Day trading crypto. Is it viable in 2021?

Day trading crypto. Is it viable in 2021?

How do you begin day trading crypto?

It is an exciting time of growth in the cryptocurrency industry, as day by day Bitcoin, Ethereum, and other cryptocurrencies prove to be more than just a passing fad and major financial institutions like JP Morgan recognize the importance of blockchain technology. However, the most activity in the crypto sphere continues to be on the ground, where early adopters and shrewd investors have made fortunes in the years since Bitcoin first entered the scene. Naturally, some interested in getting into the action have wondered: can you day trade Bitcoin and other cryptocurrencies? Well, the answer is yes, and it is easier than ever before, despite requiring some basic knowledge and continual research.

It’s no secret that cryptocurrencies have experienced volatile price swings over the past several years, with Bitcoin alone surging from $2,900 on September 12, 2017 to a high of $19,783 on December 17, 2017 before falling gradually to somewhere in the single-digit thousands for much of the time since. This price volatility makes day trading cryptocurrencies a potentially lucrative endeavor. However, with upside also comes risk, so it’s important to know at least the basics about the platforms and day trading strategies that are widely practiced before jumping in.

What is Day Trading?

As the name suggests, day trading involves buying and selling financial assets throughout the day in pursuit of profit opportunities. This may involve trading the same security multiple times within a single day and requires a different array of strategies than more traditional long-term buy-and-hold investing.

Day trading gained prominence and largely became possible for most people with the advent of internet brokers, as otherwise only those working for large financial institutions were able to execute trades. As highly liquid digital assets, cryptocurrencies are particularly well suited for day trading.

It’s quite simple to start day trading cryptocurrency, too, as long as you know how to get started. To that end, we hope this guide will equip even complete beginners with the knowledge of platforms and strategies that are commonly used to conduct day trading in the cryptocurrency space.

Technical vs. Fundamental Analysis

Before providing an overview of some of the major types of day traders, it is helpful to first discuss the difference between technical analysis and fundamental analysis.

Technical analysis refers to trading assets based upon price forecasts generated from analyzing historical market data. There are a wide array of strategies pursued under the banner of technical analysis based upon different signals that are put in place to direct a trader to buy or sell a given asset, a number of which will be detailed throughout this guide.

Fundamental analysis, meanwhile, involves close review of financial statements in order to construct price ratios and determine the appropriate valuation of a business. Traders employing fundamental analysis will usually look at some combination of dividends paid, cash flow, earnings, and current share price.

Day traders naturally favor technical analysis, as it is far more amenable to forming narratives used to predict and act upon intraday price swings. As a result, much of the discussion in this guide will largely fall under the general banner of technical analysis. However, it is common for day traders to employ both technical and fundamental analysis as deemed appropriate. For example, investing in a particular cryptocurrency based on the team behind it would fall under fundamental analysis. On the other hand, selecting a cryptocurrency to day trade on the basis of past price movements is an example of technical analysis.

With that brief overview of technical and fundamental analysis out of the way, let’s now turn to some of the most common types of day traders in the cryptocurrency market today.

Types of Day Traders

Although every day trader is unique, those day trading cryptocurrencies can largely fall into two non-exclusive categories: technical traders and speculators.

Technical Traders

While it is possible to trade shares of publicly listed crypto companies, fundamental analysis does not lend itself towards day trading individual cryptocurrencies. Instead, day trading based on technical indicators is ubiquitous in the cryptocurrency market. Technical traders use the aforementioned technical analysis to quickly enter and exit positions in select cryptocurrencies.

The range of technical indicators to follow is virtually limitless, bound only by the data available and a trader’s imagination. Nearly all day traders engage in technical analysis of some kind, as the motivation to buy or sell a given asset requires some kind of signal to help decide whether to buy or sell.


Contrary to their negative reputation in the popular press, day traders who primarily engage in what can be considered speculation fulfill an important function in the market. Alert to news that may signal whether a particular cryptocurrency will be more or less desired in the market, speculators try to get ahead of the crowd and capitalize on expected price movements. In the case of a correct prediction, the speculator is rewarded with profits for moving the price of the coin closer to its correct market value. On the other hand, an incorrect forecast will result in losses, providing a valuable signal to other traders.

