Day Trading

Intermediate
March 29, 2023
Read time:
9m

Day trading is an investment practice that involves profiting from short-term price fluctuations within the same day.


Day trading is a demanding technique that requires the ability to make fast investment decisions and conduct constant market analysis.


It is advisable to have a thorough understanding of financial markets, investment strategies, fundamental and technical analysis, and an advanced familiarity with the selected exchange. To be successful in day trading, it is also necessary to understand various investment instruments and the basics of risk management. Therefore, day trading is recommended for advanced and experienced traders.


Before you begin…

Day trading typically starts with analyzing the current market situation and selecting assets that have the potential to generate profit within a day. When selecting assets, it is important to consider the cryptocurrency's liquidity, as this describes how easily the asset can be traded. Since the goal is to profit from the difference between buy and sell prices, high liquidity is necessary to allow for quick execution of numerous transactions.


The mechanism of day trading is relatively simple and involves executing a buy trade and, after some time, making a sell trade to close your position and collect profit (or loss).


How to start

Day trading involves several steps, the first of which is acquiring the relevant knowledge discussed above. The next step is to select an appropriate trading platform and become familiar with its features.

Here are a few tips that may help you get started with day trading:

  1. Be patient.
    Acquire relevant knowledge, analyze the market, and gradually improve your skills until you are comfortable. The cryptocurrency market is highly fluctuating, and investing involves risks, so it's important to follow your own pace.


  2. Develop an investment plan and follow it.
    A proper investment plan should contain chosen trading practices and market analysis tools.


  3. Learn about risk management.
    Know when to close a trade at a profit or loss. Determine the level of risk that is right for you, set loss limits and profit closing points.


  4. Be prepared for failures.

Day trading – review of the most popular trading strategies


Choosing a day trading strategy remains challenging for traders, who have to tailor it to their own skills, preferences, and investment style. Among the most popular day trading strategies are the following:

Indicator Trading

This strategy uses technical indicators such as moving averages, market strength indicators, or oscillators to identify investment opportunities. Based on the analysis of these indicators, traders make trading decisions.

Scalping

A strategy primarily based on technical analysis that relies on opening and closing many positions, usually within a few seconds or minutes. Scalping takes advantage of small price movements while requiring experience and sensitivity in analyzing the current market situation.

Trend Trading

This trading strategy uses prevailing market trends based on long-term trend analysis. Traders have to detect specific trends in the market, open a position according to the direction of the trend, and instantly close the position when it changes. This strategy requires a lot of patience and the ability to research and observe the market.

Day Trading and Leverage

In day trading, leverage can be a powerful tool for maximizing potential profits, but it also comes with very high risks.


Many exchanges and brokers offer a variety of leverages, ranging from 0.25x and 0.5x to even 50x and 100x. This can help boost daily profits, but it is crucial to understand that this type of leverage comes with much greater risk.

The controversy surrounding day trading

Day trading is a controversial investment practice because of its high risk, with the potential for both high profit and loss.


Day trading is also a very emotion-driven strategy because of the short time frame for a trading decision, leading to impulsive actions and even potential adrenaline addiction.


Summary


Day trading is a practice where traders aim to profit from the difference between an asset's buy and sell price within a few hours or minutes. It is a demanding technique that requires constant market analysis, financial understanding, and advanced familiarity with the selected exchange. Before starting, traders should examine the current market situation and choose assets with high liquidity.


To be successful in day trading, traders could also create an investment plan, learn about risk management, and be prepared for failure. Among the most popular day trading strategies are indicator trading, scalping, and trend trading. However, day trading remains controversial because of its high risk and emotional nature.

Complete quiz
Day Trading
Share this article
Explore other articles
Intermediate

What is mining and how to do it properly?

Crypto mining validates and adds transactions to the blockchain, which results in new cryptocurrency added to circulation. The process creates a chronological order of transactions, which is necessary to ensure that entries in the "open ledger" cannot be changed.
Intermediate

What is High Frequency Trading?

HFT is a trading strategy that uses advanced algorithms and technology to make fast transactions in the financial market, including crypto. It has advantages, such as speed of information processing, cost efficiency, and increased market liquidity, but also disadvantages, such as high risk, inequality to other investors, and ethical controversy.
Intermediate

What is leverage?

Leverage and margin are crucial tools that traders can use to increase their potential profits or losses on cryptocurrency investments. Leverage works by using borrowed funds, and margin controls the risk of loss.