Thinking of Day Trading Crypto? Here Are a Few Popular Strategies

With how popular retail investing has become in the past year, most people are familiar with the concept of day trading. One part art, one part science, and one part gambling - day trading can be both a very lucrative strategy and a very stressful one.

Day trading crypto is no different from trading traditional assets like stocks, in fact, the volatility and required technical knowledge can make the process even more nerve-wracking.

daytrading crypto

At My Digital Money, we are usually focused on long-term crypto investment strategies. However, we think all investors should understand the general concept of day trading to be more well-rounded. Keep reading for a general overview of day trading crypto and whether it’s the right strategy for you.

What Is Crypto Day Trading?

Day trading is an investment strategy involving buying and selling on the same day to take advantage of price volatility. Rather than hoping for 1000%+ returns from one or two long-term trades, stock day traders will make numerous trades throughout the day with the hopes of making each one as profitable as possible.

While this strategy can result in investors having some very profitable days, most day traders simply strive to end each day with more money in their account than they started with.

In theory, day trading crypto is ultimately the same as day trading stocks, but they can be very different in practice.

First, while stocks that grow 1000%+ in a day may be few and far between, several cryptocurrencies could see similar price swings on any given day. These coins offer a much higher potential return on investment than most stocks, but that type of volatility also makes it more likely that you could lose everything.

In addition, unlike traditional stock markets, the crypto markets never really close. Not only can investors manually trade any time of day, but they can build bots that will run 24 hours per day and execute trades whenever prices fall into certain thresholds. This makes strategies like dollar cost averaging a little easier with crypto.

CEX vs. DEX Day Trading Crypto Exchanges

If you want to start trading crypto, your first step is to choose an exchange. Crypto exchanges are for buying and selling cryptocurrencies, and they can either be a centralized exchange (CEX) or a decentralized exchange (DEX). Each has advantages and disadvantages, and your choice ultimately depends on your experience level.

Centralized Exchanges (CEXs)

CEXs involve trading through intermediaries, including platforms like Coinbase, Binance, and Kraken. Instead of having your own crypto wallet, you use the custodian’s wallet, which only they have the keys to. This setup is typically a plus for beginners because it makes it faster and easier to start trading crypto securely.

CEXs are also highly liquid because of the order book system that facilities “buy” and “sell” orders. Before trading on a CEX, you’ll have to confirm your identity with personal documents and data per the exchange’s precautions against money laundering.

The biggest drawback of most CEXs is that you don’t own the assets in your wallet. You have to trust the security measures the organization put in place, relying on them to keep your crypto safe. If the exchange goes out of business or leverages your assets to make trades, you’ll lose your crypto and be out of luck. Ultimately, centralized exchanges are more convenient, especially for new crypto traders, but come with a few more inherent risks.

However, not all centralized exchanges will put your assets at risk by leveraging or investing them. When you buy crypto on My Digital Money, your assets are stored in trust with our custodian. This means that on My Digital Money, you get the liquidity and ease of use benefits of a CEX while still fully owning your assets.

Decentralized Exchanges (DEXs)

DEXs don’t have organizations or people buying and selling between traders. Instead, order book-style DEXs use algorithms to route trades and record the exchanges on the blockchain with smart contracts. The benefit is that you fully own your crypto and aren’t subject to any limitations on which cryptocurrencies you can trade or where you can trade from.

However, DEXs suffer from poor liquidity due to few available traders. Automated Market Maker (AMM) DEXs attempt to address the liquidity issue by using liquidity pools sourced from the exchange’s users. These users typically contribute coins in exchange for an incentive from the AMM.

While DEXs provide much more freedom and lower trading fees, you’ll need to do plenty of research before jumping on the bandwagon. You’ll be responsible for protecting your wallet and verifying the legitimacy of the crypto you buy.

If you’re thinking of getting into day trading crypto and hope to last longer than a few days, you’ll need a solid crypto day trading strategy. Your experience plays a large part in your chances of success, but research and thorough planning can get you on the right track.

