the introduction

Day trading is one of the most popular trading strategies. Day traders are active in most financial markets, such as stock markets, Forex, commodities, and of course the cryptocurrency markets. But is cryptocurrency day trading right for you? How do day traders make profits? Should you start day trading?

Unfortunately, we do not have a single answer to these questions, but this article will explain what you need to know before you start day trading cryptocurrencies.

What is day trading?

Day trading is a trading strategy that involves entering and exiting trades within the same trading day. Since the trading occurs on the same day, this strategy can also be referred to as intraday trading. The goal of day traders is to follow intraday trading strategies to try to make profits from changes in the price of a particular financial instrument.

The term “day trader” has its origins in the stock market where trading is only open during the weekdays. In this context, day traders never leave trades open during the night because they aim to benefit from price movements during the day.

How do day traders make profits?

Day traders gain a deep understanding of the market and some good experience. Day traders typically use technical analysis to come up with trading ideas. They typically use volume, price action, chart patterns, and technical indicators to determine entry and exit points for trades. As with any trading strategy,  risk management is essential to success in day trading.

Because most fundamental events can take a long time, day traders may not be interested in fundamental analysis. However, there are some day traders who base their strategy on “news trading.” This involves finding assets with high volume thanks to a recent announcement or news story, and taking advantage of a temporary spike in trading activity.

Day traders aim to profit from market volatility. Hence, volume and liquidity are important elements in day trading. After all, day traders need good liquidity to execute quick trades. This is especially true when exiting a trade. A large slippage in a single trade can have a devastating impact on a day trader's trading account. For this reason, day traders typically trade highly liquid market pairs.

Some day traders only trade one market pair, such as BTC/USDT. On the other hand, other day traders create a watch list based on technical or fundamental traits (or both) and choose the instrument they will trade from that list.

Day trading strategies

Rapid speculation

Scalping is a very popular trading strategy among day traders. It involves exploiting small market movements that occur in a short time frame. These can be gaps in liquidity, the difference between the ask and offer price, and other market inefficiencies.

Scalp traders typically trade in a leverage mode or trade futures to maximize their results with leverage. Since percentage price targets are usually smaller, larger trades make more sense. In fact, this generally applies to most day trading strategies.

However, trading with leverage does not mean completely abandoning risk management principles. The successful trader in rapid speculation is aware of the requirements of borrowing trading and applies the rules for calculating the correct size of trades. If you want to know a simple formula for calculating position size, check out How to Calculate Position Size in Trading.

Scalping traders can use strategies such as order list analysis, volume heat maps, and many technical indicators to define their entry and exit points for individual trades. However, due to the quick execution of the trade and the high risk, scalping is generally more suitable for skilled traders. Moreover, due to the extensive use of leverage, a few bad trades can destroy your trading account.

Range trading

Range trading is a simple strategy that extensively involves analyzing price action charts and looking at support and resistance levels. As the name indicates, range traders look for price ranges within the market structure, and come up with trading ideas based on these ranges. For example, if the price ranges between a support level and a resistance level, a range trader can buy the support level and sell the resistance level. Conversely, a trader can sell the resistance level short, and exit at the support level.

The idea of ​​range trading is based on the assumption that the boundaries of the range will continue to represent support and resistance until the range is crossed. This means that the lower border of the range will most likely push the price up, while the upper border will most likely push it down.

But the more times the price hits a support or resistance level, the more likely it is to break the level. For this reason, range traders always prepare for the possibility of the market breaking the range. This usually means setting a stop loss at a level where a range breakout is confirmed.

If you would like to read more about this topic, check out our Explanation of Support and Resistance Basics.

Range trading is a relatively straightforward strategy that can be suitable for beginners. They require a good understanding of price action charts, support and resistance levels, and may include momentum indicators, such as the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD).

High Frequency Trading (HFT)

High-frequency trading is a type of algorithmic trading strategy commonly used by quantitative traders. This trading involves developing trading algorithms and robots that can quickly enter and exit many trades over a short period of time. How short are these time frames? milliseconds. A few milliseconds for a company practicing high-frequency trading can give it a leadership advantage over other companies.

High Frequency Trading algorithms can be created to apply very complex strategies. Although high frequency trading can seem like an attractive day trading strategy, it is more complicated than it seems. High-frequency trading involves a lot of back-testing, monitoring, and adjusting algorithms to adapt to ever-changing market conditions. So, if you think that you will relax while a trading robot does all the work for you, then this could not be further from the truth.

Another thing to think about is that high-frequency trading is a somewhat exclusive field. Hence, it is difficult for high-value information to reach the general public. Why? Well, the reason is simple. If successful trading firms and hedge funds started sharing their high-frequency trading strategies with individual investors, these strategies would stop being successful.

There is an additional point you should consider regarding trading robots. If someone designs a profitable trading bot, why not use it instead of selling it? This is why you should be especially careful when considering purchasing a high frequency trading robot.

Developing high frequency trading robots requires an understanding of advanced market principles as well as knowledge of computer science and mathematics. Hence, it is best suited for advanced traders.

➟Do you want to start trading in digital currencies? Buy Bitcoin on Binance now!

How to start day trading digital currencies

So you've decided to try crypto day trading. Where should you start?

You can check out our comprehensive beginner's guide to cryptocurrency trading, in which we explain everything you need to know about trading, as well as some tips for individual investors. If you feel comfortable with the basic principles, you can do paper trading on the Binance futures demo network. This way, you can try out your trading system first without risking real money.

But what is the best online trading platform for day trading cryptocurrencies? Well, we can't decide for you, but the Binance ecosystem offers hundreds of market pairs, leveraged trading, quarterly futures, perpetual futures, leveraged tokens, real-time market data, and much more. Just visit the Binance platform, convert your local currency into digital currency, and get started right away.

Can I start day trading as a source of income?

Day trading can be a very profitable strategy, but there are some things to keep in mind before starting. Since day trading requires making and implementing decisions quickly, it can be very stressful and arduous. Day trading can also be very risky and requires a strong understanding of the market. Naturally, this trading will require you to look at screens for long periods.

Can you handle all this burden while potentially losing your money? You will have to consider carefully whether day trading suits your individual investment objectives and personal style.

If you're not sure whether day trading is the right strategy for you, check out our Beginner's Guide to Cryptocurrency Trading Strategies. In this article, we explain a lot of different strategies that can suit active traders, such as swing trading. Knowing these strategies can help you make a better choice when trying to find the right trading style for you.

Concluding thoughts

Day trading is a trading strategy commonly used in stock trading just as it is in cryptocurrencies. Day traders follow intraday trading strategies to profit from market volatility, and typically do not stay in trades for more than one day.

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

Still curious to learn more about day trading? Check out our Q&A platform, Ask Academy, where the Binance community answers your questions.