Learn how to day trade crypto with our step-by-step guide! Explore strategies, choose the right coins, and boost your profits in the volatile crypto market.
The crypto market’s unique characteristics require you to have a firm understanding of how it works. Otherwise, your experience can be like skydiving without a parachute. The good news is that we’re going to provide you with everything you need to survive crypto day trading.
How to day trade crypto can be very lucrative because of the high volatility. Since the crypto market is a relatively new asset class, it has led to significant price swings. Before you day trade crypto, it’s prudent to wait until we have a high reading of volatility. Even when we have low volatility compared to other asset classes, the crypto market still offers enough fluctuations that you can generate a modest profit. Timing and liquidity also play a huge role in day trading cryptocurrency, ensuring you make precise entries and exits.
Crypto Day Trading: Key Considerations
Many cryptocurrencies and crypto exchanges lack sufficient liquidity, which can hinder your ability to execute trades instantly, as you might expect when trading Forex currencies. Before day trading Bitcoin or any other altcoins, it’s essential to check the liquidity of the cryptocurrency you wish to trade. You can verify the 24-hour volume of a specific coin using a free resource like CoinMarketCap.
As previously mentioned, how to day trade crypto doesn’t mean you need to trade every single day. We only recommend trading when all conditions align. For instance, avoid trading on weekends and stick to the highest-volume days for better opportunities.
Now, let’s dive into the step-by-step guide on how to day trade crypto like professional traders.
Building a Winning Strategy for Day Trading Cryptocurrency
The goal of crypto day trading is to look for quick profit opportunities. If day trading suits your style, let’s explore a strategy that can help you succeed.
Step #1: Choose High Volatility/Liquidity Coins
The first step in how to day trade crypto is to pick coins with high volatility and liquidity. If you prefer altcoins over Bitcoin, choose those with good liquidity and volatility. There are over 1600 coins on the market, so focusing on top cryptocurrencies will simplify your selection process.
Step #2: Apply the Money Flow Index (MFI) Indicator on the 5-Minute Chart
For this strategy, we use one technical indicator: the Money Flow Index (MFI). The MFI helps track the activity of smart money and indicates when institutions are buying or selling cryptocurrencies. Set the MFI to a 3-period setting, and adjust the default buying and selling levels from 80 to 100, and from 20 to 0.
Step #3: Wait for the MFI to Reach 100
An MFI reading of 100 shows the presence of institutional activity. To fine-tune this strategy, skip the first two MFI readings of 100 and observe how the price reacts. If the price holds up, you’re likely to see a profitable opportunity.
Step #4: Buy if MFI = 100 and the Subsequent Candle is Bullish
Wait for the third MFI reading above 100, and ensure the subsequent candle is bullish. The close of this candle should be near the upper end, with small wicks, indicating strong buying pressure.
Step #5: Place Stop Loss Below the Low of the Day and Take Profit Within the First Hour
Place your stop loss below the low of the day to protect your trade. The exit strategy is flexible, but you must take profits within the first 60 minutes. Backtesting results suggest holding the trade longer than one hour lowers the success rate.
Conclusion
If you’ve followed this guide, you should now have a solid foundation on how to day trade crypto. Armed with the right knowledge, you can start making daily profits by buying and selling Bitcoin and altcoins. Remember, how to day trade crypto successfully requires patience, research, and the ability to execute trades at the right time.
Crypto day trading is an excellent way to grow your portfolio, especially given the high volatility of the market. It’s a lucrative alternative to the long-term holding approach, which may not suit everyone. High volatility provides the perfect environment for day trading success. Be sure to equip yourself with enough information before diving into the market, and consider reading our guide on the Best Cryptocurrencies Investments.
Thank you for reading!