Speculators are distinguished from technical traders by the fact that, at least in their capacity as pure speculators, they are only focused on how unanticipated news will immediately affect a cryptocurrency’s price. Only the next price move from the present baseline matters to a pure speculator, not historical data or complicated charting patterns. Of course, many technical traders can also engage in speculation, and vice versa, but speculation is usually regarded as a different game than technical or fundamental analysis.

How to Day Trade Cryptocurrency

With those preliminary definitions out of the way, let’s now get into the nitty gritty of what a beginner looking to day trade cryptocurrencies should consider.

1. Pick a Cryptocurrency and an Exchange

With well over one thousand cryptocurrencies in existence, it’s important to narrow down which cryptocurrencies you want to trade. CoinMarketCap is a good resource to find up-to-date information about the cryptocurrencies with the highest price, market capitalization, 24 hour volume, and daily price change.

Next, budding crypto day traders will need to identify which exchange is best suited to transaction their cryptocurrencies of choice. Cryptocurrency exchanges vary in terms of cryptocurrency offerings and fee structures and so it pays to take the time to research carefully early in this process. It should also be noted that it is not necessary to stay limited to a single exchange, as one can use an automated trading bot like setting up our crypto arbitrage bot to trade cryptocurrency across multiple exchanges.

2. Plan and execute a trading strategy

This step is where the most successful day traders separate themselves from the pack. There are too many strategies for day trading crypto to make an exhaustive list, but later in this article we provide an overview of some of the best strategies for beginners to try when just starting out. Nevertheless, finding a good strategy that brings in consistent profits requires a lot of dedicated research time. But hey, if it was too easy, everyone would be doing it, right?

Since day trading involves buying and selling the same asset in short succession, crypto arbitrage is naturally appealing to cryptocurrency day traders. Arbitrage generally involves identifying price discrepancies in the market and buying and selling in quick succession to take advantage of these differences. However, arbitrage trading is limited to available opportunities and often yields very small profits per trade, making it just one of many potential day trading strategies to pursue.

3. … Profit (?)

Despite the many complicated techniques and strategies possible when day trading, buying low, selling high, and pocketing (or reinvesting) the difference is the name of the game. The best strategies will pay out profits, but no strategy is immune from the possibility of loss. What each individual day trader chooses to do with their gains is up to them, whether it may be reinvesting into more trading opportunities or taking some money out of the market for consumption of tangible items.

With that broad overview of crypto day trading out of the way, let’s now turn to some specific strategies crypto day traders employ.

Best Crypto Day Trading Strategies

Look for Scalping Opportunities

Scalping refers to the frequent buying and selling of an asset to profit off of minuscule price changes. While any given transaction will generate only a small profit, the sum of all transactions in a day will ideally be significant. The emergence of supercomputers in past decades has made high-frequency trading a common example of scaling in traditional securities markets.

When dealing with cryptocurrency trading, scalpers attempt to profit by buying at a certain price and selling as soon as possible at some higher price, even if just barely so. Since scalping relies on collecting many small profits throughout the day, it is very important to avoid big losses, as a single loss could easily wipe out hours or even days of profits. A safe way to engage in scalping is to use an automated bot like our Scalper Bot, which can be programmed to quickly transact small amounts of crypto and book profits as the opportunities appear.

Pursue Pattern Trading

Also known as switch trading or inversion, pattern trading utilizes technical indicators to produce buy or sell signals. Of course, these signals do not guarantee that buying or selling the cryptocurrency under consideration is a good idea, merely that the conditions specified in the trading strategy have been reached.

As a time-honored part of technical analysis, price patterns come in many different shapes and sizes. At a basic level, “uptrends” indicate that prices have been moving higher over a certain period of time, while “downtrends” indicate the opposite. A “sideways” market occurs when the price of an asset oscillates back and forth between two parallel trend lines. Other patterns appear in a price chart in the shape of “triangles,” “pennants,” “flags,” “wedges,” and so on. There have been far too many different technical indicators and price patterns identified and developed over the years to list, so those interested should do some research into different patterns and find one to try. The HaasOnline trading platform features native integration with a number of technical indicators that can be used for cryptocurrency day trading.

