Day Trading with Bitcoin

It is natural for certain things to change. People, technology, and nature itself will evolve with every innovation or change. Whether it be for better or worse, adaptation is imminent. One modern adaptation we’ll need to make is to consider Bitcoin day trading as a legitimate form of investing.

Trading, if you can believe it, is one of these ever-changing things. For the longest time, there was only a certain group of people who could actively trade in the stock market. These people were those who were working for large financial institutions, brokerages, and trading houses. This would all eventually change with the gradual rise of the Internet and online trading houses. Suddenly, brokers were making it easier for any individual investor to play a part in the game.

This procedure is called ‘day trading’. There has been a tremendous surge in Bitcoin day trading lately. There is a lot of volatility and price movements, transforming it into an ideal day trading market. What’s more, its trading volume per day is massive.

If you conduct the day trading process correctly, then it can prove itself to be a potentially profitable career. With that in mind, it has the tendency of being pretty challenging for beginners. This is especially true for novices who are not quite ready and do not have any sort of tactical strategy. In fact, even traders with the right amount of knowledge often fall victim to rough patches or even getting completely “rekt”. This effectively results in them experiencing huge losses.

So, how does it work? Moreover, what exactly is it?

Breaking down Bitcoin

Before we dive into how day trading Bitcoin works and why it’s popular, we need to break it down. First and foremost, we should briefly provide context for Bitcoin itself.

The creation of Bitcoin was back in January 2009. It is a digital currency that follows the ideas written in a white paper by the mysterious figure, Satoshi Nakamoto. Bitcoin provides users with a guarantee of lower transaction fees than traditional online payment mechanisms. Moreover, its operation is in the hands of decentralized authority, contrary to government-issued currencies.

Bitcoin is part of – if not the leading part of – the developing cryptocurrency market. While the conventional form of cash is paper, bitcoins are instead bundles of data. They essentially get rid of middlemen from banks or the government that may act as intermediaries for your money. On the whole, cryptocurrencies facilitate the direct transfer of money between two or more individuals. To do this, it employs the use of secure and predominantly reliable blockchain technology.

Bitcoin was the first cryptocurrency to ever utilize this technology. The occasional issue that would follow is responsible for the occurrence of various ‘forks’. All of this was what led to the origins of Bitcoin Cash. Other currencies would then attempt to revamp the process, concerning speed, costs, and energy requirements. Cryptocurrencies that claim to be a cut above Bitcoin are Ethereum, Ripple, and Litecoin.

The entire wealth of bitcoins are in the hands of only a few. Because of this, the purchase of bitcoin is infractions that are as low as one-hundredth of a million. This equates roughly to less than one-tenth of a cent. What this means is that pretty much anyone can play around with it, thus explaining the boom in bitcoin trading volume per day.

What is this type of trade?

With the context for Bitcoin given, now we will bring some clarity to what ‘day trading’ is.

‘Day trading’ is the purchase and eventual sale of a security within a single trading day. It usually takes place in any marketplace. However, it is more common in the foreign exchange (forex) and stock markets. More often than not, day traders are well-educated and have the proper amount of funding. They typically employ excessive leverage and short-term trading strategies. With them, they are able to take advantage of small price movements in highly liquid stocks or currencies.

Those who engage in day trading are adaptable to events that result in short-term market moves. One of the more popular techniques is trading the news. Economic statistics, corporate earnings, and interest rates are frequently subject to both market expectations and market psychology. Markets will respond when there is no instance of those expectations being met or exceeded. This is typical with sudden and noteworthy moves, which in turn can greatly benefit day traders.

Day traders often utilize an array of intraday strategies. These strategies include the following:

  • Scalping: This strategy tries to make multiple small profits on small price changes throughout the duration of the day.
  • Range trading: This strategy primarily uses resistance levels and support as a means to determine their decisions for buying and selling.
  • Trading that draws from the news: This strategy takes trading opportunities from the generally intense volatility surrounding news events.
  • High-frequency trading (HFT) strategies: These are strategies that utilize complex algorithms in order to capitalize on small or short-term market incompetence.

