How to Day Trade Crypto for Beginners: A Step-by-Step Guide
Are you interested in day trading cryptocurrency but don’t know where to start? This step-by-step guide will show you how to day trade crypto for beginners.
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Cryptocurrency trading is becoming increasingly popular, with more and more people looking to get involved in the market. day trading is seen as a particularly attractive option, as it offers the potential for quick and profitable trades.
However, day trading cryptocurrency can be a risky business, and it is important to approach it with caution and have a solid plan in place. In this article, we will outline some of the key considerations for day trading cryptocurrency, as well as offering some tips on how to get started.
What is day trading?
Day trading is the act of buying and selling a financial instrument within the same day or even multiple times over the course of a day. Taking advantage of small price moves can be a lucrative game—if it is played correctly. But it can be a dangerous game for newbies or anyone who doesn’t adhere to a well-thought-out strategy.
Why do people day trade?
People who day trade are looking to take advantage of small price moves in the market. Day trading strategies require a person to have access to capital, patience, and an analytical mind. While anyone can technically day trade, many people lose money doing so.
What kind of strategies are there?
There are many different strategies that day traders use. Some common strategies include:
-Scalping: This is a strategy where a trader buys and sells multiple times throughout the day in an attempt to make small profits off of each trade. This can be a very risky strategy as large losses can offset any smaller gains made throughout the day.
-Momentum trading: This is a strategy where a trader buys into a trend and then tries to ride that trend until it reverses. This can be a difficult strategy to stick with as it often requires traders to “buy high and sell higher” which goes against human nature.
-Mean reversion: This is a strategy where traders buy assets that are UNDERVALUED and sell them when they return back to their mean or average price point.
What you need to start day trading
If you want to day trade cryptocurrencies, you’ll need access to a platform that allows you to buy and sell quickly. You can use a traditional exchange like Coinbase or Binance, or opt for a peer-to-peer platform like LocalBitcoins.
Before you start trading, you’ll also need to choose a strategy. There are hundreds of different strategies that day traders can use, but the most popular ones include scalping, trend following, and reversal trading.
Once you’ve chosen a strategy, do some backtesting to see how it would have worked in the past. You can use historical data from crypto exchanges to do this. Finally, paper trade your strategy with play money to see how it would work in real life.
When you’re ready to start trading with real money, deposit some funds into your account and start placing trades. Be sure to monitor your trades carefully so you can take profits or cut losses quickly if necessary.
How to find good trades
When you’re starting out, it can be tempting to just pick any old coin and start trading. But if you want to be successful, you need to find trades that have good potential. Here are a few things to look for when you’re trying to find a good trade:
-The coin should have decent liquidity. This means there should be enough buyers and sellers so that you can easily buy or sell the amount you want.
-The coin should have a relatively high trading volume. This means there’s a lot of interest in the coin and it’s easy to find buyers and sellers.
-The coin should have a relatively high market cap. This means it’s a more established coin with less volatility.
Of course, there are other factors to consider as well, but these are some of the most important. Once you’ve found a few coins that meet these criteria, you can start doing your own research to see if they’re worth investing in.
How to place orders
Now that you know the basics of what day trading is, let’s move on and talk about how to actually place orders.
There are two types of orders that you need to know how to place: market orders and limit orders.
Market orders are the simplest and most common type of order. When you place a market order, you are simply buying or selling at the current market price.
For example, let’s say that Bitcoin is currently trading at $10,000 and you want to buy some. You would place a buy market order for $10,000 worth of Bitcoin and the trade would execute immediately at the current market price.
If the market price of Bitcoin then rose to $11,000, your Bitcoin would be worth $11,000. Similarly, if the price fell to $9,000, your Bitcoin would be worth $9,000.
The main advantage of market orders is that they are very simple and they get you into or out of a trade very quickly. However, they do have some disadvantages.
First of all, because you are buying or selling at the current market price, you have no control over what price you will get. The second disadvantage is that because market orders execute immediately, they can sometimes result in slippage.
Slippage is when the actual price at which your trade executes is different from the expected price. For example, let’s say that Bitcoin is currently trading at $10,000 but you expect it to rise to $11,000 very soon. You place a buy limit order for $11,000 worth of Bitcoin with a 10% stop loss attached to it (more on stop losses later).
However, by the time your order gets filled, the price of Bitcoin has already risen to $12,000. This means that your stop loss has been triggered and you will end up selling your Bitcoin for a loss even though the overall trend was up! Slippage can sometimes work in your favor but it can also lead to unexpected losses so it’s important to be aware of it.
Limit orders are very similar to market orders but with one key difference – when you place a limit order, you specify the exact price at which you want your trade to execute. For example, let’s say that Bitcoin is currently trading at $10 but you expect it to rise soon so you place a buy limit order for $11 worth of Bitcoin with a 10% stop loss attached to it just like before. In this case however because you specified an exact price ($11), your order will only get filled if someone is willing to sell their Bitcoin to you at that specific price ($11).
How to manage your risk
When day trading crypto, it’s important to always manage your risk appropriately. Not all trades will be winners, and even the best traders can have losing streaks. By managing your risk properly, you can ensure that you keep your losses to a minimum and give yourself the best chance possible of coming out ahead in the long run.
There are a few different ways to manage your risk when day trading crypto. One of the most important is to always use stop-loss orders. A stop-loss order is an order that automatically sells your crypto if it reaches a certain price. This ensures that you don’t lose more money than you’re comfortable with if the price starts to drop.
Another way to manage your risk is to only trade with money that you can afford to lose. If you’re only trading with “play money”, then you won’t be as worried about losing it all on one bad trade. You can also limit your position size so that each individual trade doesn’t put too much at risk.
Finally, don’t forget to do your own research before making any trades. The more you know about the crypto market and the individual assets you’re trading, the better equipped you’ll be to make profitable trades.
How to track your progress
When you’re first starting out, it’s important to have a system in place to track your progress. This will help you identify which strategies are working and which ones need to be tweaked.
A simple way to do this is to create a spreadsheet with the following columns:
Every time you make a trade, add a new row to the spreadsheet and fill in the relevant information. At the end of each week, month or quarter, take a look at your results and see what’s working and what isn’t. From there, you can adjust your strategy accordingly.
In trading, nothing is ever certain. However, by following the guidelines outlined in this article, you can significantly increase your chances of success as a day trader.
The key to success is to always stay disciplined and to never risk more than you’re comfortable with. Remember, the goal is to make small consistent profits over time, not to hit home runs every single day.
By adhering to these principles, you’ll be well on your way to becoming a successful day trader in the cryptocurrency markets!