Achieve Confluence: Crypto Day Trading Strategy
Cryptocurrency markets are excellent for day traders. Their volatility means the rewards can be huge if you know what you are doing.
But they are also very high risk. You need to know the different techniques, when to use them, and what to avoid, or you could lose a lot of money.
This article explains the basics of day trading crypto. In it, we’ll cover:
- What crypto day trading is.
- The pros and cons of day trading crypto.
- How to start day trading crypto.
- Some of the basic crypto day trading terms.
- How to choose a currency.
- What the best cryptocurrencies for day trading are.
- What to avoid when day trading crypto.
If you can get your day trading strategy right, you can achieve confluence. What do we mean by that?
Confluence is when you create an overarching trading strategy by calculating your risk profile, planning your goals, and then using several trading techniques to achieve them.
To be a successful trader you need to have a strategy to guide you. Therefore, new traders should not open their first position until they have achieved confluence.
What Is Crypto Day Trading?
Day trading is a strategy where you take advantage of very short-term increases and decreases in a crypto asset’s value to make a profit.
The aim is to have higher value holdings at the end of the trading day, to those you’ve started with.
The techniques that you use to do this tend to be different from long and medium-term trading.
What are the Pros and Cons of Day Trading?
Before you begin day trading, it’s worth considering if it’s right for you by understanding the pros and cons.
✅ Set your own financial goals and work at your own pace.
✅ You can make big profits.
✅ Ideal for using leverage (trading with borrowed funds).
✅ You can get good returns even when the market is in a bear run.
✅ Quick return on investment.
✅ It’s possible to make a profit with relatively little effort.
✅ There’s so much to learn that you can keep improving your trading skills for many years.
❌ Large potential losses.
❌ Some positions can cost several thousand dollars to open.
❌ You need to learn how to be a disciplined trader.
❌ You need to spend a lot of time watching the market.
❌ Volatile markets mean that it can be stressful.
❌ You need to calculate the tax that you need to pay on trades.
How to Start Day Trading Crypto
Learning how to trade crypto effectively takes a lot of time and patience. But getting set up on a day trading platform is quick and easy.
Here’s how you do it:
Understand the market
This is the hard part.
Before you begin, make sure you understand everything there is to know about crypto. This includes:
- The different coins available.
- Trading platforms.
- Crypto indicators.
- Crypto charts and how to read them.
- Trading strategies.
- The psychology of trading.
- The latest crypto news.
You need the skills and knowledge to identify whether a cryptocurrency is likely to increase in value within the next few hours.
If you don’t, then you could lose a lot of money fast.
Open an account on a reputable trading platform
Next, find a crypto trading exchange that is suitable for day traders and is supported in your country.
A really good example is Bybit, but there are many others. Just make sure that the one you choose has a good reputation for security and liquidity.
Deposit money into your trading account
You need to deposit fiat currency or a crypto asset into your account to open your first position.
If you want to trade crypto with leverage, then you may have to provide a minimum margin balance which could be thousands of dollars
Basic Crypto Day Trading Terms
Before you begin learning to day trade, there are a few terms that you’ll need to be familiar with.
This is when a crypto asset’s value is in a growth period.
This is when a crypto asset is in a period of decline.
This is a longer-term trading strategy that involves holding positions for weeks or even months. This is a higher-risk approach that can result in greater profits, but also greater losses.
This is when an investor holds a crypto asset for months or even years. This increases the potential risks and rewards even more than with swing trading.
Support and resistance
Support and resistance are price levels that a cryptocurrency finds difficult to break through.
Support is the level a currency’s price struggles to go beneath and resistance is the level a currency’s price struggles to go above. They often feel like barriers, and the price will usually appear to bounce back up or down after hitting one of them.
They are useful for traders because if a price is at or near one of these lines, then it is likely to change in the near future.
Short selling is an advanced trading strategy where you profit from an asset’s value declining.
Traders who short sell, borrow an asset and then immediately sell it. They then buy it back after the value has declined and give it back to the owner. They keep as a profit the difference between the original sale price and the price that they bought it back for.
It’s sometimes called taking a short position. It’s the opposite of investing in growth, which is known as taking a long position.
