Getting started with cryptocurrency day trading

The day trading of cryptocurrencies offers unique opportunities for traders in a fast-paced market. Cryptocurrencies have higher intraday volatility compared to other financial markets and operate 24/7. As a result, traders should adopt strict risk management and employ strategies underpinned by detailed research when day trading cryptocurrencies. 

In this article, we’ll provide a fundamental overview of day trading, exploring the features to look out for from a suitable platform, how to choose a cryptocurrency to trade, and some key strategies to apply.  

What is crypto day trading?

The day trading of cryptocurrencies involves the trader buying and selling cryptocurrencies on the same day. Therefore, the strategies used should produce results in the short term — sometimes across a matter of minutes. Traders look to capitalize on smaller price movements within the day rather than carrying over the trade to the next day. 

Day trading crypto requires quick decision-making, a strong understanding of market trends, and solid technical analysis. Traders count on small daily gains that can add up to significant gains over time. 

However, day trading isn't just about buying and selling cryptocurrencies. Traders use other crypto products, such as futures and derivatives with leverage to achieve maximum results. 

Choosing a platform to day trade

It’s possible to day trade cryptocurrencies on virtually any exchange of their choice. However, it can be helpful to look for certain features to give you the best chance of success. 

High liquidity

Liquidity is one of the biggest factors when considering a cryptocurrency exchange to day trade. High liquidity is fundamental to the fast execution of orders at the best possible prices. That’s precisely what day traders are looking for — a guarantee that they’re getting the price they want with no delay. When trading time is limited, speed is key.

Leverage

Day traders make gains with small movements. These gains are often stretched using leverage, which allows traders to open larger positions than their cash balance allows by borrowing funds. Access to leverage is considered essential for day traders, but keep in mind that while leverage can mean bigger gains, it also increases the risk of larger losses. 

Access to advanced order types and markets

Day traders often trade on the futures markets and adopt advanced trading tools that make it convenient to catch small price movements. Be sure to explore the order types and markets available before committing to a platform. Here’s a tip: gain a clear picture of your trading strategy before you choose a platform and keep this strategy front of mind when performing due diligence on potential platforms to use. 

Uptime

Cryptocurrencies are traded 24x7. It's important to trade on an exchange that has a strong track record of uninterrupted uptime and fast performance. 

OKX is the preferred choice for many when it comes to the day trading of cryptocurrencies. Our platform offers high liquidity, futures markets with up to 100x leverage, and more than 500 trading pairs. We also provide advanced tools for day traders such as bots, DCA, futures grid, trailing stops, and more. 

How to choose a crypto to day trade

Choosing the right cryptocurrency to day trade is as important as your strategy. Read on for some key factors to consider while selecting a coin to day trade.

Liquidity

Choosing an asset with high liquidity is essential for day trading. When there’s high liquidity, more buyers and sellers are in the market, making it easy to execute trades quickly at the desired price. It also offers price stability, as large trades wouldn't have an immediate impact on ‌prices and reduce the risk of price manipulation. Additionally, you're more likely to buy or sell cryptocurrencies at the right price without a premium when there's good liquidity. 

Coins with lower liquidity could offer greater gains as they could have higher volatility. This could benefit some traders, but volatility can also result from large trades and price manipulation rather than the market. Similarly, low liquidity may bring increased slippage where traders can’t buy or sell at their desired prices because there aren’t enough traders in the market. 

Volatility

Volatility is often viewed as a risk. However, it can be advantageous for day traders when used correctly. In a sideways market, there’s little opportunity to trade in any direction. This can be extremely frustrating, especially for day traders. Higher volatility means significant price movements within a short time, giving more trading opportunities. 

However, many would argue not to pursue volatility alone. The most volatile cryptocurrencies often flujctuate wildly because there’s not enough liquidity in the market, which increases the risk you face. Look for coins to day trade based on liquidity and volatility, with your appetite for risk in mind. 

Market sentiment 

Next, consider the overall sentiment of the market towards a particular cryptocurrency. The crypto market is especially sensitive to news. Positive headlines could create ‌bullish sentiment within the same day and positively impact the price. Similarly, unfavorable news surrounding a cryptocurrency might have a sudden bearish impact on the asset’s price. 

It's important to keep a close eye on the news and observe the market trends if you want to day trade effectively. 

Technical analysis

Finally, you have to learn to use technical analysis. It's the primary and single most important tool day traders use to decide on entry and exit points for trades. Technical analysis uses historical data and mathematical indicators to predict future price movements. 

Day traders use technical analysis tools such as RSI, MACD, and more to determine trends. These tools help day traders identify trends in the coins they want to trade. Once a trend has been identified, the entry and exit price is determined, and the orders are placed. 

Best crypto day trading strategies

Here are a few strategies you can incorporate into your daily trading:

Scalping 

Scalping is the most popular day trading strategy. It involves entering and exiting trades in short durations for small gains. Traders enter and exit trades very quickly, racking up many trades that can add up to good gains. Sometimes, traders deploy bots to open and close trades in just a few seconds, potentially maximizing their gains. 

