The cryptocurrency market, with its characteristic high volatility, extensive volume, and vast liquidity, presents an enticing arena for day traders. The allure of potentially massive profits, owed to significant price variations, has attracted a large number of traders to this digital domain. However, while the profits can be substantial, losses can be equally devastating, with a majority of day traders ending up in a net loss situation.
As we delve into the world of cryptocurrencies, we aim to shed light on the most suitable digital coins for daily trades. Our selection criteria are based on key factors i.e., volatility, volume, and liquidity.
What Is Day Trading?
Day trading is a distinct trading approach that revolves around transacting within the bounds of a single trading day. Traders initiate and conclude positions within this timeframe, thereby capitalizing on brief market fluctuations. Some strategies, such as ‘scalping,’ might involve positions being maintained for a fraction of time as short as minutes.
The cryptocurrency market offers a unique advantage for day traders compared to traditional stocks—it operates continuously, 24/7, enabling traders to hold positions overnight if desired. This flexibility can pave the way to higher profits or allow for the execution of limit orders at a precise price.
Owing to their intrinsic volatility, cryptocurrencies can be quite conducive for day trading. The substantial price swings can be leveraged to benefit from short-term price movements, making digital assets an intriguing choice for day traders.
Day traders typically rely heavily on technical indicators, market sentiment analysis, and various trading tools. They scrutinize these components more meticulously and frequently than swing traders or ‘hodlers’—a term coined within the crypto community, suggesting a long-term holding strategy, epitomized by the phrase ‘hold on for dear life’.
How to Pick Cryptos to Day Trade
The process of selecting the right cryptocurrencies for day trading can be a daunting task. However, by considering a few critical factors, traders can streamline their decision-making process and identify potential profitable cryptocurrencies. Let’s delve into these components to maximize your success in day trading:
- Volatility: Day traders thrive on substantial short-term price swings. Therefore, digital coins displaying higher volatility are usually the go-to choices for these traders. The majority of cryptocurrencies display pronounced volatility, with stablecoins being a notable exception due to their pegging to traditional assets—most commonly, the USD;
- Trading Volume: A robust trading volume often suggests healthy market conditions. It also indicates more predictable price swings, which typically align with the principles of technical analysis. Therefore, day traders should keep a close eye on trading volumes while selecting cryptocurrencies;
- Liquidity: High liquidity is vital in day trading. It allows traders to swiftly convert their crypto assets into fiat currencies, stablecoins, or other tokens without significantly impacting the market price. Therefore, choosing cryptocurrencies with high liquidity is crucial. Ideal candidates are those listed on major cryptocurrency exchanges like Coinbase and Binance, and decentralized exchanges (DEXs) such as Uniswap, SushiSwap and PancakeSwap;
- Utility: Cryptocurrencies that cater to specific use cases often exhibit lower correlations to the broader crypto market, making them potentially interesting choices for day trading. For instance, Ethereum has carved out a niche in the decentralized finance (DeFi) sector, Chainlink is renowned for its provision of oracles, and Polkadot is a leader in fostering interoperability.
Top-Tier Cryptocurrencies: An Ideal Choice for Day Trading
The world of cryptocurrencies is expansive, with over 6,000 digital coins available in the market. However, only a select few have stood the test of time and volatility, making them ideal for day trading.
1. Bitcoin
Bitcoin, represented by the ticker BTC, is the original cryptocurrency that paved the way for the digital assets we know of today. Despite not supporting smart contracts or additional utilities like some of its successors, Bitcoin remains a favored choice among investors as a digital store of value.
With a colossal market capitalization surpassing $800 billion and an impressive daily trading volume of over $12 billion, Bitcoin stands tall as the leading cryptocurrency. These impressive trading volumes often result in relatively lower price slippage, making BTC a more predictable choice compared to most altcoins.
The increasing acceptance of Bitcoin ETFs (Exchange-Traded Funds) by regulatory authorities further solidifies its legitimacy and attractiveness to mainstream investors.
2. Ethereum
Ethereum, known as ETH in the trading world, is the largest blockchain network that introduced the innovative concept of smart contracts to the cryptocurrency realm. This feature has empowered developers across the globe to create decentralized applications (dApps) and tokens, leveraging Ethereum’s robust network.
