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What is Day Trading?

Learn more about day trading, and how you can use Cryptowatch to do it. *This article is informational and should not be considered trading advice.

This guide shows beginner crypto traders some of the most important things to know when starting to day trade. You will learn what day trading is, how to pick a market to trade on, and basic analysis.

How Day Trading Works

A day trader is often someone who makes a living from actively trading. As the name implies, they commit their day to market analysis and trading. This is a fast-paced style where traders try to capitalize on short-term price fluctuations, opening and closing multiple long and short positions over the course of the day.

Cryptocurrency markets and online services have opened the door to a new wave of part- and full-time day traders. Barriers on account size are much smaller than they are in traditional markets, and the digital nature of cryptocurrency makes buying and selling a near-immediate experience.

To some, day trading is a supplemental strategy to their overall trading plan. For example, even while holding one asset for weeks or months waiting to sell, a day trader might scalp or swing trade in that market (or another) to try for more immediate profits.

Day trading involves frequent trading over the course of the day.

As a day trader, you will prefer volatile, liquid markets. These markets present the most opportunities to enter and exit trades — more trading opportunities, to an experienced day trader, means more potential profits. (Read more about volatility, liquidity and volume in Finding the Right Market below).

Is This Style for Me?

Cryptocurrency day trading is especially attractive to budding and part-time traders. Cryptocurrency markets are active 24/7, so traders at any level can find the time to trade. Adding to that, cryptocurrency exchanges don’t have the costly barriers to entry and limitations that traditional markets have, like fixed per-trade fees.

If you’re interested in day trading, though, keep in mind that it is not like typical investing. Day trading is active trading in the most literal sense. It requires alertness, a plan, and adherence to the plan. Discipline is a day trader’s most valuable skill.

Day trading is a professional skill — most people aren’t able to support themselves financially through day trading alone until they’ve practiced their strategies ad nauseam. Apart from the obvious practice needed in technical and fundamental analysis, all traders must also understand how to manage their risk. This is especially true for day traders due to the amount of trades they’ll execute over a single day.

Managing Risk

Many traders stick to the 1% Rule: only risk up to 1% of your account size on each trade. Institutional traders with massive accounts often risk even less on a per-trade basis.

Beginner traders often submit trades way beyond 1% of their account size, exposing themselves to potentially severe losses. By limiting the amount you risk per trade (using stop losses and strict exit prices) you can endure longer losing streaks, ultimately staying in the game longer.

How to Make a Day Trading Plan in 8 steps

If you want to day trade with consistency, it’s important to have a plan. Knowing when to take profit is just as important as when to call it for the day. Below are some things to consider when developing your trading plan.

  1. Set aside time It’s called day trading for a reason. Trading with any regularity requires time: making a plan, analyzing markets, and the trading itself will demand your attention.

    Determine how much time you have and tailor your activity justly.

  2. Research: know your asset/market Most traders will recommend sticking to one or two markets and learning them well. Part of your trading day should be spent reading relevant news events in order to get a feel for trader sentiment about your chosen assets. Also consider the tools you’ll use while you trade — familiarize yourself with Cryptowatch and its analysis tools. The strategy you plan to use will help you select a market. For day trading you want to select an active, volatile, and liquid market - like Kraken’s BTC/USD spot market.

  3. Set aside funds

    Your account may have $10,000 in it, but do you really want to risk that much on every trade? Determine how much you’ll risk on each trade, then set thresholds for how much you are willing to win or lose per day. Setting these limits will help you know when to stop for the day, whether you are winning or in the red.

    Check out our interview with SIN (an experienced pit trader) and his thoughts on sitting out the day.

  4. Mental preparation Discipline is a huge part of trading. Making a plan is a great start, but take a moment to consider your attitude every day. If you’re stressed or chasing losses you’re likely to do more harm than good.

    Approach your trading like a business — you’re here to work.

  5. Set goals

    This is about determining your risk/reward ratio. A good risk/reward goal could be:

    “Today I will risk 1 dollar for no less than 3 dollars of potential gain.” In other words, a risk/reward ratio of 1:3. The phrase above also leaves space for potentially higher rewards. Some trading plans (like using trailing stops to lock in profits) might not have a strict target, but must have a minimum risk/reward.

    A bad example of a goal is:“Today I’m going to increase my portfolio by $100.” Quantifying the profit you want to make in this way can lead you into bad trading habits, like chasing losses or abandoning your risk thresholds.

  6. Set Entries Begin your analysis. Determine the overarching trend (up, down, or sideways), use Cryptowatch’s drawing tools to find key support and resistance levels, and determine the signals that have to be met before you enter your trade.

