Crypto day trading is a performance activity where traders get rewarded based on how good their strategy is and how well they use risk management. The best crypto day trading strategies come in many different forms and the truth is that not all strategies are a good fit for every trader.
Your strategy should be customized to your style of trading and the way you like to approach the market and the fact that each strategy can be used in different market environments makes them even more profitable.
It all boils down to who you are as a trader.
- Are you an aggressive trader?
- Are you a risk-averse trader?
- Are a beginner trying to find everything out?
Whatever your reason is for landing on this page I am sure that you will learn something new and fresh that you haven’t thought about before. I guarantee that you will exit this page with more knowledge and a better edge than you had before.
After reading this article you probably want to spend some time looking through our recommended crypto exchanges for day trading to see which platforms is best suited for your needs.
Also, if you are trading cryptocurrencies on margin, check our guide on crypto margin trading strategies to learn how to make money with leverage.
Strategies you will learn
1. Focus on strong breakouts
Most new traders ask themselves “How I am going to make it as a trader and how do I make real money?”.
I totally understand your frustration.
You have probably traded for a while and you have come to the realization that you don’t know how successful traders actually make a living.
The answer to this question is that you need to focus your efforts on finding the best possible setups and allocate the most amount of money to these setups.
Crypto day trading does not provide a consistent stream of income where you make more or less the same amount of cash each month or every trade.
The way crypto traders make a living is by hitting it big a couple of times per month. This means that most of the trades they take are not providing enough money to support their commissions even.
The money comes from 2% of their trades which are traded in large breakouts and the reason breakouts are so powerful is because of the nature of how probability and momentum work.
In a true breakout, the market runs either up or down on extremely high volume, and it does so without looking back.
Strong breakouts don’t turn back to the range it was trading in before, instead, real breakouts carry on much higher, or lower for an extended period of time.
It is your job as a trader to identify when you see a possible breakout build-up and get ready to increase the position size and pull the trigger when it’s needed.
You will fail at first but after a while, you will start to learn how breakouts work and when to enter.
Once you enter a strong breakout setup with a large position you will make more money than you have made your whole career as a trader.
After a successful trade, you need to withdraw some of that cash and keep searching for the next strong setup.
Are you looking to become a skilled crypto trader?
Check out our detailed crypto trading guides in our educational center.
You will learn new strategies and how to read charts in real-time.
2. Bot trading
Nowadays you don’t need to have a degree in coding to run a crypto trading bot and make good money.
AI crypto trading platforms have made it extremely easy for beginners to automate their strategies and create powerful bots that can pretty much replace you as a trader.
Now, it may sound easy in theory, but it is a little bit more complicated than just pushing play and letting the algorithm do all work.
You first need to know basic trading theory and have some experience in trading the markets with a short-term strategy.
The best bot traders tend to be the kind of traders that come from a background of scalping and pure day trading.
You need to spend some time learning how the bot works and you need to be able to translate your strategy from thoughts into real rules or commands that the bot can adhere to.
Bot trading can be very effective once you learn how to use it and also which type of bot you should use for a different market environment.
You are not going to be successful by running the same bot without taking into consideration how the market is behaving.
Some bots do better in a choppy environment such as a trading range while others do much better in a trending environment.
The best way to get started is to learn the bot you are going to use and create at least three different types of bots so that you can change between them as the behavior of the market changes.
You will notice when your bot starts to function effectively as the profitability will go down which tells you that the market has changed and you need to swap between bots.
While your bot is trading the market you can spend some time working on other types of bots that can handle other types of market environments.
3. Use a smart stop loss
The best way to use a stop loss is to understand the level of volatility that is currently active in your marketplace.
Most traders get it wrong by using the same distance to their stop loss order which in turn will get them stopped out prematurely in 75% of the cases.
This is a big problem that can easily be solved with a couple of simple tools.
First, you need to know how much volatility there is in your traded coin.
The best way to find out the level of volatility is with the Average True Range (ATR) indicator.
