When I started day trading cryptocurrencies in 2022, I immediately had to incorporate key ideas and trading strategies to be successful.
In this article, I want to unpack the ideas that made me profitable as the cryptocurrencies swung up and down, developed trends and sometimes stayed in ranges. This knowledge and the strategies I adopted have been game-changers for me and many successful crypto traders.
Let’s look at:
- Cryptocurrency day trading strategies
- A step-by-step guide
- Dos and Don’ts in day trading
What Is Crypto Day Trading?
A cryptocurrency day trade involves entering a trading position in a cryptocurrency and then exiting the position in a short-term time frame, usually within the same day. For example, I buy Bitcoin at 10 a.m. and sell the position at 3 p.m. to complete a day trade.
Cryptocurrency markets run 24/7 without an official opening or closing time each day. That means cryptocurrency day trading can happen at all hours of the day. The strict definition of day trading is to open and close a trading position on the same day. However, if a position remains open a little more than a day, I also classify that as day trading for the sake of this article.
That means day trading has a short-term focus on immediate moves that require precise timing to catch.
Why Day Trade Cryptos and Bitcoin?
Liquidity and Volatility
The best markets for day trading are those with liquidity and volatility. Cryptocurrencies, particularly Bitcoin, are highly liquid and volatile, making them excellent for day trading.
Liquidity refers to the ease with which an asset can be bought or sold without affecting its market price. For an asset to be liquid, it must have a large market capitalization and plenty of trading volume. Bitcoin’s market capitalization was over $1 trillion in February 2024 and reached over $2 trillion one year later.
But there’s no point in day trading a market if it barely moves in price, no matter how high its market capitalization is. That’s why volatility is essential. Luckily, cryptocurrencies usually have plenty of daily price movement. Bitcoin’s annual volatility from 2020 to 2024 was 3.7 and 4.9 times more than the S&P 500 Index and gold, respectively.
This high volatility translates to significant daily price moves, providing plentiful opportunities for day trading profits.
Lots of Crypto Brokers and Trading Instruments
As cryptocurrencies grew, so did the number of brokers offering crypto and the different ways to trade it. Today, I can trade crypto using futures or ETFs on regulated exchanges, CFDs with CFD brokers, or buy and sell cryptocurrencies directly on crypto exchanges. Futures and CFDs offer plenty of leverage and allow me to take short positions.
How to Develop a Day Trading Strategy for Crypto
- Select the cryptocurrencies to trade. Today, the most liquid cryptocurrencies are Bitcoin and Ethereum. For most cryptocurrency day traders, I would not recommend moving away from these two. Other cryptocurrencies are much smaller and less liquid or illiquid, posing problems when using technical analysis.
- Select the timeframes for reading charts. The 5-minute and 15-minute timeframes are ideal for day trading cryptocurrencies. I also use the 4-hour and daily timeframes to monitor key support and resistance levels. Using multiple time frames has been a key to my success.
- Entry rules. Most day trading cryptocurrency strategies rely heavily on technical analysis. This is ideal for Bitcoin and Ethereum, as their high market capitalizations and trading volumes mean a large crowd is behind them, resulting in clean technical levels. Price action (e.g., support/resistance, chart patterns) or indicators such as moving averages, MACD and RSI are suitable for cryptocurrency day trading strategies. Many traders use volume-based analysis, too, such as Volume Profile (I’m a big fan of this). Some crypto traders use relevant news announcements to help place trades. For example, deregulating cryptocurrencies in the U.S. will bullishly affect crypto values. However, cryptocurrencies do not have underlying fundamental data compared to other markets, such as Forex (e.g. interest rates or GDP announcements). This limits the usefulness of fundamental analysis with cryptocurrencies.
- Take profit rules. These can be based on support and resistance levels or indicators that show momentum turning against a trade, such as a price crossing a moving average.
- Stop loss rules. Exit at a point the trade would be invalid if the price reaches. For example, if I buy near a support level, I may place a stop-loss below it.
- Money management rules. When day trading, I typically do not risk more than 1% of my account per trade. So, if the price hits my stop loss, the value of my account will not drop by more than 1%. You may not want to use the same percentage but instead have a rule to control the trade size and risk on the account.
Crypto Day Trading Strategies for Beginners
Strategy 1: Range trading
Step 1 of range trading is looking for when the price starts moving sideways and produces horizontal support and resistance lines. Bitcoin and Ethereum spend as much time in ranges as they do in trends. I find intraday ranges using a 15-minute chart.
Step 2 is to identify the larger timeframe’s direction. For example, if the price has come down to form the range, I see that as part of a downward trending market. This should be clear on a 4-hour or daily timeframe chart.
I use a MACD (12, 26, 9 settings) to help time my entry. Before entering, I want the price to line up near the support or resistance level. The MACD confirms the trade when the histogram turns from green to red.
The following shows Ethereum in a tidy range, but I found the resistance level cleaner than the support level. Since the price has declined, I am more interested in trading short from the resistance than the support level.