What are pairs?
Cryptocurrencies are commonly traded in pairs.
Pairs show the value of exchanging a coin for either a fiat currency or another cryptocurrency. They are shown as two acronyms on either side of a forward slash. The first of these is the base currency, while the second is the one that it is being valued against. They are then followed by a value.
So for example a Bitcoin U.S. dollar pair would be:
So you get $19,564.40 for each Bitcoin you trade.
The same goes when you are comparing two different cryptocurrencies. Here’s an example using Bitcoin and Ethereum:
So each Bitcoin is worth 14.74 Ethereum coins.
Crypto pairs are important for a variety of reasons. The two main ones are:
- They allow you to quickly and easily trade between different assets.
- They form the basis of fiat-backed stable coins, like USD Coin and Binance USD.
Day trading orders
These are instructions you give to a broker or an exchange to buy or sell crypto assets. Some common ones include:
You open a position by purchasing a number of coins, or you close a position by exchanging a certain amount of cryptocurrency for a fiat currency. Note that this works in reverse when short selling.
Allows you to specify the minimum or maximum price that you want to open a trade at. A buy limit order will only be placed once the asset value drops below your requested price. A sell limit order will only be placed once the value goes above your requested price.
Your position is automatically closed when the asset’s value drops to a certain point. Stop losses are usually used as safety nets to avoid large losses and to help lock in profits if a currency’s value suddenly drops.
Your position is automatically closed when the asset’s value reaches a certain level. Take profit orders are used to ensure that you don’t miss out on your target profits.
How to Pick Crypto for Day Trading
No two days are ever the same in the world of crypto. The best coin to day trade today may be the worst one tomorrow – so you should always do your research and have a trading strategy in place.
There are several factors to consider when choosing which coin to day trade.
Volume and Liquidity
Volume is the number of trades that are made on a crypto asset and liquidity is how much capital traders have invested in it.
If an asset doesn’t have enough volume or liquidity, then you may not be able to make a trade, either because there are no buyers or sellers, or because you cannot get a good price.
Bitcoin and Ethereum are good examples of popular coins with lots of liquidity.
The more volatile a currency is, the better the potential profits. But it also means that there are greater risks.
Beginners may want to choose a less volatile currency to begin with and then move on to riskier coins as they gain experience.
But, choose a coin that’s too stable and you won’t make any money at all.
The key is to work out each currency’s average daily volatility spread—in other words, the difference between the highest and lowest trades each day over a period of time.
Once you have done this, you can choose a currency that suits your risk appetite.
A spread is the difference between what you have to pay to open your position and what the buyer is willing to pay.
An important element of this is the fees that you are charged to trade. These differ between platforms, exchanges, and currencies.
You need to ensure that your position doesn’t just grow, but grows by more than the cost of the spread. Otherwise, you will lose money.
Successful traders try to balance volatility with the size of the spread. Usually, highly liquid crypto pairs like Bitcoin and Ethereum have tighter spreads, while newer coins with poorer liquidity have large spreads.
Newly launched currencies
The value of a cryptocurrency tends to grow rapidly shortly after it’s been launched. This is usually because of the level of anticipation that is built up by the owners.
New projects like this are excellent day trading opportunities. Monitor the following places to spot them:
- Crypto exchanges.
- Crypto data aggregators.
- Social media.
- Initial Coin Offering (ICO) websites.
- Tools like TokenSniffer.
- DeFi Platforms.
- NFT marketplaces.
Announcements and news
You should monitor crypto news every day to spot things that could impact a currency’s value.
This is especially important in crypto markets. That’s because for now, most coins have limited or no use in the wider economy.
This means that trends and sentiment are the main factors that drive their value.
News that could cause a currency’s price to increase, include:
- It gets listed on a high-profile exchange.
- A high-profile investor buys it.
- A large company announces that they will accept it as payment.
Negative news will cause a currency’s value to fall. But this can be a good opportunity to short sell—but you should only do this if you are an experienced trader.
What are the Best Cryptocurrencies for Day Trading?
Here is a list of cryptocurrencies that are popular with day traders.