This indicator will measure the magnitude of the price swings and it will give you a numeric translation that can be understood.
Once you have figured out how volatile your crypto asset is it is time to measure your distance and add your stop loss accordingly.
You need to play around with the ATR indicator to find out what level is considered as high, medium, and what is considered as low volatility.
Spend some time comparing the chart of your cryptocurrency and measure how much distance would have been required to stay away from the noise of the market without getting stopped out.
After a while, you will find out a smart distance to add your stop loss that will result in a higher win rate.
This doesn’t necessarily mean that you are going to make more money but it will keep you from losing less frequently, something that could be used to make more money.
When you have figured out the distance to your stop loss you only have to calculate your maximum risk per trade and size your position accordingly.
The smart stop loss system will force you to change your position size all the time as the market is changing, but remember, this is for the better.
Stop loss crypto exchanges with a trailing stop loss will give you a slight advantage if you don’t have much time to track your positions.
4. Focus on 5 coins or less
If you don’t know the behavior or the standard price action of the coin you are trading, then you are trading too many cryptocurrencies at the same time.
Proper day trading is based on pattern recognition which can only be obtained when studying a small number of charts every day.
It is literally impossible to trade 20 coins per day unless you are using an algorithm or bot that you have prepared with criteria beforehand.
Other than that, you can’t do it.
Well, you can do it, but you can’t do it well.
To increase your probability of success in cryptocurrency day trading you need to narrow down your targets to a few selected coins.
How do you choose which coins to trade and how do you find new crypto coins?
For starters, select some of the top 20 coins to be sure that they are going to be around for the years to come as many of the cheaper coins with a low market cap usually tend to get wiped out after a while.
Once you have found the coins you are comfortable with you need to start analyzing the charts religiously.
You need to spend enough time watching the price movement so that you can sense when there is a big breakout building up.
When you reach this level of awareness you will start to trade better because you will learn what is a good setup and what is a bad setup.
Professional traders are experts at recognizing good setups because they have to spend 10 years+ watching the charts of their favorite assets.
This is how you take your crypto day trading efforts to the next level.
5. Use leverage on the best opportunities
This is an advanced strategy for crypto day trading that should only be attempted when you have sufficient experience in how margin traded contracts work.
Leverage carries a significant risk of loss, however, if you know what you are doing you can make small fortunes by using leverage on your top setups.
Only by using a leverage ratio of 1:3 or 1:5 will increase your output immensely.
Think about your best setups and roughly how much money you make on those trades, now triple that or make it five times bigger.
It’s pretty crazy but it works well on those setups that you truly trust and believe are going to be big winners.
Leverage should not be used on every trade and especially if you don’t have a perfect setup yet.
If you are a complete beginner, stay away from leverage until you have learned how to use indicators and how price actions work.
If you scroll up in the article to the breakout strategy, this strategy goes hand-in-hand with that one.
Once you spot a big breakout building up and you are using a crypto exchange that offers margin you can take advantage of the setup and load up big.
As you know, it’s not going to work out in your favor every time, but when it does, it will yield fantastic results.
This is a great strategy to use for those who are looking for a way to up their gains without changing how they trade the market.
It is true that it comes with added risks and you might have to change your stop loss a little bit but except for that it is a great tool.
6. The trend is your friend
Intra-day trends do exist and they should be on your radar at all times when you watch the cryptocurrency market.
Day trading trends usually start with some kind of breakout from a previous trading range where the market builds up over a couple of hours or even days.
After the breakout, the market shifts its sentiment to a more positive or negative attitude and will see how traders line up to follow the trend.
Following trends is one of the best day trading crypto strategies you can use because they have the potential of producing good returns.
The most difficult part is to stick to your idea and not sell your contracts.
The best way to get past this bad habit is to force yourself to not sell unless you get stopped out.
You will soon find out that many of the positions that you used to close out too early are actually some of the best positions to hold on to.
Daily trends can last up to several hours and well into the next trading day depending on the momentum.
