So, you want to day trade cryptocurrency? Before you do, it is important to understand that cryptocurrency is very volatile. This is exactly what makes crypto perfect for day trading. This volatility can be turned into profit if you know exactly what you are doing. At the same time, this volatility can dry up your funds if you do not manage your risk properly and let your fear, greed, and emotion take over. Before I list the best cryptocurrency to day trade, you must understand the 2 factors which make a crypto ideal to day trade. It is liquidity and volatility. That way, you can find the best assets to day trade in any market other than crypto.
Liquidity of the Cryptocurrency
Liquidity of a cryptocurrency is the degree to which a cryptocurrency can be bought or sold without affecting the price. In the simplest terms, it is the ability of a cryptocurrency to be converted to cash easily. Not just cryptocurrency. Liquidity refers to an asset that can be converted to cash. For example, cash in your domestic currency is the most liquid asset because it can be easily spent on buying or selling and it is very stable. Foreign currency is not so liquid as domestic currency because you need to agree on an exchange rate.
To determine if a cryptocurrency is liquid, there are 2 main pointers. It is the volume of the cryptocurrency and the difference in bid-ask spread.
Indicators of Liquidity: Volume
Volume is the number of coins traded in a given time period. Usually, it is for 24 hours. For example, if the volume is 500 million, it means the total amount of that coin traded across all exchanges within 24 hours is 500 million. When I trade, I look for coins that have a minimum of 100 BTC in volume. Binance is the exchange I use for day trading. This exchange has many coins with good trading volume for day traders. If you see a significant decrease in the volume of a cryptocurrency, it usually indicates a bearish trend. The higher the volume, the higher the chances of the coin being liquid.
Tip: If you see a sudden spike or drop in cryptocurrency, without a significant trading volume backing the action, it can usually indicate a trend is short lived.
There are 3 main types of volumes when it comes to cryptocurrency. The volume of a certain cryptocurrency traded across all exchanges within 24 hours. The total volume of all traded coins in exchange and the volume of the specific pair of the coin. You can use coinmarketcap to find these coins.
Indicators of Liquidity: Bid-Ask Spread
Another indicator of liquidity is the Bid-Ask Spread. All exchanges have an order book. You can look at the order book to determine if the cryptocurrency is liquid or not. Naturally, any buyer wants to buy at the lowest price and any seller would want to sell at the highest price. You can see all the buy and sell orders in the order book. The bid is the highest price the buyer wants to buy and ask is the lowest price the seller wants to sell. If a coin is liquid, the difference between the bid and ask is low. It is illiquid if the difference is high.
The volatility of the Cryptocurrency
An important factor you must consider before determining if a coin is suitable to day-trade is the volatility. Cryptocurrency is inherently volatile. This is mainly because cryptocurrency has no intrinsic value. It is hard to value a cryptocurrency and it is based on speculation. This is why you see huge swings in cryptocurrency. If you are a smart trader, you can take this to your advantage.
To find the most volatile crypto, you can use coinmarketcap or an exchange like Binance. Sort coins with the highest market change to find these coins. Keep in mind, what is volatile today may not be volatile tomorrow. It is important to identify cryptocurrency with high volatility on any given day; rather than finding the most volatile coin in the last hour or 24 hours. Given below are my top picks for day-trading with good volatility and a significant trading volume.
Ethereum is my top pick for day trading. The volatility of Ethereum is high compared to Bitcoin. It is the second-largest cryptocurrency after Bitcoin. Some exchanges like Poloniex allow margin trade Ethereum. You can short Ethereum with margin trading. This is perfect in this bear market. Like many other cryptocurrencies, Ethereum tends to follow Bitcoin’s trend line. If you are planning on shorting Ethereum, keep an eye on Bitcoin’s price action.
Monero is another cryptocurrency great for day trading. Monero (XMR) has a significant daily volume and currently, it is the 14th largest cryptocurrency in terms of market capitalization. The recent hard fork of Monero gained them a huge advantage. It lowered the transaction fees. Now, the transaction fees are almost insignificant. Although Monero tends to follow Bitcoin’s trend line, I would consider Monero to be relatively stable. Due to Monero’s privacy features, some businesses and individuals, accept Monero to anonymize their online identity. This is seen in dark markets. Monero’s adoption in the dark markets contributes to the stability of the coin.
Neo is one of those coins that tend to not follow bitcoin like other altcoins. Neo is a smart economy platform. It is also called Chinese Ethereum. It is currently 17th in terms of market capitalization. Neo is very similar to Ethereum but differs in some ways. For example, Ethereum has its own coding language ‘Solidity’, while Neo supports many languages like C#, Java, Kotlin, etc. This lowers the barriers to entry as developers are able to create DAPS in their preferred language. Neo is mainly being adopted in Asia and other western regions.
Even if you do not day trade Neo, it is one of those coins you want to HODL. This coin has great potential and it is a must-have on your portfolio. You can day trade or buy Neo on Binance, Bittrex or Bitfinex.