A dubious practice for some

It is only fair to mention that day trading is – in the eyes of some people – too risky. Thus, it has a reputation for being among the more controversial practices.

The potential of great profit in day trading is a topic that constantly up for debate on Wall Street. Internet scams are frequently luring amateurs in with the promise of tremendous returns in such a short period of time. There appears to be a persistent idea that this particular kind of trading is essentially a get-rich-quick scheme.

With this misconception, people tend to dive into day trading without the adequate knowledge they will need. However, there are some day traders who go on to make a successful living regardless of the risks.

A majority of professional money managers and financial advisors are prone to shying away from day trading. They believe that most of the time, the reward is not necessarily worth the risk. On the other end of the spectrum, those in favor of day trading claim that there is plenty of profit to make.

Realistically speaking, day trading profitably is a possibility. Be that as it may, the success rate is lower due to both the complexity and the risk of day trading. Moreover, this is in conjunction with scams in relation to it. Economists and financial practitioners alike will argue throughout long periods of time, active trading strategies usually underperform a basic passive index strategy. This is especially true when you take fees and taxes into account.

Why should I do it?

Even though there are risks to day trading, there are multiple reasons why you should day trade with Bitcoin.

  • Volatility and no dull periods – There are swings of over 10% in a matter of hours. So, this erratic market will give you chances to discover traceable action. Moreover, a professional day trader will find a potential profit. Overall, it’s a market full of excitement; perfect for day trading. Unless you fully trust a day trading bitcoin bot, you will find your own enjoyment in this trade.
  • Leveraged trading potential – Various bitcoin exchanges supply opportunities for leverage trading. This could likely give you greater exposure to upside but also downside price risk than your trading budget usually allows.
  • Ideal for Forex users – You do not necessarily need a proper understanding of the intricacy of cryptocurrencies and Bitcoin. In essence, it’s a currency that lets you apply similar thought processes to day trading bitcoin as you would day trading Forex.
  • Low fees and taxes – Exchanges that focus on Bitcoin offer low fees and minimums, especially when you compare them to many conventional exchanges.
  • Universal access – Commencing day trading bitcoins is possible from any location on the planet and at any time. As a matter of fact, all you really need is a stable connection to the Internet. Furthermore, in day trading, you do not require a long term view about the potential success rate of cryptocurrencies. The stock market has a tendency to be an expensive place for the average investor. However, with Facebook and Apple shares costing roughly $110 each, you can plunge into the cryptocurrency market with dollars or pounds.
  • Either go long or short – Each day provides something different. It is possible for you to be bullish and bearish in the same week

The things you will need to start the trade

At this point, you might be thinking about taking a chance at potentially making money by day trading bitcoin. With the knowledge – or at least the basics – in your back pocket, you will want to get started. As is the case with all trading processes, there are some important steps you will need to follow.

1 – Figure out what the price is

One of the first things you will have to know when day trading is what exactly the price is. To do this, you will need to go to an index or broker to see the latest trade value. In addition, you can use orders – open or limit – in order to enter the market whenever you want to.

2 – Select a broker

The biggest decision you will make in this process is choosing the exchange or broker you will deposit funds with. In recent years, Coinbase has become a popular platform to day trade bitcoin on. Coinbase functions as a digital wallet; it allows you to easily transfer currency from an app. With that said, there is a wide variety of alternative choices, including:

  • Bitfinex
  • Kraken
  • Bitstamp
  • GDAX
  • Luno
  • BTC-e

Beyond the direct exchanges, there are also some brokers that permit you to trade the latent asset of Bitcoin. Moreover, it is possible to do this without actually taking ownership of it. For instance, you can trade it within a forex pair against the US dollar. Several other brokers, like IQ Option, will let you contemplate on bitcoin by way of CFDs or spread bets.

