Crypto day trading guide: Strategies, ley points & tips
What is crypto day trading?
Day trading is a term used to describe the practice of buying and selling instruments in time intervals that are shorter than a day. Day traders use a combination of strategies and analysis to predict the market's movements and make profits over periods of several hours, minutes or even seconds by looking to exploit arbitrage opportunities, price discrepancies and news-based volatility.
Intra-day trading has been a fixture of traditional stock and commodities markets since time immemorial. But while these instruments have fixed trading hours, cryptocurrency exchanges are always open, which makes them uniquely lucrative for talented day traders.
Tips and tricks: How to make money day trading cryptocurrency
It's no coincidence that 95% of intra-day traders never make it. After all, if it were that easy, everyone would be doing it. And while there's no sure-fire recipe for success, there are a few principles that can help you avoid falling victim to many of the pitfalls that plague would-be day traders.
- Set clear goals for every trade: As a day trader, you want to be in and out. You can't let greed or fear hold you back from closing a position. When the time limit you set for yourself expires, take whatever profit or loss you have and don't look back. It's incredible how much money people lose trying to chase their losses or maximise returns.
- Use Stop Loss orders: These are an excellent way to take the emotion out of day trading. Set a Stop Loss level when you open your position to ensure you don't lose more money than you can afford. That way, the app will automatically liquidate your position when this limit is reached, removing the risk of you feeling compelled to hold on for a reversal that may never come.
- Use Take Profit/Limit orders: Like Stop Losses, these help you maintain a healthy level of stoicism. If you set a Take Profit order to sell your coins as soon as your target return (1-2%) is realised, it will prevent you from holding on in the hope of bigger gains. More often than not, the trend reverses before you can react and you go from a nice 2% return to a -1% loss in the blink of an eye.
How much money can you make?
When it comes to your potential earnings from day trading, the sky's the limit. That said, your income will largely depend on how much capital you start with. For this reason, it's best to look at it from a percentage return perspective.
Assuming you're using a Steady Incremental Profit Strategy (more on that later), you can quite feasibly make a return of between 100-200% per month. Of course, this is rather ambitious for a beginner, but with time, it's certainly achievable. Just be sure to avoid risking more than 1% of your total bankroll on any one trade.
Crypto day trading strategies
The idea behind crypto day trading is to look for trading opportunities that offer you the potential to make a quick profit. If day trading suits your personality, let's dive into a step-by-step guide on how to day trade crypto.
The secret to becoming a successful crypto day trader is developing an eye for quick profit opportunities. It's not like in traditional investing, where you look at fundamentals and try to pick assets with long-term growth prospects. The intra-day game is all about leveraging solid strategies for rapid, short-term gains. So, without further ado, here are a couple of day trader favourites:
Steady Incremental Profit Accumulation Strategy (SIPAS)
As a day trading newcomer, it's advisable to try to minimise the chance of market swings and fluctuations. That can be tough when dealing with volatile instruments like crypto, but there are some measures you can take. This is where a good conservative strategy like SIPAS comes in.
- Use USDT as your base currency: It's hard enough to allow intense fluctuations on one side of a crypto pair, never mind both. As a stablecoin, Tether is immune to the wild swings commonly seen on the crypto market, which means you can focus all your attention on the coin you're hoping to make a profit on.
- Set a realistic profit target: Aim for a 1-2% return from several different altcoins that have demonstrated relative stability over the past 2–3 days. You should be shooting for 7–12% profit per 12-hour trading shift. This translates to a weekly profit of more than 50%.
- Avoid more volatile altcoins: While you can make 5-15% on a single trade with a more volatile asset, you can lose just as much, too. You can certainly make money trading massive swings, but this is an entirely different strategy and not one for absolute beginners. With SIPAS, you ought to limit yourself to 1-2% returns over multiple trades to avoid significant losses.
Swing Trading Strategy
Prolific trader Jesse Livermore once said: "It is the big swing that makes big money for you". And he applied swing strategies quite successfully to make bumper profits. On its most basic level, swing trading involves holding positions for any period longer than 24 hours. Swing traders generally keep their positions open for between 3 days and 3 weeks, usually around times of heightened volatility, such as reporting season or regulatory reviews.
In a market as volatile as crypto, however, it can be used any time. Swing trading is a blend of day trading and position trading, with an emphasis on technical analysis. When looking for swing opportunities, traders first have to identify resistance or support levels. Then, they try to find a bearish or bullish trend on the brink of a reversal to strike just as the countertrend begins.
There's no doubt that this kind of strategy can bring huge returns. The only problem is the potential losses you could run up just as easily. Aside from the advantage of buying opportunities at multi-month lows, crypto beginners might be better off leaving swing trading for when they've gained a bit more experience.
Stop Loss Hunting
This is a strategy for market makers, also known as whales in the crypto world. Essentially, it involves selling large quantities of a coin to push the price down and trigger Stop Loss orders. Once the price is sufficiently depressed, the whales then buy up all the recently discounted coins, which often triggers a recovery by itself.
