PART ONE: Why Day Trade Bitcoin and Altcoins Instead of Stocks, FX, or Options?
There are three reasons you should consider day trading cryptocurrencies:
They move A LOT. Every day.
They trend. Better than anything else I’ve seen in 18 years.
They’re “technically obedient” – meaning, your favorite indicators will work as well or better on cryptocurrencies than anything else you’ve been trading.
If you’re winning already at forex, or options, or stocks – this is a great addition to what you’re doing. And if you’re not winning already – this just might be exactly what you’ve needed.
A common misconception about cryptocurrencies:
People think that buying and holding Bitcoin, or Ether, or one of the other coins, is the best way to get involved. That’s crazyballs. That’s insane. And not even close to being true.
Here’s why you don’t want to just buy and hold Bitcoin (or any other major cryptocurrency):
One day Bitcoin is gonna crash. And it’s gonna be nasty. Why would anyone want to be holding onto a ton of Bitcoins on the day it crashes? When you day trade – you’re cashing out every day.
You reduce your time in the market. No more endless screen time!
You stay in the market for a big trend, and then you get out. No more holding during the time it just moves sideways.
Of course, there are great opportunities for buying and holding (we’ll get to that a bit later on). But that’s for the smaller, newer cryptocurrencies. And there’s a huge amount of risk in that strategy. That’s why I prefer to day trade the big ones.
The big, established coins give us the chance to:
Make money on predictable, repeatable patterns – daily.
Cash out at the end of every trading day – so you’re not holding positions overnight.
Have the potential to make gains of 5-10% every day.
If that sounds good to you, then you’re in the right place.
The biggest opportunity in 2018 is in day trading bitcoin, Ether, Litecoin – the majors. They move. A lot. They trend. All the time. And your favorite indicators work brilliantly on them.
PART TWO: How to Get Set Up to Trade
If You Live in the United States, Follow These Instructions (If Not, skip to the next section)
You’ll need some Bitcoin to start trading. It sounds kinda weird, but in order to trade cryptocurrencies, you’ll need Bitcoin. All the trades are Bitcoin-based.
So you’ll need to buy some Bitcoin and get it inside of a Bitcoin wallet.
If you live inside the United States, the first place you’ll want to go is Coinbase. It’s the easiest way to get some Bitcoin.
I recommend going to the Coinbase website – it’s just easier to do everything from the website. Once you create your account, you’ll be able to access everything from your smartphone.
Coinbase is where you’re going to store your Bitcoin. It’s a repository called a “wallet.” (Yes, there are other wallets, but Coinbase is easy to set up, even if it does have slightly higher fees).
In order to set up an account at Coinbase, you’ll need to answer some questions, provide a photo ID, and a few other simple things. Then you connect your Coinbase account to your checking account and, if you would like, to your debit card.
Coinbase is NOT your “trading account.” It’s a repository. It’s not a bank account, either – but it functions a lot like one.
Next, you’re going to buy some Bitcoin. Here’s what the screen looks like:
Next, you’re going to set up a trading account.
It might seem kinda weird, but you can’t trade Bitcoin in Coinbase. Well, you can buy it and then close out your buy position – but you can’t margin trade it, or short it – you can only buy it and hold it.
So we need to get Bitcoin from Coinbase into a trading account.
In the U.S., there are two Bitcoin trading exchanges that I use for trading:
Once we start up an account at Poloniex (same process – you submit your ID, name, address, etc) – you’ll just transfer Bitcoin from Coinbase to Poloniex so you can start trading.
In the above image, you can see a huge list of cryptocurrencies in Poloniex. To deposit BTC from your Coinbase account into Poloniex, you simply click on “Deposit” (see the arrow above). Poloniex will pop up a window and give you a wallet address that you should send BTC to.
Then you jump back over to Coinbase and click “Accounts” and “Send” under your “My Wallet” area.
In the image above, you’ll see Coinbase wants to know the address where you’re sending the BTC. You just fill out the fields, click “Continue” and then confirm the send.
Next, you wait. The transfer can take 20 minutes, or 2 hours, or even a day, depending on how crazy the transaction volume is. Sometimes you’ll see an alert on your screen that says that because of volume, there are significant transaction delays.
If you live outside the United States, follow these instructions
All of this is a heck of a lot easier if you live outside the United States. If you do, I suggest jumping over to Pepperstone or FX Pro:
You won’t need to mess with wallets and transfers and all that crap. You can just fund your account and run with it. You’ll be buying and selling in no time.
Now let’s move on to the good stuff.
Are you ready to start trading?
PART THREE: How to Choose the Best Coins to Trade
Here are the criteria for choosing the best coins to trade:
The coin(s) must move in predictable patterns. I call this “technical obedience” – the ability to use standard, regular old indicators to plan my trades.
They must move at the same time every day.
They must be liquid enough for me to do a lot of trading.
They must move a lot – we’ll talk more about this later on. I want to see movement of 5-10% per day (and even in a half day) before I’m willing to day trade a coin.
The coins can’t be brand new – I don’t want to day trade a coin that just did an ICO (initial coin offering). I want to day trade coins that have lots of buyers and sellers, lots of news, and have been around for at least a year (which is like 10 years in crypto time, haha). Now, if we’re talking about buying and holding for huge speculative gains – of course the newer coins are fine. But I don’t like to do much of that.
To give you an example – I’m just going to show one of my favorite coins to trade, and show how it meets the necessary criteria.
It’s ETH/USD (Ether/US Dollar):
Above you’ll see a 5 minute chart of ETH/USD.
