Day trading is risky! It refers to buying and selling of stock exchange within 24 hours. The aim is to obtain profits within a short time. Therefore, it is imperative that the trader have excellent knowledge and strategies up his/her sleeve.
Two factors serve to make day trading profitable, or cause losses. One is liquidity. If it is less, then slippage occurs. The trader is forced to sell his/her stock in small portions, albeit with each subsequent pricing being lower than the former. This destroys the overall gains. Therefore, the trader must be assured of high liquidity.
Another aspect is volatility. If it is absent, prices remain stagnant. The trader may not purchase at low prices, and sell at high rates. It is imperative that volatility exist, even in a lone day of trading.
Useful Strategies for Day Trading
There are five of them.
The trader must study the day’s chart patterns very carefully. Then again, mathematical indicators play an important role too. The idea is to strive to predict whether the pricing will show an upward/downward trend.
Sometimes, a computer program generates technical indicators. Sometimes, humans will have to take over the task, by going through the charts.
To illustrate, RSI is a reputed technical indicator. The indicator is merely a single line. It lies beneath the chart, displaying values between 0 and 100. If the line is closer to 100, it indicates that too many people are purchasing a certain cryptocurrency. Therefore, its price may reduce. Closer to zero, suggests that too many people are selling the coin. Therefore, the price could rise.
News & Sentiment Analysis
It pays to watch the news headlines. It also pays to gauge the overall sentiment prevailing in the day’s cryptocurrency marketplaces. This strategy suffices for trading in Bitcoins too.
To illustrate, in April 2021, Turkey refused to accept digital currencies as options for online payments. There was a country-wide ban on them. The outcome of this announcement was to spark a global sale of cryptocurrencies. Such an action would benefit day traders.
Then again, some websites focus on the tweets in Twitter, to gauge the market sentiments of cryptos. If the tweets are positive, the markets are bullish. Otherwise, they are bearish.
There is an assumption that prices tend to move back and forth within a specific range. Therefore, day traders must observe resistance and support levels very carefully. They must also go through the candlestick charts keenly.
If cryptocurrencies’ prices reach resistance level, it is time to sell. If they reach support level, it is time to purchase them.
Alternatively, there may be a shortage of coins when it is resistance level, and a rise in their quantity when it is support level.
An example of range trading is pivot points. When day traders calculate them, they comprehend which price levels will see reversals in their momentum.
The idea is to gain profits from small differentiations in pricing. These differentiations remain for very short periods only. They reveal inefficiencies in the crypto marketplaces. These inefficiencies refer to the gaps that occur in liquidity, or the bid-ask spread.
Here, the experienced day traders are the scalpers. They use certain leverages to take advantage of this minimal price movements. The leverages, include futures/margin contracts. They serve to potentially increase their profits/losses. However, it is a risk that they must be willing to take.
Day traders decide the entry and exit statuses for their trading deals. Towards this end, the strategies that come into play, are an array of technical indicators, volume heatmaps, or order book analysis.
Only someone knowing everything about advanced trading tactics and programming, may try bot trading.
It is a high-frequency trading (HFT) method. It permits the rapid initiation of an array of trades, only with the usage of programmable trading bots and algorithms.
However, no day trader will allow a computer system to take over all the work. They work out a particular strategy, and suitable programs to execute it. This is what trading bots is all about. The above is followed by regular monitoring, back testing, and algorithm updating.
Some dealers offer readymade trading bots. However, it may, or may not prove, profitable.