Moving from day trading stocks and securities to cryptocurrencies can be tempting for several reasons. Namely, the market is open 24/7, so you can make trades at any time in the day. While this flexibility can be a boon to day traders, it can also be their downfall. If you’re considering day trading cryptocurrency, be sure to watch out for these common pitfalls.
Don’t Let Your Emotions Win When Trading
Traders have two acronyms to explain emotional trading. Those acronyms are FOMO and FUD. FOMO means ‘fear of missing out,’ and it is often when traders can make the costliest mistakes, especially in cryptocurrency. FUD stands for ‘fear, uncertainty, and doubt’ which often drives traders to sell when the markets look bad. Since the world of cryptocurrency never shuts off, there is always news coming in that can affect the price one way or the other. Following forums and the news cycle without a proper trading strategy will invariably lead to you day trading with your emotions as the primary driver. You should be careful to have a rigid plan with indicators that you stick to with a solid exit plan to avoid emotional trading as much as possible.
Wallets are Not Optimized for Trading
There are numerous precautions you should take to keep your digital assets safe, such as storing them in an offline wallet. However, this is not conducive to the speed at which day trading occurs. You should keep your reserve cryptocurrency in cold storage (offline) wallet, but any currency that you plan on day trading should be kept on your preferred exchange. You should make sure you trust this exchange for your day-to-day trading activity. Right now, two of the most popular exchanges in the United States are Kraken and Coinbase.
Don’t Enter a Position You Can’t Exit Quickly
Because the price of cryptocurrency can vary in a wide margin, it’s important not to enter at a position you won’t be able to exit quickly. There are a few rules of thumb to follow for this one. Namely, you should avoid trading cryptocurrency when there is less liquidity on your exchange. Nights, weekends, and holidays are all days in which less trading will occur, so try to avoid entering positions during this time.
Understand How to Use an Order Book When Trading
Watching a line graph and buying the dips might work for day trading stocks and securities, but that’s a sure-fire way to lose money in the cryptocurrency world. People list fractions of cryptocurrency at the top and bottom of the books, so placing a large order might see it get filled at a drastically different price. Break your order down into smaller pieces to get the best price when buying and selling. You might even consider using a trading algorithm and bot that can help you place small fractional orders at the top of the book for your chosen price, so you get the price you want to be executed over hundreds of trades as the price fluctuates up and down.