How to Day Trade Crypto: 6 Ways + Strategies

Updated on January 7, 2024

At a Glance

  • To day trade cryptocurrency, own the chosen currency and open an account with a centralized crypto exchange like Coinbase or Kraken.
  • Fund your account with fiat currency and purchase the cryptocurrency you want to trade.
  • Consider strategies like high-frequency trading (HFT), scalping, range trading, technical analysis, and news/sentiment analysis.
  • Exercise caution, prioritize financial stability, and understand risks such as volatility, potential losses, security breaches, and trading fees.

Day trading capitalizes on short-term price shifts, aiming to conclude the day with an uptick in value. When applied to cryptocurrencies, this technique brings both heightened rewards and risks.

Crypto day trading, while fundamentally similar, is intensified by the market’s inherent volatility. By harnessing an apt strategy, one can see substantial profits. Yet, it’s essential to grasp the nuances to avoid pitfalls.

To grasp the full spectrum, explore the ins and outs of making money with cryptocurrency. For those seeking tactical insights, consider delving into the most effective day trading strategies.

How to Day Trade Cryptocurrency: A Step-by-Step Guide

Begin by acquiring some cryptocurrency, like Bitcoin. Next, sign up with a prominent centralized exchange (like Coinbase or Kraken) and fund it with fiat. As you progress, delve into trading strategies, automation, and security.

Here are six steps to kickstart your crypto day trading journey!

Step 1: Set Up a Cryptocurrency Brokerage Account

To kickstart your crypto journey, you’ll first need an account with a reputable crypto brokerage. Options like OKX, eToro, Uphold, and WeBull rank among the top crypto brokerages. These platforms offer user-friendly interfaces and a wide array of altcoins. Remember, creating an account often requires personal identification details—akin to opening a traditional stock brokerage account.

Step 2: Fund Your Account

After registering, link your bank account to your crypto brokerage. While several deposit methods exist, the ACH deposit, which connects directly to your bank, is usually the most economical option and is free on many platforms.

Step 3: Select a Cryptocurrency to Invest In

While many seasoned traders prefer Bitcoin and Ethereum due to their predictable movements, some traders choose to diversify their portfolio by investing in smaller altcoins. Though these might be riskier, they often provide substantial returns.

Step 4: Decide on a Trading Strategy

Whether you’re a newbie or a pro, a well-defined strategy is essential. Newcomers might consider a cryptocurrency trading course to grasp the basics. One recommendation is Asia Forex Mentor’s One Core Program.

For veterans in trading, strategies like the Elliott Wave Theory—which delves into market sentiment—can be particularly effective for assets like cryptocurrencies.

Moreover, partnering with platforms like Bull Prophet can provide invaluable expert advice, ensuring you make well-informed decisions.

Step 5: Explore Automated Crypto Trading

Platforms like Coinrule offer automated crypto trading, using bots to execute strategies tailored to your investment goals. Such automation can be a boon, especially for diversifying your trading approach.

Step 6: Secure Storage for Your Cryptocurrency

For active traders, funds are often stored directly on exchanges for accessibility. However, if you’re considering a long-term hold, investing in a cryptocurrency wallet—be it software or hardware—is pivotal. Hardware wallets like Ledger are renowned for security, storing assets offline on a physical device. Alternatively, software wallets such as ZenGo provide excellent security while allowing the purchase, sale, and earning of interest on assets directly from the app. Their unique approach to security, particularly the elimination of a private key, caters well to beginners wary of managing such details.

What Experts Say About Day Trading Crypto

Below, we’ll look at some sage advice from experts in the crypto day trading space.

Crypto Day Trading is Not for Everyone

Tyrone Ross, CEO of Onramp Invest, a crypto asset-management technology for financial advisors, expresses caution. He believes that the majority should steer clear of crypto investments:

“The everyday individual is looking at crypto assets as an investment or opportunity to build wealth, but the majority of people should not be investing in them.”

Ross emphasizes the importance of financial stability and planning before venturing into crypto trading:

“It can work for the right person, but there are so many things that are important before you get there, like having an emergency savings, paying down debt, and setting your financial goals. If you haven’t done that, you shouldn’t be trading crypto.”

Really Understanding Crypto and How It Works Is Key

Taylor Greenberg, head of business development at Allnodes, has a more nuanced stance. While not discouraging day trading in crypto, she stresses the importance of comprehending the assets and their foundational technologies:

“Knowing what the blockchain does, its network size, governance, and protocols will allow you to assess the overall condition of your prospective investment.”

Greenberg advocates for a professional approach, indicating that with the right knowledge and respect for the craft, profitability is achievable:

“Crypto day trading is a risky activity. Invest what you can afford to lose. But when you approach day trading with the same respect as any serious job and learn everything about the craft and the assets you are trading, you’ll be profitable.”

5 Crypto Trading Strategies

Effective strategy distinguishes trading from gambling, ensuring consistent returns over mere luck. Adapting suitable crypto trading strategies to market conditions is crucial for successful day trading.

1. High-Frequency Trading (HFT)

High-frequency trading is a technique where you take advantage of price changes that occur on the order of seconds or fractions thereof. The frequency in question is routinely on the order of dozens of trades per second—far beyond the capability of a human trader.

