Crypto day trading is an intimidating and complex landscape. In becoming a successful crypto trader, you need to know how to analyze the market, dig through different crypto exchanges, and keep your head on while your portfolio fluctuates by $500 in seconds.
This article will help you get through this journey and go from a novice to a professional crypto trader.
What Is Day Trading?
The phrase “day trader” might conjure up an image of a stockbroker from the early 1990s hunched over a flickering screen. But, instead, he’s got a big cigar and cell phone tucked into his shoulder, barking orders to an underling about buying and selling shares of some obscure company.
This image isn’t too far off. In day trading, the basic idea is to buy something (or many somethings) with the hopes of selling it later at a higher price.
But of course, it’s a bit more complicated in crypto. Since there are no official stock exchanges for buying and selling most crypto tokens, day trading requires serious workarounds to get the job done properly.
For example, you’ll need to use a combination of different cryptocurrency exchanges, which can be confusing and time-consuming if you’re not used to them.
It’s also important to know how the order books on these exchanges operate. For example, if you want to buy Ethereum on Coinbase, it will fill your order at the price of whatever the most recent order was on GDAX.
This may not sound very clear, but it’s important to understand these mechanisms and what they mean in your trading strategy. There are both good and bad ways to approach day trading as anything else in crypto.
Whatever your approach is, you must practice it before using it in a live market situation.
4 Useful Tricks to Remember
You can do yourself a favor by memorizing a few helpful tricks and tips to make life easier. These ways can help you get a leg up in the competition and set yourself up for success.
1. Avoid FOMO
First-time investors are often anxious to “get in now” and buy as much crypto as possible in fear of missing out. This is fine if you’re looking to hold onto some tokens, but it’s not good if you’re trying to be a day trader. Your goal should be to buy and sell at the right time, not buy at all costs.
2. Don’t Buy Back In
One of the most common mistakes that new traders make is buying back into a coin after taking a loss. For example, if you put $1,000 into Litecoin at $200, and then you watch as it falls to $100, you might be inclined to buy back in at $100.
The problem here is that you’re back to square one.
Instead of buying at $100, you’re now going to have to buy at $50–which means you actually wasted $1,000. The only way to avoid this is by keeping records.
Keep a detailed record of every trade you make. So let’s say you put $1,000 into Litecoin at a 20 percent discount, which falls to a 10 percent discount. Your record will show that you’ve only lost $100, not $1,000.
3. Always Have A Profit and Loss Plan
It’s important to maintain a proper P&L plan to know how much cash flow you have to work with. This will help you keep track of your profit and losses during the day. You can also use it to predict what kinds of trades you can make later on in the week or month.
Another important part of this is knowing when to sell your crypto tokens.
Most traders don’t sell at a consistent rate. Instead, they buy in and out based on the market. This makes it difficult to determine how much they actually profited at the end of the day.
The best way to avoid this is by establishing a set exit point for all of your trades. For example, if you buy $1,000 worth of Bitcoin at $2,000/BTC and then it goes up to $6,000/BTC during the day – you should sell.
But if you buy it at $6,000 and it goes down to $2,000 during the day – you should also sell.
4. Know How To Deal With High-Risk Investments
There are many volatile coins out there that are high-risk investments. These include coins that have very little use, no working products, and a poor development team behind them.
The best way to approach these kinds of investments is by avoiding them altogether or only making small investments.
Your Key Takeaway
Day trading is a complex method that requires a lot of technical and emotional knowledge. To be successful, you have to know how to work around common problems like order books, trades, and the general behavior of prices.
However, over time, it will be second nature. You’ll be able to get into the swing of crypto day trading. Learn more about the crypto market by reading our blog!