Cryptocurrency Day Trading Strategy

Last Updated July 28th 2021
13 Min Read

Cryptocurrency trading is growing exponentially. With so much crypto information available, you can quickly find out the best cryptos to trade.

Traders search for the best crypto trading strategies hoping to make $100 a day trading crypto. But is day trading crypto worth it? After all, we hear the stories of all the crypto traders losing money.

Cryptocurrencies are highly volatile with good trading volume, so they are suitable for short-term trading.

There are over 10,000 listed cryptocurrencies, but not all are suitable for day trading. The top twenty listed cryptos offer the best opportunities for day trading cryptos.

Is crypto trading profitable, or is trading crypto a scam?

Not all countries support cryptocurrencies, and, indeed, some countries have banned cryptocurrencies. In January 2021, the UK issued a regulation that traders cannot trade cryptocurrencies via CFDs, a highly leveraged product.

As a crypto day trader, you speculate on crypto price, and you do not own it. If you decide to buy crypto for investing, you purchase and hold it by storing the crypto in a secure wallet rather than a trading platform. Some crypto exchanges offer facilities to interchange cryptos between trading and storing your digital coins.

In this guide, you will find out the best strategy for day trading cryptocurrencies, which will give you a head start in profiting as a crypto day trader. You will discover the best cryptocurrencies to trade and learn a systematic approach to trading cryptocurrencies.

If you want to Day trade crypto quickly and easily, check out eToro!

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Contents

How to Start Day Trading Cryptos

You're ready to start day trading cryptos, but where do you begin?

1. Choose a broker 

Many platforms offer crypto trading, but not all brokers are ideal for trading cryptocurrencies. Find a broker licenced with the governing financial body of your country. For instance, in the United Kingdom, the governing body is the Financial Code of Conduct (FCA). If you are in America, a UK licence doesn't cover you if something goes wrong.

2. Check customer feedback

Most brokers have a Trust Pilot account where you can read customer reviews. Check the negative reviews carefully because often mistakes are from user errors rather than a problem caused by the crypto exchange.

3. Check security

You deposit your money with the broker, so it's essential to know they have a high level of security for the website

4. Check fees

All brokers have different fees and commission rates. It may not matter when you are day trading a small crypto account. But, if you become a successful crypto trader, the fees can quickly accumulate when you are trading sizeable lots. What are the exchange and trade fees?

5. Deposit and withdrawal facilities

How easy is it to get your money in and out of the broker? What is the expected withdrawal time? What fees does the crypto broker charge for withdrawals? Some exchanges don't accept credit cards, and you may pay fees for bank withdrawals

6. What trading platform does the crypto broker provide

Most brokers offer MT4 (MetaTrader 4) or MT5 (MetaTrader 5) software for trading, but some have proprietary trading platforms.

Once you have decided which broker to use for day trading crypto, the next stage is to either download the demo account trading software for practice or deposit funds with your new broker.

When you deposit your money with the broker, select the denomination currency for depositing and trading cryptos. The broker will offer leverage for your account. If so, it is best to opt-in for the lowest leverage levels.

Leverage can be dangerous for new crypto traders because it allows you to trade with money belonging to the broker. So if your leverage is 30:1, you can trade $30 for every $1. If you have $1000 in your account, the broker makes $30,000 available. If that doesn't terrify you, it should. It may seem attractive to trade with the broker's money, but it can all go horribly wrong, especially with high-risk crypto trading.

Once you have completed the above steps, you are ready to start trading cryptocurrencies. But which crypto is best for day trading?

Read Also: How Much Money Do I Need to Trade Cryptocurrencies?

trade crypto

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Which Cryptocurrency Is Best For Day Trading?

There is such a variety of crypto day trading strategies, but which crypto strategy is the best? How do you know a crypto day trading strategy will work with high volatility cryptos? How do you choose the best crypto to day trade?

Cryptos have specific price action. For instance, for most of 2021, cryptos have been flying. Bitcoin hit $64k, Cardano was $2.47 at the high and Dogecoin rose to $0.64.

Trading opportunities during that bull run were aplenty. But, after the majority of cryptos dropped by 50%, trading opportunities are harder to find. Primarily, the price of cryptos are moving sideways, and you cannot day trade a ranging market unless the range is significant.

So choosing the right time to day trade cryptos is essential. If the market is static, leave day trading cryptos well alone.

Currently, the top 10 cryptocurrencies are as follows

  1. Bitcoin (BTC)
  2. Ethereum (ETH)
  3. Tether (USDT)
  4. Binance coin (BNB)
  5. Cardano (ADA)
  6. USD Coin (USDC)
  7. XRP (XRP)
  8. Dogecoin (DOGE)
  9. Polkadot (DOT)
  10. Binance (BUSD)

The above cryptos have reached the list position by market cap.

Daily, check which cryptos have the most volume and liquidity and trade that crypto for the day. The cryptocurrency day traders favourite cryptos to trade are below.

  1. Ethereum
  2. Tether
  3. Binance Coin
  4. Cardano
  5. Dogecoin

Currently, the prices of the 5 cryptos for day trading are static.

To make profits from day trading cryptos, you need price fluctuations. Over the last few weeks, prices have barely moved. ETH moved $200 from the previous low, but lower-priced coins moved a cent or two. That's not a suitable trading environment for day trading cryptocurrencies.

Check Out: Top Tools for Crypto Trading

The Best Strategy For Day Trading Cryptocurrencies

The crypto strategy we are going to use today is the money flow index with a confirmation moving average crossover.

It's never a good idea to rely on one indicator, especially in a fast-moving market like cryptos. So adding a confirmation indicator can mean the difference between winning or losing your crypto trade.

The below image is the 4-hour chart for ADA/USD

ADA/USD 4-hour chart

Underneath the chart is the Money Flow Index. The settings are standard as below.