The only way to engage in High-frequency trading is using a piece of software known as a trading bot. The bot monitors the market and, based on the given trading logic, executes trades continuously for as long as it is connected to the exchange. By instituting specific trading logic, High-frequency trading can be combined with many other strategies.

2. Scalping

Scalping is a strategy for making a small profit from a large number of trades, which adds up to a larger profit. Scalping uses large amounts of liquidity (currency) to take advantage of small price changes over a short period. The time horizon is generally a few minutes but can be as short as seconds or as long as hours.

3. Range Trading

Range trading is based on the assumption that crypto prices will normally —over a given period— only fluctuate within a certain range. Price movement outside of that range is assumed to indicate that a price is about to undergo abnormal change. For example, if the price dips below the lower bound of the range, that could suggest it is time to sell—under the assumption that it is the beginning of a significant downward swing.

4. Technical Analysis

Technical analysis is a statistical trading strategy. By performing various statistical calculations on historical price data, you attempt to uncover trends in the market. Technical trading is based on the belief that past prices have some effect on what future prices will be.

5. News and Sentiment Analysis

News and sentiment analysis focuses on predicting human behaviors based on information, unlike technical analysis which examines price trends. By evaluating various sources, such as news outlets and social media, analysts gauge the prevailing sentiment or social consensus on a particular cryptocurrency. The goal is to anticipate potential market movements based on public perception and reactions.

Securing Your Crypto Trading Information

Privacy is paramount for cryptocurrency traders, and a visible public IP address can disclose one’s location and more. Additionally, geo-restrictions can prevent traders from accessing crucial platforms. VPNs, by masking your IP and allowing you to choose your virtual location, offer enhanced privacy and security. Among these, ExpressVPN stands out for crypto traders due to its blazing-fast speeds and automatic connection feature, ensuring your real IP is never exposed.

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Final Thoughts

Day trading crypto is high-risk but potentially lucrative. Mastering how to day trade crypto and maintaining a solid strategy minimizes risks. Consider ZenGo as a reliable wallet; its unique MPC technology removes private key concerns.

Crypto Day Trading FAQ

Below are some frequently asked questions about day trading crypto that you might find useful.

Can you do day trading on cryptocurrency?

Yes, day trading is a common practice in the cryptocurrency market. It involves buying and selling assets within a single trading day.

Can you make $100 a day with crypto?

While it’s possible to make $100 a day with crypto, the returns are based on market volatility, the trader’s expertise, and the amount invested. As with all trading, there are risks involved.

How much do day traders make per day crypto?

Earnings vary widely based on market conditions, trading strategy, and investment size. Some traders might make significant profits, while others might incur losses.

Can you make $1000 a day trading crypto?

It’s possible, especially during volatile market conditions, but such returns aren’t guaranteed. Always trade responsibly and be aware of the risks.

How much money do I need to invest to make $3000 a month?

The required investment depends on the expected return rate. For instance, with a 10% monthly return, you’d need to invest $30,000.

Why do I need $25,000 to day trade?

In the U.S., the Financial Industry Regulatory Authority (FINRA) has a rule that requires day traders to have a minimum of $25,000 in their accounts to day trade stocks, ensuring a buffer against potential losses. This rule doesn’t apply to cryptocurrency trading.

Which cryptocurrency is best for day trading?

The highly volatile, highly changeable nature of crypto means that any general pronouncements of ‘best’ and ‘worst’ are likely to be outdated within a few months. However, a simple way to decide whether a given cryptocurrency is a good day trading candidate is to find out whether it has high liquidity (lots of fiat currency associated with it, often expressed as ‘market cap and high trading volume (lots of people trading it). Generally, these numbers should both be in the region of several hundred million USD or more.

What is the tax rate of crypto day trading?

Governments around the world are scrambling to create regulatory frameworks for cryptocurrency. In the United States, the legal classification of cryptocurrency as securities, commodities, currency, or property remains somewhat ambiguous. However, the Internal Revenue Service (IRS) does already recognize gains in the value of cryptocurrency as taxable. Visit their website here or contact the agency directly for more information.

What are the downsides of day trading crypto?

Many fortunes have been made in cryptocurrency, but it is important to always keep in mind that many, many more have been lost. The flip side of unprecedented price surges of several hundred percent is sudden drops. The very high volatility of crypto prices is a double-edged sword, and you need to keep this in mind. Making a loss is a matter of when not if. A good strategy will determine whether that loss is ruinous or merely unfortunate.

In addition to price risks, the cryptocurrency space also presents some unique security risks that are not present in traditional financial markets. Security breaches at centralized cryptocurrency exchanges are risks that you should understand.

Finally, trading fees can be quite high, especially for strategies that employ a very high frequency of transactions. It is important to understand the costs of actually using a trading platform before investing in it.

What is the best time to day trade crypto?

Cryptocurrency markets operate 24/7, but the best time often depends on market trends, regional activity, and global financial news.

Why is crypto day trading so hard?

Day trading is challenging due to market volatility, the need for real-time decision making, and the psychological stresses of potential financial losses.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.