Crypto Day Trading for Beginners | ​​Strategies & Common Mistakes

In this guide, you will learn what day trading crypto is, how it works, and the strategies to employ while engaging in it. You will also learn about typical pitfalls to avoid, as well as tips and practices that might assist you in achieving success while trading cryptocurrencies.

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What is crypto day trading?

Essentially, the term “day trader” is derived from the stock market where trading is open only during business days of the week. This implies that day traders don’t leave positions open at night because they intend to capitalize on intraday price movements.

The main goal of day trading crypto is to earn profits from small price moves in the market. Cryptocurrencies are volatile in nature and this makes day trading favorable for traders targeting short price swings during the day. For instance, it’s uncommon for blue chip stocks and other tradable commodities to see a 10% rise in value within a single day.

In the crypto space, such price hikes are common. Day traders need to implement proper day trading strategies and understand the fundamental and technical analysis to help them build the right trading ideas. Things like chart patterns, price action, volumes, and other indicators can help traders identify entry and exit opportunities and make investment decisions while day trading crypto.

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• Invest in cryptocurrencies and 3,000+ other assets including stocks and precious metals.

• 0% commission on stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.

• Copy top-performing traders in real time, automatically.

• eToro USA is registered with FINRA for securities trading.

30+ million Users

Get Started

Securities trading offered by eToro USA Securities, Inc. (“the BD”), member of FINRA and SIPC. Cryptocurrency offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. Finbold.com is not an affiliate and may be compensated if you access certain products or services offered by the MSB and/or the BD

Steps to starting day trading crypto

Considering the volatile nature of crypto assets and the liquidity in the cryptocurrency markets, day trading crypto is a high-risk venture. Unlike traditional markets like stocks, crypto day traders require a deeper knowledge of cryptocurrency and blockchain technology to help them find consistent trading success.

While they do require various tools and resources to make trading successful, crypto day traders don’t need to subscribe to a brokerage or margin account, which makes them more able to make short-term trades than stock traders.

Regardless of the market, a day trader should thoroughly understand cryptocurrencies and trading principles. It’s advisable to invest just what you can afford to lose. Overall, here are three steps to get started as a crypto day trader:

Step 1:   Choose the best crypto exchange for day trading

The first step to take as a crypto day trader is to decide what is the best crypto exchange for day trading. US-based traders can only use domestically regulated crypto-trading platforms, so this is an important factor to consider for traders in that specific area. Major factors to consider when considering the best crypto exchange for day trading are asset liquidity, exchange liquidity, and fees charged.

Other points to note include the following:

• Years of operation;
• Supported cryptos;
• Deposit methods;
• User reviews.

A couple of internal factors can influence exchange liquidity, including a high trading volume of the listed crypto assets, low fees that motivate makers to open positions, funding options, and the number of active traders on a particular exchange to fulfill orders.

Day traders should also consider whether their preferred exchange allows them to send their assets off of the platform to crypto wallets of their choice.

Step 2:  Choose your investments

After choosing a platform for trade and your account is up, it’s time to choose the cryptocurrencies to invest in. Three things are important here:

1. Market volatility: the unpredictability of crypto price movements;
2. Asset liquidity: the ability of a crypto asset to be converted into cash without affecting its price;
3. Trading volume: the total amount of a given cryptocurrency being traded within a period of time.

For a crypto day trader, market volatility is an important aspect because it creates opportunities to make profits. Volatility and asset liquidity are two major elements that crypto day traders need to actively participate in the crypto market. However, crypto day trading involves more than just reading the charts.

Day traders need to know what the cryptocurrency does, its governance, network size, and protocols to help them assess the overall condition of their preferred investment. Therefore, it’s equally important for investors to learn a lot and follow news on their chosen assets’ blockchain updates.

Overall, in addition to asset liquidity and volatility, crypto day traders need to have a basic technical understanding of the technology and team behind a cryptocurrency, as this is likely to give them a competitive edge. Asset liquidity refers to how easily an asset can be converted into cash without changing its price.

