How To Build A Crypto Day Trading Strategy

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Cryptocurrencies have become increasingly popular trading instruments. Crypto investors and traders can choose among a myriad of trading styles and techniques. In this lesson, we will dive into the basics of daytrading digital currencies and highlight some of the most important considerations when engaging in short-term trading.

Best Cryptos To Day Trade

Before we can start discussing the different techniques for day trading cryptos, we must first take some time to study the different crypto currency trading instruments and select those that present the best characteristics for short-term daytrading opportunities. There are various aspects to look for in this selection process. Some of the more important characteristics to look for include daily volatility, average volume traded, market capitalization, and transaction costs.

Daily volatility refers to the average high low range within a trading instrument. The greater the daily volatility, the better the chance that the market will produce a movement which will be sufficient to cover our trading costs and be able to yield a reasonable profit. Trading volume refers to the amount of participation within a trading instrument. The greater the trading volume the easier it will be for us to execute trades at a preferred level with minimal price slippage.

Market capitalization is the total market value of a specific traded instrument. Many beginning crypto traders are familiar with market capitalization as it relates to the stocks. The concept is the same when we are applying it to cryptos as well. Crypto currencies with larger market caps are considered more stable and secure, such as blue-chip stocks. Within the crypto markets, Bitcoin is by far the largest crypto by market cap.

Transaction costs can come in many different forms. This includes commissions paid to your crypto broker, the bid ask spreads when you buy or sell your digital coin, and other execution costs such as slippage.

When selecting a crypto to day trade, it’s important to stick with those that offer the tightest bid ask spreads and find a broker that offers the lowest trading fees. Although this is a good idea regardless of the timeframe, it is paramount for shorter-term traders.

Now that we understand some of the characteristics that make a crypto attractive from the daytrading perspective, let’s now detail a few coins that pass these important considerations, making them among the best cryptocurrency for day trading.

First and foremost, Bitcoin is at the top of the list as it offers all of these important features. In addition, Ethereum is an excellent instrument in this regard and thus well suited for crypto day traders. Beyond these two popular cryptos, we could add Binance Coin, Tether, Ripple, and Tron to the list as well.

Although these are not the only digital coins that align well with a daytrading timeframe, they are nevertheless the most obvious choices based on the most important characteristics that we’ve described above.

Day Trading In Crypto – Discretionary vs Systematic

There are two primary trade execution styles. The first is what is referred to as a discretionary based approach. And the second is what is commonly known as a systematic based approached. A discretionary based approach is one wherein most if not all the decision-making processes are handled entirely by the individual trader. This includes trade selection, trade execution, and trade management.

A systematic based approach is one wherein most if not all the decision processes are relegated to an algorithmic model or trading system. The trader is responsible for programming all of the rules into the algorithmic trading system, and then all the trade related processes are then executed through the algo based on the rules outlined within it.

The question often arises whether it is better to approach the cryptocurrency markets from a discretionary style or a systematic style. This question is not particularly easy to answer. This is because the best approach is not universal, but rather is heavily dependent upon the strengths, weaknesses, and personality traits of a given trader.

For example, there are a certain class of traders that are more visual and therefore very good at chart reading, and pattern recognition. These types of traders are generally more inclined to adopting a discretionary trading approach.

On the other hand, there is another group of traders that are excellent at data mining and mathematical modeling techniques. This group of traders generally have a background in computer science or engineering, and therefore, they are more inclined to adopt a systematic trading style.

And so, this is where each crypto trader needs to do an internal audit of their personal traits to decide which style aligns best for them.

As with everything in the markets, there are certain advantages and disadvantages with each approach. As a discretionary crypto day trader, you have a ton of flexibility in your decision processes. While this freedom can be advantageous, it can also pose a challenge for some traders. Specifically, all this extra freedom can sometimes lead to analysis paralysis which can be very counterproductive to say the least.

