7 Expert Strategies For Day Trading Cryptocurrency

Engaging in long-term crypto trades can be a lucrative option for those willing to wait, but day trading cryptocurrency opens up new possibilities for anyone interested in earning high profits within a shorter time.

Through crypto exchanges like Vauld, day trading has become more accessible and less complicated than ever before. While some techniques require more knowledge of decentralized finance than others, there is a strategy available for every type of trader.

Here, we’ll discuss what you need to know about day trading.

Day Trading Cryptocurrency

Day trading is a higher risk model that uses the crypto market’s liquidity and volatility in an attempt to predict crypto prices and make a quick profit. This short-term strategy is used by traders buying and selling crypto on the same day.

With liquidity and volatility being such important factors in day trading, let’s look at how each plays a role in the process.

Liquidity

As it relates to DeFi, liquidity is how simple it is to quickly convert crypto to cash and how much the value changes during the process. A liquid asset will have no problem trading right around the market price, while an illiquid asset is difficult to trade without sustaining some loss.

High liquidity means a market is stable, while low liquidity means that fluctuations with value spikes are present. Low liquidity can have a detrimental impact on a trader’s profits since slippage can occur in these instances.

Both positive and negative slippage happens when you, as a trader, end up settling for a price that does not reflect the price you initially requested. This is the result of the price changing between when the order hits the market and when trade actually happens.

Although slippage is common in many industries, the volatility present in DeFi makes crypto’s slippage while trading significantly worse.

Volatility

day trading cryptocurrency

As always, volatility acts as a double-edged sword when managing crypto. Positive slippage can be a good thing for you since you are receiving a better rate than initially requested. Negative slippage, however, does not work in favor of your wealth-building process.

Aside from the issues raised through slippage, a lack of volatility can create further problems. When there is no market fluctuation, this means prices are not moving. In this circumstance, buying low and selling high is not feasible.

Day traders rely heavily on crypto’s volatility to make a profit. The constant ups and downs allow them to strategically enter and exit the market when necessary.

7 Expert Strategies For Day Trading Cryptocurrency

For a better sense of the many ways that day trading cryptocurrency can benefit traders, read on for seven day-trading strategies.

Range Trading

One of the quickest ways that day traders turn a profit is through range trading. Rather than follow the upward rise of a particular trend, this strategy involves honing in on tokens that regularly fluctuate between two different prices known as resistance and support bands.

On paper, the idea is simple: Buy at the lowest range and sell at the highest. It is important to note that, while effective, this method is not always perfect since the range’s pattern cannot be maintained forever.

A familiarity with technical analysis will help increase profits.

Technical Analysis

chart of day trading cryptocurrency

Technical analysis is a discipline common across many avenues of trade. This strategy analyzes patterns within historical data to evaluate investments and methodically identify the best trade opportunities.

An expert tip for successful day trading is to use technical analysis as a means of building a larger trading strategy rather than acting on the information found in an analysis. In this sense, it is a tool for risk management and developing an ideal trading method.

Arbitrage

You can also make a profit while trading through multiple crypto exchange platforms. Arbitrage does exactly this, allowing you to purchase crypto on one exchange and immediately sell it on another at a higher price.

A token like Bitcoin with high volatility that is available across all common platforms is a popular choice for arbitrageurs. If they notice that BTC is selling for $47,850 on one exchange and $48,000 on another, then they aim to profit off of the $150 difference.

Compared to other crypto day trading opportunities, arbitrage is seen as a relatively low-risk endeavor since it requires taking advantage of immediate options rather than predicting future highs and lows.

High-Frequency Trading

When entering and exiting a trade within a day, time is of the essence. High-frequency trading takes the concept of arbitrage to the next level by using algorithms that analyze minute price differences between the same asset across several crypto trading platforms.

Instead of manual trades every few hours, high-frequency trading only takes a few seconds to enter or exit multiple positions. The profit margins are small, but they add up quickly.

Instant Swap

The Instant Swap feature on Vauld allows you to immediately swap between cryptocurrencies. Instant Swap simplifies the day trading process and is perfect for anyone trading in small amounts.

The fixed rates — which are valid for a limited amount of time — are offered through this option to eliminate slippage that might otherwise cause you to receive a lower price than you requested.

Sentiment Analysis

Man day trading cryptocurrency

An expert in almost any field of trade will recommend avoiding a position based on emotion or gut feelings, yet there are a couple of exceptions to this rule.

Sentiment analysis takes your thoughts regarding a certain token or tokens into consideration. Using this in the crypto market means relying on various media sources, such as the news or Twitter, to gain insight into market demand.

Although it is impossible to determine whether an investor’s thoughts will ultimately impact a token’s value, there are many examples of this happening. When Elon Musk Tweeted about Dogecoin, the asset value surged more than 60%.

There are, of course, notable drawbacks with sentiment analysis, namely that media pick-ups may often be a lagging factor of price fluctuation. Similar to technical analysis, sentiment analysis is best used as a tool to further develop other day trading strategies.

Scalping

The speed and efficiency of day trading typically result in smaller profits that add up over time. Scalping utilizes market volatility to maximize these small yet frequent profits.

Scalping is a strategy that takes advantage of the liquidity and high volume of an asset growing in popularity, though it requires rapid decision making and a good understanding of the market to be successful in the long term.

Using a mix of sentiment analysis and technical analysis to stay in the know and avoid bad trading opportunities can help decrease the higher risk that comes with this strategy.

Risks Of Day Trading Cryptocurrency

alarm clock next to crypto coins

Along with negative slippage and volatility, there are a few other risks to be wary of when day trading cryptocurrency. While some of the associated risks are hard to avoid, they can still be managed.

Locating Trend

Unlike the stock market, crypto is open for trading 24/7, year-round. While this increases the opportunity for profit, it also means that patterns and trends will fluctuate and be more difficult to spot.

Although charts and technical analyses aim to make more sense of an asset’s fluctuation value, it is hard to predict when a trend will break and cause you to lose out on profits or spend long nights waiting for a trend to be spotted.

Security Risks

Storing assets for trading purposes adds the same risk that comes with holding funds with a crypto exchange. Since DeFi is still mostly unregulated, exchanges without a private insurance fund to protect their users are putting customers at risk should a hacking occur.

Here at Vauld, we’ve partnered with BitGo, a leading digital asset trust and security company, to provide you with necessary coverage. Even in the event of a major breach, stolen funds can be recovered.

Choose The Best Trading Platform

crypto coins in a bowl over money

Short-term trading can equal long-term profits, but it’s crucial to conduct thorough research and avoid picking a strategy at random. Day trading cryptocurrency without understanding the market and your method of choice is an easy way for beginners to make costly mistakes.

At Vauld, we offer all of the essential tools for you to make the most of your strategies. You gain access to competitive rates, an extensive list of tradable assets, interest earned while trading, zero hidden fees, and much more.

No matter which strategy you choose, trust Vauld to help you make the most of your trading techniques. Sign up today to start trading and earn as soon as you make your first deposit.

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