Strategy 2: Breakout on the higher timeframe
Bitcoin and Ethereum produce strong breakouts from long-term support and resistance levels, and they are easily tradeable in small timeframes.
Step 1 is marking clear support and resistance levels from the daily chart. The following chart shows a clear resistance level on Bitcoin on the daily chart. When the price broke through, it did so with a long green candle. From there, I went to the 15-minute chart and bought on dips, riding the uptrend on the smaller timeframe. The advantage of executing using a 15-minute chart but off a longer-term level is that I got high reward/risk ratios on my trade.
Strategy 3: Arbitrage trading
Cryptocurrencies do not trade over central exchanges, and the market is less mature than Forex. This results in “arbitrage” opportunities, meaning the prices on different platforms or exchanges can differ. The strategy is to sell the cryptocurrency on the platform at a higher price and buy the same cryptocurrency at a lower price. When the prices eventually equal on both platforms, exit both trades, and the profit will be the difference between the two prices. Arbitrage is the closest thing to risk-free trading available in any market.
Arbitrage trading requires operating multiple accounts and acting quickly. There are software applications to help find and execute arbitrage opportunities, but traders can still do it manually.
How to Become a Successful Crypto Day Trader
- Develop a strategy and test it on a demo account or with a small amount of money. A complete trading strategy should include entry, take profit, stop-loss, and money management rules.
- Be available during the most active times when cryptocurrencies tend to move. Although cryptocurrency markets operate 24/7, they are most active during the New York and European hours.
- Spend time choosing from the best crypto brokers. Spreads, trading costs, and regulations vary widely in the cryptocurrency world. Use an established broker in a well-regulated jurisdiction. CFDs or futures brokers are often better regulated, and those instruments allow traders to go short.
- Track progress and keep records. For example, I want to know my average reward/risk ratios, win rate, and profit factor (the sum of winning trades divided by losing trades). I also want to know if I exit trades too early or if there are days of the week when I trade poorly.
Dos & Don’ts in Crypto Day Trading
Dos
- Stick to your strategy’s rules. In other words, stay disciplined. The strategy exists for a reason: to take trades when the probabilities and rewards are in my favour.
- Research different instruments and platforms for your style of crypto trading. There are many ways to trade cryptocurrencies, each with pros and cons.
- Keep developing your knowledge. I am a better trader than five years ago because I networked with other traders and learned better ways to execute my methods.
- Be conscious of trading costs. Day trading incurs more spreads and commissions because of the higher frequency of trades than longer-term trading.
Don’ts
- Don’t overtrade by taking trades that are not part of the strategy. This is often emotional trading rather than strategic trading. For example, don’t chase trends with the fear of missing out (FOMO).
- Don’t use an unregulated broker or service. Exchanges have lost funds due to hacking, and some exchanges have stolen client money.
- Don’t rush in with all your capital without testing your strategy over a series of trades on a demo or small account.
- Do not risk too much per trade. I have met traders who win more trades than lose, but a single large loss on a “sure thing” can blow up an entire trading account.
Crypto Day Trading—Pros & Cons
Pros
- In recent years, Bitcoin has been 3-4 times more volatile than the S&P 500 and gold. This provides plenty of excellent day trading opportunities.
- Bitcoin and Ethereum produce reliable technical levels and chart patterns because of their large market capitalizations and trading volumes.
- There are many ways to trade cryptocurrencies, from futures to CFDs and trading through crypto exchanges.
- Cryptocurrencies are not correlated to many other markets. They may be experiencing reliable trends while other markets are in messy ranges.
- Day trading has the potential to generate daily and weekly income.
- Day trading is quicker to test and implement a strategy because of the higher number of trades.
Cons
- There are realistically only two cryptocurrencies worth day trading: Bitcoin and Ethereum.
- There are few reliable ways of knowing what’s driving the price of cryptocurrencies. In comparison, markets like equities and Forex have well-established fundamental factors driving their price moves.
- The cost of day trading spreads and commissions are much higher because of the higher number of trades.
- Day trading can be emotionally more challenging because of the decision-making speed required.
- Although cryptocurrencies operate 24 hours a day, realistically, most intraday moves occur during the New York and European market hours. This might suit many people, but it depends on your time zone.
- Day trading requires much more screen time than longer-term trading.
My Take
Cryptocurrencies have plenty of liquidity and volatility to allow for profitable day trading. The only two cryptocurrencies worth day trading are Bitcoin and Ethereum. After that, the other cryptocurrencies have much smaller market capitalizations. Most cryptocurrency day traders use technical analysis to trade. Bitcoin and Ethereum produce excellent technical levels and chart patterns because of their high market capitalizations and trading volumes. Some traders also watch for news events affecting crypto values, e.g., changing government cryptocurrency regulations. Many day trading strategies, tools, and indicators that work on Forex are effective on cryptocurrencies.
Successful day trading requires a tested strategy, a reliable and cost-effective broker, and discipline.
