurrencies is enough to make your eyes water with how quickly your money disappears,
  3. Always wait for the candle to close before taking a trade
  4. Trade on the higher timeframes, ideally the 4-hour or daily charts.
  5. You could also add the 50 EMA and 200 EMA and wait for a crossover. Merging two strategies can add confirmation to your trade.

Breakout trading works best when a cryptocurrency has traded in a range. When the price consolidates, it indicates indecision in the market. At some point, one of two things will happen:

  1. The price will break out above
  2. The price will break out below

It's that simple. Wait for the retest and take your profits.

3. Ichimoku Cloud Trading Strategy For Cryptos

The Ichimoku cloud indicator has several components, comprised of four lines, which are moving averages:

  • Senkou Span A - 1st leading line
  • Senkou Span B - 2nd leading line
  • Chikou Span - Lagging line
  • Kijun Sen - Standard line

If you add Ichimoku cloud to a chart, it looks like this:

Ichimoku Cloud chart

You'll probably agree that the Ichimoku Cloud looks as clear as mud. It's messy and clutters up your charts. The theory is that you buy when the price is above the cloud and sell when the price is below the cloud. But, in its entirety, Ichimoku Cloud isn't reliable.

However, if you break the components down with only one remaining, you're left with a base indicator that proves reliable on the daily chart.

 Kijun Sen chart

The above image is the daily chart for ETH/USD with only Kijun Sen remaining. Though it is a standard line, the price respects the indicator. On the way up, the price bounces off Kijun Sen, apart from the gigantic price spike. But, after the huge drop, the price returns above the Kijun Sen line.

When the candle closes below the Kijun Sen, there's a good chance it will follow through.

Currently, the price has stayed above the line, sitting on top of it for three days. As a strategy, you wait to see if the price breaks upwards or drops below the Kijun Sen. If a candle closes underneath it, you could look to sell ETH/USD.

It's not a cast-iron guarantee, and it's best on the higher timeframes, But if you add Kijun Sen to your charts and backtest the strategy, it seems to win out more than not.

Check Out: Top Tools for Crypto Trading

Recap Of Day Trading Cryptos

Day trading cryptos is not easy. Most traders rush into the market too soon and get wiped out by the sweeping market moves. To say cryptos are volatile is an understatement. You have to prepare for potential shifts in the market.

Essentially, if you plan to day trade cryptos, your risk management plan must be a priority. Setting a stop loss for crypto trades can be challenging. On the one hand, you don't want to risk more than 1% of your account, so the stop loss must reflect that. But, on the other hand, look at any crypto chart and spot the long price spikes that have stabbed up or down a few hundred pips before bouncing back to the previous price.

How do you set a stop loss for cryptos?

Firstly, accept that crypto market spikes happen, and you cannot predict when they might occur. Look for crypto trades where it's possible to set a stop loss for no more than 1% of your account.

Check what is happening with Bitcoin. If it is highly volatile, wait a while for the price of Bitcoin to settle down. As mentioned earlier, Bitcoin affects the price action of many other cryptos.

Follow the recommended steps for day trading crypto:

  1. What's your motive for trading cryptos
  2. Always use a stop loss and set targets for profit  for cryptos
  3. Be aware of FOMO when trading cryptos
  4. Risk Management for cryptos
  5. Don't buy cryptos just because the price is low
  6. Bitcoin creates volatile market conditions, which affects other cryptos
  7. Don't put all your eggs in one basket when day trading cryptos

Choose a day trading strategy for market conditions. We highlighted a moving average strategy, a breakout strategy and an Ichimoku cloud trading strategy. You can use these strategies as stand-alone or combine all three to secure confirmation of a trade.

For instance, you catch a breakout trade when the price of the crypto jumps out of consolidation. You wait for the retest and, at the same time, add the 50 EMA and the 200 EMA and Kijun San.

If all three indicators line up, you have a high probability of a profitable trade.

There are no guarantees for a successful trade. But that's the nature of trading. All you can ever do is line everything up for success. Once you have placed your trade, you lose control of the outcome. Set your stop loss and take profit and take the dog for a walk.

Subject to market spikes or random price changes, a high probability trade with a good risk to reward ratio (RTR) can produce great results.

Be patient and disciplined. If you aren't sure of a trade, leave it and look for another.

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.

Trading or investing in cryptocurrencies may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.

eToro – The Best Platform to Trade Cryptocurrencies

eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.

Virtual currencies are highly volatile. Your capital is at risk.

Read Also:

The Psychology of Trading Cryptocurrencies

How Much Money do I Need to Trade Cryptocurrencies

Technical Analysis - Cryptocurrency Trading

Blueprint for Trading Crypto with $1000 (or less)


What Timeframe is Best for Crypto Trading?

As you are day trading cryptocurrencies, you will likely work with the 1-hour or 4-hour chart. Both of these timeframes give a clear picture of the dominant trend. For further trend confirmation, you can check the daily timeframe. Before entering a trade, always wait for the close of the candle. A lot can happen in the last few moments of candle formation.

Can you trade crypto daily?

Unlike other financial instruments, you can trade cryptocurrencies 24/7 with many online exchanges

How do you trade crypto effectively?

Before trading cryptos, gain trading experience with another financial instrument such as Forex. Develop trading skills so you can analyse trading charts and understand price action.

Find cryptos with good liquidity and volume but avoid trading cryptos with exceptionally high volatility. Be patient and only trade the best setups. Check the volatility of Bitcoin and trade cryptos when Bitcoin is not in a tailspin.

Is day trading crypto worth it?

If you develop consistent skills for day trading cryptos, the rewards are exceptional. But it is high risk. The wins can be significant, but so can the losses. If you have low-risk tolerance, trading cryptos is probably not worth it.

Can I make $100 a day trading cryptocurrency?

A $100 a day from trading cryptocurrency is achievable, but there are many factors to consider. Firstly, you cannot make $100 a day if your trading capital is a few hundred dollars. Trading is difficult with any financial instrument, but trading cryptos will test your skills and mental fortitude.

Focus on becoming a better trader and take small trades to build your confidence in day trading cryptos.

What is the Best Crypto to Trade?

With over 5,000 listed cryptocurrencies, how do you know which crypto to trade?

There isn't one crypto that is better to trade than another. To find the best crypto for day trading, look for tokens with a good market cap, liquidity and volume. Trade cryptos with some volatility, but avoid trading cryptos where the volatility is so high that reading the charts is challenging.

Read More: What Are The Best Cryptocurrencies To Trade In 2021?

What is the best day trading platform for cryptocurrencies?

There are many online platforms offering cryptocurrency trading. Ideally, choose an established platform with good customer feedback.

Below are three recommended trading platforms that offer cryptocurrency trading.

  1. eToro -  an established social trading platform with low fees and over 120 cryptocurrencies to day trade cryptos
  2. Coinbase – the largest established crypto exchange
  3. Kraken – an estalished crypto exchange
Top Brokers in
    All Regulated Brokers
    67% of retail clients lose money when trading CFDs with this provider.