Brought to you by the Liquid team to help you make sense of crypto.
You need two key skills to be able to effectively day trade cryptocurrency:
These two underrated weapons can make or break any day trader. In this post, we'll look at some of the methods used by day traders to maximize profits and avoid losses.
Every successful trader will tell you that discipline played a part in getting them to where they are. Amateur traders often struggle with discipline, especially when they're just starting out.
Discipline is the difference between entering strategically and entering on a whim. Sometimes a trader may identify a signal, suggesting it’s time to buy or sell an asset. If there's no confirmation or signals are contrasting, the trade can be more of a gamble than part of an effective strategy – stick it on the "maybe" pile.
Traders with strong discipline develop a strategy that contains precise criteria that must be present before any trade is entered. The true test of discipline is whether this strategy is adhered to.
In the long run, entering trades with strategy and discipline will outperform chasing "maybe" trades and basing your moves on emotions.
Patience is a virtue that goes hand in hand with discipline.
It’s tough to wait for the ideal trade to materialize, but it can be better for you balance, especially if you plan to day trade cryptocurrency.
Remember: you don’t lose money if you miss opportunities. On the other hand, you will likely lose by chasing every opportunity.
Be smart. Have patience, have discipline. If you want to day trade cryptocurrency, it’s vital.
Finding your trades when day trading cryptocurrency
There are lots of different approaches to technical analysis. The best strategies combine elements of all approaches.
Indicators are popular for assessing the momentum of price moves and generating trading signals. Thousands of different indicators exist. Traders will often argue about which ones are best.
Use indicators in conjunction with price to spot patterns, divergence and momentum to generate trading signals.
Trend lines and chart patterns
This part is focussed on price action, how price interacts with key levels and how it usually reacts to typical patterns.
Support and resistance lines are a simple concept, but can be useful for day traders who are happy to play smaller moves. If there is a known strong support or resistance level, a trader can use it as a turning point and net a profit by entering at that turning point.
See the example below. If a trader regarded this yellow line as a strong support level they would have been able to buy when it was reached for the second time and make a quick profit.
Chart and candlestick patterns are more nuanced since there are so many. Let’s look at a couple.
Bullish engulfing pattern
A bullish engulfing pattern only occurs at the bottom of an established downtrend. It suggests a trend change is coming.
A bullish engulfing pattern is a red candle followed by a green candle whose body “engulfs” the body of the preceding red candle.
A symmetrical triangle forms during an established trend and acts as a continuation pattern. If you spot one during a proven downtrend, like in the picture below, you would expect some downward movement once the triangle is broken. In an uptrend, traders would expect upwards movement upon the break of the triangle.
Ascending triangles are formed during strong uptrends. Once broken, positive price movement is expected.
Descending triangles are the opposite, occurring during downtrends. A break of the triangle should cause some negative price movement.
If you are looking to day trade cryptocurrency you can learn these patterns and watch out for them. If they coincide with other trading signals, you’ll know you might be looking at a winning trade.
It’s a part of every trading strategy. None of this will work if you don’t manage your risk.
Make sure you keep your losses small, so your profits can grow. We’ve got a nifty guide on how to manage risk as a cryptocurrency trader.
Get out there
If you think you are ready to begin to day trade cryptocurrency, get yourself out there and start learning. Start small and learn on the go. Don’t forget, stick to your strategy, stay patient and manage your risk properly.
This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.
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