Below are some of the most popular strategies among crypto day traders.

High-Frequency Trading (HFT)

HFT involves instantly trading digital assets in response to slight changes in price, sometimes reaching dozens of trades per second. Obviously, a human isn’t capable of carrying out this strategy without the help of computers. For HFT, you hand the reins over to a trading bot that executes trades based on the given logic.

Algorithmic Trading

Algorithmic trading also involves the use of trading bots, allowing you to create a specific day trading crypto strategy for your particular goals. The bot’s algorithm carries out the trades according to the logic you feed it, such as selling at a specific price movement.

While creating your own algorithm requires extensive computer science and trading knowledge, low-code software options can make algorithmic trading accessible even to beginners.

Scalping Crypto

The goal of scalping crypto is to make many small profits from a large volume of trades, building up to a significant profit overall. Scalping requires a larger pool of liquidity to take full advantage of short-term price movements. A trader utilizing a scalping strategy might buy and sell coins over a few hours, ending up with a percentage of gains by the end of the day.

Scalping has the fastest turnaround of any crypto trading strategy, and many day traders prefer this strategy for speed, low risk, and profitability. This strategy is the opposite of the buy-and-hold investment style. Many crypto trading strategies can easily combine to create a well-rounded trading system. For example, using HFT is one way you can implement scalping effectively.

Range Trading

With the range trading strategy, you observe the buy and sell patterns of your crypto assets. Prices tend to stay within a specific range, with varying resistance and support levels. Resistance refers to a price above the current value, while support is below the current price.

Typically, traders aim to buy at the support level and sell at the resistance level by observing crypto trading volumes as they move toward certain trends. Analyzing the volume of trades is even more crucial than monitoring the price since the trade volume reveals the trend that informs your strategy.

Technical Analysis

Technical analysis involves evaluating and interpreting crypto market data to identify statistical patterns that help you make informed trading decisions. Analysts look to the past for historical trading data, using the information to predict future price movements.

Day traders can use technical analysis to find opportunities to make significant profits with optimal short-term trading logic, which they can apply to their bots for maximum order volume.

News and Sentiment Analysis

News and sentiment analysis is another prediction strategy that focuses on the influence of public reaction on the crypto market. With this strategy, your sources for gauging public sentiment are news outlets and social media. You stay up-to-date on the latest commentary on the internet surrounding crypto prices, exchanges, and other relevant aspects of the industry.

This strategy might look like buying a particular cryptocurrency after a positive Tweet about it went viral or selling in response to a negative news story on a specific coin. Traders could also time their trades to match up with scheduled crypto updates or reports, instantly buying or selling depending on how they believe public opinions will sway.

IFC Markets

IFC Markets is one of the best Forex and crypto complex financial instruments (CFD) providers, allowing day traders to easily and effectively develop their crypto day trading strategies and financial instruments. The Forex and crypto CFD broker has a low minimum volume requirement, instant order execution, and no hidden commissions. Crypto CFD trading allows you to trade without owning the underlying coins.

Arbitrage Trading

The arbitrage trading strategy involves buying a cryptocurrency on one exchange and selling it on another at a higher price. This method takes advantage of the price differences across exchanges, known as the “spread.” Traders generally implement this strategy using software or a bot that automatically executes trades when there’s a large enough spread.

What To Avoid When Crypto Day Trading

Day trading crypto can be compelling because of the opportunity for larger returns, but it’s crucial not to rush into it without proper research and preparation. Your losses and successes will depend heavily on your knowledge and experience, but a lot can be said for consistency and patience.

Here are a few major things you should avoid doing if you start day trading cryptocurrencies.


A common beginner mistake is making too many trades while changing strategies, particularly in response to losses. Overtrading could lead to further losses that would have been avoidable if the trader had stuck with their pre-planned strategy.

To avoid overtrading, try not to trade as an emotional reaction. Put the weight of the decision on your research and analysis, and ensure that you have a solid crypto trading strategy before jumping in.

