If you’re familiar with traditional trading, the term “day trading” is also something you’re aware of. There is a chance that you’ve even heard some legends about earning pots of gold while day trading cryptocurrencies in 2017. But are those legends built on shaky foundations or not?
Let’s see.
One term for non-identical things
In the conventional markets the term “day trading” makes sense since there are “opens” and “closes” to each trading day, and some traders focus on the daily time-horizon. Yet, in the crypto market operating 24/7, day trading means two slightly different things.
First, it might refer to the continual activity of making profits on a regular basis and, secondly, a process that is distinct from long-term trades.
Similarities and differences
While talking about traditional trading, we often use such a metric as fundamental analysis whereas in crypto, this is not always applicable. As Peter Kotov, analyst and trader at Gulf Coast Crypto, explained to TradeSanta, it’s more difficult to forecast supply and demand of any particular cryptocurrency as the fundamentals are not as clear as they are with traditional markets.
But both in crypto and traditional markets, day trading heavily relies on volatility that allows market players to get a net profit in a short period of time.
Day trading is NOT the same as scalping
People are tempted to mistake scalping for day trading because with both styles, trades take place within one day.
Scalping is the style when you open and close multiple positions over a very short period of time. Scalpers profit from the slightest price change and must be able to keep their emotions under control due to the complexity of this trading style.
This strategy gives access to a large number of small trading opportunities, and they’re less exposed to risk since the value of each trade is really small.
This approach contrasts with the one of day traders’ who open one or two positions a day and bet on larger amounts of money.
Day trading is NOT the same as swing trading
The swing trading is a trading style that is based on trades made within a couple of days or weeks. Since their positions are opened longer than those of day traders or scalpers, they often go with both fundamental and technical analysis.
Traders periodically enter and exit the market based on their capabilities and market opportunities.
Swing traders, compared to day traders, almost always clearly adhere to their trading plan to close positions, that is why, this trading style is a good fit for automation.
The risks of day trading with crypto
All trading is risky, day trading including, so take some steps to prevent possible losses.
When investing in cryptocurrency, everyone should be aware that the risk of hacking the exchange is very high, so try and choose the most reputable trading venue in the niche with the least number of hacks.
Research the team behind the project you’re about to invest into and use as many technical analysis tools as possible.
There are certain economic indicators out there to help you with the process. Those indicators are just harder to spot, but you can consider a leading indicator, for instance, an inverted yield curve, as opposed to a lagging indicator like MACD.
If you want to see more information about different trading styles, check out TradeSanta’s Blog
