With cryptocurrencies becoming increasingly popular today, more are turning towards day trading them to capitalize on their volatility and pocket profits. However, what exactly is day trading, and can this be profitable?
Day trading in cryptocurrency entails buying and selling the same currency within the trading day. It has increased in popularity recently due to price fluctuations in bitcoin and the general improvement in perceptions towards cryptocurrencies.
Similar to long-term traders, day traders should seek to conduct their due diligence on a counter before purchasing it. This analysis can be broadly classified into two categories — fundamental and technical.
Fundamental analysis consists of studying financial statements and evaluating non-quantitative aspects of the company such as its management team and sector outlook before deciding whether to invest in them.
On the other hand, the technical analysis consists of scrutinizing aspects of the price such as trends and patterns to evaluate an optimal time to enter the trade. Additionally, they can utilize momentum indicators such as stochastics and the relative strength index (RSI) to identify potential breakouts and trade on them.
However, the majority of day traders utilize technical analysis as their main tool to gauge whether they should enter the trade due to the ease of applying it, and the quantitative nature aids in quick decision-making.
Besides technical day traders, we have day traders that speculate on price movements too. Utilizing fundamental analysis, speculators seek to profit from news or speculation to get in ahead of the crowd and capitalize on impending price movements.
There are numerous strategies one can execute when day trading cryptocurrencies.
Firstly, traders can utilize scalping to pocket minute profits throughout the day. This strategy is based on the assumption that these small profits will accumulate and result in a large overall gain at the end of the day.
This involves the trader buying a currency before selling it as soon as possible, at a higher price. However, it is important to note that losses can be costly in scalping as a single loss has the potential to wipe out the day’s profits. Therefore, traders must enter a scalping trade with confidence that the price would rise.
Another strategy widely used in pattern trading. As shared earlier, patterns signify the start of trends, and trends are a trader’s best friend. Upon identifying patterns such as a cup and handle or ascending triangle, traders can choose to enter the position and start riding the trend.
Stop-loss trading is a way to protect a trader from catastrophic losses. It is crucial day traders implement stop-loss limits on their trades to cut them loose before their prices drop even further.
Stop losses function through a sell order being placed at a particular price where the trader determines he should cut his losses. When the counter reaches the pre-determined price point, a sell order is placed and the currency is sold off.
Day trading often requires a full-time commitment as one has to constantly execute trades throughout the day. However, not many are willing to take such a risk. Therefore, they should AI bots to help them execute their trades and pocket similar returns to day traders.
AI bots like SnapBots (http://www.snapbots.io) can automate trades and generate profits for their users. SnapBots currently offer 3 types of strategies; Cradle, Ayers, and Silk. Ayers bots seek to utilize short term trading opportunities to generate a pure alpha strategy with low daily volatility.
Ultimately, day trading comes with its own set of risks too. Moreover, human emotions serve to exacerbate them as we tend to allow our emotions to dictate the trades we make, especially in the stressful environment of day trading cryptocurrencies.
Therefore, we should look at technology and AI bots to help us execute our desired strategies without the influence of our emotions and generate greater profits.
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