10 Best Day Trading Cryptocurrency Strategies in 2020

Cryptocurrency day trading can be a lucrative method to gain profits from Bitcoin and altcoins’ short-term price fluctuations. However, you have to stick to a reliable strategy to avoid falling in the 80% group of day traders who cannot make it. 

Here, we will share some of the best day trading cryptocurrency strategies and approaches used by day traders for years. Most of which have altered to fit from the traditional markets like foreign exchange and stocks. Still, crypto day trading is different. That’s because digital currencies are way more volatile and can provide more trading opportunities regularly.

A day trading cryptocurrency strategy can range from scalping, momentum trading to analyzing the trend continuance patterns. As day trading usually involves the opening and closing of a trading position during the same day. Thus, the title has to do with the timing, which eventually shapes the entire philosophy of a day trader.

Unlike swing traders or buy and hold traders, it is more physically and mentally draining for day traders to focus and monitor their positions. However, it’s worth mentioning that there is no such thing as the best strategy. It all boils down to your preferences, trading profile, and ultimately what works best for you.

Understanding the Concept and Technicalities of Crypto Day Trading

Day trading is one of the most popular trading approaches, mainly because of its appealing promise of making profits in an accelerated motion. While it may be partly true, other trading styles like swing trading can also generate decent profits. After all, it’s only fair to analyze every trade from a holistic point of view. That also means considering the frequency of trades.

Crypto day trading is indeed stressful by looking at multiple screens to spot trading opportunities. However, day trading remains favorable for many beginners because it can provide more trading opportunities in a given period.

An essential aspect of day trading is that it relies very much on technical analysis. Obviously, fundamental analysis can be an excellent complementary tool. But very few traders use it as the basis for their decisions. Technical indicators and chart patterns are used to determine the entry and exit points and monitor trades regularly. 

On the contrary, day traders should always be ready for sudden trend reversals that can hardly be explained by any fundamentals. While the truth is debatable, the emerging cryptocurrency space, which is still prone to manipulations from whales, says otherwise. That said, these investors with big capitals are capable of creating an impact on the entire market with a single transaction, and no-one can predict what it’s coming and when it’ll come.

A day trader should, in no case, expect to profit from every trade. But rather aim for an aggregate positive return from all transactions in a given period, like a day, week, or month.

Top Day Trading Cryptocurrency Strategies for Beginners

Below is a list of day trading strategies that have been tested with time and are still relevant in 2020. You can try these strategies one on a demo account or based on past price movements. Here they are:

  1. Breakout Trading
  2. Scalping
  3. Momentum Trading
  4. Reversal Trading
  5. Moving Average Crossovers
  6. Trend Continuation Patterns
  7. Trend Reversal Patterns
  8. Trading the RSI Divergence
  9. Trading the News
  10. Range Trading

Breakout Trading

Breakout cryptocurrency trading strategy.

Level: Beginners – Advanced

Breakout strategies revolve around precise signals that happen when a cryptocurrency price breaks above a resistance level or below a support level on the chart, generally with increased volume. Thus, traders would open a long position after the price breaks above resistance and a short position when it drops below support.

If you’re not familiar, the resistance represents an imaginary line made of the recent highs. It forms when the price repeatedly struggles to break above that line as it retreats after touching it. Consequently, the support is an imaginary line consisting of the recent lows. It can show up when the price doesn’t decline below that line repeatedly, as if it was supported by some force.

The point is, if these barriers are broken, the price tends to move in the direction of the breakout.

Scalping

Level: Beginners – Advanced

Scalping is a trading strategy widely used, especially in forex trading. Scalp traders try to benefit from minimal price movements, which can last minutes or even seconds. Every trade doesn’t bring much profit quantitatively, but scalpers open multiple positions either simultaneously or separately. Their goal is to make sure that all the positions’ aggregative return is positive at the end of any session.

This strategy relies very much on technical analysis, and scalpers are generally not interested in fundamental analysis. The best thing for them is volatility bursts in either direction.

As for the entry and exit points, scalpers can inspire from other strategies and use a combination of technical indicators.

Momentum Trading

Momentum trading strategy.

Level: Beginners

Momentum trading is one of the most common and straightforward strategies, especially among beginners. The condition of this strategy is to open positions based on the strength of the current trend. Thus, momentum traders buy the cryptocurrency when it moves up and sell it when the price is declining. But, providing that the strength of the trend is still supported by high volume.

The rationale behind this behavior is that if there is sufficient strength pushing the price in a given direction, then the chances are that the move will continue for a while. As you would expect, traders exit positions during signals of a trend reversal.  

Reversal Trading

Reversal trading strategy.

Level: Intermediate – Advanced

Reversal strategies are probably the riskiest ones from this list, so beginners should better look for better alternatives. This trading style tries to catch a trend reversal ideally right before it happens, i.e., before an uptrend turns into a downtrend or vice versa. That means traders are trading against the trend for a while cost them their deposited funds.