Put Stop Loss and Limit Sell Orders in Place

Often regarded as one of the most important pieces of advice to any day trader, using stop loss orders make sure that a trade is exited once the price of an asset reaches a certain level. This can prevent catastrophic losses in the case of huge price declines. For example, if you buy $5,000 in BTC, it is possible to set a stop loss at $4,000, meaning that the BTC will be sold if its value falls below $4,000.

A limit sell order can be combined with a stop loss, but is intended to activate once an asset reaches a certain price higher than the purchase price. Then, the limit sell order kicks in, selling the asset and booking the profits. In the reverse of the same example as before, imagine once again purchasing $4,000 worth of BTC but placing a limit sell order at $5,000. If the value of the purchased BTC reaches $5,000, the limi sell order will kick into gear and sell the BTC for $1,000 in profits.

Stop loss and limit sell orders are often available on major exchanges, such as Coinbase and Binance. Furthermore, the HaasOnline trading platform features proprietary safeties that activate whenever predefined market movements occur, among which stop loss and limit sell orders can easily be constructed.

Let Trading Bots Do the Work

After deciding which cryptocurrencies to transact and which trading strategies to follow, all that’s left to do is to hit the market and put those strategies to work. Manually watching market signals and executing trade orders is cumbersome, however, and will likely prove too unwieldy even for relatively simple day trading strategies. That’s where automated trading bots come in.

Algorithmic cryptocurrency trading uses computers to execute trades according to a program defined in advance. In that way, these “trading bots” can run with trading strategies without needing continual human intervention. The HaasOnline trading platform features a number of such trading bots, all of which allow cryptocurrency day traders to stack technical indicators, safeties, and insurances to create an individualized automated trading strategy. While algorithmic trading with automated trading bots is useful for anyone interested in buying and selling cryptocurrencies, they are especially useful for day traders.

Let’s look at a few examples. First, the Trend Lines Bot allows traders to set buy and sell lines which the bot will use to execute trades whenever those lines have been breached. Beginner day traders may especially benefit from using the Standard Trade Bot, which provides an intuitive interface through which to compile a strategy using various indicators and safeties. Finally, the Market Making Bot can create two limit orders for a given cryptocurrency at certain percentages away from the current price.

Algorithmic trading bots are a powerful tool in the hands of a cryptocurrency day trader. However, it is important to keep in mind that the bots will simply do what they are programmed to do. It takes careful research and programming to set up a strategy for the bots to follow that avoids major losses and takes advantage of profit opportunities as they come along.

Risks of Day Trading

While day trading can seem like an alluring way to earn consistent income, its risks must be acknowledged. Just as one can profit from price movements, one can also suffer losses when prices move in unanticipated ways. While risk can never be eliminated, certain strategies can limit downside potential.

Cryptocurrency day traders operating on margin are especially susceptible to price swings, as trading on margin involves borrowing funds from a broker or exchange to amplify the total amount of a given position. While trading on margin can create the possibility for outsized gains relative to some fixed level of capital, it also increases the chance for loss if the market moves in the other direction.

Day Trading Cryptocurrency Taxes

Knowing how to pay taxes on cryptocurrency can seem daunting to a beginner day trader, as the tax treatment of cryptocurrency is often unclear and varies by jurisdiction.

In the case of the United States, bitcoin and other cryptocurrencies are treated as property, like stocks and real estate. Therefore, cryptocurrencies are subject to capital gains taxation like any other investment vehicle. What you have to pay will depend upon how long you held the taxable asset, as long-term investments of over one year are subject to different capital gains taxation rates than short-term investments.

Long-term capital gains tax rates are usually lower than those applied to short-term transactions, but the exact difference will depend upon each individual’s situation. Thus, day traders usually, though not always, face higher tax rates than long-term buy-and-hold investors.

