Cryptocurrencies are becoming more popular as trading instruments. Crypto investors and traders have a wide range of trading methods and techniques to select from. In this session, we will go over the fundamentals of day trading digital currencies and highlight some of the most crucial factors to consider while participating in short-term trading.
Best Cryptocurrencies to Trade Today
Before we can explore the various techniques for day trading cryptos, we must first research the various crypto currency trading instruments and choose those with the greatest characteristics for short-term day trading chances. In this choosing procedure, there are many factors to consider. Daily volatility, average volume traded, market capitalisation, and transaction fees are some of the most significant characteristics to look for.
The average high low range inside a trading instrument is referred to as daily volatility. The greater the daily volatility, the more likely it is that the market will create a movement large enough to cover our trading expenses and give a decent return. The level of involvement in a trading instrument is referred to as trading volume. The greater the trading volume, the simpler it will be for us to execute deals at the desired level with little price slippage.
The whole market value of a single traded item is referred to as market capitalization. Many new crypto traders are acquainted with market capitalization in the context of equities. When we apply it to cryptos, the principle remains the same. Cryptocurrencies with bigger market capitalizations, like blue-chip stocks, are seen to be more safe and secure. Bitcoin is by far the most valuable crypto in terms of market capitalization in the crypto markets.
Transaction costs may manifest themselves in a variety of ways. This includes fees paid to your cryptocurrency broker, bid-ask spreads when buying or selling your digital coin, and additional execution charges like slippage.
Also Read: How To Purchase Bitcoin Cash
When choosing a crypto to day trade, it offers critical to stay with those that have the narrowest bid-ask spreads and find a broker with the lowest trading costs. While this is a good concept regardless of period, it is more important for shorter-term traders.
Now that we have covered some of the characteristics that make a cryptocurrency appealing for day trading, let us look at a few coins that meet these criteria, putting them among the best cryptocurrency for day trading.
First and foremost, Bitcoin is at the top of the list because it offers all of these critical attributes. Furthermore, Ethereum is a good tool in this sense, making it ideal for crypto day traders. Aside from these two popular cryptos, we may also include Binance Coin, Tether, Ripple, and Tron to the list.
Although these are not the only digital currencies that work well with a day trading period, they are the most apparent options based on the most significant characteristics that we have discussed above.
Discretionary vs. Systematic Crypto Day Trading
There are two main types of trade execution. The first is what is known as a discretionary approach. The second approach is what is often referred to as a systematic approach. A discretionary approach is one in which most, if not all, decision-making procedures are handled exclusively by the individual trader. This comprises trade selection, trade execution, and trade management.
A systematic approach is one in which the majority, if not all, of the decision-making processes are delegated to an algorithmic model or trading system. The trader is in charge of programming all of the rules into the algorithmic trading system, and all trade-related activities are then executed out via the algo based on the rules defined inside it.
The question of whether it is best to approach the cryptocurrency markets in a discretionary or systematic manner often arises. This is not a simple question to answer. This is due to the fact that the ideal approach is not universal, but rather is strongly reliant on a trader's skills, limitations, and personality factors.
For example, there is a subset of traders that are more visual and hence excel in chart reading and pattern detection. These types of traders are more likely to use a discretionary trading strategy.
Another group of traders, on the other hand, excels in data mining and statistical modelling techniques. This group of traders generally has a background in computer science or engineering, and as a result, they are more inclined to use a systematic trading technique.
As a result, each crypto trader must do an internal audit of their personal attributes to determine which style is appropriate for them.
Each approach has pros and downsides, just like anything else in the market. As a discretionary crypto day trader, you have a great deal of leeway in your decision-making processes. While this independence may be advantageous, it can also be difficult for certain traders. All of this additional flexibility, in particular, may sometimes lead to analysis paralysis, which can be quite unhelpful to say the least.
A system-based crypto day trader is free of any decision-making processes associated with market execution. From an emotional standpoint, this may be extremely advantageous; nevertheless, leaving all trade-related considerations to an algorithm might backfire at times, especially when market circumstances shift suddenly owing to some unforeseen incident or black swan. During these moments, market choices may be best handled by a person rather than a computer.
Strategies for Crypto Day Trading
So, what are the greatest strategies to day trade crypto? Let us have a look at some of the numerous methods for day trading bitcoins. Technical analysis, fundamental analysis, and sentiment analysis are the three basic market analysis categories.
Technical analysis attempts to anticipate future price movements by assuming that prices tend to repeat themselves in a repeating fashion, and that although these recursive patterns may not seem to be precisely the same, they are similar enough to be utilized as a forecasting tool.
Indicators like as the Relative Strength Index, Stochastics, and MACD are used in certain technical analyses. In addition, technical analysts may employ support and resistance levels, as well as supply and demand levels. Horizontal lines that represent major price levels, diagonal lines such as trendlines and channels, and hidden levels such as Fibonacci-based ratios inside the price movement are some of the more popular types of support and resistance.
Fundamental analysis is a kind of market analysis that is often utilized by financial market day traders. When it comes to market analysis for stocks, bonds, fiat currencies, and commodities, fundamental analysis is much more popular. Fundamental analysis is employed less widely by crypto day traders.
One of the key reasons for this is because there are not many daily economic reports or tradable news events involving large digital currency. Nonetheless, crypto traders may and do utilize basic analysis to anticipate the price of digital currencies when appropriate.
Also Read: Key Info On Cryptocurrency Market
Sentiment analysis is employed by crypto currency traders less widely than technical and fundamental analysis. Attitude analysis is examining the general sentiment inside a certain market to determine if it is oversold and due for a rebound upward, or overbought, in which case a price correction is anticipated.