Not Utilizing Automation

While you need to take breaks from sitting in front of a screen all day, you can build crypto trading bots that can keep working without interruption. Trading bots let you automate buying and selling, taking emotion out of the trades and executing your strategy on autopilot. Bots can analyze prices across different exchanges simultaneously, ensuring they can pull the trigger on any opportunity that pops up instantly.

Automation also gives you the benefit of running trading simulations based on historical market data. You can test out crypto trading with various strategies before committing to the real thing.

Trading FOMO

New crypto traders are susceptible to making emotional trades because of news or social media posts, which can lead to bad trading decisions. It’s essential to analyze the position before you enter it, using what you know about past and current market data to make an informed decision.

It might be tempting to follow the advice of a loud voice on Twitter telling you to buy or sell, but you’ll find more success having a sound trading strategy backed up by a comprehensive analysis.

Only Using Technical Analysis

While technical analysis is beneficial for formulating crypto day trading strategies, you should be careful not to miss the forest for the trees. Getting too deep into the statistics can lead to an over-reliance on quantitative trends and price indicators, causing you to overlook other factors affecting the crypto market.

When developing your trading strategies, it’s best to take a multi-faceted approach to your research and analysis. You’ll find more success with a well-balanced foundation of information, helping you make more rational trading decisions.

Not Understanding the Market

A solid understanding of the crypto market is crucial for day trading success. Even the best tools and software are essentially useless in the hands of someone who doesn’t know anything about trading. Good performance requires a commitment to learning the ins and outs of crypto trading, how the technology works, and all the details in between.

You can use MyDigitalMoney’s play money account to simulate trading cryptocurrencies, helping you understand how the market works and what strategies are most effective.

Day Trading Risk Profile

risk profile is traditionally defined as “an individual’s willingness and ability to take [investment] risks.”

However, your risk profile is not decided by how brave you feel on a particular day. Instead, your risk profile is determined through an assessment of your assets and liabilities, savings and income, age, and current investments.

As a day trader, you have to accept the fact that markets can move quickly and result in substantial losses. This is particularly true for crypto day trading, which is more volatile than traditional markets.

The people who will benefit most from day trading crypto are already financially secure, have a deep knowledge of cryptocurrency, and understand how to read crypto charts in advance. This means that, before you start day trading, you need to be financially secure, as well as be willing and able to take on risks.

Benefits of Day Trading Crypto

If you do decide to day trade crypto, you’ll find that many potential benefits come along with it.

The biggest benefit of day trading crypto is that, unlike stock day trading, you do not need minimum equity of $25,000 to start trading. This means that you can get started with day trading crypto sooner than traditional pattern day traders.

Additionally, day trading crypto now gives you vital experience that may be useful in years to come. Unlike other investors who stick to traditional stocks, you will become adept at reading crypto trends. This early experience will be increasingly important and valuable as more traders flock to crypto in the coming years.

Drawbacks of Day Trading Crypto

The fact that you can trade crypto at any time does open up day trading possibilities for folks who can’t operate during normal trading hours.

However, being open for trading 24/7 also means that you will inevitably miss movements in the market and will often wake up to find a dramatically changed crypto landscape. Further, you will never be able to exploit the maximum potential of day trading crypto.

There are also fewer crypto day trading regulations currently, which leads many to dub crypto the Wild West of investing. However, calls for regulation are growing stronger and clearer strategies for day trading crypto are starting to emerge.

Make A Long-Term Investment In A Crypto IRA On My Digital Money

Now that we’ve given you plenty of information about day trading crypto, we hope you won’t use any of it. While we encourage every investor to get involved in crypto however they feel comfortable, we view cryptocurrency as a long-term asset.

If you plan to trade your cryptocurrencies actively, you should consider making those trades in a crypto IRA. You will still be able to generate the same profitability as with a standard trading account, but your profits will also grow tax-free. In addition, your crypto assets will be stored in trust with our custodian, Equity Trust, so you don’t have to worry about liquidity issues.

You can click here to open an account with My Digital Money or call us at 1(833)MDM-2008 to learn more from a member of our customer success team.