We highly recommend that cryptocurrency day traders keep detailed records and consult a tax professional when filing taxes. This makes it possible for another trusted set of eyes to check if everything is documented properly and goes far in preventing any major issues with the IRS in the future. Cryptocurrency day traders using HaasOnline’s cryptocurrency trading software will be able to find records of gains and losses on every trade, which can prove invaluable around tax season.

Tips for Cryptocurrency Day Trading

Below are some tips to keep in mind when getting started day trading cryptocurrencies.

  • Limit losses and practice, practice, practice

There are no sure bets in day trading, but it is possible to limit losses with the right strategies, such as the aforementioned stop loss orders. Once you have a basic strategy running, there is no substitute for thoughtful tinkering and continued practice.

  • Focus on the fundamentals

It is usually better to narrow in on a small selection of cryptocurrencies, exchanges and strategies at first. Then, with a working strategy in place, branching out incrementally is easier than jumping in head-first from the beginning.

  • Stay aware of psychology

Ever heard of FOMO? Fear of missing out on a big price rally can cause panic and deviation from a tried-and-true trading strategy. Keeping emotions in check in a turbulent market environment is a hallmark characteristic of a veteran trader.

Frequently Asked Questions (FAQ)

What is the best cryptocurrency to day trade?

A cryptocurrency can be particularly suited for day trading for a variety of reasons.

First, liquidity, proxied by market size and volume, is important to a day trader, so naturally the most popular cryptocurrencies like Bitcoin Core (BTC) and Ethereum (ETH) are attractive targets, along with Ripple (XRP), Bitcoin Cash (BCH), and Litecoin (LTC).
Next, fees are also important to a day trader who plans to enter and exit a position in a certain cryptocurrency multiple times within a certain day. As mentioned before, fees vary by exchange, necessitating some preliminary research before deciding which exchange to use to day trade cryptocurrency.

Finally, cryptocurrency day traders should be aware of the history of a cryptocurrency and some of the actors pulling the strings of a coin’s development. Each cryptocurrency has its own unique origin story and learning who’s working behind the scenes and what their motivations are may help a day trader determine which coins may experience particular price volatility at a certain time.

What is the best strategy for beginners?

While there is no single best strategy for any kind of day trading, good strategies for beginners will be simple to construct and execute, with minimal on-the-spot decisions required. It takes time to become familiar with trading software and hone one’s trading instincts, so it can be more comforting to put into place an automated strategy with minimal downside potential.

Are there any differences between day trading Bitcoin, Ethereum, and altcoins?

The major differences between day trading Bitcoin versus Ethereum or other altcoins come in the form of different market structures. While major cryptocurrencies like Bitcoin and Ethereum sport substantial daily trading volume, small altcoins may seem appealing due to the possibility of enormous price volatility, but actually be difficult to sell in the case of a thin market. Day trading altcoins can certainly be profitable, but the relative lack of liquidity and the possibility of “pump and dump” schemes adds extra risk within an already volatile market.

What is a simple strategy that works?

Trading strategies tend to work in certain market environments at certain times. With that said, using an automated trading bot to scour cryptocurrency exchanges for arbitrage opportunities can be a low-risk high-reward strategy in specific scenarios. Also, an automated scalping strategy put into place with the HaasOnline Scalping Bot can be an easy entry into the world of cryptocurrency day trading. Otherwise, there are a variety of pattern trading strategies based upon technical indicators that may be simple for beginner day traders to put in place with a standard trading bot.

Final Thoughts

In this guide, we have tried to provide a basic yet detailed overview of what beginners should know before jumping into the world of cryptocurrency day trading.

Those looking for a streamlined way to pursue cryptocurrency day trading may find the HaasOnline cryptocurrency trading platform appealing. There are a number of key features such as automated trading bots, integration with major exchanges, native support of many technical indicators, and proprietary safeties which make day trading easier both for complete beginners and veterans in the space. HaasOnline has three different plans according to how many features you will need, with even the beginner plan providing unlimited trades across all supported exchanges, with no fees on trade activity charged through the platform.

We hope this guide has been useful and hope we can assist you in achieving your goals in day trading cryptocurrency.

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