The Ethereum network, operating on a Proof of Stake (PoS) consensus mechanism, is the reigning king of the fast-growing DeFi sector. With a prominent market capitalization of $284 billion and daily trading volumes exceeding $8 billion, Ethereum ensures high liquidity making it a top choice for day trading.
3. Solana
Solana, represented by the ticker SOL, is an emerging player in the cryptocurrency market that operates on a PoS consensus mechanism. It aims to provide a more scalable, fast, and efficient blockchain platform than Ethereum.
The Solana ecosystem is brimming with diverse dApps and tokens catering to varied use cases. From DeFi solutions to payment systems, infrastructure services to gaming applications, Solana has it all! With a market capitalization of $43 billion and daily volumes of $3 billion, Solana is rapidly proving itself as a robust contender for day trading.
4. Chainlink
Known by its ticker LINK, Chainlink is at the helm of decentralized oracle networks. The genuine need for blockchain to interact with real-world data led to the advent of Chainlink. It paves the way for interchain communication, mitigating fragmentation by allowing different blockchains to communicate and share information seamlessly.
Currently boasting a market cap of over $9 billion and an impressive daily trading turnover exceeding $900 million, Chainlink, a decentralized application (dApp), has cemented its place on the day trader’s radar.
5. Binance Coin
Represented by the ticker BNB, Binance Coin is the native digital currency of the Binance Chain, a decentralized network created by the world’s largest cryptocurrency exchange, Binance. Binance Chain, reminiscent of Ethereum’s network, adopts a Proof of Staked Authority (PoSA) consensus algorithm, making the platform decentralized, unlike its parent company.
With a staggering market capitalization of over $50 billion and daily trading volume exceeding $800 million, BNB clinches the spot as the fourth-largest cryptocurrency, making it a popular choice for day trading.
6. Avalanche
Avalanche, recognized by the ticker AVAX, offers smart contract functionality with a unique proposition. Its fundamental objective is to address the notorious blockchain trilemma – simultaneously ensuring decentralization, scalability, and security without any compromises. Avalanche comprises a sophisticated ecosystem with three intertwined chains, providing a robust platform for developers. The compatibility with Ethereum Virtual Machine (EVM) facilitates Ethereum-based dApps to operate on the Avalanche network seamlessly.
Commanding a solid market capitalization of $14 billion and a daily trading volume surpassing $1.2 billion, Avalanche stands among the top choices for day trading cryptocurrencies.
7. Ripple
Represented by the ticker XRP, Ripple aims to revolutionize global remittances and cross-border payments. Ripple’s underlying protocol, RippleNet, facilitates low-cost, instant payments worldwide, irrespective of geographies or currencies. Ripple’s defining feature is its speed and efficiency, dispelling the hurdles of traditional money transfers.
Ripple’s market capitalization stands at a formidable $21 billion, with an impressive daily trading volume of close to $2 billion, making XRP a preferred choice for day trading.
8. Stellar
Stellar, identified by the ticker XLM, shares a similar mission with Ripple – enhancing the efficiency of cross-border payments. However, Stellar’s focus leans more towards individual users and developing economies. Stellar’s advantage lies in its ability to bridge the gap between different currencies, fostering financial inclusivity.
Stellar boats a robust market capitalization of over $6 billion, with daily trading volumes regularly surpassing $500 million, making XLM an intriguing option for day trading.
9. Algorand
Algorand, recognized by the ticker ALGO, champions the advent of Pure Proof of Stake (PPoS) consensus mechanism, ensuring high scalability, security, and transaction speed. Algorand’s network is designed to foster frictionless finance — a transparent system where everyone can achieve success through decentralized applications and projects.
With a market capitalization exceeding $10 billion and daily trading volumes often reaching $500 million, Algorand emerges as a desirable cryptocurrency for day trading.
Conclusion
In the realm of cryptocurrencies, day trading can be a rewarding venture, provided one possesses a thorough understanding of the market dynamics and a well-crafted trading strategy. These coins, with their unique offerings and substantial market metrics, make compelling candidates for day trading. However, it’s essential to stay updated with market trends, news, and developments in the ever-evolving cryptocurrency market to make well-informed trading decisions. After all, in the landscape of day trading, information is power.