The characteristics of a good intra-day trend are very few pullbacks and mostly positive volume confirmation.
This means that the market falls down very few times and most of the volume hits the market as it is rising.
Once you see these signals you should immediately start thinking about sticking to your position.
A good tool to use is a trailing stop loss that follows the market as it increases.
Typically, however, you don’t want your stop loss to trigger the sell order. You want to sell once you see the first signs of negativity.
When the volume starts to turn to support the sell side you know people are taking profits and it’s time to get out.
7. Cut losers fast and let your winners run
If you have been in the day trading scene for a while you have probably heard this one before.
However, if you are reading this article, you have probably not learned why and how to do it.
The reason why you’ve heard this so many times before is that losing trades need to be controlled and closed out very fast.
You see, losing trades that go beyond your risk limit can easily destroy your trading account if you are not careful.
Winning trades, however, are free to get as uncontrolled as possible as long as you know how to take profits.
But it doesn’t matter how much money you make on a winning trade, the more the better.
It is also true that every time you close out a losing trade there is a new chance that the next trade will be a winner and this is what every trader is waiting for.
The old saying “If you hang around a barbershop long enough, sooner or later you are going to get your hair cut” is a good comparison of how day trading cryptocurrencies work.
As long as you have trust in your strategy, and close out your losers fast, you will sooner or later experience big winners and when that happens it is important to let them run until there is no more momentum left.
The best traders I have met have been able to tell almost immediately if they are in a bad or good trade just by following the first ticks of the price action.
This is because they have seen enough trades that they know what a good entry looks like and as soon as they see something that looks “weak” they close out the trade and wait for the next opportunity.
This is a strong crypto day trading strategy that you should try to learn as soon as possible.
8. Measure the market sentiment
When I say to measure the market sentiment I am referring to the overall feeling of the crypto market.
It is important to know if the general sentiment is positive or negative before you start day trading your coins.
But how do you find out whether the market is positive, greedy, euphoric, negative, nervous, or hysteric?
First, start by looking at the overall trend. Check the daily chart to see if the market is currently in a downtrend or uptrend.
Now, zoom in to see the trend of the last couple of days to distinguish if the market is experiencing increasing or declining prices.
Depending on the current short-term trend you can gauge whether the market participants are positive or negative.
Another tool you can use is the fear and greed index which is a chart composed of different measures of the market participants.
The fear and greed index measures the market volatility, market momentum/volume, social media impressions, market cap dominance, Google trends, and some surveys.
All of these factors are plotted down on a chart that will tell you how fearful or greedy traders are at the moment.
You can take advantage of knowing how fearful or greedy traders are by piggybacking on their emotions and purchasing power.
If your technical analysis points to an increase in prices and the F&G index confirms this belief, then there is a good likelihood that you will succeed in going long.
Below is the reading for today, pretty negative I would say.
It should be mentioned that this index is not a tool that will solve everything by telling you which way the market is heading, it is a little bit more complicated than that.
However, it is a great crypto day trading strategy to have ready at hand.
9. Avoid overtrading
Why do traders overtrade and what is the real cure for this behavior?
Overtrading will affect every trader at some part in their early career and it really is a behavior that you can’t avoid if you don’t know the cause.
In my experience, I overtraded because I was so excited to trade. I want to get into the market and experience the rush of having a position in the market.
I overtraded, even more, when I increased my position size, and the bigger I traded the more excited I was about entering the market and seeing my results.
Do you see the problem here? What did I do wrong?
I let my emotions take over and control my trading, completely.
Trading is a strategic performance activity that requires clear planning and perfect execution without the interference of emotions such as fear or greed.
If you are excited, nervous, anxious, thrilled, or feel any other emotion about getting involved with the market you are in trouble.
In fact, you should not feel anything about your trading. It should be as systematic as possible and your only job is to create a strategy and follow it, religiously.
Now, the difficult part is to realize that you are overtrading. However, there are some clear symptoms that you can watch out for:
- You lose 80% of the time
- You pay a lot of commissions
- You feel like you are not in control
- You ask yourself many times “why did I enter that trade?” after you exit
- You are more focused on trading than analyzing the price action
If any, or perhaps all, of these symptoms sounds familiar you are probably overtrading.
The best way to fix the problem is to first realize what you are doing and then work on trying to make trading as “unsexy” as possible.
Good trading is boring and if you are enjoying yourself too much you need to change your strategies, mentality, and approach.
Overtraders need to step away from the market and find a strategy that suits their personality and that takes the focus away from clicking Buy or Sell.
10. Find the daily volatility
As a crypto day trader, you need to follow the daily volatility and you need to have a system that can find the volatility for you.
But why is volatility so important?
It’s very simple, volatility equals movement, and movement equals potential profits.
Without a moving market, you cannot earn money because your positions will be chopping around in a small range.
Good day traders know that volatility is like energy for their trades that fuel their setups so that they can move in their favor.
However, volatility on its own doesn’t mean instant profits. Quite the opposite.
Traders that think volatility will solve all their problems are going to lose a lot of money.
Your strategy should always be built on top of volatile market situations but it should also be built on top of great risk management.
Volatility is just a force that will carry your position up or down depending on how you are positioned.
It is your job to read the market and trade accordingly with a fantastic risk management strategy in place for those times when the market goes against you.
After that, trading becomes a probabilities game, and the only thing you need to do is to repeat our setups over and over again.
The better your strategy and setup are the more often you will win.
After that, it’s up to the volatility to deliver on its promise.
The best way to find volatility while day trading cryptocurrencies is to use an exchange that lists the top daily gainers and losers.
11. Use volume as confirmation
Volume is the number one predictor of continued market moves and the sooner you learn how to use it the better your results will be.
Think about it, what is volume? What does volume mean in any market?
I see volume as votes.
Every trader votes either bull or bear and all the votes are visible in the chart.
It’s almost as if we could see all the votes coming in during a presidential election, in real-time.
If that was the case we could easily see how in charge of the election and who is most likely to win.
It works the same in trading, both in the long term and in the short term.
If you see a setup that you think has a good potential for continuing higher, confirm the breakout with volume to see how many votes your setup gets.
If the number of votes increases as the market move in your direction then you know that you have some backup.
In that case, you should probably jump into the market and tag along with the majority of traders.
This is an extremely powerful technique that many professional traders use to gauge whether their position is worth holding on to.
The same thing is possible for the trades that you might want to close.
If you have shorted the market and you are not convinced about the setup and the volume seems to fade, then it’s probably a good idea to exit.
Most of the best altcoin trading platforms have volume indicators built into their charting interface.
12. Copy trading
Copy trading is our last crypto day trading strategy and it’s a very new approach to how traders make money today.
I would say that if you are a beginner who is experimenting with trading and you don’t know much about how to get started it could be a good idea to let other traders trade parts of your portfolio.
The reason for this is that you can learn what kind of setups they use and especially with crypto copy trading platforms like Decoin, where you can see live when traders are executing trades in real-time.
Another great reason for choosing crypto copy trading is if you are a passive investor with little time on your hands and you want to put your money to work.
Your options are pretty much unlimited when it comes to the number of traders available to copy.
And they offer several different trading styles as well.
Some traders are more aggressive and will have larger drawdowns and some traders have a more conservative approach and take fewer risks.
This all depends on how you would like to invest your money and how much risk appetite you have.
If you are interested I would recommend that you start with a smaller investment.
Look for traders that have a consistent track record and have not just been lucky in the last couple of months by holding the most popular coins.
Copy investors can make a good passive income by selecting top traders and the key to this is diversity.
Don’t put all your money in one trader, spread out your risk.
It’s the same idea as when you invest in funds.
You want a little bit in commodity, a little bit in real estate, and some money in index funds, emerging markets, and blue-chip stocks.