Introduction to Day Trading

day trading Aug 30, 2021

A detailed guide for beginners on the day trading strategy.

In the volatile world of cryptocurrency trading, the difference between making a profit and losing all you’ve invested can be as simple as knowing which trading strategies to implement at different points in the market.

Having earlier discussed trading strategies such as Scalp Trading and Dollar-Cost Averaging, this week we will be discussing the Day Trading strategy and how both rookie and experienced traders can implement this strategy.

Many trading strategies are typically implemented over week, month and year-long periods, unlike the day trading strategy and in this post, we will explain how this works and how to best take advantage of it such that by the end of this article, you will be able to safely invest your hard-earned money in the crypto market using this strategy.

What is Day Trading?

As the name implies, day trading is a trading strategy implemented on a day-to-day basis which involves the buying and selling of cryptocurrency assets in a very short time period (usually in a day or less). The term itself comes from traditional stock market practices when assets trading was done only during business hours.

How does the day trading strategy work?

As the main goal of day traders is to profit off daily price changes, extensive knowledge of the market is required as well as some experience with making trades. In addition to this, traders will also need to dispense with fundamental analysis as that kind of long-term approach is at odds with the goal of day trading which is to take advantage of the daily market volatility.

Traders will also need to ensure that they’re plugged into events happening around the world. For example, if Elon Musk or Tesla obtains a huge amount of Bitcoin, then you most likely want to buy some immediately before the price predictably increases. It also works the other way, if a country cracks down on Bitcoin and miners, chances are value of the crypto asset drops immediately the news goes mainstream.

As a day trader, you also need to ensure that you have the funds available to execute trades at a moment’s notice. Using Obiex is also an advantage for day traders because you do not need to wait for confirmation before executing your trades. This buys you the precious extra minutes or seconds you need that will be the difference between you making a profit that day or losing most of your investment(s) because you had to wait for your transaction to be confirmed.

Another important factor is to target only coins that are very volatile and have high liquidity. This is because you’re trading within a condensed time frame and as such, you need the asset you’re trading to increase or decrease in value within that same time frame. An example of a highly volatile crypto coin is Bitcoin but if you want other options, you can check out this Yahoo! Finance list .

Bitcoin volatility graph over a five-year period © www.coindesk.com 

What is the best way to execute the day trading strategy?

Since day trading is about taking advantage of the daily swings of the crypto market, you can borrow from some other trading strategies and scale down for the short period you want to execute your daily trades. Some of these strategies are:

Scalp Trading: As we discussed here, scalp trading is a short-term trading strategy that involves stretching out numerous small trades over a day to benefit from small price changes. This strategy is based on the widely-known fact that smaller moves occur more frequently than large moves and are also easier to get.

Since traders who favor this strategy prioritize quick, easy profits over prolonged trades, it’s a perfect strategy for day traders to use as well.

To execute this strategy properly, you will need to combine precise decisions with a knowledge of how the market works and stay abreast of all crypto-related developments as they happen.

Scalp trading graph © www.tradingstrategyguides.com

Range Trading: Traders who use this strategy target the price movement between high and low price levels in a specific day. This basically means that as a day trader using this strategy, you can choose to go long or short depending on the position of the asset price within the set range.

The key to this strategy is basically: buy when asset price hits the set support level and sell when the asset price hits resistance.

Support is the price level reached where the value of a particular cryptocurrency asset drops and at the same time,  the demand for it  increases. This is caused by the concentration of demand which will arrest the decrease in value of the particular coin.

Resistance refers to the zones that are created by selling interest as prices increase.

Range trading graph © www.investopedia.com

Arbitrage: One of the advantages of trading crypto is that the value of crypto assets differ across cryptocurrency exchanges; the value of Bitcoin on Obiex might differ from the value of Bitcoin on Quidax. This gives savvy traders the ability to make a quick profit by buying crypto at a lower rate on one exchange and selling at a higher rate at another.

Arbitrage trading © www.cryptoknowmics.com

Sentiment-based trading: This strategy involves using publicly-sourced information to predict what direction the crypto market is leaning.

As mentioned above, positive news like Elon Musk tweeting favorably about Dogecoin and negative news like China destroying mining rigs can affect the price of whatever crypto asset you hold.

Staying abreast of the news and making sure you’re in the right position to act on them before most of the market can yield smart traders very favorable returns.

Market sentiment-based trading © www.investopedia.com 

Pros and cons of Day trading

Pros: there are some benefits to day trading such as -

Market Volatility: While crypto markets are (in) famously volatile, canny day traders can make regular profits simply by knowing how to take advantage of that volatility and flipping their crypto assets several times a day.

Constant Market Access: While the name “day trading” is adapted from conventional stock market trading, the strategy is a bit different in the crypto space because unlike the stock market, the crypto market never really closes.

This means that while day traders still operate day-to-day, they can still observe market trends even when trades are not being made. This can help them to keep abreast of developments and put them in a good position to strike and execute their preferred trades at the right time.

Cons:

Market Volatility: While this is an advantage for a savvy day trader, it can also be a disadvantage. The famously chaotic nature of the crypto market means that a tweet from a CEO or any other market disruptor somewhere can turn the market on its head and leave you with a loss if you’re not out ahead of whatever is causing the volatility at any given point.

Smaller profits: While the opportunity to make smaller profits over a short period exists, the market does not jump enough over the period of executing a day trade to bring a substantial profit. This means that when crypto assets go on a bull run, day traders will get only a small portion of the profits gained.

FAQs

1. Can I execute the day trading strategy on the Obiex app?

Yes, you can! The beauty of the day trading strategy is that you can try it with almost any strategy and it will pay off as long as you’re patient and move to execute trades without any hesitation.

It also helps that our platform allows you to execute your trades without confirmation, allowing you to complete your trades in time and take advantage of the volatile swings of the crypto market.

2. What crypto coins are best for day trading?

The best coins for day trading are liquid and volatile which means Bitcoin is always an option for day traders. For a comprehensive, daily list of volatile crypto assets, check out this Yahoo! page.

3. Are there any restrictions to my day trading?  

No, there aren’t. To begin day trading, simply create an Obiex account (if you haven’t done that already) and start trading. However, keep in mind that you need to plan your approach before you start day trading.

4. Are there any extra fees I will need to pay?

Not on Obiex, no there aren’t. You can start your day trading without worrying about paying any extra fees, trading volatile coins for stable coins are free on Obiex.

Disclaimer: this article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive list and should not be taken as financial advice. Obiex Finance will not be held liable for your investment decisions.

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