Is Day Trading Crypto Worth It?

With the crypto winter upon us, you’re likely wondering how you can leverage different trading tools and practices in order to squeeze some profits from a bear market. If you’re like the rest of us, then you’ve been treated to a crash course in crypto volatility and you might be thinking about how to stabilize your portfolio by minimizing exposure and risk.

Whatever your trading goals or the underlying rationale of your trading strategy, you’ve likely come across the term “day trading.” Perhaps you’re just curious about it or maybe you’re looking for more in-depth information, for example, how to day trade bitcoin (BTC) and whether it can be profitable.

In the following article, we’ll take a look at day trading—what it is, how it works, and whether there’s money to be made from day trading crypto—before offering some practical tips if you decide to add it to your arsenal of trading practices.

What is Day Trading?

It used to be the case that only brokerages, trading houses, or big financial institutions could buy and sell assets multiple times over the course of one trading day. However, with the increasing popularity of automated trading in which individual investors use an automated system to implement trading rules that would normally be executed manually, day trading has become accessible to virtually anyone with an internet connection.

As suggested above, day trading (or “intraday” trading as it’s sometimes called) involves trading that is done on the same day, often with the help of computers, to take advantage of incremental, short-term price movements. The point is not to hit the jackpot, but rather to leverage small price fluctuations, or larger ones if you’re lucky or skilled (or both), to realize incremental gains, which can add up over time.

Fundamentally, day trading is all about volume, support, and resistance. Of course, you can engage in intraday trading by yourself, or you can start copy trading crypto by renting intraday trading bots built by experts on Trality's Marketplace.

What’s the Difference Between Day Trading and Swing Trading?

Unlike day trading, which, strictly-speaking, involves trading in one single day, swing trading occurs over an intermediate period of time, typically between a few days to a few weeks. As the name implies, swing trading is all about the swings, either up or down, and there are a range of technical indicators that can be used to spot trends. As many have noted, swing trading tends to be unique because it combines  different aspects of day trading with the speed of position trading.

Can You Day Trade Crypto?

Absolutely. But it’s less a question of whether you can day trade crypto and more a question of how you can day trade crypto properly (i.e., successfully).

Another way of answering the question is to highlight how you shouldn’t trade crypto. One thing you should never try to do when day trading crypto is to time the market manually because it’s virtually impossible to do. A human trade will never be as fast, efficient, or precise as crypto trading bots. According to one research study, algorithmic trading can process a trade in less than 10 milliseconds. We use the expression “in the blink of an eye” to refer to something extremely fast, but it takes us 300 milliseconds just to blink! So day trading manually is out of the question.

Below are some of the trading strategies used by investors when day trading.

Algorithmic trading

Building profitable algorithmic trading bots, which can be used for day trading, is actually a lot simpler than most assume. State-of-the-art technology such as an in-browser Python code editor can be used efficiently and effectively to create a trading strategy tailored for intraday trading. Even traders who lack experience or interest in coding can take advantage of drag-and-drop options to create automated crypto trading bots based on a range of indicators and strategies.

Scalping

Scalping involves attempting to achieve profits based on short time intervals (often the shortest intervals possible). The result is hundreds, if not thousands, of trades within the span of one day. As such, scalping is considered a type of day or intraday trading and it can involve technical analysis. The accumulation of small profits made from scalping can be used to offset larger losses elsewhere in a trader’s portfolio.

Arbitrage

Arbitrage trading involves purchasing assets on one exchange and then selling them on a different exchange. The goal here is to take advantage of price discrepancies across exchanges in order to make a profit. However, investors need to be aware of high deposit and withdrawal fees and a lack of volume, among other things.

High-frequency trading (HFT)

One of the rationales behind high-frequency trading was to introduce liquidity into the stock market following the Lehman Brothers debacle back in 2008. As you might have guessed, however, HFT is not the domain of individual traders, but rather institutions with powerful computer programs to execute large trading orders in a fraction of a second. Sure, it’s day trading, but only done by the big boys (and girls).

News-based trading

If you’re a quick-witted trader who also happens to be a news junkie, scouring the best crypto podcasts as well as the best crypto news websites, then you might be drawn to news-based trading. Whether good news (BTC is up) or bad news (BTC is down), the news can be profitable. In addition to these one-off news events, traders will often day trade by timing their trades to coincide with an anticipated upgrade, announcement, merger, or report.

How to Day Trade Crypto

Let’s recap. We know that day trading crypto is possible and it can be profitable. So how do you actually day trade crypto?

Crypto day traders will often gauge the best time of day to trade crypto in order to take advantage of increased market volatility or liquidity, which can offer healthier gains. Since institutional investors and corporations comprise the largest share of crypto investors, weekend trading is best avoided since they fall outside of business hours (volume obviously drops as a result).