    For example, your criteria for entering a trade should sound like this: “When signal A happens, I will enter at price B and close at price C”.

  7. Set Exits Even more important than setting your entries is determining your exits. Knowing when you will take profit (or decide on taking a loss) is key to developing a strategy that you can augment and perfect.

    Having an exit strategy if the trade goes your way is just as important as setting a stop loss. Profits need to be realized at some point, so make sure you can consistently predict that point.

  8. Keep Records

    Keep complete records and review them. Take some time at the end of your trading day to examine your trading objectively. This isn’t just about tracking funds and paying taxes — experienced traders keep records of their trades so they know how to replay their winning strategies and avoid repeating mistakes.

Day Trading Tools on Cryptowatch

Cryptowatch is a one-stop trading terminal. You can perform your analysis, trade directly on charts, and keep track of your multi-exchange portfolio all in one space. Below are some examples of the tools you can use on Cryptowatch to start day trading.

Finding the Right Market

Day trading cryptocurrency adheres to most of the same rules as traditional markets when choosing a market. The key factors for market selection are high volatility, high liquidity and high trading volume.

Market Characteristic

Description

Volatility

Volatile markets are markets with greater fluctuations in price over shorter periods of time.

Greater fluctuations translates to more opportunities to open and close trades over the day.

Liquidity

Liquid markets have deep order books trading close to the last-traded price of the asset.

This often creates tighter bid/ask spreads (the difference between the lowest sell offer and highest buy offer).

Liquid markets also have a lower chance of slippage* occurring, which makes opening, closing, and changing your position’s direction less expensive (and more predictable).

Volume

Volume refers to the amount traded (measured in the base or quote currency of the market) during a given time, which can have an impact on volatility.

Volume can fluctuate over the course of the day — low volume periods usually see less price movement but may lead to increased volatility later on.

Conversely, periods of increased volume can push prices beyond support and resistance levels.

*Slippage is when an order fills at a worse price than expected.

Market Selection Using the Homepage

Cryptowatch has a massive amount of information available to help you build your trading plan. You can select a market using information found right on the Cryptowatch homepage. Clicking the 24h Vol column heading will sort the assets by their 1-day volume, in descending order. This will show you the most actively traded assets over the past 24 hours:

The Cryptowatch homepage.

In the image above, Bitcoin, Tether, Ethereum, EOS and Ripple make up the top 5 assets by 24 hour volume.

For a look at the overall volatility of each asset, you can reference the Change 24h and Change 7D columns. These columns show the percent-change in price of each asset over a 1 day and 1 week period, respectively. You can sort the asset list by these columns as well, but you will most often see low-market-cap coins with thin order books topping these columns.

You can also check the liquidity columns on the far right to get a sense of overall trader sentiment towards those assets.

Column header

Definition

Liq Bid

Amount of orders on the bid (buy) side of the order book within 1% of the mid price across all markets

Liq Ask

Amount of orders on the ask (sell) side of the order book within 1% of the mid price across all markets

Liq Ratio

The ratio between the volume of bids and asks across all markets. A ratio of 1.0 (1:1) signifies equal sentiment for buying and selling. Values above 1 indicate more buy orders than sells, and values below 1 indicate more sell orders than buys.

The liquidity ratio can help to determine your approach to trading that asset. If an asset features more buy orders, its markets may be reaching strong support levels. You might decide to enter more longs than shorts for this asset. Assets with more selling sentiment (a liquidity ratio of <1) may be experiencing strong resistance levels. Day traders might initiate more shorts than longs for these assets.

Usually, a liquidity ratio of 1:1 signals indecision in the market, and might not yield enough volatility to enter multiple trades.

This isn’t necessarily a bad thing — if your analysis tells you the market is good for at least one trade today, you can always enter other markets while you wait for that trade to play out. That said, most traders would recommend beginners stick to one or two markets (and learn them inside and out) until they’ve had more practice day trading.

Using the image above, for example, a trader might notice that Bitcoin is experiencing the highest 24 hour volume and choose to trade a Bitcoin market. Then, seeing a high liquidity ratio, may plan on entering more long positions than shorts.

Market Selection Using the Assets Page

The assets page offers a deeper look at each asset to help you with market selection and overall sentiment. You can view a list of assets in a similar style to the homepage, or select the (assets) icon to open the asset card view.

The Assets page — Asset Card view.

This view offers a unique, all-in-one look at many assets that updates in real time. You can sort the list by 24 hour volume using the drop-down menus in the top-right of the page. This view presents a spark-line chart for a simplified view of recent price action, and a selectable quote currency for each asset.

