Learn How to Day Trade Crypto for Australians in 2021
Contrary to what you may think, day trading isn’t entirely new and has been around for decades. It’s, however, most popular in traditional financial assets like forex and stocks.
The rise of cryptocurrency trading required traders to develop effective trading strategies to cater to their short term and long term investment needs.
If you’re only looking to fulfil your short-term goals, day trading is a great option. It’s, however, not as straightforward as some traders take it to be, and it requires a well thought out strategy.
Here’s a simple guide on how to day trade crypto in Australia
Day trading is not a brand new concept in the world of investing but with the rise of Bitcoin and other popular cryptocurrencies, traders have developed strategies to suit both the long term and short term.
In this article, we discuss the short term strategies so you will have a better idea of how to day trade crypto!
What Is Day Trading?
Day trading also referred to as intraday trading, is a cryptocurrency trading strategy that involves acquiring and selling assets within a day. Unlike other types of trading, you cannot hold on to a cryptocurrency with the hope that its value will increase after a while.
You have to enter and exit positions within 24 hours using effective trading strategies to profit off small price changes within the market.
The term day trading was coined from the stock market, where trades only occur during business days, and traders close all positions within the day to capitalize on the intraday’s price movements.
How to Day Trade Bitcoin
Like all other types of cryptocurrency trading strategies, day trading is a skill that needs you to understand the market and implement the proven tactics. Here’s an easy to follow guide on how to day trade in Australia.
1. Find a reliable exchange site
There are many crypto trading sites in Australia, and you need to sign up on a reliable platform like Swyftx.
Some of the factors you should watch out for include:
- Availability in your jurisdiction: the platform should be registered and regulated by the relevant regulatory body for safety.
- Transaction fees: High fees will eat into your profits.
- Deposits and withdrawal methods: They should be convenient and inexpensive.
- Trading interface: go for sites with simplistic interfaces that make day trading easy.
- Listed digital assets: many cryptocurrencies will give you more assets to trade with.
2. Understand the market
The success of your day trading is highly dependent on your technical analysis skills. You need to understand the historical price movement of a cryptocurrency, identify what caused various price movements and then use that information to pinpoint profitable opportunities within the day.
You should use factors such as technical indicators, price action, volume and chart patterns to predict the future price of crypto and then put down an investment when you expect the prices will increase.
Keep in mind that each coin behaves differently based on current market conditions, so you need to tailor your day riding strategy for each coin.
3. Implement risk management strategies
The cryptocurrency industry is highly volatile, and you can make a massive loss as quickly as you can make a killer profit. You need to create a strategy to protect you from incurring high risks. Here’s a step by step guide on how you can do this;
- Set clear day trading objectives: highlight exactly what you’re looking to achieve from day trading, the amount of money you’re willing to invest and your level of risk tolerance. Preplanning helps you stay within your risk limits.
- Identify potential risks: cryptocurrencies have varying levels of volatility, and you need to highlight all underlying risks by assessing factors such as asset liquidity and chart patterns.
- Risk assessment: create a detailed price sensitivity index that covers all the risk factors. Most exchange sites have a detailed trading dashboard that automatically creates one for you.
- Categorize risks: identify how prepared you are to handle the risk by highlighting your responses for different risk categories. This could be in the form of diversification, hedging and consolidating investments and is aimed at helping you mitigate risks.
- Monitor your strategy: implement and make changes where necessary. Identify the markets that performed best, your response to various risks and your shortcomings. Use this information to optimize your day trading strategy.
Proven Day Trading Strategies
The 3 most popular day trading strategies are;
Scalping involves taking advantage of small price movements that happen within short time frames. These movements are triggered by market inefficiencies such ad liquidity gaps and high/ low bid-ask spreads.
Percentage price targets in this age are very low, so larger positions are the only way to make tidy profits. This is why most scalpers engage in margin and futures contracts trading to increase their results.
Margin trading allows you to buy assets from an exchange without using the funds in your wallet. You, however, have to make a commitment to pay the exchange back a percentage of the cryptocurrency’s value.
