It used to be that only those working in brokerages, trading houses or big financial institutions could actively trade but with the advent of the internet and online trading platforms - virtually anyone can get in on the action.
Cryptocurrency day trading can end up being a very lucrative pursuit so long as it is properly executed but it can certainly be a challenge for newer traders - specifically those who are unprepared and without a well-thought-out strategy. Losses and rough patches happen to even the most seasoned traders so is it worth it?
Advantages of day trading crypto
Traders can take advantage of a number of unique features that the crypto market has to offer to maximise their gains when day trading however as with anything - it comes with its downsides so firstly lets go over the notable pros and cons.
One of the most unique aspects of cryptocurrency trading is that the market is open 24 hours a day and 7 days a week. We are lucky to be able to take advantage of all the opportunities that come with a market that never closes.
Volatility is the norm
When it comes to cryptocurrencies, you should be aware that the market is very volatile. Bitcoin can start the day at $12,000 and not even a couple of hours later the price has crashed to $10,000 and veteran traders will not even flinch. If you want to start day trading though, this volatility can be a very lucrative instrument as the opportunities to profit are many.
The stock market is heavily regulated, specifically in the U.S. and those regulations come with a long list of rules including but not limited to how often one is allowed to make trades. For the most part, cryptocurrency trading is loosely regulated and doesn’t come with the same restrictive rules that the stock market does. You can start trading regardless of experience, account size or even age in many instances! That means if you would like to start day trading - the barrier is significantly lower than the barrier to day trading other asset classes.
Transparent and open data
In the cryptocurrency market, you generally do not have to pay fees to use exchanges. That means that data vital to day trading is available for you to see with no strings attached. If you want to check out the order book then 99% of the time you can get this info without signing in even as you can see here on Binance with the USDT/BTC pair.
On the same note, these exchange interfaces will often come with a range of technical analysis tools built in too. Although this will not make or break the decision to begin day trading crypto, it is certainly a plus and can help you on your journey to getting started.
Fortunately for you, the cryptocurrency market is so easy to get into that there is an abundance of newbies and less-experienced traders who trade in it. The number of novice traders means that one with a little bit more knowledge automatically has an edge and can get in and out of positions or react quicker to situations and avoid loss.
As with most things in life, there are upsides and downsides to day trading cryptocurrencies so before you make your mind up, make sure to read through the full article before running off to get rich.
Yes I am aware that we just listed this as an advantage but this sticky topic can be a big disadvantage too. It’s easy to think that an always-open market will always have desirable trades when in fact, that is simply untrue. What it can actually mean is that there are fewer parts of the day where you can execute predictable (in other words, profitable) trades. This can leave you staring at the screen and waiting for longer than you would like as a day trader.
This is another double-edged sword because if an exchange closes its doors, gets hacked or simply decides to disappear with everyone’s funds then there is no one to help you, no superior authority or insurance scheme to help recover your losses. Naturally, as a day trader, you will often be making high-volume orders so although this rarely happens - you should always have it in the back of your mind.
This one goes hand in hand with the volatility aspect. In other asset classes, company profits and governmental data is released on a schedule which means to some extent you can forecast where the trend is going. In cryptocurrency however, it's free for all and the smallest bit of news from a random blog can send the price skyrocketing or plummeting in the time it takes to finish reading this sentence. If you’re looking for easy trades then you want predictability as unpredictability will only make your life more difficult.
Relatively speaking, the cryptocurrency market is tiny. It can be pretty hard to get out of a position with the price you want in the moment that you want it and that is naturally not ideal for a day trader. Slippage is a more significant problem than in markets for other asset classes.
A small small universe...
While it’s true that there are thousands of cryptocurrency coins and tokens on the market, the reality is that only a fraction of those are actually tradable on most exchanges which naturally puts a chokehold on the basket of opportunities that there are in this industry.
Common pitfalls when day trading crypto
If your mind is now set on day trading and you think you are ready then great! But you should know how to do it properly and not fall for the rookie mistakes so we’re going to briefly outline some of the things to be aware of when trading.
Trading by FOMO and FUD
You can admit it, it’s fine, we’ve all been there. We’ve all read the news that Bitcoin is going to crash and freaked out and made a sell order but this is something you need to control when day trading.
Trading on emotions as opposed to analysis will more often than not result in big fat losses. If you’re not wary then you can get caught up in all the noise which surrounds this crazy industry. News cycles, blogs, different forums and random Twitter celebrities can not predict the future so don’t give them too much attention.
A more sensible route to take is to come up with your own trading strategy using various indicators and conditions that you commit yourself to. There’s nothing wrong with reading the crypto news but take everything with a grain of salt and never ever make trading decisions because of unfounded rumours. These are usually debunked and essentially you just shouldn’t buy because you have fear of missing out or FOMO.