3 – Obtaining capital

You are not able to make money from day trading bitcoin if you don’t have any capital to start with. There are warnings around every corner on the Internet about losing your money, so there is no point in dwelling on this particular step. While you are finding stable footing, it would be wise to use a small amount of capital.

It’s important to note that you should never, under any circumstances, trade more than you are willing to potentially lose. Be rigid and meticulous with what you can afford to lose and what you cannot. Doing so will ensure that you will never have to be anxious about potentially losing out to the cryptocurrency market.

4 – Strategies for Bitcoin

It would not be smart to step out into the playing field without a strategy ready to go. The same can be said about trading. You need a clear-cut strategy when you are starting to conduct bitcoin day trading. There are some people who will look for assistance from a bitcoin day trading bot. Conversely, some will rely on their own technical analysis and sense of judgment. 

It is quite common for bitcoin day trading tutorials to recommend that you employ price charts. Additionally, you already have a competent money management strategy in mind. This will help you preserve a low amount of losses and a high amount of profits.

Strategy #1 – Chart reading

In your travels, you may discover that there is an abundance of both line and bar charts. However, it would be unwise for you to make crypto charting the basis of your livelihood. Candlestick charts provide you with the most information in a minimal amount of space. From them, you are able to learn various pieces of essential information:

  • What exactly the price was upon opening and closing.
  • How high the price was throughout the duration of the time frame, and also how low its drop was.
  • If the candlestick is green, that means that the price’s closure was higher than when it was upon its opening.
  • If the candlestick is red, that means that the price’s closure was lower than when it was upon its opening.
  • The chart being primarily green and moving upward means that you are in an upward trend.
  • The chart being primarily red means that you are in a downward trend.

Whenever you are utilizing your chart, make sure you have the appropriate settings for the timeframe. When it comes to day trading bitcoins, you will want charts whose timeframes are between 1-30 minutes.

Strategy #2 – Checking the news

One of the most important tips is it’s crucial that you utilize an array of news sources. Bitcoin value is very dependable on the perception of the public, therefore news events tend to provoke spikes. Below are a handful of the most beneficial and user-friendly news sources that exist:

  • Bitcoin Magazine
  • CryptoCoinsNews
  • Coindesk
  • Brave New Coin
  • CoinTelegraph
  • Business Insider
  • The Street
  • CNBC

Now, concerning useful tips for bitcoin day trading, there is a good chunk of people who agree on one thing. That being if there are no instances of negative news regarding Bitcoin and cryptocurrencies, then it might be the ideal time to sell. On the other hand, if there are instances of positive news, then it could be the perfect time to buy.

Strategy #3 – Balance Volume Indicator

Regardless of when you are day trading bitcoin in, you should think about using the on-balance volume (OBV) indicator. It employs the use of a combination of price and volume activity. Doing so allows them to inform you of what the total money amount flowing in and out of the market currently is.

So, how is this applicable to Bitcoin? Well, let’s assume bitcoin trading is on the rise all while the OBV trading is on the downward spiral. If this is the case, then it’s inevitable for people to sell into this rally. Be that as it may, a move to the upside would not necessarily be viable. That exact same logic is something one can easily apply in reverse.

Making a living day trading Bitcoin

There are two dominant divisions regarding professional day traders: those working by themselves and those working for a larger institution.

A majority of day traders who make a living off of this type of trade are those in the latter division. These traders essentially have the upper hand due to having access to a variety of things. These include a direct line, a trading desk, large amounts of capital and leverage, and costly analytical software. It’s typical for these traders to seek easy profits that they can make from arbitrage opportunities and news events. These resources give them the opportunity to capitalize on less risky day trades before individual traders even have a chance to respond.

Oftentimes, individual traders handle other people’s money. Alternatively, they can just as easily trade with their own. Only a choice few have access to a trading desk. Though, they frequently have connections to a brokerage and access a variety of resources. However, the limited capacity of these resources keeps them from directly competing with institutional day traders. In lieu of this, they have no choice but to take more risks.

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