A Beginner’s Guide To Learning How To Day Trade Crypto
In view of its unique characteristics, you must have a solid understanding of how the cryptocurrency market operates. If you do otherwise, it may be akin to parachute leaping from an aircraft.
We’ll give you everything you need to survive bitcoin day trading, which is great news.
The bitcoin market’s extraordinary volatility makes day trading very rewarding. Because the cryptocurrency market is still in its early stages, there have been significant price changes.
Waiting for a high volatility rating is a good idea before day trading Bitcoin or any other cryptocurrency. Good news! Even with low volatility relative to other asset classes, you may still earn a little profit on your trades since volatility is high enough.
Time and liquidity are additional factors that influence the ability to enter bitcoin day trading accurately.
In contrast to Forex trading, which may give quick execution, many cryptocurrencies and cryptocurrency exchanges are relatively illiquid.
Before day trading Bitcoin or any other cryptocurrency, you must first determine its liquidity. Simply validate the bitcoin trade volume over the whole 24-hour period to do this.
CoinMarketCap is a great free tool for assessing and calculating the market volume of any specific coin.
Remember that a lack of liquidity may cause large slippage and even severe losses.
As said before, trading cryptocurrency day trading doesn’t have to be done daily. We like day trading cryptocurrencies only in situations when everything is going our way. In this situation, confine trading to the days with the biggest activity and stay away from weekends.
Creating A Successful Cryptocurrency Day Trading Strategy
The idea behind day trading cryptocurrencies is to look for trade opportunities that provide the potential for fast financial gain. If you believe day trading is for you, let’s get started with a full guide to day trading cryptocurrencies.
We typically recommend grabbing a piece of paper and a pen and jotting down the parameters for this scalping approach before proceeding.
We will look at the “buy” side in this article.
Step 1: Choose coins with high volatility and liquidity.
The most crucial choice you must make is to choose cryptocurrencies with significant volatility and excellent liquidity, as previously stated. If you prefer cryptocurrencies but don’t day trade Bitcoin, the most liquid currency accessible, look for ones with high volatility and liquidity.
The market already includes around 1600 coins, and this number is increasing. Limiting your selection to the top cryptocurrencies will reduce your selections.
Smaller cryptocurrencies may also be extremely lucrative for day trading, but the risks are greater. Remember that the rise in bitcoin prices might also lead to a decline.
The next parts will explain how to benefit from day trading cryptocurrency.
Step 2: Apply the Money Flow Index (MFI) Indicator to the 5-Minute Chart.
The Money Flow Index, a simple technical indicator, is employed in this day trading technique. This indicator lets us track the movements of smart money and detect when financial institutions buy and sell cryptocurrencies.
The MFI indicator’s three period settings are suggested.
We will also modify the default buying and selling levels from 20 to 0, and 80 to 100, respectively.
Step 3: Wait for the MFI to level out at 100.
When the MFI score reaches 100, it means that massive sharks are entering the market. When making a buy, sensible money cannot be overlooked. They constantly leave signs of their market actions, which we may evaluate using the MFI indicator.
Because technical indicators are not always reliable, we’ve added a few more parameters to our day trading strategy to make it even more exact. We should overlook today’s first two MFI readings of 100 and instead concentrate on the bitcoin price’s reaction.
During the first and second 100 MFI measurements, the price must be steady.
Step 4: Buy if the MFI is 100 and the next candle is bullish.
Now that the third MFI result is more than 100, we may wait. You are free to take any other MFI = 100 reading; the third MFI = 100 reading is optional. If time restrictions prohibit you from viewing the third reading on the MFI indicator, as long as all other technical conditions are satisfied, you may choose the next 100 reading instead.
We also require the candlestick to be bullish after obtaining the MFI = 100 reading. This candle must be sealed close to the top, resulting in wicks that are very little.
This brings us to our second critical choice in day trading cryptocurrencies: where to place our protective stop loss and where to take profits.
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Step #5: Set the stop loss below the day’s low. Make a profit within the first hour.
Clearly, keep your protective stop loss below the day’s low. If it breaks below, it indicates a shift in market sentiment, and it is prudent to quit the transaction. This may also signify a reversal day.
Regarding our exit strategy, we are more adaptive. However, the only rule you must follow is to withdraw gains within the first hour or sixty minutes of the transaction occurring. A lengthy holding duration of more than an hour will result in a lower success rate. At the very least, our backtested results supported this.
In Conclusion
If you want to learn how to day trade cryptocurrencies, make sure you have the necessary expertise before you join the market.
Crypto day trading is a very successful alternative to the holding attitude that is ruining the cryptocurrency ecosystem, and it might be a great way to build your portfolio.
Given how unpredictable the cryptocurrency market is, it may be far easier to earn a fortune trading cryptocurrencies. High volatility creates a favorable environment for day trading, boosting the likelihood of success. You can also read: A Step-by-Step Guide In Trading Cryptocurrency
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