Everything you need to know about day trading Bitcoin and Altcoins! Is it worth it?
It’s been several months since I switched from trading on legacy markets (namely Euro Stoxx 50 and German 10-yr Bond futures) to focus on day trading Bitcoin.
My original idea was to make a short post on my Twitter, but then I realized that there is quite a lot of ground to cover.
This article will look at some pros and cons of day trading Bitcoin (or any other cryptocurrency).
What are don’t mention here are the actual trading strategies you can use.
I already did that in this blog post.
If you want to get a free PDF that covers the basics of cryptocurrency orderflow and shows tools and mechanics that I use. Register on Bybit or Binance, make a first deposit and email me at firstname.lastname@example.org to receive it. More info.
Table of Contents
What is considered day trading Bitcoin?
There are two ways how you can essentially approach the market.
Day trading and swing trading.
This article’s point is not to determine which one is better and why; I went in-depth on that in my Day Trading vs Swing Trading article.
But to put on some rules, in my world, you are a day-trader if you approach and trade markets daily, and you use lower time-frames such as one, five or fifteen minutes for the executions.
In general, trades are not held overnight, and you essentially don’t care about long term market direction as your goal is to be in and out of the market rather quickly.
Day trading crypto attracts many new traders every day, especially now when the crypto space is booming.
But is it all nice and easy for day traders?
That’s what we are going to find out.
This article will focus on the biggest pros and cons of choosing crypto for day trading.
I will focus on Bitcoin because I trade it, but you can pretty much day trade any liquid altcoin of your choice.
Pros of day trading Bitcoin
Let’s start with some pros first.
If you are more of a frequent reader of the blog, you probably know that I don’t try to present a picture of how amazing and easy trading is. I won’t do it here, even though I know being overly positive in the crypto trading space attracts a lot more engagement.
There are, of course, pros of trading this market; otherwise, I wouldn’t do it myself, but I am not going to dwell too much on how amazing everything is as I don’t see the point in doing that.
So without further ado, here are the biggest pros I found about day trading Bitcoin.
Word transparent might be a little stretch here as there are many exchanges in the space that are doing some shady things, mostly wash trading.
For those who don’t know what wash trading is, wash trading is a form of market manipulation where brokers buy and sell the same instruments to boost trading volume.
If we overlook this and some other thing, cryptocurrency is still a decentralized market, and you can see all transaction going through.
Tools such as Aggr. trade show us all executed orders throughout all popular exchanges.
Compared to markets like Forex, which trades solely over-the-counter and you cannot see the executed volume.
This transparency of cryptocurrency space can provide a huge edge, especially in day trading.
Easy to get into and operate
Although things used to be much easier back in the day, you would make an account without any KYC and start trading within a few minutes of your coins hitting the wallet.
Crypto is still straightforward to market to trade, and operate.
Nowadays, you need to KYC for most exchanges and some exchanges won’t accept US or UK citizens, but there are still ways to trade.
Although regulations will most likely be even more strict in the foreseeable future, it is still nothing compared to legacy exchanges.
In the legacy markets, all exchanges require deep KYC procedures and most of the times; you can only deposit and withdraw your funds via bank transfer which can take days.
Of course, moving funds quickly between exchanges is not a thing in legacy markets.
All of this makes crypto a straightforward environment for retail traders to trade.
Tools and Accessibility
Because of the decentralized nature of the crypto market and the number of people it attracts, there are new trading platforms, research sites, automated journals and much more coming out all the time.
This can give you an additional edge in your trading strategy as these tools are easily accessible and usually very affordable.
https://exocharts.comOn top of that, there is no market data cost for trading cryptocurrencies.
You always get a full market depth and access to data from any exchange (expect for CME futures) for free.
This is a great advantage compared to legacy markets, where everything has an additional cost.
As you can see down below, this is a pricing table for different data feeds.
Many of these feeds won’t have a full market depth and usually only show 10 levels of depth.
One thing you will find for sure in trading cryptocurrencies is volatility.
Although this can do more bad than good for beginner traders, once you are well set on your strategy, this can be a large advantage.
For example, the current (14th March 2021) average true range of Bitcoin is $3600 on a 30-day average, and I did not dip below $1000 since the start of 2021.
