Despite its risks, day trading in stock markets attracts investors in droves. The crypto market, though relatively nascent, is no different, with confident investors embracing crypto day trading. However, day trading can initially seem challenging, especially if you need to learn about trading strategies and make the correct coin selection. Here, we offer a day trading guide that will help you pick a crypto for day trading.
Understanding the basics of day trading in crypto
Before you learn how to choose the best crypto for day trading, we will discuss the basics of crypto day trading and how it works.
What is day trading, and how does it work in the crypto market?
Day trading involves various techniques that enable traders to benefit from price changes within a limited timeframe. A day trader aims to have the highest value of their holdings at the end of a trading day compared to the beginning.
Much like stock market traders scouring multiple exchanges in a single day of trading, traders in the crypto market follow the same strategy. The only difference is the increased risks and higher returns in the latter.
If you have a successful trading session, the worth of your assets will be higher than when you began. The process starts with developing strategies for trading and choosing financial assets.
Setting realistic expectations for crypto returns from day trading
Crypto prices, we all know, are highly volatile. In fact, outsized returns and high risks go hand in hand in day trading. Stories are legion about people who made it big in day trading. But you should not overlook the huge losses that do not get talked about as much as the success stories.
In day trading, you can expect a sudden hike in prices followed by a sharp drop. It will help if you keep your expectations grounded while trading. Further, day traders can employ risk management techniques—the one percent risk rule—to help reduce losses and protect them from losing all their money.
Factors to consider when choosing a crypto for day trading
Now that you have understood day trading broadly, you should know what to consider when investing in a crypto project. In day trading, your first step is to pick the best crypto. However, there is no definite answer, as today’s best choice may not hold the same value tomorrow. Therefore, you must remember the following factors when picking your asset.
- Liquidity: When picking your token, liquidity is one factor you must consider. For day traders, tokens with higher liquidity bring profit. It ensures quick buying and selling of orders. Liquidity is the most crucial day trading metric.
- Volatility: The price changes of assets deliver profits to day traders. In other words, you get exposure to the highs and lows by choosing a token with high volatility, which give you a chance to generate higher profits.
Researching and analyzing crypto candidates for day trading
To make investments in crypto as a day trader, you should also know the advantages and disadvantages of the token’s volatility. This day trading guide will fill you in on strategies for researching and analyzing assets to help you choose the best crypto.
Analyzing historical price data and volatility
The most common day trading strategy is technical analysis. It depends on the historical price data and volatility to predict a token’s performance. The analysis crunches vast amounts of data to understand the performance of a token in the market. However, this method is only successful when considering previous prices as a good metric for predicting future movements.
Evaluating crypto fundamentals and project development
Evaluating crypto fundamentals and developing a crypto project gives traders in-depth knowledge of a specific financial asset. The analysis can help you learn how many individuals are utilizing it, the use cases, and the project’s team.
This method will help you decide the value of an asset and use your knowledge to make decisions regarding trading positions.
Assessing market sentiment and social media buzz
Another standard method of day trading crypto is through what you feel about an asset. This technique is known as sentiment analysis. Traders use social media to analyze people’s sentiments regarding a particular asset. There are tracking platforms that enable traders to exchange ideas about the performance of various tokens.
Using technical indicators and charting tools
You can use technical analysis to analyze candlestick patterns, volumes, support-resistance lines, and relative strength index. You can use several tools for performing technical analysis. These include chart patterns and indicator ranges. Technicians have given us several new and refined tools.
There is an HFT technique that incorporates specialized tools to make multiple trades at a time and profit from price changes. Moreover, investors use trading bots as tools to exchange financial assets in favorable conditions.
Developing a trading strategy and managing risk
It is natural for a day trader to make profits and losses. However, you can build strategies for managing risks not to lose all your money.
Setting a stop-loss and profit-taking strategy
A stop-loss level defines an asset’s pre-set price and is less than the present loss. The strategy for stopping loss in trading closes the trading position to limit a trader’s losses. On the other hand, take-profit levels define an asset’s pre-set price, allowing investors to gain a profitable trading position. By setting this strategy, individuals can identify favorable situations and possible losses that will help their portfolio grow.
Managing risk through position sizing and diversification
Another strategy to discuss in this day trading guide is position-sizing for managing risks. This strategy defines an asset’s quantity for buying and selling. It has a direct connection with the amount of risk every trade has. Consequently, it helps define the trading position.
Further, to diversify your portfolio, you must expose yourself to a range of trading opportunities. Thus, exploring multiple trading strategies that help you evolve along with the market is crucial. Accordingly, you can balance your risk profile.
Staying up to date with market news and developments
As a day trader, you must have the latest information on the assets and their development. Global developments do have a bearing on your investments. You can refer to websites, social media, newsletters, and more to stay current.
Keeping a trading journal and reviewing performance
A trading journal will contain complete records of your past trades. Keeping a journal for day trading will help you review and evaluate your past performances. The ready reckoner will also update you about the areas you need to work on. You will be able to learn about your strengths and weaknesses. It helps you stay consistent and accountable and find your best strategies.
How do I choose crypto for future trading?
To choose crypto for future trading, research, diversify, consider fundamentals, track trends, and use reputable exchanges for informed decisions.
What is the most volatile crypto for day trading?
Cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin, and Cardano are often considered volatile for day trading in India.
Can you day to day trade with crypto?
Yes, day trading in cryptocurrency is possible, but it’s highly volatile and risky. It’s not a guaranteed way to earn a living.
Which crypto is profitable in future?
Cryptocurrency profitability is uncertain. Research top options like Bitcoin, Ethereum, and others, but invest wisely considering risks and market trends.