Cryptocurrencies, being the volatile assets they are, may offer many opportunities to traders, especially since they gain more and more official recognition. However, high volatility means high risk, so it is understandable that some traders may choose to abstain from actually purchasing cryptos, as it might be an expensive and extremely unstable investment. Fortunately, you can day trade crypto assets on the IQ Option platform, and it can be an option to consider for those seeking quicker results and lower investment costs. Let’s see how it works and where to begin.
Can I day trade crypto?
On IQ Option, traders have the opportunity to trade CFDs on cryptocurrencies. This means that you can make a prediction about the direction of a crypto’s price and trade it within the day, instead of purchasing specific and often pricy coins and holding them, waiting for what’s to come.
Day trading with CFDs on cryptos may be a considerable endeavor, although it has its risks and limitations, too. In order to day trade CFDs on cryptocurrencies, one needs to decide on the strategy, investment capital they will be using as well as risk management tools.
Pros and cons
Before you decide to day trade crypto, it is necessary to weigh the pros and cons of this type of trading and see why it might be appealing to some and unsuitable for others.
Pros:
- Lower costs in comparison to purchasing: there is no need to buy the coin itself and the investment amount can be much lower;
- Availability of a multiplier: traders can use a multiplier in order to trade with a larger amount than they actually own;
- Short timeframes: all deals are opened and closed within the same day, so almost no wait is required to see the outcomes;
- Many available intraday approaches;
- Flexibility with assets: traders can operate on several cryptos at the same time and open as many deals as they want.
Cons:
- Extremely volatile assets may be risky to trade on short timeframes;
- In comparison to long-term investing, the returns from day trading may be significantly lower;
- The use of multiplier increases the risk of a deal closing faster and leaving the trader with a higher loss;
- It is necessary to stay on top of financial and technical analysis every day to make the right trading decisions;
- Day trading may provoke undesirable trading behaviour like emotional trading, so strict risk management is obligatory.
How to day trade crypto?
Some of the well-known day trading strategies include scalping, news trading and breakout. All of these approaches are described in detail in our article 5 Most Common Trading Strategies You Need to Know.
In order to exercise day trading strategies on CFDs on cryptos, first of all, it is important to abide by the following points:
- All deals are exercised within the same day: no positions are transferred to the next day in order to avoid overnight fees.
- Prioritize volatile assets: since your trade time is limited, aim at the cryptos you may consider most promising.
- Check the news: anything important that might swing the crypto market today? Use the knowledge to your advantage.
- Multiplier: use it to increase the volume of your trade, but do not forget that the risks are also amplified.
- Set strict limits: take profit, stop loss levels and a certain investment amount limit are the basics of strong risk management.
Example
An example of intraday trading conditions can be seen below. In this example, 30-minute candlesticks are used and a deal can be opened after a selling signal is received from the Alligator indicator.
A stop loss is placed at the level of the previous high in order to protect the capital in case of a trend reversal. The deal is closed when the stop loss or take profit level is triggered or manually at the end of the day. As was mentioned, an intraday cryptocurrency trade is not transferred to the next day.
Conclusion
Day trading with CFDs on cryptocurrencies may be many trader’s choice, since it has many pros: fast execution, immediate outcomes and no overnight fees. However, it is important to exercise it with caution and understand the risks associated with any strategy to day trade crypto and other assets.
