What is day trading and how does it work. Image credit: AdobeStock
The cryptocurrency market is highly volatile; thus, price fluctuations can happen every day, even on an hourly basis. Although many doubt the crypto market’s potential due to its volatility which makes it a highly risky investment option, there are investors who look for this volatility to gain profit.
If you want to know more about day trading, this article will explain to you what day trading is and walk you through the two market conditions you should consider before entering a crypto market and making day trades that can help you make the most profit gains out of the ever-fluctuating crypto market. To do so many traders use crypto trading platforms like Binance, Yuan Pay Group, Kucoin, Bitcoin Era and many others.
Day trading is a trading strategy for short-term trades where crypto transactions are made within the day. In simpler terms, you sell crypto you bought on the same day; thus, its other name is “intraday trading”. Day traders use intraday strategies to gain profits and make the most out of the particular moves in the crypto market to make trades.
If you are interested and want to do day trading, you should know about liquidity and volatility, which are both market conditions that are crucial to making profits when making day trades.
The first market you should know is the cryptocurrencies liquidity; liquidity refers to the ease of converting an asset into its fiat currency equivalent. Since you should enter and exit day trades quickly, you should opt to go for crypto, which has higher liquidity. When you encounter a slippage, a market with low liquidity, you will have a hard time converting the crypto asset you bought with its expected price equivalent. With slippage, the position shall be sold in increment so that you will still get the gain when the entire position is sold.
The second market position that takes time to learn and consider is the crypto market volatility. Since the crypto market is highly volatile, day traders take advantage of these extreme trends to get higher profit gains. If you make day trades, you should avoid markets that lack volatility; take stablecoin’s volatility as an example; since there is limited or no movement at all, you would never get the opportunity to buy low and sell high on a day. You should go for crypto markets where prices are fluctuating within the day to gain profits using the day trading strategy.
Truth be told, there is no consistent cryptocurrency that is sure to be good for day traders; this is because all crypto markets are highly volatile; thus, good crypto for day trading changes on a daily basis, meaning crypto which is good at day trades today may not be for tomorrow. Thus research the crypto market entirely before deciding to make day trades on the market so you will not make mistakes and make day trades on a non-fluctuating market.
As mentioned earlier, the crypto’s liquidity and volatility are crucial for any day trading strategy, so you should go for crypto with solid liquidity and is currently showing high volatility. Thus, look into the crypto market showing solid liquidity and a highly volatile market when both conditions are met, then that crypto is best for day trading.
Take the crypto Dogecoin as an example; in the early part of 2021, Dogecoin showed increased liquidity and surged in its volatility. During this time, the Dogecoin market price skyrocketed from just a fraction of a dollar to over $0.25 in just a matter of a month; consequently, its market cap increased by billions of dollars, thus at this time day traders flock to the Dogecoin market. Dogecoin still has high volatility, for it is much easier to mine, and a lot of investors may be holding onto it and are waiting for the right time to actually sell their coins. This condition also creates good opportunities for day traders.
The majority of people who engage in day trading lose money because day trades play with the already risky crypto market; thus, if you don’t play it right, you will suffer short-term investment loss.
Additionally, loss of investment in day trading mostly happens due to the extreme difficulty day traders have to face. It is extremely difficult to get the right timing of when to enter and when to exit the market while at the same time doing continuous buy and sell on this right timing. When making day trades, you have to make day trades with the right timing on the right crypto market; even if you are on the right market but miss out on the timing, you will still lose money. Another thing that makes investors lose their money is due to the trading costs; every trade you make involves trading fees does if you make day trades in which you have to make constant trades within the day, will subtract much larger trading fees from their profit gains; thus you would need to consider the trading cost when you sell you crypto so you won’t lose profit.
Day trading is a crypto trading strategy that involves trading, buying, and selling crypto within the course of the day and making sure to get the best possible profit gains, the most you can get out of the fluctuating crypto market. Keep in mind that you would have to make day trades with the right conditions, which are the solid liquidity and high volatility of the crypto market; when both these crucial conditions have been met, the opportunity to make day trading becomes possible. Although having entered a crypto market with this kind of condition does not mean an instant way to successful trades, you would need to apply the correct day trade strategy to make the best profit gains from your day trade opportunities.