You can trade this on Poloniex with the ETH/USDT (Tether) altcoin pair. USDT (Tether) is a US-Dollar equivalent on the exchanges. So, you can pull up a chart of the ETH/USD – but trade ETH/USDT on the Poloniex exchange.
Does ETH/USDT meet our 5 criteria? Let’s see:
Predictable patterns. For this, ETH/USDT is phenomenal. I use a combination of MACD and Stochastics – just regular old indicators – and they work incredibly well. In fact, it works so well that I built an indicator that just rolls everything into one for me. I call that indicator “Reversal Tabs” – that’s the red arrow/tab looking thing on the chart above.
(What this also means is that I can program a robot to take the trades for me – which is a huge plus. I don’t want to sit in front of my computer all day long, waiting for a trade).
Must move at the same time every day. Once again, ETH/USDT scores high. I know this sounds crazy – but every day at 8pm – Ether picks its direction. I use a few filters to help out with this – as I’ll explain later – but it’s super predictable. And this means I don’t have to sit in front of my computer all day.
Every cryptocurrency, from Bitcoin to Ether to Potcoin (haha), on down the line – has a specific time of day that it moves. Each coin, you could say – has a personality. When you study that personality, you get an inside view that no one else is paying attention to. That’s a trading edge.
Must be liquid. I can’t trade something that doesn’t have any open interest. I need to be able to get in and out of my trades.
The table above shows the order book at Poloniex for ETH/USDT. And as you can see, there are thousands of orders in the system – and those are just orders on the books. This doesn’t even count all the market orders going into the system minute by minute.
Volatility. Once again, ETH/USDT scores high. The altcoin pair moves a ton, every day. On average – 7-8%. Every day. That gives me plenty of room to catch a trend and ride it.
Solid. ETH has been around since 2015. That’s plenty of time. And it’s one of the most well-known cryptocurrencies. So it’s going to be stable enough (relatively speaking) for me to trade it.
And – now that we’ve established that it’s worth trading – how are we going to do it? We need a simple system.
Let’s get to it.
PART FOUR: A Simple System for Day Trading Cryptocurrencies
Setting up the trade
Here’s what I love about day trading cryptocurrencies: I can use standard indicators on any charts.
For example, here’s a chart of ETH/USD:
Remember, we can chart ETH/USD and then trade ETH/USDT on the Poloniex exchange.
At the bottom of the screen, I’ve got the good old regular Stochastic Oscillator, set to 14,3,7. That’s available on every charting platform in the world.
And here’s a simple method I love to use on ETH:
In the early evening U.S. time, between 5-6pm, I wait for ETH/USDT to go overbought (or oversold) on the Stochastic.
Once that happens, I short it.
My stop goes above the most recent highs.
Then I set my profit target (more on that below).
I know that sounds simple. But I use it almost every day.
I’ve got different “best times of the day” for each cryptocurrency. I’ve got some best settings I like to use for the Stochastic for each cryptocurrency. But otherwise, it’s all very simple.
I like simple. I like repeatable. I do not like complicated stuff. I want to be able to sit down at my computer and get my trading done, and then go spend time with my family. If you like complicated stuff, that’s fine. I’m not your guy. But if you like simple ways of doing things that really work, then you’re in the right place.
But what about profit targets?
I’ve got a little trick I’d like to show you.
Using pivots for profit targets
I love pivot points.
A pivot point is simply the high, low, and closing price added together, then divided by 3.
NOTE: You don’t have to do this math. Your charting platform will do it for you. 😊
Most people use daily pivot points. A daily pivot point is based on yesterday’s price action.
But some people (crazy people, like me) also use weekly pivots, monthly pivots, even yearly pivots. And I even use intraday pivot points – which is especially weird and crazy (and works great). This is a little trick that I think you’re going to love.
In the chart above, you can see I’ve noted the location of the daily pivot point.
Pivot points make great profit targets.
Price is drawn to pivot points. They’re almost magnetic. I don’t know why, and frankly, I don’t care as long as it works.
When I’ve sold ETH as I did in the chart above, I’ll hold the trade until price reaches the daily pivot point, and then I’ll start peeling off profit. I’ll take half my trade off, and let the rest of the trade ride until – you guessed it – the previous day’s pivot point. And I set my stop-loss to break-even, so at this point it’s a risk-free trade.
In this case, if ETH really starts to move – if it starts falling fast – I might even just take off my profit target and let the trade ride for a long time. I’ll just look back on my charts for a week or so, and pick a pivot point that’s at least 5 days old – and set my target there. You’ll be surprised at how reliable this is.
Let’s look at an example.
This is a 60-minute chart of ETH/USD. Remember, I’m using ETH/USD for charting and ETH/USDT for trading.
At the top of the chart, you can see two possible sell trades, when the Stochastic went overnbought (and not incidentially, at the perfect time of day).
Now, I can just use the nearest daily pivot as a profit target – but if I want to get a little bit fancy – and ride the oncoming trend – I can extend that profit target to a previous daily pivot farther away.
My favorite is when there is a cluster of daily pivots all near each other – as you can see on the chart above. Four daily pivots are all bunched up into the same area. The odds are heavily in favor of price returning to that area if it falls.
And fall it does – and this goes from being a regular old, nice 2% move to a 20% move in just a few days. Wow!
This kind of thing happens again and again – for downtrends and uptrends. It’s predictable and repeatable.
PART FIVE: What’s next
First – play around with the charts! Pull up a 5 minute, or a 60 minute chart, plot the ETH/USD, and throw a good old Stochastic Oscillator on there, and start making some magic happen.
Coins mentioned in post: