Day trading style for crypto no.2: Active day
trading
Active day trading is,
generally, a less active trading style than scalping and usually means from just one day trade up to a
limited number of trades per day.
You may use this trading style
during rallies for BTCUSD, ETHUSD or other crypto assets, as they might produce substantial breakouts
and give a good profit/loss ratio for your trades.
Note: the capability of
the price to make big moves within one day is limited. Extremely big days happen rarely, so a trader
must be very careful picking trades, as the amount of ‘noise’ in the price action and intensity of
rotation around certain price levels may be high. Still, there might be ‘big days’ with abnormal
volatility: they occur during ‘bull runs’ or ‘panic sells’.
Nevertheless, timing is key for
any successful day trader when buying and selling crypto. It’s not enough to just carefully predict the
destination of the price: it’s also critical to enter the position with the lowest risk possible and
place a relatively tight protective stop-loss.
That is why, day trading usually
looks more like a day job, rather than a relaxed laptop pastime on a couch near the seashore. Still,
you, as a trader, can work from anywhere in the world, if you have a reliable internet connection and
can focus on the financial markets.
Day trading strategies for trading crypto
The different Day trading
strategies that day traders in the cryptocurrency market use depend on their trading style. For example,
if you, as a day trader, seek one good day trade per day, you may try to find potential pivot and
reversal points within that day. Let’s look at this type of trading more closely.
Day trading strategy no.1:
capturing pivot points
Potential pivot points may occur
at the strong support or resistance areas, as shown in the example below: BTCUSD had approached the
29700 level, the intermediate-term low from 7 July. After testing this level, buying activity has
returned to the markets, enabling a day trader to ride the pullback. The nuance here was that the
mentioned price action occurred late in the day for the European timezone, meaning that fewer traders
would be near their screens during the event.
Example of a pullback,
which a day trader would use for building a long position.
Day trading strategy no.2:
momentum day trading crypto
Riding the momentum is as old as
the market itself. While it might be reasonable to try to 'buy low' and 'sell high', successful day
traders who practice momentum trading focus on buying what is 'already high' to sell it 'even higher'.
The attractiveness of momentum trading is that it might give a day trader a relatively fast profit, as
the accelerating momentum pushes the price quickly with increasing volumes.
Day trading strategy no.3: trading
breakouts in the crypto markets
A breakout is a rapid price move
that pushes the price beyond the boundaries of some consolidation or a chart formation, or through the
trendline of a correctional trend. Below is an example of a breakout that occurred in BTCUSD in July
2023:
Example: Breakout of BTCUSD
on 23 July 2023. After the rapid breakout, the price reversed and closed below the opening price.
In this particular example, it’s
visible that the breakout was fast, though it also ended quickly. However, as a day trader, this may
have been an excellent opportunity for a long day trade, since you could have placed a short stop-loss
and gained fast and decent profit within a day. Not all breakouts lead to a solid continuation. For that
reason, crypto markets need to be within a ‘bull run’ phase. However, for a day trader, short intraday
moves might still provide decent profit/loss ratios.
Day trading strategy no.4:
trend-following day trades in crypto
In the realm of intraday
trend-following trading applied to crypto markets, we focus on swift and volatile price movements,
lasting only a couple of days, rather than long-term or medium-term trends that span weeks or even
months. These longer trends for buying and selling securities fall under different strategy types, such
as swing and position trading. A savvy day trader spotting such a short-term trend could use their
strategy for day trading to work in sync with this trend over several consecutive days until it ends.
Contrary to this approach, swing
traders and position traders frequently aim to 'buy the dip', expecting the initiation of a new swing in
the trend's direction. Day traders, on the other hand, prefer to capitalize on the momentum with a touch
of trend-following trading in their strategy. This method is commonly used by successful day traders to
navigate the fast-paced crypto market.
Let’s look at the example below
involving BTCUSD:
Example: The trend in
BTCUSD in October 2023. Price pulls back to the moving average (50) and gives a trader a location
for long entry.
As the trend started in October
2023, the price made several short-term breakouts, after which it had pulled back to the moving average
with a parameter of 50 on the 60-minute chart. This is an arbitrary parameter, provided for indicative
purposes, but that’s the principle that might be used not only on small time frames but also on daily
charts: active trends make temporary pullbacks to the dynamic support. In this example, this support is
represented by the moving average indicator. A day trader in crypto markets may use such points to their
advantage, building trades in the direction of a trend.
Of course, not every trend in
crypto leads to continuation. But, if identified correctly, a trend gives you a clear direction, and you
have to focus on its timing and execution.