Trading Guides


Do the risks of day trading in cryptocurrency outweigh the rewards?

Want to reap the rewards of day trading with cryptocurrency but don't know where to start? In this guide, we break down some key tips to help get you started

The prospect of trading with cryptocurrency is appealing to a lot of people. However, if you have never traded before, it can also be daunting, especially given the volatility of the market. In this guide, we break down some key tips that will help you reap the rewards of day trading in cryptocurrency.

Before getting started, you must first understand how day trading with cryptocurrency differs from regular stock trading. Cryptocurrency trading works with smaller commissions, the markets are open 24/7, and it is more accessible. Though do be warned, the markets are incredibly volatile and could change at any point.

Trading with crypto means trading through speculation. Traders watch the markets and make educated guesses on price movements. This of course means there is no guaranteed method of making money. One trader’s tip could be drastically wrong and cost you a lot of money. Another’s could be perfect and earn you a score bigger than you could have imagined. Nobody can be 100% sure what the market will do, so always make sure to do your own research and don’t follow tips blindly, as you could end up falling for a scam and losing a lot of money.

Now that is out of the way, let’s take a look at some of the things you should know to get started day trading with cryptocurrency.

Risk management

Risk management is an incredibly important part of trading if you don’t want to make a serious loss. Typically, you should never enter a trade where you stand to lose more than 1% to 2% of your total portfolio. Naturally, if you allow for a bigger margin, you stand to lose a lot more money.

Another risk management strategy is ‘hedging.’ This is where you take an offsetting position on your primary asset. This in turn provides insurance and reduces the potential for loss. If we were to apply this to Bitcoin, it is like you are selling Bitcoin to reduce the risk of holding onto the Bitcoin, thereby increasing the reward of your profits. This is because if the value drops, the value of your crypto stash is less likely to drop with it.

Patience is key

Patience is just as important as risk management. Never force a setup. Wait for price action to come to you. You can achieve this by preparing a ‘set limit order.’

A limit order is placed with a brokerage to execute a buy or sell transaction at a set number of shares and at a specified limit price. This means if you believe the price of a cryptocurrency will hit a certain value, you can place an order ahead of time to buy that cryptocurrency if it reaches the value you have designated. This is useful as you do not need to sit watching the market minute after minute during price movement.

Use a stop loss

When entering a trade, it is typically safe to bet ‘long’ for support and ‘short’ for resistance. When doing this, it would be wise to designate a stop loss just below or above the support and resistance. This in turn should hopefully keep your risk small and the potential gain would be much higher.

When looking at a chart or graph for a given market, there will be trend lines, which show the direction that a token’s price is moving. Along the trend lines are horizontal lines that depict levels of support and resistance. A support level tends to indicate that there is a considerable amount of traders willing to purchase a token at that level. Once the token reaches that level, a “floor” of buyers is created. This is when demand would typically begin to dwindle as the price goes up.

A level of resistance is the opposite. It refers to an area where many sellers are waiting patiently with their orders, formulating a “supply zone.” Typically, when a token approaches that “ceiling,” it encounters the supply stacks and reverts.

Identify trading patterns

Identifying the correct type of formations and patterns is pivotal in ensuring you will turn a profit. This can encompass a lot. For example, if you are new to trading but have been keeping an eye on the current markets, then you may have heard some weird terms. These terms can range from “head and shoulders” to a “rising wedge.”

These are not arbitrary terms. They are in fact trading patterns. Learning trading patterns is key to understanding a market – and we’re not just talking about being able to read which assets are up and which are down. A quick Google search of ‘trading patterns’ will bring up a lot of material that you can study to familiarise yourself, including images of all the different patterns.

Emotions are the enemy

This point sounds incredibly cliche, but don’t disregard it. This is a tip you should never forget under any circumstance when cryptocurrency trading. If you begin to feel emotional whilst trading, you should take those emotions, compartmentalise them, and then lock them away until you are finished trading.

Many people have fallen victim of letting their emotions get the better of them. This is because trading can bring a lot of emotion to the surface, whether it be anger, frustration, or euphoria. Euphoria can mislead you into thinking you can double down on your profits, or give you a false sense of feeling safe when you are not. Anger and frustration can cause you to rush trades you would otherwise patiently wait on.

This isn’t to say don’t let emotion guide you in life; just don’t let them guide you in trading. If you begin to feel emotionally overwhelmed, take a break for a few days and come back to trading level headed and of sound mind.

(Note: please be advised cryptocurrency trading is notoriously difficult and carries substantial risk. Never trade with money you can’t afford to lose. Trade at your own risk.)

For more information and guides from Coin Rivet, click here.


Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.