Day trading is a strategy where a trader buys a cryptocurrency at a low price and sells it for a higher price within a single day. This allows traders to capitalise on small price movements in the market by using high amounts of leverage and short-term trading strategies.
This method can yield 10%-100% gains or sometimes even more depending on when the token was bought and which factors caused the price movement to occur during that period.
However, according to a study by the University of California, only 1.6% of traders were profitable after fees. Due to day-trading’s low success rate, many financial advisors will instead recommend the “buy & hold” method which has proven to be successful for many traders.
In simple terms, traders aim to time the market by buying crypto at the lowest price possible and then selling it as high as possible. The day trader is often lured by the potential gains but it’s worth considering that impatience, inexperience and plain excitement can increase the risk and potentially lead to steep losses.
The well-known investor Peter Lynch once said,” far more money has been lost by investors trying to anticipate corrections than was lost in the corrections themselves.”
Pitfalls of Day-Trading
Informed decision-making is paramount and applies to all aspects of investment. It’s important to weigh up the good, the bad and the ugly.
With this in mind, day trading may sound exciting and fun, but very few want to actually acknowledge the pitfalls involved.
Let’s use gambling as an example; the guy in the pub loves talking about his big win on the horses last week but somehow fails to mention his losses over the past year. Similarly, a trader may experience the highs of making big money. They’ll have no issues in discussing the trades which lead to financial gain, but will often leave out details of the ‘failed trades’ or those resulting in financial loss.
On top of that, day trading requires high capital or leverage so that traders can maximize profits. It also requires your close attention and an in-depth knowledge of the market. These things are by no means impossible but worth considering.
Then we have the emotional and psychological aspect. If or when your trades go south, you would expect there to be a natural impact on the trader’s thoughts, feelings and behaviour. We’re all human after all. This can lead to mistakes and that’s where the slippery slope starts, for example, making hasty decisions in a desperate attempt to recover any losses.
Many big fund houses and fund managers shy away from day trading due to the risk involved and because the risk to reward ratio just isn’t attractive enough for them. Actually, the fees incurred can be pretty high as well.
For example, if the trader is making 10 trades a day with a $10,000 capital.
Each trade has a 0.2% fee for taker and maker.
This equates to:
$10,000 X 0.2% = $20
$20 x 10 = $200
A total of $200 will be used to pay fees. That’s roughly 2% of the capital.
Alternatives to Day-Trading
Day trading is not the only way to earn money in the crypto space. By using tools like Huobi Earn, Huobi Prime Pool or Huobi Grid Trading, investors can lower the risks involved and still make a decent amount of passive income.
1. Huobi Grid Trading
Huobi has a grid trading function which enables investors to plan out, buy and sell prices for different cryptocurrency pairs. This function removes the emotional aspect of trading as investors will not be involved in the buying and selling process, therefore reducing the chances of making mistakes.
Investors can either use an AI bot, which will automatically plan out the prices between grids or manually key in the parameter that they have in mind.
Figure 1 : Manual Trading Settings | Huobi Global
Some of the benefits of this include;
- The accumulation of the cryptocurrencies’ lower prices when the market dips
- The automation of buying, selling, taking profit and stop loss without interference
With Manual Settings, investors can adjust the ‘quantity of grids’ which will affect the profit margin per grid. More grids = lower profit margins, less grids = higher profit margins.
2. Huobi Earn
Huobi Earn is a high yield savings account where you can deposit your cryptocurrencies and earn interest. This is a great way to earn passively as it requires no trading, no maintenance, and no fees.
Investors can select from a wide range of cryptocurrencies that Huobi Earn supports and by depositing cryptocurrencies, investors will earn an interest. As interest is earned, investors can opt for it to be automatically compounded back or accumulated into the exchange wallet for selling.
Figure 2 : Huobi Earn Flexible Account
There are also options for higher interest, though they come with a minimum lock period. You can choose a flexible account which can be withdrawn from at any time or a special featured account for when new coins are introduced into the platform.
3. Huobi Prime Pool
Instead of going through a token offering or token sales, investors can leverage on Huobi Prime Pool to receive new tokens being listed.
By locking up tokens in Huobi Prime Pool, investors can receive new tokens which have not yet been listed in the exchange. Once they have been listed, this allows investors to sell these new tokens for other cryptocurrencies or alternatively keep these tokens and sell them when the prices rise.
Figure 3 : Huobi Prime Pool
The aim of this article was not to say that day trading is bad or unprofitable because it can indeed be a highly profitable channel to earn from. The aim here is to be honest and realistic in that success ultimately lies in the hands of traders with the right skills and the right resources.
If you are less experienced, alternatives to day trading can be the first steps of an exciting journey into future investments.
New to Huobi? Register for a Huobi account and receive up to $300 worth as a ‘Welcome Bonus’ to help you start your investment journey! If you’re an existing user, check out Huobi Earn and start earning interest on your idle cryptocurrencies.