To succeed with reversal trading, you have to possess in-depth crypto market knowledge and trading experience. The easiest way to spot a potential reversal is to check whether the price breaks the trend line in the opposite direction.

Moving Average Crossovers

Level: Beginners – Advanced

Moving average (MA) crossovers represent another group of popular strategies used to get relatively accurate signals pointing to a trend’s beginning. The most straightforward strategy from this category uses two simple moving averages (SMAs) or two exponential moving averages (EMAs) with different periods – a short and a long one. When the short MA crosses the long one from bottom to top, traders regard it as a buy signal. When the short MA breaks below the long MA, traders open short positions.

Trend Continuation Patterns

Trend continuation patterns and charts projection.

Level: Beginners – Advanced

An interesting way to follow the trend is to look for candlestick patterns that confirm the trend is about to continue. Some of the most popular trend continuation patterns are ascending and descending triangles, rectangles, flags and pennants, and among others.

Trend Reversal Patterns

Reversal chart patterns.

Level: Beginners – Advanced

Besides the trend continuation patterns, there are candlestick patterns that usually anticipate a trend reversal. They can provide better signals than merely waiting for the price to break the trend line in the opposite direction, as mentioned above. Some of the most common reversal patterns are double tops and double bottoms (depending on the market condition) and head and shoulders.

Trading the Relative Strength Index (RSI) Divergence

Level: Intermediate – Advanced

Another reversal signal comes from the divergence between the price movement of a cryptocurrency and the RSI line. For those unfamiliar, the RSI is an indicator of overbought (above the 70 marks of the indicator) and oversold (below the 30 marks of the RSI) levels.

A bullish divergence occurs during a downtrend when the cryptocurrency price declines, creating lower lows, while the RSI score increases and displays higher lows. That means the downtrend is probably reversing, and an uptrend is coming. Conversely, a bearish divergence forms when the price increases while the RSI indicator drops.

Trading the News

Trading news strategy chart projection.

Level: Beginners – Advanced

Trading the news is possible with cryptocurrencies. Many relevant events are happening regularly, including the high-profile partnerships, product launches, token launches and distributions, new technology adoption, regulatory decisions, or integration of crypto solutions by mega-cap companies. 

This approach is probably the only day trading technique that doesn’t rely on technical analysis, though the latter is needed to support the entry points. The conditions of this style are simple. As good news would trigger a bullish sentiment, while the opposite would put pressure on the price of a given cryptocurrency. For example, when Chinese President Xi Jinping praised the use of blockchain and PayPal announced the introduction of crypto services, Bitcoin rallied. In another scenario, Ether’s price soared after the launch of DeFi and yield farming.

Range Trading

Level: Intermediate – Advanced

Range trading is a strategy in which traders determine overbought and oversold levels, which coincide with resistance and support areas, and buy at the oversold area and sell at the overbought zone. This approach is meant to generate decent profits when the price is not trading, i.e., is fluctuating inside a horizontal channel with up and down moves.

How to Decide What to Day Trade?

Day traders spot opportunities through the minute price movements of an asset, including cryptocurrency. To maximize profits, a day trader usually uses leverage to enlarge their capital. So, to make sure a trade is profitable, here are the essentials to augment the opportunities:

Look into the liquidity of trade – to do so, a trader needs to analyze the bid and ask of the exchange, look into the spread, and, ultimately, identify the possibility of slippage.

Assess the volatility of the market – when a market is volatile, it can open up the room for more significant profits, but it also means losses are inevitable. To assess it, you must have great anticipation and focus on the daily price range and be ready to embrace whatever it may come.

Be aware of the trading volume – when the trading volume is high, it indicates an interest in the market, whether it’s stock or crypto. If the stock prices hover up and down, it’s signaling an increase in stock’s volume.

After you know what it’s best for you, you’ll be needing technical analysis to enter and exit the market. 

What to Consider Before Day Trading Cryptocurrency

First of all, day trading cryptocurrency is all about capitalizing on the extreme volatility of digital assets. You should be ready for wild price fluctuations. Sometimes, Bitcoin can show a strong correlation to the US stock market or commodities like gold, and other times it moves independently of any traditional asset. You never know what comes next.

Another thing to consider is that whenever you trade an altcoin, you should always check the significant changes in Bitcoin’s price, given that it is still the most dominating cryptocurrency. Plus, it’s the main driver in the crypto market to this day. It’s true that the DeFi boom sparked investors’ interest in a particular group of tokens alone, but keeping an eye on the oldest cryptocurrency here and there is still very helpful to make sure you’re not risking by trading against everyone else.