A system based crypto day trader is free from all of the decision processes involved in executing in the markets. This can be quite advantageous from the emotional perspective, however, leaving all trade related matters to an algorithm can backfire at times, particularly when market conditions change rapidly due to some unexpected event or black swan. During these times, decisions related to the market may be better handled by a human than a computer.

Crypto Day Trading Strategies

So what are some of the best ways to day trade crypto? Let’s now discuss some of the different methodologies for day trading cryptocurrencies. The three primary market analysis categories can be classified as technical analysis, fundamental analysis, and sentiment analysis.

Technical analysis aims to predict future price movements based on the assumption that prices tend to repeat themselves in a recurring manner, and that although these recursive patterns may not appear to be exactly the same, they are similar enough to be used as a forecasting tool.

Some technical studies include indicators such as Relative strength Index, Stochastics, and MACD. In addition to this technical analysts can use support and resistance and supply and demand levels. Some of the more popular forms of support and resistance include horizontal lines that mark key price levels, diagonal lines such as trendlines and channels, and hidden levels such as Fibonacci-based ratios within the price action.

The second category of market analysis that is often used by financial market day traders include fundamental analysis. Fundamental analysis is much more popular when it comes to market analysis for stocks, bonds, fiat currencies, and commodities. Fundamental analysis is less widely used by crypto day traders.

One of the main reasons for this is that there is not much in the way of daily economic reports or tradable news events as it pertains to major digital coins. Nevertheless, crypto traders can and do use fundamental analysis where appropriate to forecast the price of digital currencies.

Sentiment analysis is less widely used by crypto currency traders than both technical and fundamental analysis. Sentiment analysis involves studying the overall sentiment within a particular market to gauge whether it is oversold, and likely do for a bounce higher, or overbought, in which case a price correction may be likely.

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There are many different types of sentiment analysis tools. One of the more popular is the Commitment of Traders report, which details the positions of the three major trader groups – the commercials, large speculators, and small speculators.

Generally, sentiment analysis techniques are mean reverting in nature. That is to say that sentiment analysts seek to find inflection points wherein the price has gone too far and is poised to revert back to some mean or median level.

Crypto Day Trading System

Now that we have laid out some basic foundations, let’s now see if we can build out a simple strategy for daytrading the crypto market. This trading strategy that we will outline uses two technical indicators which are readily available in most charting platforms.

The first indicator used within this short-term crypto trading system is the Keltner channel. The Keltner channel is essentially a band that is overlaid on price. The default settings for the Keltner channel is 20 for the lookback period and a 2X multiplier. We’ll be changing the parameters a bit within this strategy by using a 1X multiplier instead.

The second indicator used within this crypto day trade system is the momentum indicator. We will use the default settings of 10 period as the look back.

This strategy works best on the Bitcoin and Ethereum, however, it can be applied to other highly liquid digital coins as well. The preferred timeframe used will be the 15 minute chart. But keep in mind that with the 15 minute chart, the trade may last for more than a day. If, however, you would like to trade this strategy as a pure daytrading strategy, then the five-minute chart would work as well.

The rules for a long position are as follows:

  • A bullish candle must be seen completely above the upper Keltner band.
  • At the time the above condition occurs, the momentum indicator must register reading at or above the zero threshold.
  • Enter a buy order at the market at the open of the next candle.
  • The stoploss should be placed at a recent swing low preceding the buy entry.
  • The trade will be exited upon a bearish candle that closes below the lower Keltner channel.

And here are the rules for a short position using this strategy

  • A bearish candle must be seen completely below the lower Keltner band
  • At the time the above condition occurs, the momentum indicator must register a reading at or below the zero threshold.
  • Enter a sell order at the market at the open of the next candle.
  • The stoploss should be placed at a recent swing high preceding the sell entry.
  • The trade will be exited upon a bearish candle that closes above the upper Keltner channel.

The beauty of this strategy is that it is a simple short term trend following system that seeks to capture a potentially strong trend in its early stage of development. Additionally this strategy can be easily programmed into a mechanical trading system for those that are interested in automated execution.

