How to day trade cryptocurrency and what to be aware of

Learning how to day trade cryptocurrency can be a stressful and arduous task for newcomers – particularly when trading with crypto carries substantial risk thanks to the volatility of the markets.

Many traders have fallen victim to impulse decisions, while many others have turned ginormous profits by applying the correct trading strategies.

In this guide, we cover the basics of how to day trade cryptocurrency and what to be aware of.

How to day trade cryptocurrency

Unlike traditional stock markets, the crypto market is open 24/7 – which means you can trade at any given hour.

However, it would be unwise to trade at all hours. Sleep is important as it allows you to take a break and come back with a fresh mind.

However, you can set up hedges during the day to help mitigate losses when you’re sleeping, allowing you to trade at all times.

There is a lot to learn before you make your first trade, and learning the fundamentals should not be taken lightly.

Types of trading

The first thing you will need to know before setting up a trade is what type of trade you will be making. The two biggest types of trading you will encounter are spot trading and margin trading.

Spot trading

Spot trading is when you buy or sell assets to turn a profit on your desired coin.

For example, if you own four Litecoin but you want to trade until you own five Litecoin, you will want to trade your Litecoin for ‘Coin A’ and ‘Coin B.’

You might invest three of your Litecoins into Coin A and the remaining one into Coin B. This is to spread your assets. A week later, Coin A might have risen in price by 40% while Coin B has dropped by 5%.

You can now sell Coin A and Coin B back for Litecoin. Using this method, you will now have more Litecoin than you began with. If you have not reached your target, you can repeat this method until you do.

Margin trading

Margin trading is notably different from spot trading because it involves borrowing money from an exchange with an attached fee.

Borrowing money is known as ‘leveraging’. For example, BitMEX offers several amounts of leverage from 1x up to 100x. Using 100x leverage would mean you are trading with 100 times more than the money you have initially put into an asset.

If you turn a profit, the original leverage will be returned, leaving the profits entirely for you. However, be warned that if the market moves against you, you will be liquidated.

This means any funds in your account will be removed – in the example of BitMEX, you won’t owe them the leverage back, but you will lose your original deposit.

Over-the-counter

Over-the-counter trading, or OTC, involves you exchanging fiat (national currency) for cryptocurrency through a middleman.

Your friend selling you half a Bitcoin for cash is technically an OTC deal. Equally, there are many companies that facilitate OTC deals, for example LocalBitcoins.

Learn trade patterns and key terms

Another key aspect of learning how to day trade cryptocurrency is learning trade patterns and market sentiments.

In doing so, you will develop a ‘feel’ for the market – this is important because all trading is conducted through speculation. There is no concrete answer to how the market will move.

For example, you might hear a trader discuss the infamous Bart Simpson pattern emerging, or a falling wedge. To a newcomer, these terms can be particularly off-putting.

With that said, a quick Google search for trade patterns can bring up pictures with graphs. These graphs will have trend lines drawn on them to show you what the trade pattern looks like.

When you are able to match the trend pattern with current price movements, this is an indication that the market will continue the trend shown on the trading pattern chart.

It is also important to learn key terms such as support, resistance, and moving averages. These terms are incredibly important in gauging where the price will go next.

The two most common terms you will hear are ‘going short’ and ‘going long.’ To summarise, if you go short, you believe the price will go down, while you go long if you believe the price will go up.

Risk management

Once you have learned the fundamentals, the most important thing to learn is risk management and hedging. Without learning how to apply these techniques, you are liable to lose a lot of money.

One risk management strategy is to never invest or trade with money you cannot afford to lose. It might sound abundantly obvious, but it cannot be overstated enough.

Another strategy to employ is a stop loss, which is a quintessential tool when making trades. For example, if you placed a trade to go short, you could place a stop loss above the price you entered at. This means if the price goes up and meets your stop loss, it will be triggered and the trade will be cancelled. You will still lose a small amount of money, but you will not get liquidated.

It pays to do research

Learning how to day trade cryptocurrency requires a lot of time and research if you want to avoid making rash decisions and losing money.

With this in mind, it is important that you do adequate research before making any choices since ultimately you are responsible for any decisions you undertake.

Please note that we are an independent publication and do not recommend any crypto project, exchange, or company in particular.

Interested in reading more trading-related guides? Discover more about the benefits of peer-to-peer trading in cryptocurrency.