Stop loss hunting works best with low volume/small order book coins. Provided they hold enough coins, whales can force down prices by placing a myriad of simultaneous market-price sell orders. But what if we told you that you don't need to be a whale to take advantage of this strategy?
Now, you might not be able to initiate the process, but if you can spot it in motion, you can ride the whales all the way to a decent profit. Because stop losses are typically placed around psychological levels, we often see these violent fluctuations around these kinds of resistances. Therefore, when you spot the price of a coin falling rapid in and around such levels, get ready to buy in.
How do you start day trading crypto with StormGain?
Starting your day trading journey with StormGain really couldn't be easier. Simply register an account, fund it, and you're ready to go. Unlike other platforms, StormGain doesn't subject its users to lengthy verification protocols, so you can be up and trading in a matter of minutes. With instant debit/credit card purchases and free in-app wallets, funding your account is a doddle.
We recommend that you keep your balance in Tether (USDT) to mitigate the adverse effects of crypto volatility, which is even more acutely felt by day traders. Then, when you spot an opportunity to buy another coin, simply complete a real-time conversion on StormGain.
Learn how to trade cryptocurrencies
Before you begin trading for real, it's wise to gain a solid grounding in the theory of analysis to develop a sound strategy. Fortunately, StormGain now offers free video tutorials for all its clients to help them put their best foot forward as they embark on their crypto trading journey. So, check our library of educational videos and webinars for the knowledge you'll need to put together a powerful day trading strategy.
How to build your strategy
A strong crypto day trading strategy consists of several elements. At its very core, though, should be a good understanding of potential profits/losses and realistic per-trade targets. Beyond that, the tool of choice for most intra-day traders is technical analysis.
Technical analysis takes many forms and can be useful for both day and swing trading. It's far from an exact science and can be tricky for both humans and bots to implement. Here are a couple of the technical indicators preferred by crypto day traders:
Bollinger Bands constitute a set of lines plotted at two standard deviations, away from a simple moving average. Day traders favour them because they are a strong volatility signal that can help them plan their market entry and exit points.
If the band tightens (two lines become closer together), it's called a squeeze (see the chart above). This is a signal of reduced volatility. When the price moves past the range of the Bollinger Band, this is known as a breakout. It's widely accepted that this indicates increased volatility, and many day traders consider it to be a trading signal. Here's what a Bollinger Band looks like for ETH/BTC in the StormGain platform's built-in technical analysis unit, along with all the various custom options users can apply:
Moving Average Convergence Divergence (MACD Indicator)
The MACD indicator is used to identify bullish or bearish movements and signals whether shorter-term price momentum is in the same direction as longer-term price momentum, thus helping traders spot when a reversal is close. It's calculated by subtracting the 26-day EMA from the 12-day and is a favourite indicator of cryptocurrency day traders. Here's a nice annotated diagram of a standard MACD oscillator:
The good thing about the MACD for day traders is that it generates lots of signals, even over short timeframes. Naturally, though, the longer the chart on which the signal appears, the stronger it will be. Contrasted with the Relative Strength Index (RSI), the MACD has no absolute range, which makes it unsuitable for assessing overbought and oversold conditions.
News and gossip
Another valuable weapon in any day trader's arsenal is news trading. This tactic involves making trades right after the release of an important piece of news. Because there are no earnings reports in the crypto market, news traders need to keep their ears close to the ground for any developments relating to the coins they follow.
Day trading from news can be incredibly lucrative, as it's virtually guaranteed that a coin will appreciate following a positive development for the project. Similarly, you can be reasonably confident that price declines are in store following serious bad news. The real challenge here is being ahead of the pack. One method is only to track a small number of coins but watch them closely. That way, you're more likely to be among the first to hear of any significant developments. And StormGain conveniently provides a "Top Rising" and "Top Falling" list, so you can see which coins have the most pronounced trends at a glance:
So, what's the best crypto day trading strategy?
When we put this crypto day trading guide together, we intended to provide you with the grounding you need to answer this question for yourself. This is because, ultimately, the perfect strategy for you depends on your own unique profile. That said, there are some basic hallmarks of a good crypto day trading strategy.
First of all, you must have a realistic outlook as to what you can make and how much you can afford to risk on a single trade. Second, you have to remove emotion from the equation as best as you can: most day traders fail because they are unable to do this. Lastly, you need to understand and apply technical analysis to spot suitable entry and exit points and pre-empt price reversals. It's up to you to decide which analysis techniques and indicators to favour, what time intervals to work with and whether to attempt the occasional swing trade here and there.
Whatever day trading cryptocurrency strategy you settle on, you'll definitely want a reliable, user-friendly platform to work in. Cue StormGain. With its ergonomic, intuitive platform and quick trade execution, StormGain is ideal for day traders who want to beat the competition to the punch. The handy platform also displays useful interactive charts for all instruments, so you always know the full picture before you pull the trigger.
What's more, StormGain offers instant crypto purchases with debit or credit cards and gives users personal wallets for six of the biggest cryptocurrencies, making it simple to trade and store a variety of different coins at once. Join the ranks of StormGain day traders now and start earning today!