  • Length – 14
  • Style – overbought – 80
  • Style - oversold – 20

The chart above shows the 50 EMA (blue line) and the 200 EMA (red line). EMA is an exponential moving average that is more dynamic than SMAs (simple moving average).

The money flow indicator is unreliable when used as a typical oscillator indicator.

The MFI consensus is when the price goes above 80, the market is overbought and should reverse. If the price reaches the 20 levels, the price is oversold and should flip upwards.

But look at the MFI and the chart. There are so many false signals where you would have lost the trade.

The moving average crossover is a confirmation strategy. On the higher timeframes, when the 50 EMA crosses the 200 EMA, the price is reversing. The price gains momentum after the two lines split, offering further opportunities for trading cryptos.

On the chart where you see the blue vertical line, the EMAs have crossed over, and the MFI indicator is above 80. Hundreds of thousands of traders across the world see the price over 80 and start selling. But you don't because you have the EMAs saying, hey, look, the price is still going up. Well, indicators can't talk, but let's give them a personality if they make you money.

Look at the chart beyond the vertical line. The MFI is moving down, but the price on the chart is rising. If you used the MFI alone, it would be a waste of time. Your trades would lose more times than not.

You may see another opportunity for a crypto trade higher up the chart. But beware. The EMAs are now wide apart, so the risks are higher. And, true to form, the price of ADA stalls ahead of that point.

The best time to take the trade is at a precision point:

  1. The MFI is over 80
  2. The EMAs have crossed for the first time and widening

The money flow index with a crossover moving average strategy is simple. You may have to be patient to wait for the crossover for confirmation, but it is worth waiting.

Don't Miss: Technical Analysis - Cryptocurrency Trading

Support And Resistance For Cryptos

An understanding of support and resistance is helpful for trading cryptocurrencies.

Below is the BTC/USD daily chart

BTC/USD dailly chart

The zone around $30k has been tested as support (and resistance) five times since January 2021.

On #2, the BTC price broke through $30k and retested the zone. Up above (marked resistance), you can anticipate that when Bitcoin once again reaches the price zone of  $64k, the price will react.

Notice how the price bounces off the support zone. Since May 2021, the price has attempted to get below $30k and failed. BTC/USD gained between $5,000 to $10,000 before returning to support again.

Never trade into resistance or support because of the uncertainty of whether the price rejects or pushes through.

To draw resistance or support lines, look left on the daily chart and identify the multiple areas where the price reacts.

trade crypto

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Recap Of Crypto Day Trading Strategy

Day trading cryptocurrencies is not for the faint-hearted.

Unless you have significant experience day trading other financial instruments, you face a steep learning curve. If you are a complete beginner, it's advisable to practice trading cryptos with a demo account until you can safely enter the crypto market with a stop loss and take profit.

To get started day trading cryptocurrencies:

  1. Choose a broker
  2. Check customer feedback.
  3. Check security
  4. Check fees
  5. Deposit and withdrawal facilities
  6. What trading platform does the crypto broker provide? 

A good strategy for day trading cryptocurrencies helps to minimise your losses and maximise your profits. The money flow index is a technical indicator called an oscillator. Used on its own, it is unreliable. But, your chances of success increase when you combine the MFI with the 50 EMA and 200 EMA crossover.

When choosing what cryptocurrency to trade, focus on the top ten or twenty listed cryptocurrencies.

Trade cryptos with high liquidity and volume. High volume means there is money in the market because people are trading specific crypto.

 The most popular cryptos for day trading are:

  1. Ethereum
  2. Tether
  3. Binance Coin
  4. Cardano
  5. Dogecoin

Be patient, watch the crypto market and wait for the best entry possible. Refrain from taking multiple trades because most of the cryptos move in the same direction. So if you lose one trade, you may lose all the open trades.

Never risk more than 1% of your trading capital, and avoid using leverage if possible.

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 financial instruments such as cryptos may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Trading Education.

eToro – The Best Platform To Day Trade Cryptocurrencies

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

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Read More:

Can Cryptocurrency Trading Make You Rich?

The Top 7 Crypto Trading Tools You Should Use

Cryptocurrency Trading For Beginners: The Ultimate Guide

What Are The Best Cryptocurrencies To Trade

FAQs

Do you need $25k to day trade crypto?

Unlike the stock market, you do not need $25k capital to trade crypto as a day trader. Cryptos are decentralised currencies (DeFi), so not (yet) subject to the same rules as trading other financial instruments.

Is crypto day trading profitable?

Day trading cryptos can be lucrative, but there's a steep learning curve. If you have traded other financial instruments such as Forex, you have a head start. Cryptos are unpredictable, but they still follow recognisable price patterns on the charts.

With practice and skill, you can become a profitable crypto day trader.

Is day trading cryptocurrency legal?

Day trading is legal in most countries but not all. For instance, Turkey's central bank banned Bitcoin and other cryptocurrencies earlier this year. Check that your government approves crypto trading.

Can I make $100 a day trading crypto?

Although trading cryptos is a high risk, it's still advisable to risk no more than 1% of your trading account on one trade. To generate $100 a day, you need $10,000 capital available or $5,000 if you trade on 2:1 leverage.

Is day trading crypto worth it?

Everyone has different goals and dreams for day trading cryptos, so it depends on how you measure the worth of day trading cryptos. If you are diligent, committed and determined, you could, one day, make a good income from day trading cryptos.

Day trading cryptos is challenging, and not all traders will succeed.

The fallout rate is high because novice crypto traders trade impulsively with too much risk or allow their emotions to influence trading decisions. If you check out the crypto strategy above, you will understand how much patience you need to wait for the exact moment to enter the market, confident that you have picked a high probability crypto trade.