Using minor fluctuations in prices of assets, day traders are involved in frequent buying and selling activities to generate profits. Read more to find out!
What Is Day Trading?
Day trading is a practice in which investors make multiple trades within a day. A day trader intends to make profits through minor price changes.
There was a time when only those individuals belonging to large financial institutions, brokerage firms, and macro-level trading organizations could trade in the stock market. However, with the evolution of technology, trading can be accessed by anyone. Today, individuals with low-amount of funds can also trade in stock/crypto markets and make a handsome profit.
Is Day Trading Profitable?
Traders and investors can generate a large chunk of profit from day trading. Although beginners are highly discouraged to do day trading due to the major drawbacks, there is an upside to it too, especially in the crypto market. Let’s check out the advantages that day trading offers!
Market Remains Open 24/7
One of the prominent features of crypto trading is that the market remains open 24/7. A market that never closes comes with several benefits and opportunities for traders, only if they deploy effective strategies before investing in coins.
Volatility Is a Norm
Regarding cryptocurrency, you should keep in mind that it is highly unpredictable with rapidly fluctuating rates. For example, if a coin has an opening at $12,000, it can fall to $6,000 within a single day. Being a day trader, you can make major gains with such fluctuations, however, it can also cause terrible losses in your portfolio. Therefore, effective strategies, market trends, and the fundamentals of day trading should be kept in mind to play safe.
Data Transparency
Crypto exchanges do not usually have any hidden fee, unlike other services. It means that day trading is easy and cost-effective if you choose a platform that charges low fees on trades. If you want to check prices and trading volumes of certain assets, you can easily do that from crypto information websites, like CoinMarketCap. These platforms also provide you with charting tools that can help you determine your moves as a day trader. Such data transparency in the crypto market helps day traders in making informed decisions.
Drawbacks
The Lack of Knowledge in the Market
Cryptocurrency is an arena where many inexperienced traders and investors are present in abundance. With a blend of both professional and new traders, the newbies usually end up incurring losses in day trading.
Lacking Strict Rules
Decentralization is the foundation of the crypto world. Unlike stock markets, where everything is monitored by regulatory authorities, the crypto market is lenient and has fewer rules. You can easily start trading regardless of age, geography, or skills (however, centralized exchanges are now using the KYC process as a measure to keep users safe). It means that if you want to do day trading, barriers are comparatively lower in the crypto market than in other asset classes.
Day Trading Strategies
Day traders utilize several strategies to avoid possible obstacles and generate more profits. Some of these techniques may include:
News Based Trading
In news-based trading, day traders generally use news headlines and crypto events as the basis of trading.
Scalping
A day trader uses the scalping technique to make several small profits based on price changes throughout the day. In this method, a day trader also takes advantage of simultaneous selling and buying (arbitrage) activities.
High-Frequency Trading
In a high-frequency trading technique, a trader uses different automated platforms to trade assets at extremely fast speed.
Range Trading
A day trader uses support and resistance levels to make buying and selling decisions. Range trading can also be seen as an attempt to avail short to medium-level profits if the support and resistance level remains constant for weeks rather than a single day.
Day Trading Challenges
Day trading is quite profitable for those having experience in trading. Yet, it can be challenging for those who are not equipped with appropriate strategies or have little or no experience in trading. Sometimes even the most skilled traders can experience major losses and hit a rough patch. Therefore, it is important to deal tactfully with the day trading process. In this regard, several possible challenges should be kept under consideration that may include placing wrong types of order, following inexperienced traders, trading without a strong strategy, sticking with the old trading techniques, jumping into day trading without knowing the possible risks and challenges, trading against the current trends, and investing without properly utilizing signals and indicators.
Conclusion
A day trader can cope with all the risks and challenges if he has an organized day trading plan and practical strategies to invest in the market. Researching more about day trading and current market trends and staying updated with the price fluctuations can also help a day trader achieve the necessary skills to generate greater profits. Crypto trading requires understanding, self-control, and certain knowledge to master the skills.
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