How to Day Trade Cryptocurrency

Last Updated July 23rd 2021
11 Min Read

Day Trading Tips for Crypto Traders

How to Day Trade Cryptocurrency: Intro

Want to know how to day trade cryptocurrency? Looking for day trading tips or day trading alternatives? Then keep on reading!

This article walks you through a step-by-step guide to getting started with day trading cryptocurrency.

The crypto industry is expanding at a rapid pace, attracting more and more traders from all over the globe. Interestingly enough, according to data, there are more than 52 million active crypto traders globally.

Day trading, in particular, is one of the most popular methods to trade cryptocurrency. Because day trading is a form of short-term trading, crypto day traders should be able to analyse the market fast and effectively and also to manage stress and intense emotions.

We at Trading Education are here to help you become a part of the crypto community and learn how to day trade cryptocurrency. Do not hesitate to sign up for one of our online courses to understand the world of crypto trading and develop an effective day trading strategy on your way to trading success.

What Is Cryptocurrency Day Trading?

Before we explain how to day trade cryptos, let’s dig into the nature of cryptocurrency day trading.

Cryptocurrency trading is a great tradingt option that can potentially become a highly profitable financial venture. As explained above, day trading involves the process of buying and selling cryptocurrency within a single trading day, with traders relying mainly on multiple small profits. Some traders may hold positions only for a few seconds!

The good news is that unlike stock trading, the crypto market is open 24/7 and comes with extreme trading flexibility. Traders can decide when and how to trade, either part- or full-time.

On top of that, there are more than 7,000 cryptocurrencies in existence, with BTC/USD, BTC/XLM, and BTC/GBP being some of the most traded pairs out there. So it’s up to you to decide what assets to trade!

Whether you decide to trade Bitcoin or Ethereum, we should note that cryptocurrencies, in general, are great day trading assets. Why? Simply because they are highly volatile and marked by extreme price fluctuations! This means that day traders who know how to trade cryptocurrency right might make a fortune over time.

At the same time, due to the volatile nature of the cryptocurrency world, crypto day trading can lead to huge losses if not done correctly. So, how can you day trade cryptocurrency and potentially make a profit?

How to Day Trade Cryptocurrency?

In order to learn how to day trade cryptocurrency successfully, one has to be familiar with all the pros and cons of cryptocurrency trading and the secrets of crypto trading psychology.

First of all, traders should develop realistic expectations about crypto day trading. Nobody wins 100% of the time. You can’t expect to become a millionaire or make a fortune with a single trade.

While many people believe in luck, trading is not gambling. So instead of betting on lucky cryptos, a day trader has to invest in proper education and self-discipline. We all want to drive expensive cars and travel the world, but cryptocurrency day trading is not a get-rich-quick scheme.

Actually, we should note that more than 80% of crypto day traders lose money and quit for the simple reason they’ve neglected the importance of crypto trading education.

One of the most important steps in your trading education journey is to learn how to manage your own risks. An effective risk management strategy is crucial to help you stay ahead of the game. It’s worth noting that experts advise risking only 1% of your account on a single trade. And let’s not forget one basic rule: never trade money you can’t afford to lose. How can you be a successful crypto day trader when you find it hard to make ends meet?

To learn how to day trade cryptocurrency, one should also understand the complexities of crypto trading psychology. Day trading is a dynamic and demanding venture - not a hobby - so without the right financial mindset, a trader may fall victim to their own intense emotions and stress. It’s common for inexperienced traders to get carried away and ignore the importance of stop-loss and stop-limit orders, which can lead to huge losses.

Do not forget that trading can be psychologically addictive and activate the rewards system in the brain. So do not let greed, overconfidence, and euphoria obsess your day trading plans. In fact, experienced traders claim that proper full-time trading is boring.

The Risks of Day Trading Cryptocurrency

As we can see, cryptocurrency day trading is not a walk in the park, so let’s look again at the risks of this dynamic financial endeavour.

Crypto trading is highly volatile and dependent on demand and supply, so be prepared to lose before you win. As stated above, there’s no such thing as 100% success in trading. 

And again, remember that more than 80% of beginner traders lose money and quit in their first year of day trading due to poor education and ineffective risk management. 

Some traders who want to learn who to day trade cryptocurrency may even fall victim to crypto scams and end in financial disaster. 

Another potential risk is related to online hacks. Due to the dynamic nature of day trading, many crypto day traders keep their money on an exchange, which can be risky. One of the most notorious attacks happened in 2010 when the Japanese exchange Mt. Gox lost more than 850,000 Bitcoin.

Those who manage to succeed, on the other hand, may be overwhelmed by intense emotions, high levels of stress, and even psychological addiction. As explained earlier, trading can activate our reward system and cause dependency, which can lead to financial, emotional, and social adverse effects.

