Day Trading Crypto Strategies

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robertstevens

Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.

Research shows that day trading—buying and selling assets within the same day to profit from volatility—is usually not profitable. Most people lose money from day trading, and crypto’s highly leveraged and sparsely regulated products make it a riskier market than most.

Data produced from a 2004 study of Taiwanese day traders showed that 80% lost money, a 2019 study of Brazilian futures day traders found that just 1.1% of day traders earned more the national minimum wage, and Cory Michael of Vantage Point Trading concluded pessimistically in Forbes: “Only 1% of [day] traders really make money.”

The reasoning behind this pessimism, whether generated empirically or through years of steely grit, is that in public markets, day traders are up against high-frequency traders, brokers, mutual funds, hedge funds, venture capitalists, and whales. Most of these people are paid lots of money for their expertise in financial markets, and to profit you have to outcompete their highly efficient, specialized minds.

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Some regulators think that the crypto market is even more dangerous because it is inherently manipulable: Exchanges have been known to wash trade coins to inflate their volumes; big bagholders construct huge pump and dump schemes; some platforms or cryptocurrencies are scams to start with; and some influencers do not disclose that they are being paid to promote certain coins. That means that even if you’re a fast study, you’re probably not working with a full set of information.

The point that we’re trying to get across is that it’s hard to day trade successfully, and you’re statistically likely to not make any money. With that heavy disclosure in mind, we’ll discuss the top crypto day trading strategies.

Get smart before day trading crypto

Before you start devising crypto trading strategies, equip yourself with as much reliable data as possible. Sites like Decrypt, Coindesk, and The Block are some of the better industry publications, and mainstream publications like The Financial Times and Bloomberg are beefing up their crypto coverage. Sites like CryptoPanic aggregate news feeds from the bigger crypto news outlets.

To perfect your crypto investing strategies, you need reliable sources of market data. Price aggregators like CoinMarketCap, Coin Gecko, and Nomics are helpful for understanding prices and market capitalizations, although since they are aggregators they won’t account for discrepancies across exchanges. There are plenty of specialized data platforms that provide up-to-date coverage of markets. Those within the crypto industry have created plenty of dashboards on Dune Analytics.

For market data, consider signing up for sites like Glassnode, Coin Metrics, and Skew Analytics. Each provides accurate market data for a variety of metrics. For more information about DeFi, consider DeFi Llama and DeFi Pulse. For obscure altcoins, consider sites like Poocoin.app. For NFTs, sites like Nansen help you track high-profile wallets, and CryptoSlam is adept at providing detailed overviews about the NFT market. For an app that tracks popular NFT wallets inside a pleasant user interface, consider Context. A platform called Messari aggregates a lot of this data, and also produces reports on top coins and advanced crypto trading strategies.

Markets are social, and a lot of the market information comes from social media. For crypto the main watering hole is Twitter. Telegram and Discord play important roles within specific communities. Some DAOs, like Friends with Benefits, are filled with experts and insiders—although you’ll have to pay to join them. Sites like eToro let you copy profitable crypto trading strategies—but remember that past performance is not indicative of future success.

Next, choose your trading venues. If you’re day trading, it might be worth your time to check top crypto exchanges like Binance, Coinbase Pro, Kraken, and FTX. Make sure you’re using the “pro” versions of these exchanges—the versions with a matching engine and price chart—rather than convenient “lite” versions. This will save you on fees and let you trade directly with other users. Decentralized exchanges offer many options; these days, exchanges like Matcha, Slingshot, and Loopring offer strong decentralized trading platforms that are comparable to those provided by centralized exchanges. Advanced exchanges let you implement different crypto trading strategies; exchanges like Deribit are the most popular venue for crypto futures trading strategies and options trading.

Flip NFTs

Day trading NFT drops is a strange business, since if you buy and sell an NFT in the same day, you’re forgoing the opportunity for it to rise at a later date. That said, flipping an NFT drop can prove lucrative, particularly if there’s demand for the project. The first thing you need to do is find NFT drops. This is easier said than done. Some NFT drops are announced well in advance, while others are announced without any notice; if you miss the first minute of the mint, you might already be too late. Crypto day trading rules are quite different from regular stock trading.

While you can subscribe to sites like NFT Calendar, finding lucrative NFT drops is often a case of following the right people on Twitter and hoping that they’ll drop hints of the next big thing. Popular influencers may drop day trading crypto tips. Sometimes they are right and sometimes they are hopelessly wrong—and you can’t always tell who’s funding that advice. Curated lists of prominent NFT traders include NFT Galaxy Brain, and NFTs. You can also use sites like Nansen or Context to track the addresses of popular NFT traders; people can lie on social media. Following their wallet activity is another way to see what cryptocurrency strategies they are implementing.

