Cryptocurrency day trading strategy
Always check reviews to make sure the cryptocurrency exchange is secure. So whilst secure and complex credentials are half the battle, the other half will be fought by the trading software.
Each exchange offers different commission rates and fee structures. As a day trader making a high volume of trades, just a marginal difference in rates can seriously cut into profits.
There are three main fees to compare:. Do the maths, read reviews and trial the exchange and software first. Coinbase is widely regarded as one of the most trusted exchanges, but trading cryptocurrency on Bittrex is also a sensible choice.
IO, Coinmama, Kraken and Bitstamp are other popular options. Before you choose a broker and trial different platforms, there are a few straightforward things to get your head around first.
Understanding and accepting these three things will give you the best chance of succeeding when you step into the trading arena. Below is an example of a straightforward cryptocurrency strategy.
This straightforward strategy simply requires vigilance. A correction is simply when candles or price bars overlap. You should see lots of overlap. This tells you there is a substantial chance the price is going to continue into the trend. You should then sell when the first candle moved below the contracting range of the previous several candles, and you could place a stop at the most recent minor swing high. Even with the right broker, software, capital and strategy, there are a number of general tips that can help increase your profit margin and minimise losses.
Below are some useful cryptocurrency tips to bear in mind. Short-term cryptocurrencies are extremely sensitive to relevant news. When news such as government regulations or the hacking of a cryptocurrency exchange comes through, prices tend to plummet. Analyse historical price charts to identify telling patterns. History has a habit of repeating itself, so if you can hone in on a pattern you may be able to predict future price movements, giving you the edge you need to turn an intraday profit.
For more details on identifying and using patterns, see here. This is one of the most important cryptocurrency tips. By looking at the number of wallets vs the number of active wallets and the current trading volume, you can attempt to give a specific currency a current value.
The more accurate your predictions, the greater your chances for profit. If you anticipate a particular price shift, trading on margin will enable you to borrow money to increase your potential profit if your prediction materialises.
Exchanges have different margin requirements and offer varying rates, so doing your homework first is advisable. Bitfinex and Huobi are two of the more popular margin platforms. The digital market is relatively new, so countries and governments are scrambling to bring in cryptocurrency taxes and rules to regulate these new currencies. Many governments are unsure of what to class cryptocurrencies as, currency or property.
S in introduced cryptocurrency trading rules that mean digital currencies will fall under the umbrella of property. Traders will then be classed as investors and will have to conform to complex reporting requirements. Details of which can be found by heading to the IRS notice On top of the possibility of complicated reporting procedures, new regulations can also impact your tax obligations.
Each countries cryptocurrency tax requirements are different, and many will change as they adapt to the evolving market. There are two benefits to this. All of my profits are converted back into BTC at the end of each trading day. Again, even though I buy and sell several Altcoins, at the end of the day my net worth is in Bitcoin. There are three reasons for this:. I earn more USD when the price of Bitcoin goes up against the dollar.
Why was it important to clear this up? Several things were on my mind the first time I had to do this. What if I sell my BTC now and the price shoots up tomorrow? Yes, but your bills will be paid. Sell now so you can pay your rent. You can always hold out for more, but at the same time you are risking a loss.
After a few months I got better at trading. I was earning more Bitcoin than I needed to cover my monthly expenses. At the end of the month I sold only what I needed, and kept the rest of my net worth in Bitcoin.
Around this time in my trading career it was getting to the point where I could have bought a Tesla or put a down payment on a house by selling my Bitcoin. Do you sell your Bitcoin to realize your profit in USD? I can live a nice middle class lifestyle in Los Angeles. Or I can drive a flashy car while I rent a crappy apartment in Los Angeles. It all comes down to your values. In fact, if i see a chart like this I almost always ignore it:. The wild bull runs are hard to find, hard to time properly, and easy to go in the opposite direction where you lose a lot.
Those gains are only exciting if you understand how far they can get you. Of course the numbers above assume you trade days per year. Not many people are willing to forego vacation and weekends to work as a full time crypto trader, even with numbers like that. Not only that but I also let my emotions control my trades. For example, I once purchased Stratis after the price dropped massively. My assumption was that on such a sharp decrease in price, it had to rebound eventually.
The price kept diving. I was constantly tuned into that chart waiting for an opportunity to sell back to Bitcoin. Now I have my strategy that I stick to without letting my emotions interfere. I have a set of coins that I like trading so I only look at those charts.
I have patterns and indicators that I look for on those charts so I can quickly flip through them. Within minutes I can set my orders, set alerts on my desired entry and exit prices, and walk away from the computer. As the market cap of crypto increases, be sure that the IRS is going to find out how to get their slice. And they will look into the past. I am not a tax advisor.
This is a simple overview of what I keep in mind as I trade. My accountant handles my taxes, and I advise you to get an accountant to do the same. Keep in mind that this is US-centric. You need to double check if this is the case in your country. The taxable event is when you sell your cryptocurrency for fiat.
How much tax you pay depends on how long you were holding the cryptocurrency. Buy crypto with fiat - no tax. Sell crypto for fiat - pay ordinary income tax.
Buy crypto with crypto - unclear, but does not seem to be a taxable event. This is where things get foggy. Consult your advisor, but as far as I know this is a like-kind exchange which is not taxable but must be reported to the IRS. The exchange you use will output all of these transactions so you can hand them to your accountant.
The IRS has clarified that a crypto to crypto exchange is not a like-kind exchange. The profit made from each transaction is taxed. If you are holding a currency for more than a year it is classified as long term capital gains.
This is another reason why I like keeping my net worth in Bitcoin. At least not right now. Passive income is great. After you make an initial investment, you mostly sit back and watch the money roll in. Most cryptocurrencies are mined. You invest in a very strong computer and the electricity to run it, and you are rewarded with crypto for contributing to the network as a node that confirms blockchain transactions.
This is an alternative to mining that does not require vast amounts of electricity. The idea is that you stake the cryptocurrency that you own over a wifi connection. That crypto that you stake is used to validate transactions on the blockchain, and you are rewarded more cryptocurrency for putting the currency you own in the pool. In fact, I intend on staking Ethereum when it is possible.
Here are some of the questions with my answers. BTC is my base currency right now because I believe in it as a store of value, and I believe that its value will keep increasing against fiat currencies. I am emotionally invested in the success of Bitcoin and crypto in general. Now I take up to 8 positions in a trading day. I follow the charts.
Fundamental analysis could give me a hint on which charts to look at, but at the end of the day my trades are based on technical indicators. Let me know if you know of someone who does it.