The wrong tools
Not all cryptocurrency products were created equally and they certainly were not all specifically created for day trading. Some of them can aid you and some will impair you from maximizing profits.
Hardware wallets like Trezor or Ledger are perfect examples of this. These ‘wallets’ are built with security in mind, in other words they are designed to store your assets safely for a long period of time like a vault. It can take a while to transfer your assets from a wallet to an exchange and then make the trade you want.
A good way to avoid this is keep most of your cryptocurrencies on the hardware wallet but keep your day trading portfolio on the exchange in order to trade quickly.
Locked in a position
Often you are able to enter a position quickly but sometimes it can be harder to exit that position when you need to. A number of cryptocurrency exchanges are virtually illiquid meaning that they simply don’t have enough activity to fulfil your order at the price you need. In other instances, although the exchange might have healthy liquidity it could have a low trading volume due to weekends or holidays.
If you’re stuck in one of these situations then you can lose profit easily and the only way to avoid it is to trade when there is activity or maximise the liquidity that is available to you by choosing the right exchanges with very high numbers.
Overemphasizing technical analysis
This section begins by telling you that you should consider applying some technical indicators to your day trading activity as opposed to using your emotions and while that remains true - there is a caveat. Giving too much attention to TA can lead to what I will call ‘technical analysis blindness’ or the inability to to see anything outside the lines. You could have a strategy that takes advantage of differentials between strongly-linked cryptos like BTC and ETH and then you see Ethereum is too low so you stock up on ETH with the expectation that it will rise again to go back to its typical position. But it could be that the whole industry is just going down and you have missed the memo because your head is too stuck in the charts.
To avoid a catastrophic situation like this just be sensible and keep one eye on the crypto news and one eye on the charts. Always ask questions and don’t rely too much on the data, always be critical and think “What could be causing this behaviour,” before committing to any positions.
Not analysing the correct spread
When trading, many exchange users will look at the top of the order book to get the spread without overthinking it. They will then assume that these are the prices they will get when they trade.
The order book will always display the lowest price that someone will sell an asset and the highest price that someone will buy it however here is the thing: that does not mean that you can sell some the amount that you desire for that price. Actually, the amount of any given asset that users are happy to buy and sell at the top of an order book are usually much smaller than you want them to be. For a day trader who might want to sell a larger amount, this means you should dive a little further into the order book and find someone who is offering a price that isn’t quite as good as the market price.
So should you be day trading at all?
After reading through the pros, cons and pitfalls of cryptocurrency day trading, you might be wondering if it’s worth doing at all and yes, we understand completely. You need a lot of time, patience and effort to day trade and even worse - you can become short sighted when it comes to the market. For example, imagine you are day trading Bitcoin and have created your own rule that says you’ll sell when the price is 10% up. Well your price comes and like a proper day trader, you follow your rule and sell but after, the price keeps rising and rising because the market sees Bitcoin’s potential and you have lost out on big gains.
Day trading can be a profitable endeavour for those who have the time and are willing to put in a lot of effort with the setup. It requires a delicate combination of technical analysis, news analysis and common sense to successfully day trade and that is not easy at all.
There are ways to make your day trading life easier though. You could automate everything. In other words, you can build a cryptocurrency trading bot to do the hard work for you and execute your trades 24/7.
As humans, we can only work so effectively making calculated and important trading decisions before taking a hit to productivity for a while. It can be exhausting to constantly have to read the charts and make split-second choices. Bots, however, are incredibly efficient and make those choices for you, executing upon mind-numbingly long and complicated algorithms in a second’s notice. Furthermore, bots will not suffer from FOMO or FUD and will only react to cold, hard data. They are also not interested in the news cycle and don’t have Twitter so they aren’t subject to fake news or pump and dumps. On top of all that, your bot likes the volatility and immaturity of the cryptocurrency market as it can perform well thanks to the frequency of uptrends followed by downtrends.
You might be thinking ‘This all sounds great but can’t build a bot so this is useless.’
With Trality, anyone can create an automated trading bot and we have two tools available for you to try: one for coders and one for are not so into code but still have a good grasp on trading fundamentals.
This unique tool is designed for those who do not want to code but you can reap all the same rewards of algorithmic cryptocurrency trading. You just use Boolean Logic and drag and drop selected indicators and strategies into your algorithm before backtesting and deploying on an exchange.
The Python Code Editor
Our Python Code Editor is a flexible and rich tool that allows developers to make use of their coding knowledge to create intricate and advanced strategies securely and fast. The Editor itself comes with a debugger and a range of libraries which includes Pandas, NumPy, Tulip and more. We also recently updated the trading engine too and it not features a list of powerful and helpful updates.
You can get started coding your own bot even quicker with our handy bot template!
Currently, users are able to deploy their bots on a number of the most popular platforms including Binance, Coinbase Pro, Kraken and Bitpanda. Start your day trading journey with Trality now.