Best cryptocurrency for day trading
By Dan Atkinson
14:47, 7 December 2020
In the booming Nineties, in the days before the 2008 financial crash, day traders acquired an almost mythical status in some quarters. In part, this was due to novelty value – trading in securities from home over a computer link may be routine now but it was not then.
To some, they were liberating the world of high finance, making it available to the ordinary person. Others ascribed to them a sort-of pop-culture mystique: a headline in Time magazine in May 1999 was headed simply “Yeah, Day Traders!”
It is all a lot calmer now, not least, perhaps, because some of the early enthusiasts will have lost money and pulled out of the market. That’s sad, but not everyone can be a winner, and it is perhaps best that those unsuited to day trading discover in good time and find more congenial pursuits.
Trading, not investing
A second innovation made possible by the digital age is cryptocurrency, privately-issued forms of electronic money, with transaction details usually stored on a decentralised network of computers known as “distributed ledgers”. As with day trading, cryptocurrencies have attracted a lot of attention, not least for their novelty value.
Before looking at the best crypto to day trade, it may be best to ask what is day trading?
The key word is “day”, because this is a quick-fire dealing regime in which positions are usually entered and exited within the same day or trading session. Trades are conducted over the net, quite often from home. Those who like their financial-market participants to display a traditional appearance will be disappointed – there is scarcely a pin-striped suit or furled umbrella in sight.
The second word is important too. We are talking about day trading, not day investing (if there can be such a thing). Day traders seek to take advantage of changes in the prices of securities, then switch out at a profit.
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Few opportunities in placid markets
There are different day trading strategies and day traders use different “triggers” to inform their decisions. Some use charts to trade within “ranges”, selling when the asset hits what has been a resistance point and buying at what has proved to be a support level.
Others wait on external events, and then pounce. This is called “news” trading, as it is prompted by market movements resulting from breaking news. Such news, of course, must be at least partly unexpected, in order to produce the reaction from which the day trader hopes to profit.
Successful day trading, whatever the asset involved, requires two conditions to be met. One is liquidity, defined as the ability to enter and exit a market more or less at will. Day trading is difficult if not impossible in markets where dealing volumes are thin.
The other is volatility, the tendency of the market or asset to experience above-normal price swings up or down. A placid market will provide few opportunities for day traders.
However, the problem is that asking for a highly liquid, volatile market is rather like asking for boiling ice or dry rainfall. Liquid markets are as they are precisely because participants can be reasonably certain that they will be able to sell securities at something close to the price they paid for it, in other words, the market is the opposite of volatile.
The good news is that, in our search for the best crypto for day trading, we find markets that defy the financial textbooks and combine decent liquidity with some volatility.
A clear winner
Let’s start with the best-known cryptocurrency, Bitcoin. This is both liquid, with a 24-hour trading market, and volatile. Indeed, all our candidates will be liquid cryptocurrencies, as opposed to the 1,000 or more illiquid versions round the world, so we can concentrate on volatility as the key metric here.
On November 3, 2020, Bitcoin traded at $14,035.80, and a month later on December 3, 2020, it stood at $19,204.60, a swing of about 36%. That should be volatile enough for even the most hardened day trader.
Its rival Ethereum did even better, however. It traded at $384.05 on November 3 and had reached $609.17 by December 3, a rise of 58.62%.
Elsewhere among the “big five” cryptocurrencies is Litecoin, trading at $54.02 on November 3 and $88.87 on December 2. That’s a 64.5% upswing.
Should you be getting the impression that, as we work our way through the big five, ever-more impressive levels of volatility are to be found, you’d be right – at least as far as our next candidate, Ripple. It traded at $0.24 on November 3 and stood at $0.63 on December 3, a 162.5% rise.
Alas, our increasing volatility streak runs out with the last of our candidates, Quantum. Trading at $1.85 on November 3, it rose 57.29% to $2.91 – still a price rise.
Ripple would seem the clear winner as the best crypto for day trading. That is not the same thing, of course, as suggesting it is the best crypto all round, not least as a store of value and a medium of exchange – in the latter category, Bitcoin would probably come first.
But, to return to where we began, this is day trading, not conventional trading and certainly not investment. The only danger that you face as a day trader is that liquidity in the security concerned will suddenly dry up during a single trading session, but you will have seen that coming, having monitored all news about that security.
There is always the risk that you have made the wrong call, up or down, but that goes for trading of all sorts in all types of assets. It is part of the fabric of the market.
Read more: Top 10 cryptocurrencies to invest in 2021: portfolio of coins set to explode
Markets in this article