Can You Day Trade Crypto

Investing in cryptocurrencies is an excellent way to earn money passively, especially if you know how the marketplace works. However, considering the volatile nature of these digital assets, can you day trade crypto?

You can day trade crypto 24/7, with many exchange platforms allowing users to make an unlimited number of transactions per day. However, the very volatile nature of cryptocurrencies makes these investments very risky, meaning you’ll have to plan your strategy carefully to minimize any potential losses.

A person looking at the digital stock exchange on a laptop

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As trading cryptos becomes more and more popular, day trading is an excellent way for experienced traders to capitalize on their investments.

You Can Day Trade Crypto

While many people make long-term crypto investments, you can also day trade cryptocurrencies like any other asset on the stock exchange. Unlike the traditional exchanges, many platforms that support digital assets trading don’t have trade limits.

This means that the users can often make as many transactions as they want, and since blockchain technology is operational 24/7, they can do this at any point throughout the day. However, this also makes the market much more volatile, with many cryptos suffering radical price changes within a short time.

Which Crypto Is Best for Day Trading?

The highly dynamic nature of cryptocurrencies makes it very difficult to rank any of them as the best option for day traders. After all, this information will become outdated within a short time window. Generally speaking, the currency would need to have high liquidity, trading volume, and volatility.

Bitcoin in front of the stock market graph

Best Cryptocurrency Day Trading Strategies

It is important to have a strategy before you start trading cryptocurrencies. The plan should include your entry and exit points, as well as your risk management strategy. That includes setting stop losses and risk limits and never risking more money than you can afford to lose. On that note, there are a few key strategies that can help traders day trade cryptos effectively:

  • Technical analysis – Using various chart patterns and indicators will allow you to predict which way the value of the coins will change next. There are many different technical indicators that traders can use to help them make trading decisions. You can even use them in conjunction with one another to get more accurate predictions. Some of the most popular indicators include the moving average (MA,) relative strength index (RSI,) and on-balance volume (OBV).
  • News and sentiment analysis – Although less popular, looking at headlines and the overall standing a currency has in the public eye may also allow you to see a potential shift in the market before it happens. This also includes analyzing positive and negative chatter on various social media networks like Twitter and Reddit.
  • Scalping – This method allows experienced traders to profit even from smaller price changes that occur over short periods. While a single transaction might not provide a high return on investment (ROI,) having large liquidity or making a bigger number of trades in a short time will allow you to amplify your gains.
  • High-frequency trading – Also known as bot trading, this strategy involves using bots and algorithms to execute a larger number of transactions very quickly. However, this means that the user will need to have knowledge of both programming and trading, as they’ll need to develop and update their algorithms to keep up with the ever-changing market.

What Are the Pros and Cons of Day Trading Cryptos?

As with any other type of investment, cryptocurrency day trading has both pros and cons that need to be taken into account. Take some time to study all the possible risks, rules, and regulations, starting with the ones in the table below.

Easily accessibleHigh chance of accruing losses
Low barrier of entryUnpredictable and volatile market
Market open 24/7Longer trading sessions
User anonymityLack of protection in case of breach
Greater chance of capital gainsEasier market manipulation

Is Cryptocurrency Trading Taxable?

Although the rules surrounding cryptocurrency taxation are still relatively new and somewhat ambiguous, crypto day trading is taxable in the United States. If you earn profits from trading cryptocurrencies, then you are required to report that income on your tax return. You must also pay taxes on any capital you’ve made from the sale.

Any assets that were held for less than a year before being sold are treated as short-term capital gains and will be taxed as a regular income. The tax rate itself ranges from 0% to 37%, with the percentage depending on the investor’s tax bracket. This means the more money you’ve earned from trading cryptos throughout the year, the bigger the tax rate will be.

You also need to know about the wash sale rule, as it prevents day traders from suffering an income loss when they sell and rebuy the same assets within the next 30 days. With all the nuances that come with these transactions, I highly recommend you consult with a tax professional before trading in your cryptos.

A calculator and a marker on top of tax papers

Look Out for Potential Price Changes Before You Trade, Buy, or Sell Cryptos

The verdict is still out on whether or not cryptocurrency day trading is a viable income option. Some people have found success, while others have lost a great deal of money. If you do decide to day trade cryptos, it’s important to be aware of the risks and take precautions to protect your investment.

Do your research before getting started, and if possible, consult with an experienced trader who can help you choose or develop a strategy that works for you. With careful planning and execution, day trading crypto could be a very profitable venture.