And since we’re on the subject of volume, it might be useful to briefly talk about auction market theory. There are three basic components of any given auction or market: the advertised price of an asset, the time that determines the pricing opportunity, and the volume, which will result in either success or failure. Of these three, volume is the most important.

The underlying principle behind auction market theory is that price and value are two different things, and skilled day traders will often begin with value. In imbalanced markets such as the current bear one, there is a market inefficiency and the market aims to return to balance or efficiency. Traders disagree about the fair value of something, causing the market to trend, moving higher or lower until it stops at a previous value area. At this point, the market will be in balance again and volatility will be low.

The trading strategies of successful day traders are often informed by auction market theory, market and overflow dynamics, and trading with volume profile.

Day trading on CEX vs DEX

When day trading crypto, you have the option of choosing between a centralized exchange (CEX) or a decentralized exchange (DEX), with each one offering the day trader certain advantages and disadvantages.

A DEX is a peer-to-peer marketplace in which trades are made using smart contracts. If you want to be in complete control of your trading while also avoiding the need for KYC (“know your customer”) hoops through which you have to jump in order to trade on a centralized exchange, then a DEX might be exactly what you need. The benefits are obvious: no need for any intermediaries; no concerns over the loss of primacy; lower trading fees; and no hot wallets (not your keys, not your coin).

Now DEXs come in one of two varieties, either an order book DEX or a swap DEX, and each type will have an impact on the price of crypto, which is obviously crucial to consider when day trading (e.g., the spread between buy and sell orders will affect price across different exchanges). On the other hand, swap DEXs use liquidity pools (as opposed to an order book) to maintain liquidity and allow for the exchange of tokens across chains using a Web3 wallet.

Centralized exchanges (CEXs) such as Binance offers a more user-friendly experience for less experienced day traders, but there are, of course, higher fees, less privacy, and, to a certain extent, less control since your crypto resides in the exchange’s hot wallet.  Nevertheless, CEXs can offer a range of benefits for day traders, making finding the best cryptocurrencies exchanges something to consider before embarking on intraday trading.

Crypto day trading tips

Day trading can be profitable and can make sense under market conditions and with the right amount of experience and expertise. Sounds like quite a number of qualifications, right?

Perhaps the most important tip when it comes to day trading crypto is to have a sound understanding of market principles and dynamics. Obviously, you can use technology such as crypto trading bots, but you need to understand the underlying framework, which includes things like price and value, liquidity and volume, overbought and oversold zones, how markets move, and standard deviation from the mean, among other things.

Another day trading tip might be to add swing trading to your approach. Volume profile strategies can be difficult to automate, while swing strategies are not. You can also swing trade on an intraday basis in cryptos due to the volatility being so high (normally, in stocks, a swing trade would be held for a few days to a couple of weeks), which explains a difference between trading crypto vs stocks. The holding times of a strategy are normally understood as a relationship between the daily volatility and the trading fees. If the fees are relatively high then normally the holding times need to be longer.

Common Day Trading Pitfalls

As with any type of trading strategy, there are things to bear in mind. In the first instance, day trading can be challenging for inexperienced traders, and the notorious volatility of the crypto market only complicates things.

Lack of automation

Since it’s physically impossible to be in front of your computer screen all day monitoring incremental price movements, it’s crucial to automate your trading strategy. There are numerous benefits to using automated crypto trading bots, ranging from emotionless trading and higher trading speeds to diversification, trading discipline, and the ability to backtest based on historical data as well as paper trade (also known as virtual trading) before you actually begin day trading crypto with real money. It’s also a proven path to profits: approximately 80% of trading done by financial institutions is done by algorithmic-based automated trading.

(Mis)understanding the market

As mentioned above, if you don’t possess a sound understanding of market dynamics, then the best trading tools in the world will be of little help. If you’re serious about crypto, then read some of the best books on crypto trading as well as take an online course, which offers maximum flexibility for a range of learners.

In fact, Trality has created its very own Masterclass. Sign up is free and the course consists of four modules with clear, step-by-step tutorials covering the entire trading process, from setting realistic expectations and managing risk to the “nuts and bolts” of creating, testing, and optimizing a complete trading strategy.

FOMO and FUD

Day trading in particular can be extremely stressful since trades occur within a relatively compressed period of time. Many traders can fall victim to FOMO and FUD as a result. Trading based on emotions as opposed to analysis can often lead to losses. The experienced day trader is able to filter out the white noise of news cycles, blogs, forum chatter, and random Twitter celebrities. A more sensible route is to come up with your own trading strategy using various indicators and conditions to which you commit. A systematic approach will counterbalance, and even counteract, emotional bias.