Trading with leverage allows you to benefit fully from the small price movements, but you also need to acquaint yourself with position sizing rules and margin requirements. You also have to define your entry and exit points using strategies such as technical analysis, order book analysis and volume heat moves,
Scalping requires swift trade executions and is very risky, which is why it’s best for expert traders.
2. Range Trading
This type of day trading strategy involves identifying price ranges within the cryptocurrency market and then executing profitable strategies based on them. The range’s lower limit is referred to as the support limit, while the upper range is known as the resistance limit.
Range traders use these limits and candlestick analysis to make speculations on whether their trades will be profitable. They also have the flexibility to exit at the support level and short at the resistance level.
Any price movements beyond resistance and support limits break the range; downward movements translate into losses while upward movements are profitable. To protect yourself against range breaks, you should apply a stop-loss so that you can exit the market as soon as there are high chances of making a loss.
Make sure you acquaint yourself with price movement indicators such as MACD (Moving Average Convergence Divergence) and RSI (Relative
Strength Index). Range trading is pretty straightforward and can be used by beginner traders.
3. High-Frequency Trading (HFT)
This day trading strategy is mainly used by large institutions like hedge fund companies and involves using bots and trading algorithms to quickly enter and exit the market. HFT has very short timeframes (milliseconds) and requires the trader to always be on their screen so that they can day trade on many positions.
This day trading strategy is very exclusive because those who are successful at it don’t share their secrets. You also have to have extensive knowledge in computer science & mathematics and understand advanced crypto trading concerts.
Best Practices for Day Trading Bitcoin
- Follow bitcoin prices closely: even though there are more than 4000 cryptocurrencies in circulation, Bitcoin still remains the gold standard for all digital coins. It’s often the primary price driver of other cryptocurrencies, which is why it’s difficult for digital coins to experience upward price movements while Bitcoin’s price is falling. Most altcoins tend to appreciate in value when bitcoin is trending upwards as long as their perceived value is high.
- Go for coins with high liquidity and high volatility: since day trading takes advantage of small price movements, cryptocurrencies that have regular price movements and are traded quickly are more profitable. These are usually the most popular coins like BTC, LTC and ETH. Smaller altcoins can also be profitable, but they also carry high risks.
- Keep up with current trends: the cryptocurrency market is highly speculative and is usually sensitive to major trends and events. For instance, when Elon Musk announced that they would no longer be accepting bitcoin payments for Teslas, BTC prices dropped. The market can move in either direction, and you need to know when to enter and exit trades.
- Be mindful of the timezones: the cryptocurrency market is open 24/7, but you need to identify the time zones with significant activity. This will help you anticipate market reactions based on development in those areas.
- Only invest what you’re willing to lose: day trading carries a significant amount of risk, and you need to trade with a cool head; otherwise, you’ll end up trading blindly. If you have a day trading strategy, stick to it! Evaluate its performance and then make the necessary changes.
- Set profit targets and stop losses: stop losses protect you from making more losses than you can handle by exiting the market when the prices drop below a certain point. Profit targets, on the other hand, help you secure your earnings after the prices reach a particular point.
- Trade when volatility is high: price fluctuations are common when many traders buy or sell a specific cryptocurrency. This provides you with an opportunity to make a trade when you anticipate that the prices will increase.
Other tips include;
- Don’t be greedy for profits. Exiting at the right time will help you avoid unexpected losses.
- Cut your loose early and move on to the next trade.
- Understand the market behaviour of each altcoin before trading it.
Can I Make a Living From Day Trading?
Day trading is very profitable, but you need to arm yourself with the right strategy, useful tools, knowledge and the right mindset. The secret lies in knowing when to enter & exit markets, and this is only possible if you have an effective day trading strategy. So hopefully, after reading this article you will now have a better idea of how to day trade crypto.
Take time analyzing the market and spend a huge chunk of your time looking at market activity. Unlike traditional stocks, price movements in the cryptocurrency market are extremely swift, and any delays in trade executions could cost you a lot of profits.
If you’re just starting out, make sure you sign up on a reliable exchange platform like Swyftx that has low trading fees and high liquidity.