There are several types of sentiment analysis tools available. The Commitment of Traders report, which shows the positions of the three primary trader groups - commercials, big speculators, and tiny speculators – is one of the most popular.
In general, sentiment analysis techniques are mean reverting. That is, emotion analysts look for inflection points when the price has gone too far and is about to return to some mean or median level.
Day Trading System for Cryptocurrency
Now that we have established some fundamentals, let us see if we can build a simple strategy for day trading the crypto market. This trading strategy will make use of two technical indicators that are widely accessible in most charting software.
The Keltner channel is the first indicator employed in this short-term crypto trading technique. The Keltner channel is simply a price-overlaid band. The Keltner channel's default parameters are 20 for the lookback time and a 2X multiplier. Within this strategy, we will alter the settings somewhat by using a 1X multiplier instead.
The momentum indicator is the second indicator employed in this crypto day trade method. As the look back period, we will utilize the default values of 10 periods.
This strategy works well with Bitcoin and Ethereum, but it may also be used with other highly liquid digital currency. The 15-minute chart will be the favoured timescale. However, bear in mind that with the 15 minute chart, the trade might run longer than a day. However, if you want to trade this strategy as a pure day trading strategy, the five-minute chart would suffice.
The following are the rules for a long position:
A bullish candle must be completely above the top Keltner band to be noticed.
When the preceding condition happens, the momentum indicator must read at or above the zero threshold.
At the open of the following candle, enter a buy order on the market.
The stop loss should be set at the most recent swing low prior to the buy entry.
The trade will be exited if a bearish candle closes below the lower Keltner channel.
Here are the rules for taking a short position using this strategy.
A bearish candle must be completely below the lower Keltner band to be observed.
When the aforementioned circumstance happens, the momentum indicator must report a reading that is equal to or less than the zero threshold.
At the open of the following candle, enter a sell order on the market.
The stop loss should be set at the most recent swing high prior to the sell entry.
The trade will be exited if a bearish candle closes above the upper Keltner channel.
The beauty of this strategy is that it is a straightforward short-term trend-following method that aims to capitalize on a potentially powerful trend in its early stages of development. Additionally, for individuals interested in automatic execution, this strategy may be readily put into a mechanical trading system.
Example of a Crypto Intraday Trading Strategy in Bitcoin
Bitcoin, BTCUSD, is depicted on the price chart below using the 15 minute period. The light blue band overlaid on the price is the Keltner channel, with our unique configuration of a 20-period look back and a 1X multiplier. The momentum indicator is visible in the bottom pane below the price action, with the look back setting set to 10 by default.
The overlapping price action shows that there was a big price move down at the far left end of the chart, which led to a period of consolidation. After some time has passed, we can observe that a powerful bullish candle, resembling a marubozu candlestick, has closed above the upper Keltner channel. This would have alerted us to a likely trend change that may lead to future price hikes.
We would, however, have waited for our indication before entering the trade. Remember that our buy entry signal appears when a bullish candle is completely above the upper Keltner channel. In addition, we want to make sure that the momentum indicator is reading over zero at the same time. This occurrence occurred on the second bar after the marubozu candle. As a result, we would have placed a market order to buy on the following opening candle.
After our long trade was executed, we would turn on to the stop loss placement. The stop loss would be set at a level below the entry price, corresponding to a recent swing bottom. The black dashed line is the most acceptable technical level to place the stop loss at.
From here, we would keep a careful eye on the price movement for the exit signal to appear. We would exit this trade either when the stop loss is reached or when a bearish candle closes below the lower Keltner channel. The price chart shows us where this exit trigger occurred. The trade turned out to be highly lucrative in this case.
Example of a Crypto Day Trading Strategy in Ethereum
In the previous example, we showed a bullish crypto day trading setup on Bitcoin utilizing our strategy. Let us have a look at what a bearish setup looks like. In this example, we will show how to build up a bearish crypto day trade on Ethereum ETHUSD using our strategy. The 15-minute period chart for Ethereum ETHUSD is shown below.
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| Crypto Day Trading |
The rules for entering a short position will be similar to the previous example, but in reverse. As we can see, the price action began to go downward, and we were able to identify a bearish candle trading completely below the lower Keltner channel.
We can also confirm that the momentum indicator was reading below the zero line at the time this occurred. Remember that the 0 line in the momentum indicator is the solid black line. And we can see that the momentum indicator line is firmly below the zero line.
We must now prepare for a short position now that we have confirmed the existence of a bearish set up. We would enter a market order to sell immediately on the next candle. By referring to the blue arrow labelled Sell, you can see where that sell entry order would have been initiated.
When we are in the short position, we will turn on the stop loss placement. The stop loss should be set higher than the most recent swing high preceding the sell entry signal. The best place to place that stop loss is shown by the black dashed line above the sell entry.
From here, we would actively monitor the market to ensure that we exited the trade at the appropriate time. Based on our exit rules, we would exit this trade in Ethereum in full either when the stop loss is triggered or when a bullish candle closes above the upper band of the Keltner channel. Referring back to the chart, you can see where the exit was triggered. We were also able to benefit handsomely from our short-term crypto strategy in this case.
Final Thoughts
Day trading crypto currency may be very profitable, but it is a fast-paced market in which traders must remain concentrated at all times. In any market, short-term trading is generally more difficult than intermediate or longer-term trading horizons. However, this is much more obvious in the crypto markets since the volatility of most digital currency is often significantly greater than that of traditional financial assets.
Because market timing is crucial at lower time frequencies, most traders that scalp or day trade crypto use some type of technical analysis. Some of the most computer and software aware traders use a systems-based approach to profit from intraday price swings without being physically tied to their computer displays.
Regardless of the execution model or strategy utilized, it is critical that traders participating in the business of day trading cryptos comprehend all of the risks involved and prepare for the unexpected.
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