Day Trading Strategies For Cryptocurrencies
Day trading dates all the way back to the 1860s.
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Day trading dates all the way back to the 1860s although the practice took a major leap forward with the formation of the NASDAQ in 1971 which allowed for rapid dissemination of stock quotes between the exchange, the broker, and the customer. It has become more popular thanks to the rise of personal computers and the internet. Today, day trading is probably the most popular strategy in the crypto space. Let’s review a few day trading strategies for cryptocurrencies below.
Successful Day Trading Requires Volatility
The introduction of cryptocurrencies during the past few years has only added to the popularity of day trading and day trading futures. However, just because day trading is popular does not mean that it is an easy way to make money. Profitable trading requires the use of successful day trading strategies for cryptocurrencies since they are especially volatile.
Without volatility, it’s very difficult to become a profitable day trader. What is volatility? In simple terms, volatility is nothing more than a measurement of daily price fluctuations. This explains why so many day traders have migrated to cryptocurrencies as their preferred trading vehicle.
Cryptocurrencies have produced extreme levels of volatility during the past few years. For example, it’s not uncommon for some of the major cryptocurrencies (e.g. BTC, ETH, LTC) to move 5% to 10% in a single day. The key to success is to use the right day trading strategies for cryptocurrencies in order to capture the volatility.
Three Popular Day Trading Strategies
Support and Resistance Levels
The majority of successful day traders will agree that the most profitable strategies are usually based on simple techniques. One such strategy is the use of support and resistance levels. This method involves waiting for the market to violate an important support or resistance level.
Please review the intraday chart of Bitcoin for 7 September below (Chart #1).
As you can see, the support level was violated @ 10,477. For those day traders who placed an order to short BTC @ 10,477, this turned out to be a great trade. Immediately after BTC penetrated its support level, the price plummeted to 10,324 in less than five minutes. This is a perfect example of successful day trading strategies for cryptocurrencies based on a simple concept of support and resistance.
Another successful day trading strategy involves trendlines. There are two types of trendlines, a rising trendline and a declining trendline. A rising trendline generates a sell signal when the market falls below the trendline. Conversely, a declining trendline generates a buy signal when the market breaks above the trendline. Please review Chart #2 below.
This chart displays the trading activity of Ether (ETH) for 9 September. Each bar represents five minutes of activity. As you can see from the chart, ETH enjoyed rising prices during the afternoon trading session. However, the market began to roll over to the downside during the evening session. Eventually, the uptrend line was broken and a sell signal was generated @ 181.90.
Another of the popular day trading strategies for cryptocurrencies is known as swing trading. It’s a very effective trading method designed to capture short-term price movements. In fact, swing trading is probably the most popular strategy within the day trading and cryptocurrency futures trading community. Why? Because it has the potential to generate several trading signals on a daily basis.
Generally speaking, most financial markets are locked in a trading range for extended periods of time. This would include markets such as stocks, commodities, foreign currencies, precious metals, and even cryptocurrencies. Despite the extreme volatility of cryptocurrencies, it’s not uncommon for these markets to trade sideways for several consecutive weeks. For example, Bitcoin has been stuck in a narrow trading range for the past two months (see chart #3 below).
The first step in developing a successful swing trading strategy is to locate a cryptocurrency that has been locked in a trading range. As an example, please review the intraday chart of Litecoin below (Chart #4).
LTC traded sideways for several hours on 8 September. The second step is to simply “buy the lows and sell the highs” as long as the cryptocurrency remains in its trading range. The third step is to wait for another trading range to develop.
As you can see from the chart, this particular trading range generated six signals during that period of time. Five of the signals were profitable.
Chart #4 is a perfect example of why day traders love the swing trading strategy. The strategy is perfect for traders who prefer to remain highly active throughout the day. However, swing trading requires a great deal of self-discipline. As soon as the market breaks out of its trading range, the trader must quickly cut his or her losses and patiently wait for another opportunity.
Day Traders Will Benefit from the Digitex Platform
Digitex is in the process of building a zero-fee trading exchange. All day trading strategies will improve dramatically upon the release of the Digitex platform. Why? Because the number one deterrent to profitable day trading is commission expenses. Digitex will completely eliminate commission expenses. Consequently, Digitex has enormous potential to become one of the most popular futures exchanges for the day trading community wishing to execute profitable day trading strategies for cryptocurrencies.
Which Day Trading Strategy is Best?
In terms of the best day trading strategy, there is no perfect answer. It depends on your preferred method. If you enjoy taking multiple trades throughout the day, the best strategy is swing trading. However, if you prefer fewer trades with less activity, using trendlines is probably the best course of action. Whichever strategy you select, the most important criteria is discipline and patience. This is the “key” to profitable day trading.
Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.
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