Cryptocurrency day trading has exploded in popularity in recent years. With major cryptos like Bitcoin and Ethereum hitting new all-time highs, many investors are eager to capitalize on the volatility and profit potential of the crypto market.
Day trading cryptocurrency may seem intimidating for beginners, but with the right strategies, tools, and approach, anyone can learn how to day trade crypto successfully. This comprehensive guide will teach you everything you need to know to get started day trading cryptocurrencies like a pro.
What is Cryptocurrency Day Trading?
Cryptocurrency day trading involves buying and selling cryptos like Bitcoin within the same day, taking advantage of small price movements. Day traders aim to profit from the volatile crypto market by closing out positions before the end of the day.
Some key points about crypto day trading:
- Focuses on major cryptos like Bitcoin, Ethereum, Litecoin
- Leverages technical analysis and charting tools to identify trading opportunities
- Typically uses 5-60 minute charts to find patterns and indicators
- Profits from small intraday price movements of 1-5%
- Closes out all positions by end of trading day
Day trading cryptos provides advantages like avoiding overnight gap risk but requires constant monitoring of the market. We’ll discuss tactics and strategies to succeed as a crypto day trader later in this guide.
How to Get Started Day Trading Cryptocurrency
Follow these steps to start day trading cryptos:
1. Choose a Reliable Crypto Exchange
The first step is finding a reputable and secure cryptocurrency exchange to trade on. Some top options include:
- Coinbase/Pro – User-friendly for beginners but higher fees
- Binance – More advanced with lower fees and hundreds of crypto pairs
- FTX – Excellent liquidity and trading tools
Key factors in choosing an exchange:
- Trading fees and liquidity
- Ease of use
- Available crypto pairs and altcoins
- Trading tools like charts and order types
2. Fund Your Account
Once signed up with an exchange, fund your account with fiat currency or cryptocurrency so you have capital to trade with.
- Link your bank account via ACH transfer or wire transfer to fund with USD, EUR, etc.
- Transfer existing crypto coins into your exchange wallet to fund it with Bitcoin, Ether, etc.
Be sure to consider deposit/withdrawal fees, processing times, and limits.
3. Learn to Analyze Crypto Charts
Understanding how to read crypto charts and trading indicators is an essential skill for day trading cryptocurrencies. Some key concepts include:
- Candlestick charts – The most common crypto chart showing open, close, high and low.
- Indicators – Tools like moving averages, RSI, MACD to identify trends and momentum.
- Support/resistance – Key levels where price may reverse direction. Look at previous highs/lows.
- Chart patterns – Well-known formations like head and shoulders, flags, and triangles that can signal potential moves.
Spend time learning chart analysis best practices before executing trades.
4. Develop a Crypto Trading Strategy
- Breakout – Trading breakouts as crypto price moves above resistance.
- Scalping – Taking small profits of 1-5% from volatile crypto moves.
- Range trading – Identifying support and resistance levels to buy low and sell high.
- News-based trading – Trading major crypto news events that move prices.
Backtest strategies and refine based on performance before using with real capital.
5. Make Your First Trades and Manage Risk
Start small with trades using amounts you are comfortable with and implement risk management principles:
- Set aside dedicated trading capital in a separate portfolio
- Use stop-losses and profit targets on every trade
- Only risk 1-2% of your account per trade
- Maintain a minimum 2:1 profit loss ratio
- Reassess strategy after a series of losing trades
With the right practices, you can avoid major losses as you gain experience.
How Much Money Can You Make Day Trading Crypto?
While results will vary, skilled crypto day traders typically target between 1-5% gains per trade. Depending on your starting capital and risk management approach, you could expect to make the following:
- With a $1,000 account, up to $50 per day or $1,250 per month
- With a $5,000 account, up to $250 per day or $6,250 per month
- With a $20,000 account, up to $1,000 per day or $25,000 per month
These sample targets require winning over 60% of your crypto day trades while risking just 1% of capital per trade.
Your potential profits rise exponentially with larger trading accounts and consistent gains leveraging 3:1 or 5:1 reward/risk ratios.
Step-by-Step Process for Day Trading Cryptocurrency
Here is an overview of the typical day trading crypto process from start to finish:
- Analyze the Market – Review crypto news, events, and charts to spot potential trading opportunities. Look for increased volatility and volume.
- Identify Entry Points – Use technical analysis to determine optimal entry points with good risk/reward ratios. Consider support, resistance, moving averages, and volume.
- Execute Your Trade – Enter your position with a market or limit order. Start small with position sizing only risking ~1% of capital.
- Set Exit Targets – Define profit targets and stop-losses before entering to minimize emotion-driven decisions. Target 1-5% gains.
- Manage the Position – Monitor the trade and adjust stops if needed. Stick to your plan and exit targets.
- Close Out – Book profits or cut losses based on your strategy. Close all positions out by your trading session end.
- Record Results – Track your crypto trades, wins/losses, and resulting portfolio balance. Identify what worked and refine strategy.
Repeating this process consistently, while minimizing losses and maximizing wins, is key for crypto day trading success.
Cryptocurrency Day Trading Rules and Tips
Follow these essential cryptocurrency day trading rules and tips for success:
- Start small – Gain experience with small position sizes and amounts you can afford to lose.
- Use stop losses – Set mandatory stop-losses 2-5% below entry price to limit downside.
- Don’t chase trades – Patiently wait for quality setups; don’t FOMO buy at any price.
- Stick to a schedule – Trade for set hours and avoid overtrading or revenge trading.