One common strategy when picking a coin to trade is to invest in the first 15-20 coins by market capitalization size. However, even there, investors need to tread with caution because even cryptocurrencies in the top 15-20 can collapse, as happened to the LUNA coin.

Step 3:   Fund your account

Once you’ve chosen a platform for trade and a crypto asset to trade, the next step is to fund your account with an initial investment capital. This may require just a few dollars.

Choosing a crypto day trading strategy

Several techniques are available for day traders to utilize for making profits on short-term price movements in the market. Crypto day traders need to create a winning strategy supported by research and well-laid plans for initiating and exiting their positions.

The following are some of the most popular strategies for day trading crypto:

1. Crypto arbitrage;
2. Bot or high-frequency trading;
3. Long straddle;
4. Range trading;
5. Scalping;
6. Technical analysis;
7. Market sentiment analysis;
8. Counter-trend trading.

1. Crypto arbitrage

The Crypto arbitrage strategy involves traders buying a crypto asset on one exchange and making a profit by selling it immediately on a separate crypto exchange platform at a higher price. 

This trading opportunity can be facilitated by cryptocurrency pairs, especially when a crypto pair is made up of a lesser-known altcoin and a popular crypto asset like Bitcoin (BTC). Traders can take advantage of the value difference between exchanges.

Crypto arbitrage offers the following features:

• Direct trading of crypto pairs on one or different exchanges;
• Asset price stabilization between different exchanges;
• It’s a complex financial mechanism that requires price-monitoring software.

2. Bot or high-frequency trading

In this strategy, crypto day traders use automated software to buy and sell crypto assets and pre-configured times or when they meet predefined conditions to maximize profits. The crypto trading bots used are designed to help investors maximize profits and lower risks and losses.

Bot trading has the following features:

• Bots can help investors streamline the process of monitoring price movements;
• This strategy works better for traders with an understanding of software programming and APIs.

3. Long straddle

Also known as the buy straddle, straddle, or option straddle, this day trading strategy involves investors buying both a put and call order. A call-and-put order involves the same crypto asset, striking price, and expiration date. A strike price refers to the set price at which traders can buy or sell a derivative contract when it’s exercised.

This strategy offers the following features:

• It’s popular because of the volatility of the crypto market;
• The investor earns despite price swings in the straddle;
• Traders can incur losses if the price doesn’t move.

4. Range trading

Range trading targets non-trending or sideways markets by identifying stable high and low prices often displayed on charts as support and resistance levels. Crypto day traders can use range trading techniques to locate the best time to buy a crypto asset at a low price (oversold) and when to sell it at a higher price (overbought).

Range trading offers the following features:

• It may require online screeners to pinpoint the right crypto asset for range trading;
• The strategy can work beyond the crypto space and is flexible for other markets;
• Clearly defined entry and exit points help minimize losses;
• Small profit margins over a period.

5. Scalping

Scalping is another crypto day trading strategy in which investors leverage big amounts of liquidity to grab small price movements. The strategy might involve purchasing and selling cryptocurrencies over the course of a few hours and making small percentage gains by the end of the day. Here are its features:

• Fastest turnaround;
• Small percentage gains by the end of the day;
• Might involve using a bot to locate high-intensity and frequent trades based on signals and technical indicators;
• Usually, scalping involves buying high volumes of assets, so having a stop-loss order is crucial.
• Not recommended strategy for beginner traders.

6. Technical analysis

This day trading strategy involves studying financial data such as historical prices and data points to locate statistical trends in the crypto markets. This gives traders a chance to identify opportunities for trading and earning profits.

Technical analysis has the following features:

• Works for any market or security provided it has historical trading data;
• Traders can use this strategy to assess how past performance can affect future gains or losses;
• Involves the use of technical indicators such as the relative strength index (RSI) and the money flow index (MFI);
• It can be used alongside other market drives like fundamental analysis, breaking news, and correlation arbitrage, among others;
• It can help traders determine a complete strategy for entry and exit positions.

