What Is Day Trading?
Cryptocurrency trading can be a very lucrative activity for the average trader. Huge swings in volatility of the cryptocurrency market means that a lot of money can be made on the radical price movements of cryptocurrencies. Implementing the right trading strategy is vital for anyone wishing to navigate the market correctly. Day trading can be an effective trading strategy that you can use to capitalize on the volatile price swings in crypto.
What is Day Trading?
Day trading is the act of buying and selling a financial instrument within the same day or even multiple times over the course of a day. Day traders typically use high amounts of leverage to take advantage of small price movements in a financial instrument. Day traders will also make several trades per day in attempts to increase profits, the number of trades made by a day trader can be in excess of 30 per day.
Day trading is no easy task, and will require you to possess the right skills in order to succeed in the market. Here are some of the skills and tools that you will need to be an effective day trader:
- Knowledge and experience in the market: The well-known saying that ‘knowledge is power’ is vital in the context of day trading. Successful day traders understand the fundamentals of the market that they are trading in, and will have been trading for a number of years.
- Capital: Day traders will only use risk capital, this is capital that they can afford to lose. This comes with the benefit of protecting the trader from financial ruin, and it also helps with eliminating emotion from their trading. Importantly, day traders will often use leverage when making a trade. This is necessary, as using a large amount of capital allows traders to generate substantial returns from small intraday price movements.
- A strategy: Gaining an edge over the market requires a purposeful and effective strategy. Day traders will often employ strategies such as: trading on news and short selling. We will look at these in more detail later on.
- Discipline: A trading strategy is useless without discipline. Many day traders will lose money because they allow emotion to control their trades. A successful day trader is a person that will stick to their strategy and never act impulsively.
- Real-time news services: Breaking news provides a huge source of opportunities upon which day traders can capitalize on. Thus, a day trader will need to use real-time news services so that they can be the first to know when something happens.
- Software: Trading software can be a useful tool to make use of when day trading. For example, some trading software will allow backtesting, which means that a trader can look at how a particular strategy would have performed in the past, and use the information gained to refine the strategy for use in the future.