In the homepage, both Ethereum and Bitcoin looked like promising assets based on their volatility, liquidity and volume. Below is a look at the asset card for Ethereum:

Modifying the information in the Ethereum asset card.

Above, we’ve opened the Ethereum asset card, changed the period to 24 hours (this can also be done from the menu in the top-right of the page) and observed the overall price action against USD. Adjusting the quote currency to BTC shows us a market experiencing a more agnostic trend as well as some recent volatility.

Clicking on the asset’s name will direct you to its own fundamentals page. This page has a short description of the asset, a more detailed line chart of its recent price action, and — for the sake of really knowing your assets — a live news feed. Checking this page quickly informs you of recent news about the asset as well as any significant reactions on social media.

Ethereum's Asset page.

If you scroll down from here, you’ll see a mini version of the Markets list (you can also go to the Markets page to find this). Since we’ve decided to look at ETH/BTC, we can scroll down and filter out the markets we can’t trade on. Supposing you only have funds on Kraken, for example, you can filter this list to Kraken markets only.

A list of relevant markets can be found on each asset's page.

You can save markets to your Watchlist by clicking its star on the left. Watchlist markets appear in the persistent top panel of every page on Cryptowatch. Check out the How to customize your watchlist guide to learn more.

Day Trading Analysis

Once you’ve picked a market to trade in, it’s time to work on analyzing it. There are many different strategies traders use for intraday trading, but most rely on a few basic analysis skills. You can even practice for free on Cryptowatch’s Charts page while you wait for a deposit to your exchange to kick in.

Using Candlestick Charts

At the heart of everything is the candlestick price chart. If you’re unfamiliar with candlestick charts, it’s important to become fluent with them before you start to trade. Below is a comparison between a mountain-style chart and candlesticks of the exact same market (Kraken ETH/BTC) set to hourly periods:

Left: Mountain chart / Right: Candlestick chart

The candlestick chart offers a vast amount of information compared to the basic mountain chart. The trend is perhaps more obvious in the chart on the left, but the candlestick chart tells us more about price volatility during the same period. Experienced traders can even read common candlestick patterns as signals for future price action.

You can choose how much time is represented by each candlestick using the period selector in the top-left of the price chart area. The chart in the image above is set to 1 hour (1H) candles. Choosing longer periods is useful for viewing the long-term price action of the market. This can help you see the overarching trends, and — with the use of analysis tools — whether that trend is breaking down or gaining momentum.

How to Read a Candle

Candlestick charts are a type of OHLC (Open, High, Low, Close) chart:

OHCL

Definition

Open

The price this candle opened at (the first price during this period)

High

The highest price during this candle’s period

Low

The lowest price during this candle’s period

Close

The price this candle closed at (then a new candle begins to the right)

The thicker “body” portion of the candle represents the Open and Close prices. The lines protruding from the top and bottom are called “shadows” or “wicks”. Bullish candles are interpreted in a slightly different way than Bearish candles:

The Open and Close parts of the bearish and bullish candlestick bodies are inverse.

If you don’t know where to start your trading education, reading a candlestick chart is a great, fundamental skill to practice.

Cryptowatch’s Alerts system will let you know when your watched market hits a key price or volume level. To learn more about setting alerts, check out How to use price and volume alerts.

Using Cryptowatch's Analysis Tools

Traders using Cryptowatch can employ overlays, indicators and chart drawings to perform technical analysis in their chosen markets. This section will go over the basics of analyzing markets — to learn more about the analysis menu found on the Charts page, check out the Applying analysis tools guide.

Liquidity, Volatility and Volume measured on the Charts page.

Market analysis can be broken into two distinct disciplines: fundamental and technical.

Fundamental analysis is typically a top-down (but not always) form of asset valuation. Traders looking for fundamental indicators would start with the big picture. For example, they might observe the overall state of the economy relevant to their market, then the company that represents the asset or security (if any), then any news factors that would affect the value of the asset itself.

You can view an events timeline directly on any Cryptowatch chart. This timeline displays relevant news events to the market, directly corresponding to the price chart area.

Clicking the diamond redirects to a relevant article about the event.

See our Viewing relevant news events guide for more information about the events timeline.

Technical Analysis uses visualization of price action along with derivative calculations and drawings to give insight into the dynamics of market behavior. The main driver behind technical analysis as a trading tool is the expectation that history will repeat itself.

On Cryptowatch, you have a huge library of technical overlays and indicators at your fingertips. Indicators take their own space below the price chart, and overlays are superimposed over the price chart itself.