How to Manage the Risks of Day Trading Cryptocurrency

Though cryptocurrency day trading can be risky, with an in-depth understanding of the market and self-discipline, one can manage the potential risks of day trading cryptocurrency and embrace losses.

One of the first steps is to create a positive financial mindset and accept failure. Mind you that many traders consider a trading success rate of 60% as a pure success. Don’t expect to win big all the time and become a crypto king overnight. 

As day trading can be placed somewhere between scalping and swing trading, day traders need to use appropriate tools, reliable crypto news sites, and effective exit orders to stay ahead of the crypto game.

More experienced traders may even start using crypto trading bots to facilitate their trading routines. Though trading bots have various cons, such software programmes do not their beauty sleep, so they can help you analyse pre-defined factors and complex metrics promptly. 

Do you think you can manage your own risks in crypto day trading? Great! Let’s continue then.

10 Steps to Day Trading Cryptocurrency

cryptocurrency day trading

Now when you are aware of the importance of trading education, risk management, and trading psychology, let’s put everything in perspective.

Here are 10 steps to show you how to day trade cryptocurrency.

1. Invest in Crypto Trading Education

Though this often sounds like a cliché, trading education is crucial. Without an in-depth crypto trading education, there’s no chance to understand how to day trade cryptocurrency.

The good news is that today, one can find an abundance of resources (some for free). From online courses to trading psychology books to coaching sessions, one can find great materials to learn the basics of crypto trading at their own pace.

Just make sure to search for reputable sources as some traders may spread false information for speculative purposes.

2. Learn about Bitcoin and Altcoins

Before you start day trading cryptocurrency, one should also have an in-depth understanding of Bitcoin and altcoins.

With over 7,000 coins out there, crypto traders should do their own research and clarify their financial goals. Consider trading volume, market cap, and sentiment when choosing a crypto. Though Bitcoin, Ethereum, Tether, and Ripple are among the safest coins to trade, there are some undervalued cryptos out there with a lot of potential.

That said, some new coins can be risky or even fraudulent. If you have an idealistic view of the crypto world, then it’s time to remind you of some of the biggest scams in crypto trading. OneCoin, the biggest cryptocurrency scam ever, led to 4 billion in losses around the world. 

3. Learn about Blockchain Technology

Another vital step to cryptocurrency day trading is to learn more about blockchain technology and its alternatives. Even though nobody expects you to understand the complexities of blockchain technology, you should be familiar with its effect on crypto trading and volatility.

Basically, blockchain technology is the foundation of cryptocurrency trading. As the name suggests, blockchain is a chain of blocks secured by cryptography. Blockchain-based technology is a big deal as it provides both security and transparency.

Because of its benefits, blockchain has numerous applications far beyond the financial sector. Take gaming, for example – one of the fastest-growing industries in the whole world! Blockchain technology can improve gaming aspects, such as digital ownership and user experience.

4. Practice Day Trading and Learn from Your Mistakes

Once you’ve acquired enough knowledge about cryptocurrency and blockchain, it’s time to start day trading cryptocurrency. If you need some more practice, though, consider a demo account. Though demo account may play a bad joke on traders - as they do not come with real risks and emotions - demo accounts offer wonderful opportunities for crypto day traders to test their skills.

As mentioned above, day trading requires a lot of skills and attention, so practice, practice, and practice. As trading guru Steve Clark said about trading, “Do more of what works, and less of what doesn’t.”

5. Find a Reputable Exchange

When you are finally ready to start day trading cryptocurrency, it’s time to choose a reputable broker that allows you to trade any cryptocurrency pair you are interested in.

Consider if your broker is safe and also if their platform offers reliable trading tools. With eToro, for example, you can buy and sell cryptos and trade CFDs of over 90 cryptocurrencies. It’s easy to start day trading today!

eToro – The Best crypto exchange and Trading Platform

etoro broker

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

6. Choose a Cryptocurrency Pair to Day Trade

Another step to learn how to day trade is to choose a crypto pair. Just like forex, in crypto trading we trade pairs; in other words, you trade one cryptocurrency against another.

Let’s say that after your morning coffee you buy one Ripple token worth 0.000017 Bitcoin. Hours later you sell it at 0.000020 Bitcoin. So you’ve made a profit of 0.000003 Bitcoin or $0.039. It’s not much, but if you make multiple trades like, this you can slowly increase your wealth.

Whether you choose to trade a crypto-fiat or a crypto-crypto pair, make sure you’ve done your research and understand the factors that affect the cryptocurrency of your choice. For instance, in times of uncertainty, many traders may turn to Tether - a stablecoin that is pegged to the US dollar.