Swing trading 

Swing trading is often a technique used for long-term trades. However, this approach can also be used for day trading. If the overall market trend on a weekly or a monthly timeline is bullish, you can use day trading strategies that involve taking long position. The theory is that it’s safer to assume that in a bullish market there will be more good days than bad days, and traders bet on that. 

Range trading 

Sometimes the market is flat and doesn't have significant movements, meaning the asset’s price follows along the same horizontal range over multiple days. This can present the perfect conditions for day traders as it allows them to consistently and reliably buy at the lower end and sell at the higher end. 

Follow Bitcoin’s price 

Bitcoin has a major influence over the crypto market, and most crypto assets correlate to its movements. Keep a close eye on Bitcoin even if you’re not trading it. If Bitcoin faces significant selling pressure, it'll be rare for altcoins to move upwards. The same can be true when Bitcoin is bullish. 

High-frequency trading (HFT) 

Day traders often employ advanced trading algorithms that factor in multiple market signals to make fast trades. This strategy is similar to scalping as it involves capitalizing on small price movements. However, HFT is often fully automated with ultra-fast trade execution speeds measured in microseconds. 

Arbitrage 

Cryptocurrencies are traded globally across multiple exchanges 24 hours a day, seven days a week. What’s common across all these exchanges are the underlying assets that are traded. The same Bitcoin is traded on both OKX and a local cryptocurrency exchange in Japan, for example. However, sometimes the price of an asset might not be the same on two different exchanges because of the difference in liquidity. For example, the price of Bitcoin might be lower on OKX compared to the Japanese crypto exchange. In this scenario, the day trader can buy Bitcoin on OKX and sell it on the Japanese exchange, pocketing the difference as a gain. 

Use technical indicators 

Technical indicators provide insights into market trends and price movements using mathematical calculations and statistical analysis. Day traders can use these indicators to identify market patterns, trends, and potential price reversals. They can also help traders to decide when to enter or exit a trade. Check out our guide to the best indicators for crypto trading if you want to get started. Day traders can employ the same strategies by setting shorter timeframes on crypto charts. 

Momentum trading 

With momentum trading, it’s possible to trade based on the market's general momentum as you’re not looking to remain in the market for a long time period. By identifying the direction the asset is moving towards, following the trend, and committing to a fast exit, it’s possible to make healthy gains.  

News-based trading 

Stay connected with the news and you have an opportunity to predict short-term price movements based on breaking news and announcements. However, even if you’re not trading based on news, traders should stay updated on current events as part of your ongoing due diligence and research.

Reversal and breakout trading 

One fundamental strategic move is to identify the key support and resistances for the asset you want to trade. For example, if Bitcoin hits a key resistance and you anticipate the price point to act as a key barrier, you can set up a reversal trade, expecting Bitcoin’s price to come down. However, if you expect Bitcoin to move past the resistance, you can set up a breakout trade. The same can also be applied to ‌any support regions you identify. 

Tips for day trading crypto

Once you’ve defined your strategy and chosen the most suitable exchange, here are a few helpful tips to consider when day trading: 

• Set a time: Cryptocurrencies are traded 24x7, and it's not possible to trade at all times. So, set your own hours and be disciplined with them. Consistency can be a helpful tactic in maximizing your trading performance.  

• Start slow and practice: If you’re new to day trading crypto, start slow. If you want, you can practice your strategies on a demo trading platform without using your funds. OKX offers demo trading features to practice risk-free trading and a safe place to test your strategies.

• Watch the market: If you’re looking to day trade, keep constant tabs on the market for new or existing opportunities. This is where setting a schedule is especially helpful, as you can factor in specific time slots for market analysis.  

• Manage risks: Any type of trading involves risks. So, make sure your day trading strategy includes robust risk management tactics that you revisit and refine often. 

• Cut your losses quickly: With day trading, you’re looking to get in and out of a trade within the day and not trade for the long term. So, cutting your losses quickly and focusing on the next trade can be beneficial, rather than holding on to negative trades and hoping for a sudden recovery.

• Don’t be greedy: When you have a plan, stick to it. Just as you shouldn't hold on to your losses, it could also be harmful to hold on to your good trades for too long. The market could swing in the opposite direction just as quickly. If you decide to hold on to a trade, develop a new strategy to exit the trade while accounting for any reversals. 

• Learn from your trades: Every trade can be a teachable moment, and you can draw powerful insights from both your gains and losses. Reflect on your trades and use the lessons to evolve your trading strategies with new insights. 

The final word

The day trading of cryptocurrencies presents a strong opportunity for traders to make consistent gains. However, the same volatility that creates chances for success also brings plenty of risk as ‌market conditions are constantly changing. 

As a result, day trading is typically adopted by experienced traders that have the knowledge required to build a comprehensive strategy underpinned by careful risk management. With both, you have a better chance of minimizing risks and achieving success.

By applying the strategies and tips explained above, you're well placed to make well-informed decisions while day trading.