That being said, you should pick a good day trading strategy and stick to it. You should take day trading seriously if you want to succeed. That’s why you should set aside some money that you can afford to lose and enough time regularly.

Technical Analysis

As mentioned, technical analysis is a day trader’s right hand, as it plays a crucial role in decision making. Most of the day trading strategies that we’ll share below involve technical analysis to one degree or another. 

Thus, it’s essential to have at least some basic knowledge of the most common indicators, such as moving averages, Bollinger Bands, Oscillators (including the Relative Strength Index and Stochastic), Fibonacci levels, and more.

Here’s an overview of what you should know when analyzing the technicalities: 

Bollinger Bands

This is most applicable when day trading cryptocurrency. It’s used as an overlay fitted into a crypto chart’s price plot. When the market is volatile, the Bollinger bands will diverge while the bands converge when the market is stable. While Bollinger Band generally gives a more holistic perspective, it also indicates the overbought and oversold conditions. And that happens when the market is leaning towards the opposite direction of the bands.  

Candlestick patterns (Doji Candlestick)

Above all of the candlestick patterns a crypto day trader can use, a Doji reversal pattern is most applicable. This reversal pattern can be bullish (long for a trader to take) or bearish (short) depending on the previous candle. So, if you notice the last candle is bullish, you can already predict the next one close to the underneath of the body low that triggers a short signal when the Doji lows break. What followed is the trail then stop just slightly above the Doji highs. Hence, when the candlesticks are bearish, everything will be in a reversal.

Trend Analysis (Trendlines and Triangles)

The triangles and trendlines help traders catch a glimpse of the future price movement and the existing trend. However, even with a great extend of triangle formations can’t be applied in all cases. What a triangle pattern does is to showcase the continuation of an existing trend. Through the two converging trendlines as price moves in a lateral direction, traders can spot an opportunity to enter a trade when there’s a subsequent breakout in the direction of the preceding trend. 

Some of the frequently used triangle patterns include ascending triangles, depending triangles, and symmetrical triangles. All of which serve the same purpose to help traders forecast appropriate target levels to long and short. Yet each of the approaches differs from one another to help traders understand the market’s communication through price movements. 

Relative Strength Index (RSI)

RSI is probably one of the most frequently used indicators when crypto day trading or day trading in general. Traders utilize this momentum-based indicator to find profitable entry and exit prices to maximize profitability.

In most cases, this indicator is used to consolidate the closing price based on the past 14 periods’ setting to average the RSI. Typically, RSI oscillates between 0 to 100. If an asset dips below 30 on the RSI, it naturally translates it as oversold (trading under its actual value). When the RSI soared to 70, it is overbought (trading at premium value). 

Prediction Evaluation

If you want to know how a strategy works, you can test on historical prices. All you need is a price chart that you can move back and forth chronologically. You can set your technical indicators on it and see if they displayed the past’s desired signals and how accurate the signals were. In this way, you can evaluate your prediction method and improve the trading approach. Note that there are no indicators that predict the future of Bitcoin or stocks, so make sure to manage the risks properly when trading.

How to Start Day Trading Cryptocurrency?

Cryptocurrency day trading might be ideal for beginners, as it is one of the most common trading styles and doesn’t require large deposits. If you want to benefit from the crypto price moves, you shouldn’t necessarily buy and sell coins and tokens but rather trade their derivatives, such as futures, including perpetual contracts. This can be done on exchanges that provide an excellent infrastructure for performing technical analysis. 

Bybit is one of the best options out there – the exchange offers perpetual contracts, inverse perpetual, and futures with quarterly expiry times. All you have to do is to register and make an initial deposit. Here is a guide on how you can benefit from a day trading cryptocurrency strategy:

  1. Register for an account on Bybit or your preferred cryptocurrency exchange, including one that provides access to the spot market.
  2. Think about a cryptocurrency or token that you know best. Bitcoin and Ethereum might be a good start.
  3. Choose one of the described strategies.
  4. Test it on the chart by analyzing the history of price movements.
  5. Deploy the chosen strategy on a demo account.
  6. Once you feel prepared, start trading with small deposits until you feel confident and comfortable dealing with the pressure.

Learn more on how to trade cryptocurrency here.

Is It Possible to Day Trading Cryptocurrency for A Living?

In theory, yes – everything is possible as they say. However, achieving this is difficult, and you shouldn’t hurry to leave your job only because you think you found the Holy Grail of crypto trading.

The Final Note

It’s important to understand that it is not the trading strategy that will bring you profits but how you implement it. To achieve your goals, you should be disciplined and never deviate from the predetermined conditions.

It would be best if you implemented risk management techniques and regularly use stop losses. This is imperative for day traders in the first place because cryptocurrencies are moving fast and surprise you in every way. As your experience grows with time, make sure to learn more about how technical analysis indicators work, and what tools are best to combine to get better signals.

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