7. Learn Advanced Trading Analysis

 In order to learn how to day trade and understand all the factors that influence cryptos and price fluctuations, one has to learn different types of analysis. Two of the main analysis methods that crypto traders use are fundamental and technical analysis.

Fundamental analysis is a complex method that involves the analysis of different markets, global events, interest rates, and many more. Technical analysis, on the other hand, deals with statistics, data, trends, and volumes – all factors moved by supply and demand principles. Here we should note that momentum analysis, which is defined as the ability of the crypto market to maintain certain trends within a given timeframe, can be used as well.

That said, sentiment analysis is also vital, and often used by day traders. Basically, it tackles how people feel about cryptocurrency. And we all know that cryptos can be an alternative to banking as they are decentralised and transparent. Quite appealing, right?

8. Follow Cryptocurrency News

Trading analysis methods and tools (such as the Moving Average Convergence Divergence and the Relative Strength Index) are not enough, though.  In order to understand the market, one should follow the crypto news. Cryptocurrency trading is highly influenced by news, events, regulations, and potential partnerships, so staying up-to-date is crucial.

That said, the Internet is full of speculative posts, tweets, and fake news, so make sure you have access to reliable information.

9. Create an Effective Risk Management Strategy

To learn to day trade, you have to learn to manage risks and embrace losses. Exit strategies are crucial to success. You should set proper stop and limit orders. 

Let’s give an example: imagine you are a crypto day trader in the UK interested in a crypto-to-fiat pair. If you buy an order at $5,000 but don’t want to risk more than 10%, you’ll have to set a stop-loss order at $4,500. If things don’t go as planned, your broker will exit on your behalf before the value of your pair goes down to $4,500. 

Note that experts suggest setting a stop-loss near the entry point, which is a suitable tip for less experienced cryptocurrency day traders.

10. Explore the Mazes of Crypto Trading Psychology

Last but not least, to learn how to day trade cryptocurrency, one should understand the importance of trading psychology. 

Even when you are about to lose, you should stay objective. Never take out a loan to invest in crypto; never trade money you can’t lose. As stated above, there’s no place for greed and overconfidence in crypto day trading. 

Day trading cryptocurrency can be like a tsunami of emotions, so always stay within your limit and be disciplined.

Are you ready to day trade crypto?

Alternatives to Day Trading

Now when you know how to day trade cryptocurrency, it’s time to get started. Yet, if you think that day trading is not for you, you can simply consider other trading alternatives.

  • Swing trade: Similarly to day trading, swing trading is a risky and dynamic method that allows you to buy low and sell high. The only difference is that you can hold your positions for days or even weeks. In other words, the main goal of swing trading is to identify mid-term trends to make a profit.
  • HODL: This is a long-term strategy to buy a crypto and hold it for a long time, even for years. It’s a popular type of investment, which is also stress-free. Do not forget that you’ll need an exchange like eToro where you can buy and store different cryptos.
  • ICO: Initial Coin Offerings (ICOs) are also a great way to make a fortune. How? Simply by buying tokens of a new coin at a discounted rate. Just do your research and learn to recognise scams in order to protect your money.

Interestingly enough, other more specific ways to make money from cryptos include mining, blockchain development, and even advertising.

No matter what you choose, make sure you are familiar with crypto regulations and taxation before you start trading. After all, crypto day trading is a serious financial venture!

Key Points

  • Day trading is a popular way to trade cryptos within a single trading day.
  • One should understand the basics of the crypto world and crypto trading psychology in order to learn how to day trade cryptocurrency.
  • Crypto news, fundamental analysis, data patterns, risk management, and market sentiment are also crucial factors to consider.
  • For those who are not interested in short-term investing, swing trading, holding, and ICOs are wonderful alternatives to day trading cryptocurrency.

We at Trading Education can help you grasp the secrets of crypto day trading: sign up for one of our online courses today. 

Do you think that day trading cryptocurrency is for you? If not, what alternative would you choose?

Day Trading Cryptocurrency - FAQs

What’s the best cryptocurrency to day trade?

Cryptocurrencies make great trading assets in general, with BTC and ETH being among the best coins to day trade. Because these cryptos are two of the main players in the industry, they have high liquidity and are listed on many exchanges, such as eToro.

How can I start day trading?

Once you’ve invested in proper crypto trading education and practice, it’s easy to start day trading. You should choose a reliable broker, fund your account, and choose a crypto pair to trade. It’s easy to get started; you can even start day trading cryptocurrency with as little as $100.

Can I make money by day trading cryptocurrency?

Though crypto day trading is a lucrative venture marked by high volatility, research shows that only 1%-13% of traders make a profit consistently. That’s why, one should invest in trading education and self-discipline to become successful. As professional trader Alexander Elder said, “The goal of a successful trader is to make the best trades. Money is secondary.”