For day trading, this means that you should be able to find an opportunity almost every day.
Of course, there is some dull and slow day, but in general, an intraday price action of Bitcoin and other cryptocurrencies can be compared to less liquid markets such as Nasdaq, Dax or Currency futures.
As these markets move a lot and often overshoot certain levels, you should always be a little more forgiving with your entries, stops and exits.
This is quite the opposite of liquid markets like Bonds, ES or Euro Stoxx, where you can usually get very tight with your stop loss, but on the other hand, these markets tend to be choppier and slow-moving.
This is something you won’t find in crypto, so it is up to you to decide what type of market you want to trade; if you are looking for other alternatives, you can take a look at The Top 13 Futures Markets To Trade.
Another thing you can add to the opportunities section is that there are so many things you can actually trade.
Although most traders focus on Bitcoin or Ethereum, you can go way beyond that.
You can scalp newly listed coins, find arbitrage opportunities, choose from various altcoins that are volatile on a given day, and so on.
This is also something that is changing as Bitcoin is becoming another risk-off asset for large funds etc.
Nowadays, Bitcoin reacts to FOMC, news about stimulus and other major macroeconomic events the same ways as S&P500 or other legacy markets.
But compared to legacy markets, you still don’t have to pay that much attention to all macroeconomic releases, events etc.
For day trading, Bitcoin and other cryptocurrencies behave in very technical manners.
Because fundamentals do not play that big of a deal on a day-to-day basis, and you don’t have to watch every report that comes out, you can get away with the very technical type of trading.
You should be paying attention to shock events; this unexpected news can really move the markets.
Although the Cryptocurrency market has been getting a lot of love lately, these shock events can also be bad news like more unexpected regulations, investigation of different exchanges etc.
This is why if you want to day-trade cryptocurrencies, it is more important to follow what is going on right now rather than prepare yourself for Non-farm-payroll once a month.
People who are trading crypto are very vocal.
You will find a lot of them on Reddit, youtube or famous crypto twitter.
Although you have to be careful as many people will try to sell you snake oil, you can meet some very knowledgeable traders.
I have traded pretty much every market there is, and the coolest people I’ve met are in the crypto space.
Just be careful to not end up in a bad company and getting yourself into some overly expensive paid group as there is a ton of them.
Presence of retail traders in crypto si very obvious.
If you know how to read the orderflow, it can be obvious to you where are the areas of retail traders going absolutely crazy.
This one single thing can be a huge edge in your day-trading.
Different exchanges accommodate different types of traders; once you can distinguish what these traders are doing, it is much easier to riding a tale of large participants and fading the retail crowd.
The Bybit exchange is the prime example of doing the opposite of what the retail crowd does, as this exchange still does not require KYC and, in general, accommodate a lot of retail traders.
Although this “fading” Bybit is attracting a lot of attention which means that it can lose its edge, exploring different exchanges and their participants can be very helpful in your day trading.
If you are interested in learning different orderflow patterns and how to use them with price action setups, you can check out the Trading Blueprint.
Cons of day trading Bitcoin
Now that we covered the pros let’s have a look at the cons. Unfortunately, quite a few of them can make day trading Bitcoin a pretty challenging task.
“Crypto is amazing; you can trading it 24 hours a day, 7 days a week!”
This is probably something you heard before, but honestly, this is simply one of the biggest disadvantages of day trading Bitcoin and cryptocurrencies.
This is a little older screenshot of trading volumes separated by days and hours for XBTUSD on BitMEX.
Although you might notice some peaks in volume around the Daily, London and New York open, the truth is that in cryptocurrency markets, large moves very often happen in absolutely random hours.
I will not tell you how many times I woke up to find out that perfect A+ setup occurred during the Asian session, which was at 4 am my (European) time, and I was in my deepest sleep.
Or I spend 10 hours in front of the screen getting chopped out and then when I left my computer in the evening the perfect move occurred in a very random hour.
Weekends also don’t help. Even if you decide not to trade during the weekend, they force you to pay attention, and you can come to absolutely different market conditions on Monday morning compared to Friday when you left your desk.
