How To Do Day Trading?
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How To Do Day Trading?

written by John Murphy | January 28, 2023

Day trading is an investing strategy targeting multiple small transactions to earn daily profits. While traditional investors approach long-term and steady investment, day traders seek to profit from immediate yielding opportunities. However, knowing how to do day trading is vital to successfully running this strategy.

Day trading generally is considered a high-risk approach. However, successful day traders apply numerous resources such as stock screening or trading simulator software to capitalize and generate revenues. 

Cryptocurrency traders have started using day trading to generate small but passive income streams. Since the newest cryptocurrencies keep surfacing in crypto trading, thus users have applied traditional day trading strategies to this new asset class.

However, it is easy said than done, it may seem a straightforward short-term attractive method to make profits, but the risk associated with it is very high. 

Let us walk you through the question “how to do day trading” in this article.

Cryptocurrency Day Trading

Cryptocurrencies like Bitcoin and Ethereum are easily available for day trading with numerous famous crypto exchanges. However, applying the right strategy at the right time will only yield desired profits.

Regardless, a day trader must analyze the crypto market for losses. However, if you have nerves of steel, and impeccable risk management skills, here is what you need to know to start your cryptocurrency day trading.

  • Choose a trading platform
  • Choose investments
  • Choose a trading strategy

We have divided crypto day trading into three-step phenomena. Let us now explore each step further in detail.

Choose A Trading Platform

The first step a day trader should take is to decide what platform he will use. Since many crypto exchanges offer limited services, thus selection of an exchange becomes a vital step towards it. Imagine registering with an exchange that does not offer a day trading facility; you will lose your time and effort.

Moreover, it majorly depends on the exchange, and there are several factors to check in a platform before opening an account. Since the crypto market is highly volatile, thus the value of assets oscillates wildly. So, having the right broker by your side will keep you in a safe place.

Here are major things to consider when shopping for a crypto exchange.

  • Service lifetime

The longer a crypto exchange has been in business, the better it is for creditability and stability. Investors will not want to look for a new exchange after a few months if their exchange closes operations.

  • Fees

One of the major deciding factors is the commission fee; since each crypto exchange has its own set of prices, thus knowing them in advance is key to avoiding draining out your tokens.

  • Supported cryptos

Knowing what cryptocurrencies are listed for day trade will weigh when choosing a strategy. Day traders interested in altcoins can even use a small exchange with low fees; on the other hand, Bitcoin traders may have more exchanges.

  • Liquidity

The speed and ease of access to exchange will massively affect your trading. So, always adopt an exchange with high liquidity.

In addition to the points mentioned above, a few other important things to consider in the exchange include the deposit methods and security.

Choose Your Investments

Once you have selected a crypto exchange, the next step is identifying and picking what you are interested in investing in. Market volatility is an evil for crypto day traders. Thus, liquidity and volatility are the two elements in that day traders actively participate. 

Here are key elements for selecting an investment portfolio for day trading.

  • Asset liquidity

Liquidity is how easily you can convert an asset into cash. Thus always select a highly liquid asset.

  • Volatility

Understanding the unpredictability of crypto price movements is a day trader’s best friend. If you rightly predict the price movement, you can hit the jackpot. So, closely study and follow market trends.

  • Trading volume

It is the total number of cryptocurrencies traded over a certain period. Crypto day traders should consider volume to gauge a cryptocurrency’s future price fluctuations.

Choose A Trading Strategy

Day traders use numerous techniques to make gains on short-term price fluctuations. However, a winning crypto plan is always backed by research, a well-laid strategy, and plans for entry and exit positions.

Below are some of the most popular strategies applied in the crypto market.

  • Arbitrage

When day traders buy cryptocurrency from one exchange, they immediately sell it at a higher price at another exchange. Generally, crypto pairs facilitate arbitrage. 

  • Bot Trading

A bot is an automated software engineered to buy and sell cryptos at a preconfigured time against predefined conditions. 

  • Long Straddle

It is an advanced-level strategy that involves both put and call orders. The put and call orders in a straddle strategy are on the same striking price, expiration and cryptocurrency.

Furthermore, day traders can apply a range of trading, scalping and technical analysis strategies to maximize profits.

Frequently Asked Questions

What are the pros of crypto day trading? 

The following are a few pros of crypto day trading.

  • Ease of entry
  • Available round the clock
  • Passive income streams
  • Better short-term profits

Can I day trade call and put options?

Yes! Investors can day trade calls and use options to generate short-term gains from advanced-level investment strategies.

Is day trading profitable?

Since day trading is highly risky, thus only a few investors profit through this strategy.

Parting Thoughts

We have answered the question “how to do day trading” in three simple steps: select an exchange, choose an investment, and apply any day trading strategy.

However, it is a high-risk strategy as it involves frequent buying and selling of cryptocurrencies. Anyone planning to adopt a strategy must have an actionable plan and stick to their entry and exit points.

Furthermore, a majority of cryptocurrency day traders lose profits. Despite people labelling it as gambling, day traders are professionals equipped with a full-fledged strategy to profit from price fluctuations based on their intense market research.

Moreover, it is a high-risk strategy, so keep your risk limits in check before adopting it.

Leaving you with best wishes for your day trading, and please leave your feedback in the comments section. Adios!