Crypto Intraday Trading Strategy Example In Bitcoin

On the price chart below, you will find Bitcoin, BTCUSD, shown using the 15 minute timeframe. The light blue band that is seen overlaid on the price is the Keltner channel, with our custom setting of a 20 period look back, with a 1X multiplier. The indicator shown in the lower window below the price action is the momentum indicator with the default setting of 10 for the look back.


Tt the far left end of the chart, we can see that there was a strong price move lower, which led to a period of consolidation as can be seen by the overlapping price action. After some time, we can see that a strong bullish candle which resembles a marubozu candlestick closed above the upper Keltner channel. This would have clued us into a possible shift in trend which could lead to further price increases.

However, we would have waited for our signal before entering into the trade. Remember, our buy entry signal occurs when a bullish candle can be seen completely above the upper Keltner channel. Additionally, we want to ensure that the momentum indicator is registering a reading above zero at the same time. This condition occurred on the second bar following the marubozu candle. And so, we would’ve entered a market order to buy on the very next opening candle.

Once our long trade was executed, we would turn to the stoploss placement. The stoploss would be placed at a level below the entry price which represents a recent swing low. The black dashed line shows the most appropriate technical level at which we should place the stoploss.

From this point, we would watch the price action closely for the exit signal to trigger. Specifically, we would exit this trade either upon the stoploss being hit, or upon a bearish candle close below the lower Keltner channel. We can see from the price chart, where this exit trigger occurred. In this case, the trade turned out to be quite profitable.

Crypto Day Trading Strategy Example In Ethereum

In the previous example we illustrated a bullish crypto daytrading set up using our strategy on Bitcoin. Now let’s see what a bearish set up appears like. For this example, we will be illustrating a bearish crypto day trade set up using our strategy on Ethereum ETHUSD. Below you will find the 15 minute timeframe chart for Ethereum ETHUSD.


The rules for entering into a short position will be similar to the previous example, but in reverse. As we can see here, the price action started to move lower and we were able to recognize a bearish candle that was trading completely below the lower Keltner channel.

At the time this occurred, we can also confirm that the momentum indicator was registering a reading below the zero line. Remember the solid black line in the momentum indicator is the zero line. And here we can clearly see that the momentum indicator line is below the zero line.

Now that we can confirm that a bearish set up has occurred, we need to prepare for a short position. We would enter a market order to sell immediately on the following candle. Note where that sell entry order would have been initiated by referring to the blue arrow noted as, Sell.

Once we are in the short position, we will turn our attention to the stoploss placement. The stoploss should be placed above the most recent swing high preceding the sell entry signal. Referring to the black dashed line above the sell entry you can see the most appropriate place for placing that stoploss.

From here, we would follow the market closely to ensure that we exit the trade at the right time. Based on our exit rules, we would exit this position in Ethereum in full either upon the stop loss being triggered, or when a bullish candle closes above the upper band of the Keltner channel. You can see where the exit triggered by referring to the chart once again. Here too we were able to profit handsomely from this short-term crypto strategy.

Closing Thoughts

Daytrading crypto currency can be very rewarding, however, it is a fast-paced environment where traders need to be focused at all times. Short-term trading in any market is generally more challenging than intermediate or longer-term trading horizons. But this is even more pronounced when it comes to the crypto markets because the volatility seen within most digital coins is usually much higher than that of other financial instruments.

Most traders who opt to scalp or day trade crypto utilize some form of technical analysis, since market timing is critical at smaller time frequencies. Some of the more computer and software savvy traders implement a systems based approach, wherein they can take advantage of intraday price movements without having to be physically attached to their computer monitors.

Regardless of the execution model used, or the strategy employed, it’s imperative that traders engaged in the business of daytrading cryptos understand all the risks involved and plan accordingly for the unexpected.

This article was written in collaboration with Bitsgap. Bitsgap offers cutting edge trading automation tools to crypto investors. This includes trading bots, smart orders, TradingView charts, and portfolio management features available across 25 crypto exchanges.

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