07 Oct Day Trading Cryptocurrency
Is day trading cryptocurrency right for you? Find out if you should trade altcoins and if so, how to start trading cryptocurrencies?
A venture capitalist recently argued that the crypto market is a reservoir of opportunities. As such, there are people who have dedicated a large chunk of their time and funds to investing in cryptocurrencies. Unlike, long-term traders, they monitor and track every market trend in order to capitalize on the volatile nature of the market.
However, being a crypto trader is not as easy as it sounds, it takes a lot of effort, time and commitment to become a successful day-trader. As such, I have decided to put together a beginner’s guide for day trading of cryptocurrencies.
Should You Day Trade Cryptocurrency?
Day trading cryptocurrencies are definitely the fastest way to get returns on investments. The volatile nature of the market contributes to the possibilities of short-term profits, therefore, it is currently one of the most attractive markets in the world. Even institutional investors are flirting with the idea of adding cryptocurrency trading to their long list of services. However, not everyone is cut out for day trading cryptocurrencies.
Risks of Day Trading Cryptocurrencies Capital Loss
Having talked about the benefits of day trading cryptocurrencies, it is also important to mention that is quite easy for an inexperienced trader to record big losses. New entrants to the crypto space lack the needed education, crypto trading psychology, and risk evaluation strategies. They fail to understand that the crypto market is nothing like traditional stock markets as things tend to move at the speed of light. As such, traders are expected to be well kitted out.
The crypto market is rigged with opportunities at every turn, therefore, it is easy for a day trader to get sucked in and consumed by greed. The trader becomes oblivious and numb to his surroundings as he is constantly fixated on getting the better of the market. Unfortunately, such traders tend to lose on all fronts.
Panic and Stress
The crypto market never sleeps, as such, day traders are expected to dedicate the better part of their day to tracking and analyzing the market. The commitment required for being a successful day trader is very high, therefore, it is possible for stress to set in. in addition, traders that do not have efficient risk assessment and management systems could suffer big losses that could erode their health.
How to Day Trade Altcoins Educate Yourself
Day trading thrives on the volatile nature of the crypto market, as such, new traders need to understand the market terrain before jumping into the deep end. Recommended ways to get educated are:
Perusing reputable crypto trading self-learning materials
Making successful and experienced traders your mentor.
Acquiring experience is another important phase of the learning process. New traders can build basic trading experience by signing up to crypto trading demo accounts. Since demo accounts do not trade real cryptocurrencies, they can get a firsthand experience of day trading cryptocurrencies without losing money.
What we fail to understand is that successful traders are not immune to losses. Instead, they constantly factor in the potential risk of every investment they make, as a result, they are almost never caught on the wrong foot. Traders are expected to extensively assess the risk involved in every trade so as to set up risk management systems that will minimize the impact of incurred losses.
Cryptocurrency Trading Tips
1) Learn About Cryptocurrency and Its Underlying Technology
You should try to understand the concept behind cryptocurrency, the technology that facilitates the concept and the way each cryptocurrency has tweaked the technology. Once you are able to fully grasp this, it becomes relatively easy for you to identify cryptocurrencies that are likely to become viable.
2) Figure out the Digital Currencies To Trade
New traders should allocate a larger percentage of their investment capital on cryptocurrencies with the highest market caps. These digital assets are less volatile than new coins which are not yet established. As at the time of writing, the top cryptocurrencies are Bitcoin, Ethereum, and XRP.
3) Extensively Research New Cryptocurrencies
New cryptocurrencies are more volatile than the established once, therefore, they tend to generate more short-term profits. However, many of these tokens’ values rely on exaggerated and false statements (pump and dump schemes), and their price will eventually crash. As such, it is imperative that traders carry out an extensive research before allocating their funds to new coins.
4) Choose a Secured Crypto Exchange
In order not to miss out on investment opportunities, day traders are known to store their coins on crypto exchange-based wallets. In a way, this is risky as history shows us that crypto exchanges are very much prone to hacking. Therefore, day traders should consider the following factors before choosing a crypto exchange.
What is the number of coins listed on the exchange?
What is the transaction fees of the crypto exchange?
Does the exchange have a transparent system?
Does the exchange have a security breach history? If yes, then what were the measures put in place to compensate users?
5) Learn To Utilize Basic Market Functions
One way to manage your trades effectively is to utilize market functions like limit and stop-loss order functions
Limit Orders: The limit order functionality automatically uses your chosen price limits to either sell or buy a coin. Utilizing this functionality gives traders the power to set their price goals. Traders are advised to set a purchase price limit lower than the existing market price and a selling price limit higher than the market price.
Stop-Loss Order: Traders can set a stop-loss order which will sell owned coins at a specific price in order to manage losses.
6) Utilize Advanced Trading Analysis
A trading analysis is one of the most important parts of day-trading since all trades should be backed by proper and in-depth analysis and price movement predictions. There are presently five basic ways to analyze the crypto market
Fundamental Analysis: This analysis method utilizes crypto news and coins functionalities to predict the future price of a coin.
Technical Analysis: Technical analysis utilizes price charts, market volumes, and complex statistical market patterns to predict the price movement of a coin. Therefore, day traders that intend to use this method are expected to have some level of technical know-how.
Sentiment Analysis: This analysis method is primarily based on the status of a coin in the crypto community.
Momentum Analysis: Momentum analysis is simply an analysis based on market trends, as such, traders look for trending coins which could fetch them profits.
7) Follow Crypto News
The prices of coins are strongly linked to events in the crypto space. For example, the price of bitcoin tumbled immediately a news outlet published that Goldman Sachs were ditching their cryptocurrency trading desk plans. Therefore, staying current on events and happenings in the crypto space is one of the easiest ways a day trader can stay ahead of the pack?
Learn how to day trade cryptocurrencies
There are no shortcuts to becoming a successful day trader, however, there are ways to make the learning process easy and less risky. Therefore, we have set up a platform where day traders can access live crypto trading signals that will help increase their chances of winning. By simply joining our Telegram, you can get all the information you need to maneuver the crypto market.