The cryptocurrency market has matured in recent years to become increasingly sophisticated by introducing highly liquid derivatives (i.e., futures, swaps and options). Add to this the fact that we now have access to more data and market research than ever before, and it makes sense why crypto trading is growing in popularity.
Diving into the crypto market might seem daunting at first. So, how can you navigate these digital assets? The answer lies in becoming a trader, where you have the opportunity to deal in many different cryptocurrencies.
A traditional yet effective strategy in trading is the simple idea of 'buy low, sell high.' However, as a trader in the fast-paced crypto market, this can be tactfully adjusted and adapted to fit various trading styles.
For instance, some traders are inclined towards "scalping", a quick fire strategy that involves capitalizing on minor price fluctuations in shorter time frames, typically spanning mere minutes. On the other hand, some prefer swing trading, a strategy that's more about riding the waves of market trends, often lasting anywhere between several days to weeks.
In this guide, we'll provide an overview of day trading (i.e., what it is, how it works), discuss specific strategies, and explore some pros and cons. We assume readers have a basic understanding of trading fundamentals, which is covered in our cryptocurrency trading guide for beginners and introduction to cryptocurrency technical analysis.
What is cryptocurrency day trading?
The term “day trading” comes from traditional markets, which do not operate 24/7 and have set business hours. A day trader essentially enters and exits trades during that daily time frame, without carrying any positions over to the next day.
In cryptocurrency markets, since there are no business hours, day trading refers to the entire 24-hour period. However, the number of hours does not actually matter much here, as the main point is that day traders settle all their positions at the end of their personal trading day.
Day trading is not exactly a trading strategy. It’s more of a time frame choice depending on a trader’s mindset and style — which comes with its own unique set of advantages and disadvantages.
The day trading mindset
How do you know if day trading cryptocurrency is the right choice for you? The answer depends on your mindset and trading style.
As mentioned earlier, day trading is not a trading strategy itself. It is more of a self-imposed rule that day traders observe as part of their system. Professional traders, often over years, develop their trading systems and rules, ranging from their selection of cryptocurrencies for trading to their choice of indicators, technical analysis preferences, profit and loss thresholds, risk-management techniques and trading time frames.
For some traders, confining themselves to day trading affords them greater flexibility and freedom, especially as carrying positions over a day can be stressful in a 24/7 market as volatile as crypto. By choosing the daily time frame, these traders isolate themselves from overnight risks, so to speak, and retain more control over their positions by actively managing them during the day.
Once the day ends for these traders, they are out of their positions and effectively take a break until the next trading day, allowing them to detach from the markets.
Day trading pros and cons
With great freedom, comes greater responsibility. While day traders get to take breaks and step away from the markets, it would not be worth much if they do not make consistent profits. Not each trade or even each day can be profitable, but day trading is much like any other full-time job, requiring consistency, research, diligence and discipline.
A day trader starts each day with a new plan and has to maximize the time allocated to trading by finding potentially profitable opportunities. For example, if both a swing trader and a day trader open longs at $50,000 today and BTC appreciates by $2,500 by the end of the day, the day trader will close the position and net $2,500 as profit. If BTC rises to $58,000 overnight, the swing trader, still holding the position, will have $5,500 more than the day trader in unrealized profits. The day trader, on the other hand, will have to work with the overnight price change and find a new entry the next day.
What this shows is that a day trader often foregoes future profits for the peace of mind that comes with closing positions and calling it a day. On the flip side, however, if BTC had dropped significantly in the example above, the day trader would be in a comparably better position on the next day, having sold the short-term top earlier.
To summarize, the advantage of day trading is the freedom and control it gives, but the disadvantage is often the loss of potential profits if positions were left to run longer than a day. Ultimately, each trader has to find their own balance between freedom and foregoing potential profits.
How to day trade Bitcoin and other cryptocurrencies?
If you have decided to start day trading, the easiest way to start is to create an account on OKX (if you don’t already have one) and browse the various markets — such as spot, futures, swaps and options.
OKX also has a very useful list of cryptocurrencies that includes information on their latest prices, market capitalizations and 24-hour price change stats. Apart from switching markets (i.e., spot or derivatives) from the top menu, you can sort and segment this list based on available categories — such as Layer 2, DeFi, Storage, NFT and Polkadot — to view coins and tokens from specific market sectors.