This is quite a hard pill to swallow and a large dedication you have to give if you want to day trade successfully.
If we look at markets like S&P500 futures, Dax futures or EUR/USD spot forex.
Day traders usually show up at the start of regular trading hours (pit session) and can be done within a few hours without the stress of missing a move at some random time.
For better visualisation of the issue, take a look at the volume distribution of S&P500 futures.
You can see that volume really kicks in every day at the same time at the pit session open (3:30 pm CET).
Now let’s have a look at the daily volume distribution of Bitcoin futures.
High volumes are all over the place here.
Of course, legacy markets also sometimes move outside their regular trading hours, but it is usually rare compared to cryptocurrencies that move in whatever time they want.
All of this can lead to a horrible lifestyle and schedule.
Fragmented exchange data
If you are day trading, every detail is crucial.
Unfortunately, in crypto, every exchange has its own data feeds.
This results in different lower time frame price action depending on the exchange you are trading.
“Your stop-loss got hit on Binance futures because swing low was taken?” – Unlucky, if you were trading on Bitmex, you might still be in a trade, or if you were trading on Bybit, you might actually get slipped as price probed lower and lost more than anticipated.
On top of that, if you want to use more “advanced” trading strategies such as cumulative volume delta, footprint charts or volume profile.
You will be faced with completely different data that depends on the exchange.
Traders on Bitmex are selling with decreasing cumulative volume delta? Well, if you look at Bitfinex, their traders are buying there.
These issues have been fixed as you can use Coinalyze, which features aggregated data for cumulative volume delta, open interest, and more.
But this doesn’t change the fact that data fragmentation can still be a huge headache in crypto.
In cryptocurrency trading, exchanges are really part of the culture.
From CEOs being active on Twitter interacting with users, trading competition or crypto influencer making tens of thousands a month only from referral links.
Exchanges get a lot of love, but in my honest opinion, they all are terrible.
From gamified UIs that aim to attract more retail traders rather than provide a good trading experience to contact overloads during the high volatility or absolute random flash crashes that only happen at one single exchange.
I know this is something I might get backlash on, and there are some solid exchanges in the space. Still, if you compare crypto exchanges to legacy futures brokers, or even some spot forex brokers (not those B-Book brokers, but brokers who offer true ECN), there is a lot of catching up in the cryptocurrency trading space.
As I already mentioned, crypto is not what it used to be.
If you live in the US or UK, you will have though time cryptocurrency derivatives.
Of course, you can use VPN to access some exchanges that don’t require KYC, but not many of them.
There are also other ways like becoming a professional-client, requiring some additional things for an account to be opened.
It is safe to say that things will get worse with regulations in the future.
Of course, Bitcoin and cryptocurrencies are the future.
It is something amazing that will replace Dollar and fiat currencies in the future.
Sure, whatever gets you going, but these are opinions you should express in your investing portfolio.
I see so many people online that are strictly against shorting Bitcoin and always talk about huge targets.
If you have this type of mindset, you will have a tough time in your trading.
Compared to forex or futures, people don’t care if EUR/USD rise or fall for a given day.
But once we talk about the precious Bitcoin, it another game.
If you want to day trade successfully, you should always follow what the market and your system tell you.
If it is a signal to go short and checks all the requirements you have in your trading plan, there is no place for being emotionally attached.
The fact that many exchanges keep trading collateral in Bitcoin, which constantly fluctuate, doesn’t help at all.
That’s why if you are day trading Bitcoin, it is always a smart idea to hedge via spot or options so you can express your long term view but still keep your intraday cool and trade whatever you see.
Is day trading Bitcoin and altcoins worth it?
The short answer is yes, day trading Bitcoin and Cryptocurrencies takes a large amount of time, and you will face a lot of struggles on the way, but it can be extremely rewarding, and you can make a lot of money and friends along the way.
Unfortunately, day trading crypto (and day trading in general) is always presented as easy, but in fact, it is one of the hardest things you can do, so be ready for a bumpy road.
If this is not your cup of tea, you might try day trading other markets like legacy futures or forex or stick to swing trading or dollar-cost averaging.
There are many ways to make money in the markets, and the most important is to find something that suits you, your personality and your schedule.