Guest post by Mark Schwarz of aBitGreedy.com. Mark has been trading in bitcoin and other altcoins since 2013 and is a blockchain programming engineer. Please do your own research before following any advice listed in this or any article about investing, especially on cryptocurrency.
Day trading is not a new concept. In the foreign exchange and the stock markets; day trading is a career for some people. These days, day trading has become one of the best ways to make money in the cryptocurrency space. Thanks to the high swings in prices, some people are making thousands every day as cryptocurrency day traders. Unfortunately, the risks of day trading are also high and sometimes devastating. So, is day trading worth it?
What is Day Trading and why is it important?
In the cryptocurrency space, day trading is defined as the process of buying and selling coins within a 24 hour period. The primary reason why many people day trade is to capitalize on the small profit margins each cryptocurrency goes through as people buy and sell. Day traders spend their time in front of a computer analyzing charts on trading exchanges or hedge funds.
While day trading helps increase the liquidity of cryptocurrencies and stocks, it has always been a controversial topic. Many financial advisors who hate day trading argue that:
- The profits involved in day trading do not justify the risks.
- Many hedge funds that promise high returns after short periods of day trading are scams.
- Day trading is too stressful- many have quit day trading due to the stress involved. Some have even committed suicide.
- Day trading is not a career- day trading alienates you from the rest of the world. You can’t make meaningful connections; it’s just you and your computers.
In spite of the backlash toward day trading, some investors maintain that there is a lot of money to be made. Proponents of cryptocurrency day trading have the high-profit margins as proof that a day trader can make much more in this industry than in stock markets.
Cryptocurrency Day Trader’s Starters Pack
- One or two Internet-enabled personal computers.
- A trading platform- Kucoin and Binance are two of the most popular day trading platforms.
- A cryptocurrency wallet- Have a hardware wallet to safeguard your funds in the long term.
- A mobile app to track the portfolio, news apps and membership to forums and social sites that discuss day trading.
How to Day Trade the Right Way
Step 1: Open a Day Trading Account
The first step in your day trading journey is to open an account in a respected exchange. Most experts will advise you to start with a free practice account. Day trading platforms like ‘eToro’ offer you a demo account where you can watch experts trade as you follow their lead. Some exchanges are not particularly designed for day trading, but you can use them for this service. Binance.com is a great example. Learn more about it in this guide.
Step 2: Learn about Trading
Cryptocurrencies are extremely volatile assets. Due to this, traders can either make high amounts of profits or lose all of their funds. For beginners, day trading cryptos is a risky job. Avoid making too many mistakes putting on the work at the start of your career. Research widely to know which cryptocurrency broker you should work with. Evaluate transaction fees, terms and the list of cryptocurrencies each broker provides.
Step 3: Create a Portfolio
Create a list of cryptocurrencies you will be using for day trading. Most traders divide their assets into several categories.
- Tier 1 assets can include the top cryptos- select 2-8 top coins like Ethereum, Litecoin, Bitcoin Cash, and
- Tier 2 assets include coins in the top 20 list based on the market
- Tier 3 assets are coins in the top 50 list based on market cap and daily trading volumes.
You can have a portfolio based on as many cryptocurrencies as you want. But beginners are advised to start with only a few coins. This is important because you will need to research about each coin and keep up with market trends on a daily basis.
Step 4: Follow the news and Participate in Forums
It’s not enough to watch charts on the exchanges. Stay updated with cryptocurrency news. News influence market prices a lot. In the history of Bitcoin, there have been several occasions when bad press made the coin’s value plummet. Positive news coverage has also helped coins like Ripple and Ethereum soar in prices as well. Follow popular news websites like coindesk.com and Cointelegraph.com.
Forums like Reddit and bitcointalk.org can also help you get valuable information about particular cryptocurrencies. Contribute to such forums and exchange ideas with other traders.
Step 5: Know when to trade
The goal of an everyday trader is to buy when the price of a cryptocurrency is low and to sell when it’s high. The goal is to sell just at the right time. The foundation of making profits day trading is technical analysis. Observing the charts, trends and reading news will help you speculate coins successfully.
Step 6: Set a Stop loss and a Percentage to sell
Successful day traders look for a stable income. They understand there are losses in the art, but they don’t have to lose all of their funds. That’s why a stop loss limit is important. It allows you to decide the amount of loss you are willing to take before you can dump that coin. A take profit margin helps you build a stable income by taking profits after a specific percentage.
Tips every Day Trader should know
- The price of altcoins tend to rise as their market capitalization increases
- Good press can help a coin’s value increase. Bad press can tumble a coin’s value.
- Diversify your portfolio but not too large to lose focus on some of your coins.
- The more you day trade, the higher the amount of fees you pay in a day.
- Make trades based on technical analysis and not emotions or your ego.
- Day trading is stressful- take breaks, go on short holidays, visit the doctor and do everything else that lets you avoid the stress involved in the trade.
There is much to learn about day trading before you can become an expert. Learn from experienced traders. That way you will avoid losing your money in the trade. Hopefully, you have learned why day trading can be dangerous and why you don’t have to be afraid. With the right information, you can become a successful trader.