Once you’ve selected a market and a cryptocurrency to trade, whether it is Bitcoin or an altcoin, you can click on the Trade button next to that crypto on the list. The exchange will then direct you to the trading dashboard for that cryptocurrency, where you will be able to place buy and sell orders and view the particulars of each trade.
This guide does not delve into the mechanics of building a thesis for a trade and executing it. Your choice of a trade depends on your understanding of the market and the cryptocurrency you are trading. Seasoned traders continually look at market fundamentals as well as technical indicators to decide on profitable risk-reward scenarios. However, in the next section, we’ve included some day trading strategies and tips to help you get started.
Cryptocurrency day trading strategies and tips
Follow BTC price
While some cryptocurrencies can sometimes detach from the broader market trend, Bitcoin remains the market leader and the primary driver of sentiment and prices. It's very rare for most altcoins to move significantly if BTC is facing downward pressure. Alternatively, when BTC is trending upward, nearly all altcoins will rise in price as long as their fundamentals are positive and they have perceived value. For this reason, when you're day trading cryptocurrencies, you can't ignore BTC’s price action.
At OKX Insights, we publish daily and weekly crypto market commentaries and analysis to help traders stay informed about the latest developments. You can follow OKX Insights on Twitter, our crypto markets channel on Telegram, or bookmark our section with daily crypto market updates.
Keep tabs on the news
As with traditional markets, crypto markets are also sensitive to major news stories and events. Be it Tesla’s purchase of BTC, PayPal’s support for crypto or governmental policy decisions, BTC and the entire cryptocurrency market react to these developments on a daily basis.
Day traders operating in isolation may find themselves at a disadvantage, as major bearish or bullish news can move the market significantly in either direction. Apart from our daily updates, OKX Insights’ cryptocurrency News of the Week coverage is aimed at helping you stay ahead of these developments.
Mind the time zones
Because cryptocurrencies trade 24/7, even as a day trader you need to be aware of the major time zones in which the majority of market participants are active. For instance, bigger market moves often coincide with the start of a new day in North America (UTC-5) and Asia (predominantly China, which is UTC+8).Being mindful of these time zones can help day traders prepare ahead of the more actively traded time slots as well as anticipate market reactions to developments affecting those regions.
Don’t trade with your entire capital
This should go without saying. However, blinded by bullish sentiment, traders often end up opening positions with their entire capital and get trapped in the event of a quick drop. Day trading requires diligent conservation of capital, as you need to consistently rotate your money between positions to grow your portfolio.Opening new trades with smaller allocations gives you the freedom to dollar-cost average (i.e., buying more at lower prices if it drops to bring your average price down) in an attempt to rescue a potentially bad trade.
Cut losers quickly
When you are day trading, you won’t be holding positions overnight and thus can't rely on future price recovery to get you out of a bad position. In this situation, it often pays to cut losers early and move on to the next trade. While dollar-cost averaging is an option, it should be done in select situations, as holding a bad trade and riding it down will cost you both time and money.
Don’t be greedy for growth
Most bag holders in crypto can blame greed for their losses. When the market is bullish, irrationality is rampant. When you are day trading, no earning is too small, and you should have clear rules laid out in advance for closing a successful position. If you are unsure about an exit, you can scale out of a position (e.g., selling 50% of your position at 5% growth and then selling the remaining between 5% and 10%) to try and hedge against a drop without selling the entirety of your holding.
Finding a growth-earning trade is only half the job; the other half depends on exiting at the right time. While no one can perfectly time the bottom or top, scaling in and out of positions is a practical approach.
Keep moving on
Day trading is about finding new opportunities every day. This means you can’t fixate on one coin or token, nor can you afford to let a bad trade affect your objectivity. The best way to do this is to detach from specific coins and only look for good scenarios that speak to you in terms of potential growth and low risk. Do your research, have a reason for a trade, and stick to the plan. If it goes your way, close successful positions without hesitation. And if it doesn’t go your way, cut your loss and move on.
The final word
Cryptocurrency day trading brings plenty of opportunity, but also a lot of risk and volatility. As many traders will tell you, the volatility is amplified by the short time frames usually associated with day trading.
Building and diligently applying a carefully planned day trading strategy can help you to mitigate risk and give you a better chance at success, regardless of the digital assets you choose to focus on. With the above tips and guidance, you're better prepared to take smarter steps forward in your day trading journey.
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