Bitcoin (BTC) – This is a great place for beginners to start. Bitcoin has the highest liquidity and trading volume of any cryptocurrency, so you won’t need to worry about not being able to place your trades.
It’s also more stable than other digital currencies, but there is still enough volatility for you to make a profit.
Bitcoin is high profile, so monitoring news on events that affect its value is easy.
The downside is that a single Bitcoin costs nearly $20,000—which may make it too expensive or risky for some traders. To solve this, some platforms will allow you to buy fractions of a coin.
Ethereum (ETH) – Like Bitcoin, Ethereum has high liquidity and volume. But its lower price and higher volatility make it more suited to day traders.
Like Bitcoin, Ethereum is high profile, so you’ll have no problem monitoring its progress.
Best of all, it’s very predictable, with clear support and resistance levels. This makes it ideal for day traders with a low risk tolerance.
Binance Coin (BNB) – As the name suggests, Binance Coin was launched by Binance—the world’s largest crypto exchange.
It can be used to pay for fees on Binance and is also accepted by a growing number of businesses.
This has made it stable and caused it to have low volatility. This means that it is perfect for day traders who use the scalping technique (see below).
Chainlink (LINK) – Chainlink is working on a number of technology developments that look set to give it excellent utility. Because of this, it is getting a lot of attention and is currently considered to be undervalued.
This makes it attractive to investors and day traders alike.
Chainlink is listed on all of the biggest crypto exchanges, which gives it excellent liquidity.
The downside of Chainlink is that it doesn’t have any utility at the moment, so you will be trading in a purely speculative asset.
Ripple (XRP) – Ripple was designed as a bridging currency. In other words, it is exchanged with different real-world currencies, providing a fast, easy way to facilitate global transactions.
It has seen a surge of new traders in recent years. It offers a good balance of volatility and volume.
It also has one of the largest communities of any currency, meaning you can keep up to date with the latest developments.
Crypto Day Trading Strategies
Successful crypto day traders always have a strategy. This helps them keep a cool head when the pressure is on, stops them from panicking or getting greedy, and helps them make logical trading decisions.
Here are a few day trading strategies that you can use:
This is when you make a large number of small, low-risk trades in one day.
Scalpers need a direct access broker to make trades immediately and have to choose crypto assets with very tight spreads.
The downside of scalping is that one large loss can undo all of the many small wins that they have achieved. It also requires a lot of time, effort, and stamina.
If a crypto asset’s value stays between predictable levels of support and resistance, then it is said to be trading in a range.
This predictability can be used as a trading strategy. You open a position when it hits support and then sell again when it hits resistance, and repeat this pattern.
Similar to scalping, this is a relatively low-risk, high-volume, and low-profit trading strategy. The biggest threat is if the currency experiences a breakout—in other words, the range trend comes to a sudden end and it begins a bull or bear run.
- Miss the beginning of a bull run and you could be leaving profits on the table.
- Miss the beginning of a bear run and you could face losses that wipe out your profits.
High-Frequency Trading (HFT)
This is when a trader makes a large number of very fast automated trades using sophisticated software.
The software uses data to identify trends and predict the market. It then automatically places orders.
This maximizes profits, minimizes losses, and gives them an edge over other traders.
Unfortunately, the technology required to do HFT is not widely available and it is mainly performed by institutional investors.
Traders often see ads offering cheap HFT services, but upon further investigation, these often turn out to be either poor quality or scams.
HFT platforms are controversial because of the impact that they have on crypto assets. They can add or take away huge amounts of volume and liquidity in seconds, and give wealthy or institutional traders huge control over market movements.
Crypto exchanges often list the same assets at different prices. You can leverage these differences as a day trading strategy by buying crypto from one marketplace and selling it to another for a higher price.
To be effective at arbitrage trading, you’ll need to open accounts on several exchanges and check the spread of each before every trade.
Arbitrage trading can be a good strategy when there is little movement in crypto markets. But it requires a lot of research and admin. You also have to act fast when you spot an opportunity, as others are likely to have noticed it too.
Some crypto platforms provide tools to copy the orders of more experienced traders. It works by automatically placing the same order as the person you are copying.
