How To Day Trade Cryptocurrencies

Day trading is a set of techniques used to take advantage of short-term changes in commodity prices. As the name suggests, the goal of a day trader is to end any given trading day with their holdings worth more than they started with.

Cryptocurrency day trading is no different. However, cryptocurrency day trading is even more of a high-risk, high-reward activity. With an effective trading strategy, you can be on your way to crypto riches in no time! But first, you need to have a deep understanding of how to day trade cryptocurrencies to avoid unnecessary losses.

• How to Day Trade Cryptocurrencies
• Crypto Day Trading Strategy
• What experts say about day trading cryptocurrencies
• Crypto Day Trading 

How to Day Trade Cryptocurrencies

The main starting point for trading cryptocurrencies is to own a certain amount of your chosen currency (such as Bitcoin) and have the means to exchange that currency.

From there, you can use one of the day trading strategies below to start day trading cryptocurrencies.

Crypto Day Trading Strategy

The difference between gambling and trading is effective strategy. A good strategy can be the difference between one or two lucky streaks and consistent long-term returns. In different situations, you can use different trading strategies depending on the nature of the market and your skills. It is up to you to understand the market and decide when it is appropriate to apply a given strategy.

Here are some cryptocurrency trading strategies that you can use to gain a deeper understanding of how to trade cryptocurrencies.

high frequency trading (HFT)

High frequency trading is a technique where you take advantage of price changes that occur in seconds or fractions thereof. The frequency in question is typically in the order of tens of trades per second – far beyond the capabilities of a human trader.

The only way to engage in high frequency trading is by using software known as trading bots. The bot follows the market and executes trades based on the given trading logic continuously as long as it is connected to the exchange. By implementing specific trading logic, high-frequency trading can be combined with many other strategies.

Scalping

Scalping is a strategy for making a small profit from a large number of trades that adds up to a larger profit. Scalping uses large amounts of liquidity (currency) to take advantage of small price changes over a short period of time. The time horizon is generally a few minutes, but can be as short as seconds or hours.

Range Trading

Range trading is based on the assumption that cryptocurrency prices will normally - in a given period - only move within a certain range. A price movement outside of this range is believed to indicate that the price is about to undergo an abnormal change. For example, if the price drops below the bottom of the range, it could indicate that it is time to sell – provided it is the start of a significant downward swing.

Technical analysis

Technical analysis is a statistical trading strategy. By performing various statistical calculations on historical price data, you attempt to detect market trends. Technical trading is based on the belief that past prices have some bearing on what future prices will be.

News and sentiment analysis

News and sentiment analysis is similar to technical analysis with one major difference: it is based on predicting human actions and reactions, rather than price trends. Using news and sentiment analysis, you try to predict whether the demand for a given cryptocurrency will fall or rise by analyzing different sources of information. By analyzing sources, you try to understand the social consensus about this currency and predict what actions people will take. The source of this data is industry and mainstream news media as well as social media posts.

What experts say about day trading cryptocurrencies

Before you quit your job and start day trading cryptocurrencies, let's see what some experts have to say about it.

"The everyday individual looks at cryptoassets as an investment or opportunity to build wealth, but most people shouldn't invest in them."

Explaining why this was his stance, Ross said: “It can work for the right person, but there are so many things that are important before you get there, like having emergency savings, paying off debt and setting your financial goals. If you haven't, you shouldn't be trading cryptocurrencies."

Taylor Greenberg, head of business development at Allnodes, isn't saying you should avoid day trading cryptocurrencies altogether, but he recommends only doing so if you fully understand the assets and their underlying technologies:

Greenberg went on to say that she thinks most people who do it will be profitable: “Crypto day trading is a risky business. Invest what you can afford to lose. But if you treat day trading with the same respect as any serious job and learn all about the craft and the assets you trade, you will be profitable.”

Which cryptocurrency is best for day trading?

The highly volatile and highly volatile nature of cryptocurrencies means that any blanket statements about "best" and "worst" are likely to be out of date within a few months. A simple way to decide if a given cryptocurrency is a good candidate for trading is to see if it has high liquidity (a large amount of fiat currency associated with it, often expressed as "market cap=-≥ ) and high trading volume (a lot of people with it trades). In general, both of these numbers should be in the range of several hundred million USD or more.

What is the crypto day trading tax rate?

Governments around the world are trying to create regulatory frameworks for cryptocurrencies. In the United States, the legal classification of cryptocurrency as securities, commodities, currency, or property remains somewhat ambiguous. However, the Internal Revenue Service (IRS) already recognizes gains from the value of cryptocurrency as taxable.