- Watch for fees – Limit trades and leverage to avoid getting hit with excessive exchange fees.
- Stay disciplined – Follow your trading plan and stick to objective buy/sell criteria.
- Track results – Keep a journal of your trades, wins/losses, and strategy performance.
- Continually learn – Read, backtest, and practice to build on your crypto knowledge continuously.
These best practices will steer you clear of common beginner mistakes when starting out day trading crypto.
Tools for Cryptocurrency Day Trading
Here are some essential tools for day trading cryptocurrency:
- Exchange trading platform – Exchanges like Coinbase Pro, Binance offer built-in charts and trading features you’ll need.
- Charting software – tradingView for deeper chart and indicator analysis to identify trading signals.
- Trading journal spreadsheet – Track your trades, performance stats, and learnings in a spreadsheet or Excel.
- Day trading calculator – Calculates position size based on risk for more precise crypto trades.
- Cryptocurrency news sites – Stay up-to-date on market moving news and crypto prices.
- Alerts and notifications – Set up price alerts through exchange or charting platforms.
Leverage the right mix of platforms, software, and tools to take your crypto day trading to the next level.
Common Day Trading Cryptocurrency Strategies
Let’s explore some of the most popular crypto day trading strategies and how they work:
Momentum trading involves identifying cryptos trending strongly up or down and trading in the direction of the trend. You go long on uptrends and short downtrends.
Momentum is identified using technical indicators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD) crossover. When these signal overbought or oversold conditions, you enter trades in anticipation of a reversal.
Range trading aims to buy at support and sell at resistance when crypto price is ranging between levels. You determine support and resistance zones by looking at recent swing highs and lows on the charts.
When the price nears support, you go long expecting a bounce up. When nearing resistance, you short in anticipation of a reversal down. This allows you to profit from the range.
Breakout trading means buying or shorting when price breaks above or below key levels of support and resistance. Breakouts from consolidating price action often lead to continued momentum in the breakout direction.
You buy breakouts above resistance when volume is increasing for upside breakouts. Sell breakouts below support in downside moves. Stop losses are placed right beyond support/resistance levels.
Scalping aims to profit from small price movements using very short timeframes like 1-minute charts. You open and close numerous small positions targeting gains of a just few points at a time.
This requires being highly active and trading off charts and Level 2 market data primarily. It is challenging but can be rewarding for experienced traders.
The Best Cryptocurrencies for Day Trading
The most profitable cryptocurrencies for day trading based on volume and volatility include:
- Bitcoin (BTC) – As the most liquid coin, Bitcoin provides constant intraday trade opportunities.
- Ethereum (ETH) – Ethereum is second by market cap but still sees huge daily moves.
- Litecoin (LTC) – Litecoin is a smaller cap coin with high volume suited for shorter intraday swings.
- Chainlink (LINK) – LINK has carved out a role in DeFi so makes major price moves.
- Binance Coin (BNB) – The native token of crypto leader Binance is very actively traded.
Focus your efforts on the top 10-20 coins by market cap and volume for sufficient liquidity.
Common Day Trading Cryptocurrency Mistakes to Avoid
- Trading without a clear strategy – Failing to have defined buy/sell criteria leads to overtrading and unecessary losses. Always trade with a strategy.
- Using too much leverage – Leverage amplifies losses so should be used sparingly by beginners if at all.
- Poor risk management – Not using stop losses or appropriate position sizing could wipe out your whole trading account with one trade. Manage risk accordingly.
- Getting emotional – Allowing emotions like FOMO and greed to influence trading often leads to losses. Remain calm and objective.
- Chasing losses – Don’t revenge trade or size up positions after losing trades. Accept losses as part of trading.
- Fighting the trend – Don’t try to pick tops and bottoms by trading against momentum. Trade with the trend.
Master the crypto markets by adequately preparing and avoiding these all-too-common mistakes!
Crypto Day Trading Taxes – What You Need to Know
Cryptocurrency trading profits are subject to short-term capital gains taxes if positions are held under a year. You owe taxes on any gains above your cost basis when you sell crypto.
Here are some key points on crypto day trading taxes:
- You must calculate capital gains for each trade and report on your tax return.
- Day trading is taxed at your normal income rate which can be as high as 37% rather than lower long term capital gains rates.
- Good recordkeeping is essential – keep detailed records of buy/sell prices, fees, exchanges used, etc.
- Consider an accountant if actively trading to handle complex calculations.
- Tax software can help generate needed cryptocurrency tax forms.
- You can deduct expenses like exchange fees, trading software/platforms, internet, etc.
Though taxes make day trading crypto slightly less profitable, this guide should help you minimize taxes through optimal trading strategies.
Bottom Line – Crypto Day Trading Can Be Profitable
Cryptocurrency day trading can be extremely lucrative for those with the proper knowledge, tactics, and self-discipline required to succeed. To recap:
- Pick a secure, low-fee crypto exchange
- Fund your account with capital to trade
- Learn technical analysis and chart reading skills
- Formulate a day trading strategy with defined rules
- Make trades with appropriate position sizing and stop losses
- Target 1-5% gains per winning trade
- Stick to a schedule and avoid emotional decisions
Start small, manage risk carefully, and gain experience before ramping up position sizes. There is massive upside profit potential with crypto day trading with the right approach. Just be sure to pay your taxes!
This comprehensive guide covers the ins and outs of crypto day trading. Now get out there, make your cryptocurrency trading plan, and start executing profitable day trades. You’ve got this!
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