However, you don’t invest the same sum. Instead, you invest an amount that is proportional to your copy trading account’s balance.
Let’s say you are copying a trader and you have $1,000 in your account. The trader has $10,000 in their account and opens a position for $500. Your position would be opened with $50.
Copy trading is very low effort, but it can also be very high risk. Even professional investors make mistakes and this can lead to unaffordable losses.
The other downside to copy trading is that you don’t get the decision-making experience that will make you a better crypto trader.
This is when you use price indicators and charts to spot trends. You then use this information to try and predict the most profitable moments to open or close your positions.
To use technical analysis effectively you need to have strong knowledge of the markets, as well as the different indicators and charts. Some of the most common indicators include:
- On-balance volume indicator (OBV).
- Moving averages (MA).
- MACD charts.
- Ichimoku Cloud.
- Relative strength index (RSI).
- Bollinger Bands (BB).
For example, RSI indicates the speed and magnitude of a price change. If the RSI line begins to deviate from a trend, then it suggests that the price is losing momentum and it is likely to change in the near future—meaning it could be a good time to open or close a position.
All traders should understand technical analysis as it helps them understand the market.
However, charts and indicators aren’t always right. Current events and other factors impact the value of crypto assets, so technical analysis needs to be performed alongside other research.
Things to Avoid while Day Trading
Being a successful crypto day trader isn’t just about knowing techniques. You also need to have the right mindset.
Following the tips below will help you make steady gains and avoid major losses.
Inexperienced traders are often driven by fear and therefore open or close positions too early.
They often buy once a trend is running out of steam, or sell before they have given their profits a chance to run.
This minimizes their potential earnings and can even cause big losses—especially if they haven’t calculated the spread correctly.
The key to avoiding FOMO is to have a strategy, a defined risk tolerance level, and to be disciplined.
If you are losing money trading crypto, consider whether you are making too many trades in a day.
Making lots of trades every day is a sign that you are either not sticking to your strategy, trading on emotion, not researching your move correctly, or all three.
Every trade you make costs money in fees, which will exacerbate any losses you make.
Therefore, every order you place should be a well-researched and considered move.
Trading more than you can afford to lose
Never trade crypto with money that you can’t afford to lose. Cryptocurrency markets are volatile and you could lose significant amounts of money if you don’t know what you are doing.
Losing $250 is bad news, but it’s even worse if you needed that money to pay bills or food to feed your family. Many traders have lost far more than that.
If you don’t have any spare money to trade with, then consider getting a second job or starting a side hustle to generate some funds.
Then invest in proper education so that you know what you are doing when you come to trade.
Not doing enough research
You should never make a trade based on a tip or indicator without also conducting your own research.
Signals from other traders can be a useful starting point for trading, but even the pros make mistakes.
Plus, if the trader is high profile, then by the time you have seen the tip, chances are that others would have, too. By the time you make that trade, the market may have changed significantly.
Some unscrupulous high-profile crypto traders even use this to their advantage. By dumping the currency that they just recommended shortly after their followers buy it up, they secure themselves a tidy profit.
Research each tip thoroughly and make sure you agree with it.
- Day trading is a strategy where you take advantage of very short-term increases and decreases in a crypto asset’s value to make a profit.
- Bitcoin, Ethereum, Binance Coin, Chainlink, and Ripple are all good coins for day trading.
- Before choosing a cryptocurrency to day trade, consider its volume, liquidity, volatility, spreads, whether it is new, and any announcements or news related to it.
- Technical analysis, copy trading, arbitrage, high-frequency trading (HFT), range trading, and scalping are just some of the day trading techniques you can use.
- Common day trading mistakes include giving in to FOMO, overtrading, trading more than you can afford to lose, and not doing your own research.
Learn How to Trade Crypto with The Birb Nest
Day trading crypto can be a great way to earn extra money or even quit your 9-5 job. But first you need to educate yourself.
To succeed you’ll need to learn the different techniques, how to implement them, and how to be disciplined when trading.
That’s where The Birb Nest comes in. Our experienced analysts and traders provide professional mentoring and education to budding traders.
To find out more, sign up today.