If you buy and sell NFTs, you’re looking for rising floor prices and plenty of volumes. The last thing you want to do is get stuck with an NFT that nobody wants to buy. It’s difficult to tell if day trading NFTs is a profitable enterprise—after all, all it takes is one lucky mint to make you rich. The original holders of CryptoPunks, one of the most valuable NFT collections, minted their NFT for paltry sums and cashed out as millionaires.

Engage in yield farming

Yield farming is the practice of sifting your money through decentralized finance protocols to earn platform-native tokens, usually referred to as governance tokens. Although yields are calculated with annual time horizons—far too long for the restless day trader—some yields are so high, often in the thousands of percentages (if not millions) that you can make a lot of money by leaving your money in a protocol for a short period of time. This is risky, however, since a lot of these returns are temporary. It is not uncommon for a yield farm to crash and burn within the week; if yields were sustainable, yield farmers would be among the richest people in the world.

While automated yield farmers, like Yearn Finance, can take out some of the complicated work for you, higher returns could (could!) be netted by investing in DeFi yield farms yourself. Note that this certainly falls under the umbrella of advanced crypto trading strategies. By shuffling money around different protocols, taking out loans to maximize their exposure, the yield farmer generates a large amount of yield from each platform. However, note that these yields are variable—they could crash at any time—and that creating these kinds of strategies is very complicated and not recommended for beginners.

Engage in swing trading

Swing trading is the most basic of crypto trading strategies. Buying low and selling high is the name of the game. The objective here is to take advantage of volatility—something that crypto has in spades—to maximize profits. Strategies like “technical analysis” demand that you obsess over price charts to try and use the past to predict the future. While you may have read, say, a mutual fund’s disclaimer that past performance is not indicative of future success, with swing trading you throw that out of the window and use mathematics to attempt to work out which coin is going to rise next.

One way of taking advantage of price fluctuations is to implement limit and stop-loss orders, which allow you to buy and sell crypto at a certain price without having to watch the market like a hawk. You could also use a trading bot to do this work for you.

Still, such a strategy would require you to become one with currency fluctuations, crypto prices and be sensitive to industry news that may affect the price.

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Engage in arbitrage trading

Markets are sometimes less than efficient. A cryptocurrency exchange may display a different price than another, or it might be possible to sell a stablecoin for more than a dollar. Taking advantage of these differences before the market closes the gap is known as arbitrage trading, and it can be highly lucrative.

For instance, early in his crypto trading career, Sam Bankman-Fried, the multi-billionaire founder of crypto exchange FTX, made huge sums of money by selling Bitcoin at a vastly inflated price on Japanese and South Korean exchanges.

Arbitrage is critical to the way that some crypto markets function. Arbitraging requires that you pay close attention to price differences.

Frequently Asked Questions

To day trade crypto, you’ll need a venue that lets you place lots of trades at a low cost. Cryptocurrency exchanges are perfect for this strategy. You can sign up for popular ones like Binance, Coinbase, and FTX and trade on the “pro” version of their exchanges—this offers you direct access to the exchange’s matching engine, which lets you trade directly with other traders.

After you’ve funded your account, it’s a case of buying low and selling high—easier said than done, and difficult to implement successfully. Day traders often look for small ups and downs in price that hint at greater price swings, and try and get in on the trade before the coin crashes. Crypto is particularly suited for swing traders, who seek to take advantage of peaks and troughs in the crypto market.

While day trading can make you rich, it is statistically unlikely to. Crypto trading revolves around risk, and only the smartest (or luckiest) traders read charts accurately. Remember that all trades on centralized exchanges are public, and complicated trading bots and advanced high-frequency traders are waiting to pounce on the trades made by day traders. Some exchanges, notably Robinhood, sell trading data to brokerages, who make steady profits by betting against day traders. A sustainable day trading strategy would be one that regulates and prevents risk wherever possible.

Yes. The unanswerable question is: Which strategies? Complicated quantitative analysts at major finance firms spend their days devising complex strategies to try and beat the market, relying on mountains of data that only professional investors have access to. When devising a strategy for day trading, make sure to account for all the other market actors that you’re up against, and pay attention to the influencers and press releases that are teaching you about the market—they may not have your best interests at heart. If someone presents you with a winning strategy, remember that they are providing you with a strategy that has historically proven profitable, which is no guarantee that it will continue to prove lucrative going forwards. As always, don’t invest more than you can afford and, to quote a mantra popular within the crypto industry, Do your own research.

Last Updated August 31, 2022

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