Content

  • Introduction

  • What is day trading?

  • How do day traders make money?

  • Day Trading Strategies

    • Scalping

    • Range trading

    • High Frequency Trading (HFT)

  • How to start day trading cryptocurrencies

  • Is it possible to make a living day trading?

  • Summary


Introduction

Day trading is one of the most common trading strategies. Day traders are active in most financial markets such as stock markets, Forex, commodity markets and of course cryptocurrency markets. Is day trading right for you? How do day traders make money? Should you engage in day trading?

Unfortunately, we will not have clear answers to these questions. However, in this article we will cover what you need to know before you start day trading cryptocurrency.


What is day trading?

Day trading, or day trading, is a trading strategy that involves entering and exiting positions within a single day. Since trading takes place over the course of a single day, this strategy can also be called intraday trading. The goal of day traders is to use intraday trading strategies to profit from changes in the price of a financial instrument.

The term "day trader" comes from the stock market, where trading is open only on weekdays. In this sense, day traders do not leave positions open overnight and seek to profit from intraday price movements.


How do day traders make money?

Successful day traders have a deep understanding of the market and extensive experience. Typically, day traders use technical analysis (TA) when trading. They use indicators such as volume, price action, chart patterns and technical indicators to determine entry and exit points. As with any trading strategy, success in day trading requires risk management.

Since it takes a long time to track long-term financial processes, day traders may not resort to fundamental analysis (FA). However, some day traders use a “news trading” strategy. This strategy involves looking for assets with high trading volume driven by announcements or news and taking advantage of the temporary surge in trading activity.

Day traders seek to profit from market volatility. Thus, volume and liquidity are critical for day trading. Day traders need good liquidity to trade quickly and efficiently. This is especially true when exiting a position. Large slippage on just one trade can have devastating consequences for a day trader's trading account. This is why day traders typically trade highly liquid market pairs.

Some day traders only trade one market pair, such as BTC/USDT. Some create a list of potentially interesting pairs based on technical or fundamental indicators (or both) and choose which pair from this list to trade in a particular period.


Day Trading Strategies

Scalping

Scalping is an extremely common trading strategy among day traders that involves taking advantage of small price movements over short periods of time. These could be liquidity gaps, bid-ask spreads, and other market features that can be taken advantage of.

Scalpers often trade on margin or futures contracts to increase profits through leverage. Because target interest rates are typically lower, larger position sizes generate more income. And this is true for most day trading strategies.

However, trading with leverage does not mean there is no risk management. A successful scalper is aware of margin requirements and determines position size based on known rules. If you want to learn a simple formula for determining position size, read our article on “How to Calculate Position Size in Trading.”

To determine entry and exit points for individual trades, scalpers use tools such as order book analysis, volume heat maps, and a variety of technical indicators. However, due to the fast execution of trades and high risk, scalping is generally suitable for more experienced traders. Additionally, a few unsuccessful leveraged trades can easily wipe out your trading capital.


Range trading

Range trading is a simple strategy that relies heavily on analyzing candlestick charts and looking for support and resistance levels. As the name suggests, range traders look for price ranges in the market structure and make trades based on those ranges. For example, if the price is in a range between a support and resistance level, a range trader can buy the asset at the support level and sell at the resistance level. And vice versa: you can short by entering a position at a resistance level and exiting at a support level.

The idea of ​​range trading is based on the assumption that the boundaries of the range will remain between support and resistance levels until the range is broken. This means that the lower end of the range is likely to push the price up, and the upper end of the range is likely to push the price down.

However, the more often the price touches support and resistance levels, the more likely they are to be broken. This is why range traders are always prepared for the possibility that the market might break out of its range. In this regard, at the level where a breakout of the range is expected, it is necessary to set stop losses.

If you want to learn more, check out the article, “Support and Resistance Level Basics.”

Range trading is a relatively simple strategy that may be suitable for beginners. It requires a good understanding of candlestick charts, support and resistance levels. In addition, momentum indicators such as RSI and MACD may be needed.


High Frequency Trading (HFT)

High frequency trading is a type of algorithmic trading strategy commonly used by quantitative traders (“quant” traders). It involves the use of algorithms and trading bots that can quickly enter and exit multiple positions in a short period of time. How short are these timeframes? We're talking milliseconds. For a high-frequency trader, a few milliseconds of advantage can give a significant advantage over other market participants.

HFT algorithms are capable of implementing extremely sophisticated trading strategies. At first glance, this is all very tempting, but high-frequency trading is much more complex than it seems. It includes a variety of testing, monitoring and tuning algorithms to adapt to constantly changing market conditions. If you think that you can just sit back while the trading bot makes money, then this is not so.

It should also be taken into account that high-frequency trading is a rather closed industry. Finding quality information in the public domain is not easy. Why? It's simple. If successful trading firms and hedge funds started sharing their high-frequency trading strategies with individual investors, those strategies would no longer work.

Additionally, there is one more thing to think about. If someone has created a profitable trading bot, why does he sell it instead of using it himself? So, when purchasing a trading bot for high frequency trading, you should take extra care.

Developing HFT bots requires an understanding of advanced market concepts along with a deep knowledge of mathematics and computer science. Therefore, such trading is more suitable for experienced traders.


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How to start day trading cryptocurrencies

So you've decided you want to try cryptocurrency day trading. Where to begin?

You can check out “The Ultimate Guide to Cryptocurrency Trading for Beginners.” In it, we explained everything you need to know about trading and also gave some tips for retail investors. If you're confident that you know the basic concepts, you can try "paper trading" on the Binance Futures testnet. This way you can test your trading system first without risking real money.

But which platform is the best for day trading cryptocurrency? We can't decide for you, but we will note that the Binance ecosystem offers hundreds of market pairs, margin trading, quarterly and perpetual futures, leveraged tokens, real-time market data, and many more features. Just go to Binance, convert your fiat currency to cryptocurrency and get started.


Is it possible to make a living day trading?

Day trading can be a very profitable strategy, but there are a few things to consider before you get started. Because day trading involves fast decision making and equally fast execution, it is highly stressful and places quite high demands on the trader. Additionally, day trading is quite risky and requires a deep understanding of the market. Obviously, you will also need to spend a lot of time in front of the monitor.

Are you ready to do this, knowing that you can easily lose money? Carefully consider whether day trading suits your individual investment goals and personality type.

If you're not yet sure if day trading is right for you, check out this article called A Beginner's Guide. Cryptocurrency trading strategies." It describes many strategies that may be suitable for active traders, such as swing trading. Getting to know these strategies will help you make the best choice when finding your trading style.


Summary

Day trading is a common strategy for trading stocks and cryptocurrencies. Day traders use day trading strategies to take advantage of market volatility and typically do not stay in positions for more than one day.

Day traders use technical analysis, chart patterns, and technical indicators to determine trading setups. The most common day trading strategies include scalping, range trading and high frequency trading.

Want to learn more about day trading? Visit our Q&A platform, Ask Academy, where the Binance community will answer your questions.