Indicators and Overlays are found in the Analysis menu directly above the price chart. Technical indicators/overlays on Cryptowatch fall into at least one of the following categories:

Types of Analysis Tools:

Type

Definition

Example tool

Mean Reversion

Calculations are visualized based on the price returning to its mean (average) line of the data set. Based on the theory that extreme prices will often return to the average price. Can signal rate of change or reversals.

Bollinger Bands

Momentum

Shows the movement of price and how strong the movements are or will be. Momentum indicators can give useful reversal signals.

ROC - Rate of Change

Oscillator

Shows overbought or oversold signals in a market. Oscillators fluctuate (or oscillate) between an upper and lower band. Can signal breakouts or reversals.

MACD - Moving Average Convergence Divergence

Statistical Analysis

Either a component of another indicator or derived from data external to the market itself.

Bitcoin Stock to Flow

Trend Analysis

Indicates which trend the market is in, or if no overarching trend exists.

EMA - Exponential Moving Average

Volatility

Indicates whether the price is volatile (extreme ranges from the mean price) or locked into a trend.

ATR - Average True Range

Applied Analysis Tools

Trading Analysis is subjective. This combination of tools, when used by a variety of traders, may lead each of them to a different conclusion about the market. The chart below shows one way you can combine analysis tools to track reversals in trend:

The analysis tools in use here are:

Type

Looks-like/position:

EMA - Exponential Moving Average

Yellow (fast line), Green (medium), and blue (slow line) lines overlaid on the candlestick chart.

Bollinger Bands

The “bubble” overlaid on the candlestick chart.

MACD - Moving Average Convergence Divergence

First indicator down from the price chart with ascending & descending bars, as well as converging EMA lines.

RSI - Relative Strength Index

The middle indicator, between MACD and Volume.

Volume

The lowest indicator, below MACD

This isn’t the only combination of tools you can use to track reversals, of course. It’s always best to use indicators that you know well and can identify signals from. The Analysis menu has an Info tab for each overlay and indicator with a brief explanation of the tool. You can click the More info button to open an in-depth article to learn more.

The “More info” button in the analysis menu (bottom)

Support and Resistance

Check out Drawing on charts and Erasing chart drawings to learn more about drawing tools on Cryptowatch.

A support level is the price that a down-trend can be expected to slow or pause at. A resistance level is the price that an up-trend can be expected to slow or pause at. Prices tend to “bounce” between these levels (until they don’t) and can be used to determine entry and exit points.

You can use Cryptowatch’s charts and drawing tools to determine both support and resistance levels. Keep in mind that support and resistance levels are always temporary — at some point, the market will break the level. When a support level is broken it becomes a resistance level, and vice versa.

Some traders try to predict the breakdown/breakout and open a position early in the move (breakout trading).

One way to determine the support/resistance levels in a market is by drawing channels.

To make a channel, draw two lines Using the line tool or parallel lines tool : one line connects the high points, the other connects the low points.

Start your line at a high point for resistance lines, and a low point for support lines. Try to make your support and resistance lines touch as many low and high points (respectively) in the candlestick path as you can — these are called “confirmations” when drawing your support and resistance levels.

Support (lower line) and resistance (upper line) in Kraken BTC/USD. Circles represent confirmations.

Another popular way of determining support and resistance is to apply Fibonacci lines to the price chart. The most commonly used drawing tool of this type is the Fibonacci Retracement tool:

How to draw a fibonacci retracement.

The Fibonacci Retracement tool shows possible support and resistance levels of a larger trend. The lines correspond to the values of the Fibonacci Numbers — you may have heard this referred to as the Golden Ratio or Golden Sequence. These lines tend to correspond to super-psychological barriers and are often a reliable way to measure retracements*.

*A retracement is a temporary reversal movement amongst a larger trend.

To draw a Fibonacci Retracement on an up trend, start at the beginning of the trend and finish at the trend’s highest point. For a down trend, draw it in the opposite direction.

Tracking your day trading with Portfolio

Cryptowatch’s Portfolio page keeps track of your holdings, open orders and positions, and trade history across multiple exchanges. This makes it an excellent tool for measuring your successes (and mistakes) while you practice day trading.

The Orders tab’s Orders to Market bar shows just how close your orders are to executing.

You can use the Positions tab to keep an eye on all open leveraged positions as well. Combine your use of price and volume alerts with the Portfolio’s Positions tab to make sure you never miss an important signal.

For a closer look at the Portfolio page and its tools, check out these articles:

Now that you know the day trading basics, take a look at our in-depth Scalping guide to learn about a new strategy.