The wrong tools

Not all crypto trading tools and crypto trading strategies are created equally. Some tools and strategies work well with certain market conditions and with certain types of trading, although they might be ineffective or result in losses when (mis)using them. In other words, not all strategies are a good fit for day trading. Similarly, hardware wallets such as Trezor or Ledger may be built with security in mind, but it can also take a while to transfer your assets from a hard wallet to a centralized exchange. And as we know, time is of the essence in day trading.

Locked in a position

Often, you are able to enter a position quickly, but it can be harder to exit that position just as quickly. A number of cryptocurrency exchanges are virtually illiquid, meaning that they simply don’t have enough activity to fulfill your order at the price you need. Although the exchange might have healthy liquidity, it could even have a low trading volume due to weekends or holidays. And, as we’ve seen recently during the current crypto winter, a number of exchanges (e.g., CoinFLEX) have temporarily paused withdrawals.

Overemphasizing technical analysis

Technical analysis can be extremely useful. But too much of a good thing can be a problem, too. Many traders can get into a situation in which they become overly reliant on using indicators to gauge statistical trends and anticipate future price movements. Don’t let your head get stuck in the charts. Look up every now and then and take stock of the bigger picture. There is an art and a science behind technical analysis and it takes experience to walk the very fine line between strategy optimization and over-optimization.

Not analyzing the correct spread

When trading, many exchange users will look at the top of the order book to get the spread without overthinking it. They will then assume that these are the prices that they will get when they trade. The order book will always display the lowest price at which someone will sell an asset and the highest price at which someone will buy it.

However, there’s something to keep in mind: you may not be able to sell an amount at that price. The amount of any given asset that users are happy to buy and/or sell at the top of an order book is usually much smaller than a user might actually want. For a day trader interested in selling a larger amount, a deeper look at the order book is necessary.

Should You Day Trade?

You need a great deal of time, patience, and effort to day trade. And because of a tendency to develop tunnel vision due to a focus on a very narrow trading window, day traders can lose sight of the bigger picture when it comes to the crypto market. Day trading requires a delicate combination of technical analysis, news analysis, and common sense to be successful, and this balance can be difficult to achieve.

While day trading is certainly a profitable approach for those who have the time and are willing to put in the effort to develop an effective trading strategy, the easiest, most efficient, and most profitable way to day trade for most people is to automate your strategy by using crypto trading bots.

As we’ve seen in the preceding section, there are many pitfalls that await inexperienced day traders, but these pitfalls can be counteracted through automation, which is objective, rule-bound, and reliable. More importantly, crypto trading bots are profitable.

Trality's Rule Builder

With its intuitive graphical user interface, the Rule Builder is a simple yet powerful rule-based bot creation editor, one that lets traders build and automate algorithmic trading bots by dragging and dropping technical indicators based on boolean logic. With over 100 technical indicators from which to choose as well as a variety of predefined strategies, traders can customize their bots with ease based on their own individual needs.

Once the desired setup has been achieved, traders can then analyze their strategy with Trality’s blazing-fast backtester, which employs a variety of commonly used statistics to gauge 1) performance (e.g., profit and loss; total return; average profit per winning trade), 2) risk/return (e.g. volatility; Sharpe ratio), and 3) runs (e.g. maximum drawdown; time under water).

All strategies and algorithms created with the Rule Builder are completely end-to-end encrypted, and all bots created on Trality’s platform meet strict security and privacy standards. Traders’ funds remain safe on their chosen exchange, and Trality only uses withdrawal-disabled API keys.

Trality's Code Editor

The state-of-the-art Code Builder is the world’s first browser-based Python code bot editor. It is designed for experienced traders who want to develop sophisticated trading algorithms using the latest technology.

Python programmers will feel at home using the Code Editor’s full range of powerful tools and innovative features to create and backtest their algorithms. In-browser editing with intelligent auto-complete as well as in-browser debugging provide a seamless process for the development of trading ideas and their eventual realization as profitable trading bots.

With a full range of technical analysis indicators and a growing number of libraries, including NumPy, the Code Editor provides maximum flexibility for customizing bots based on a variety of market conditions and a variety of short- and long-term trading goals.

Blazing-fast, in-browser backtesting also means that testing and fine-tuning algorithms can be done quickly and easily. Benefit from clear versioning and backtest history, while also having access to financial data with easy-to-use API.

Final Thoughts

Cryptocurrency day trading can end up being a very lucrative pursuit as long as it is properly executed. However, it can certainly be a challenge for newer traders, especially those who are unprepared or lack a clear trading strategy, and the best way to mitigate these challenges is through automation.

As always, do your own research and never risk more than you can afford to lose.

Disclaimer: The above article is merely an opinion piece and does not represent any kind of trading advice or suggestions on how to invest, how to trade, or in which assets to invest! Always do your own research before investing and always (!) only invest what you can afford to lose!