Trading Toolkits: Beginners Guide to Day Trading in Crypto

Due to the highly volatile nature of trading, understanding its mechanisms is key to being successful in daily market interactions.

By
Wilfred Victor
on
May 18, 2021
Category:
Trading Toolkits

Introduction

Day trading offers individual traders the unique opportunity to earn based on market trends and quick decisions. This method of trading can offer excellent profit, but it can also be a means to financial woes when executed poorly against certain market standards, rules, and conditions. Let’s dive into how it works and how to minimize risks.


What is Day Trading?

Day trading is one of many trading strategies available for users to profit from the market. It is one of 6 six types of market trading strategies, including position and swing trading among others.

Day trading involves opening and closing trade within the day; hence its secondary title; Intra-day strategy. Here, traders attempt to profit off smaller price movements that are often accompanied by a strong knowledge of technical analysis, which involves understanding classic chart patterns.

A great deal of market experience and skills are needed to navigate the market, along with enough funds to withstand initial losses. Quality time is needed to achieve mastery and sustained profitability, meaning that day trading should not be undertaken as an under-researched hobby. 

Day trading can cause investors large amounts of stress due to its unpredictable nature. An emotionally charged trader is prone to errors, leading to a losing streak in their open trades which will further increase their emotional swing.


How Does Day Trading Work?

Certain conditions need to be fulfilled to understand how Day Trading works and to subsequently take part in it:

  • Initial starting point
  • Understanding top strategies 
  • How to start 
  • The risk involved


Starting Point

To increase profitability and longevity in the market, Traders must acquaint themselves with certain market rules; the possibility of blowing their account may not be far-fetched without caution being exercised.

  • Stick to few tested strategies: The temptation of jumping from one method to another may spell doom to an uncontrolled and undisciplined trader. When you have found a solid strategy, stick to it. 
  • Entry and Exit: The thought of not having an entry and exit already defeats day trading profits in no small measure as the market trends are usually short-timed. Especially in the case of traders making use of leverage, this could mean a higher loss for a slight market movement without proper exit and entry rules.
  • Manage Risk: Follow the principle of Risk Management, Risk/Reward Ratio strategies
  • Backtest Your Strategies: The market is a learning field, constantly providing learning tips. Backtesting your trading strategies will help you fine-tune your trades and help you make better decisions. 


Top Strategies in Day Trading

Three strategies are predominant in Day Trading as discussed by this Binance Blog edition;

  • Scalping: Involving taking advantage of small price moves that happen in short time frames. These can be gaps in liquidity, the bid-ask spread, and other market inefficiencies. Scalpers will ideally use the Margin or Future/Perpetual market to leverage on the slight price difference and increase their earning net.
  • Ranging: Here, Day Traders trade along the line of the support and resistance of a trade. He buys/longs the support and sells/shorts the resistance. Minding the range barriers and a possible break in the future, a range trader places their stop limit to take them out of the market.
  • High-Frequency Trading (HFT): HFTs is a highly fast-paced day trading strategy that involves algorithms/bots to execute trades. It’s an incredibly exclusive market where only well-defined players can play successfully. As much as it involves Bot trading, it also involves a high degree of backtesting, work, and funds.


Starting Off

In order to see the success that brought them towards day trading, investors should start by following these steps:

  • Step aside some funds: Ideally, you should never borrow to trade and only use spare funds. Most financial advisors recommend investing between 10% and 20% of your annual income, depending on your risk profile.
  • Create Time: You become better with time. Day Trading requires you to dedicate a significant portion of your time to attain proficiency. You can do without taking your time to hone your skill.
  • Demo Trade: Before going live on any trading platform, use demo, backtest, and forward test with paper trading or pen and paper. But by all means, do not go all-in on a live trading room when trading for the first time.
  • Keep trading Journal: By all means, do keep a trading journal to help keep track of your trading progress. Many traders fail this crucial aspect of trading which may be responsible for many unreplicated successes and repeated failures.


The Risk Involved

As with all financial matters and matters that deal with earnings, some aspects of risks exist, but with Day Trade, especially with Leverage, such risks are amplified. Understanding Financial Risk and Risk Reward Ratio is an essential aspect of the day trader journey.


Day Trading Appeal

The appeal is mainly found in the gains realized from short-term positions, meaning a financial windfall could be around the corner at any moment. This is in contrast to long term position trading, which trades investment security for delayed profit.


The Weaknesses

We often hear tales of woes from day traders who have lost substantial amounts due to either bad luck or ineffective strategy, and every other day, there are stories of liquidated longs or shorts. Day trading is filled with risk, and its weaknesses can be provoked by many factors.

The weaknesses of day trading are generally accentuated by the following:

  • Lack of experience
  • Lack of patience
  • Inadequate funds to hedge position 
  • Poor risk management strategy 
  • Over leveraging
  • Bad market timing 

When traders take account of one or several of the above weaknesses, their results will begin to improve over time naturally as they avoid situations that cause them.


Concluding Thoughts

Day Trading is one of the most popular trading strategies available in the cryptocurrency market and the traditional stock and Forex trading market. It got its name from the stock market, which only allows trade within business days.

The market is quite lucrative, but only for those who have faithfully followed all of the listed practices, rules, guides, and principles above. Overall, the chances of losing your money are still active; ensure you only use spare funds and not funds for critical needs.


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Wilfred Victor

Ace finds himself as a blockchain enthusiast who is focused on growing with the entire crypto sector. He is an energetic and passionate writer who believes that all things are achievable.

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