Cryptocurrency trading markets are some of the easiest to enter - if you have a computer, an internet connection, and some initial capital, you should be able to start day trading. But before you get going review these tips and try to avoid some of the mistakes, which new traders make.
Pay attention to statistics
There are two trading statistics to keep a close eye on: Your win-rate and risk-reward ratio. Your win-rate is how many trades you win, expressed as a percentage. For example, if you win 60 trades out of 100, your win-rate is 60%. A day trader should work to maintain a win-rate above 50%. Your reward-risk ratio is how much you win relative to how much you lose on an average trade. If your average losing trades are $50 and your winning trades are $75, your reward-risk ratio is $75/$50=1.5. A ratio of 1 indicates you're losing as much as you're winning.
Day traders should keep their reward-risk above 1, and ideally above 1.25. You can still be profitable if your win-rate is a bit lower and your reward-risk is a bit higher, or vice versa. Try to keep it simple though, and develop strategies that win more than 50% of the time and offer a better than 1.25 reward-risk ratio.
Don’t risk what you cannot afford
The key part of your risk management strategy is to establish how much of your capital you are willing to risk on each trade. Day traders ideally should risk less than 1% of their capital on any single trade. That means that a stop-loss order closes out a trade if it results in no more than a 1% loss of trading capital. That means that even if you lose multiple trades in a row only a small amount of your capital will be lost. At the same time, if you make more than 1% on each winning trade your losses are recouped.
Another aspect of risk management is controlling daily losses. Even risking only 1% per trade, you could lose a substantial amount of your capital in a single bad day. You should set a percentage for the amount you are willing to lose in a day. If you can afford a 3% loss in a day, you should discipline yourself to stop at that point. Day trading can become an addiction if you let it. Only play with the money you have set aside and stick to your strategy.
Make sure you have a plan
A trading plan is a written document that outlines your strategy. It defines how, what, and when you will day trade. Your plan should include what cryptocurrencies you will trade, at what time and what time frame you will use for analyzing and making trades. Your plan should outline your risk management rules and should outline exactly how you will enter and exit trades for both winning and losing trades. If you don't have a trading plan, you are taking unnecessary gambles. Create a trading plan and test it for its performance in a demo account or simulator before trying it with real money.