7. Market sentiment analysis

This trading strategy works more like technical analysis because it involves mainly predicting. However, it has one significant difference—it operates on human reactions and reactions instead of price trends. 

Crypto day traders can use this strategy to try to predict whether demand for a particular crypto asset will rise or fall based on particular information sources.

Key features include:

• It helps traders understand the social consensus on cryptocurrencies;
• Based on people’s actions;
• The main data sources are industry news outlets and social media posts.

8. Counter-trend trading

Price fluctuations largely depend on trends, going either up or down, subsequently followed by corrections or counter-trend movements. Counter-trend traders aim to profit from these corrections. Their strategy is generally riskier compared to trend trading, as a higher level of expertise is needed to keep track of all relevant factors. That is, counter-trend trading means going against the dominant market direction (whether upward or downward) at the time, which is not something beginners are advised to do.

Mistakes to avoid when day trading crypto

Many beginner traders often ask whether they can day trade crypto without making costly mistakes. Like other markets, day trading crypto has its challenges, and traders need to remain careful and devise a solid strategy to succeed. The following are mistakes to avoid when day trading crypto:

#1 Avoid trading fear of missing out (FOMO)

Traders who simply jump in to make profits before analyzing their entry positions are likely to meet obstacles, which might lead to losses. Trading out of FOMO is often an unwise decision that results in unwise trades that could be avoided by implementing discipline and good trading strategies.

#2 Avoid overtrading

Too much trading and changing ideas quickly are likely to cause unnecessary losses. Crypto day traders can avoid overtrading by separating rational trading from emotional trading. They can do this by having a solid risk management strategy, effective trading plan, and straightforward analysis.

#3 Trading beyond what you can afford to lose

As a crypto day trader, you can avoid big losses by trading within your limits. While you need to risk making a profit, you should know how much you could risk and never invest more capital than you can afford to lose. Experts recommend a daily risk maximum of 1% to ensure traders don’t risk more than they can afford to lose.

#4 Skimping on research

It’s a costly mistake to enter crypto day trading without adequate research on the market and your targeted investments. Instead of buying signals from self-proclaimed crypto traders found on social media platforms such as Facebook, Telegram, Twitter, or WhatsApp groups, you should do your research and analyze various strategies for crypto day trading before you jump in.

It’s equally important to have basic trading skills and knowledge to carry out fundamental and technical analysis, as this could help avoid being misled by fake signals.

Pros and cons of crypto day trading

Crypto day trading is a high-risk, high-reward venture. Here are its possible pros and cons:

Pros

• The crypto markets operate 24/7 all year round, allowing traders to buy and sell without limits;
• Anonymity and the ability to trade and process payments without an intermediary;
• High-risk, high-reward venture.

Cons

• Possible big losses for inexperienced traders;
• Fewer trading patterns during the day;
• Absence of strong regulation in the crypto market;
• Possible risks of pump and dump schemes, rug pulls, or wash-sales.

Best Crypto Exchange for Intermediate Traders and Investors

• Invest in cryptocurrencies and 3,000+ other assets including stocks and precious metals.

• 0% commission on stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.

• Copy top-performing traders in real time, automatically.

• eToro USA is registered with FINRA for securities trading.

30+ million Users

Get Started

Securities trading offered by eToro USA Securities, Inc. (“the BD”), member of FINRA and SIPC. Cryptocurrency offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. Finbold.com is not an affiliate and may be compensated if you access certain products or services offered by the MSB and/or the BD

Final thoughts

All things considered, day trading is one of the most popular strategies in both the stock and cryptocurrency markets. While they don’t stay in positions for more than one day, crypto day traders use intraday trading strategies to execute trades and try to gain from short-term price movements during the day.

The trading strategies mentioned in this guide, including technical and fundamental analysis, chart patterns, and other market indicators, could help crypto day traders identify suitable opportunities and execute trades. Regardless of the day trading strategy they pick, investors also need to watch out for regional differences in rules and taxes regarding crypto assets.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs on crypto day trading