Day trading, in general, is the buying and selling of investible assets within the period of 24 hours with the motive of making a substantial profit from the price volatility. Whether day trading is profitable or not is up for another debate, but dealing with the right asset with the right strategy and the right money management system can be very rewarding.
Ethereum, the second-largest cryptocurrency in the world by market cap has been the selected asset for many traders, mostly because it is very sensitive to change, and this article will introduce readers to some of the important things to pay attention to in order to be successful with Ethereum Day trading.
Be Formidably well Informed in Ethereum News and Don’t Ignore External Forces
Regardless of how knowledgeable a trader may be, he needs to be well informed about the current happenings and breaking news emerging from the Bitcoin and Ethereum industry to make profit. Day trading makes use of speculations than valuations. Ethereum is very sensitive to technological developments and partnership deals, and this provides a good hint on the direction of its price in response to any news that breaks out. Breaking news about any major partnership deals and technological implementation sends the price high in the short run. Similarly, any major crackdowns and negative government regulations affect the price negatively.
To make profit, day traders must be conscious of the development of Bitcoin which acts as an external force to affect the performance of Ethereum greatly. The positive run of Bitcoin in most of the time has a direct relationship with the price of Ethereum and vice verse.
Constantly Monitor the Market and Don’t Ignore Volume Trading Strategies
Day trading is not a random execution of orders, but a calculated step toward the bigger goal. To make profit from Ethereum day trading, make use of the trading volume strategy. One of the popular one you can master is the “checking of correlation between volumes and trading prices”. When there is a sharp rise in price of Ethereum, and there is no corresponding increase in its volume, it means the price would be followed by a significant or a narrow fall. A strong volume signifies that buyers are buying more of the asset, and vice verse. In this regard, a rise in price without a support of strong buying power means the price would not last.
To be able to execute this strategy effectively, traders need to spend enough time monitoring the market to find such an opportunity to strike.
The Smart Money Divergence is Very Effective in Making Profit with Ethereum Day Trading
Under normal circumstances, all the top cryptocurrencies are supposed to move in the same trend. This explains why almost all the known digital assets recorded a new all time high after Bitcoin broke its resistance level to trade near $20,000 in December 2017. When the price of Bitcoin breaks its resistance level into a new height, Ethereum is supposed to follow. Smart Money Divergence comes into play when Bitcoin breaks into its resistance level and Ethereum trades downwards on the price curve. This means one of the two assets is showing a false breakout.
The interesting thing about this is that, day traders can use this to their advantage to make profit in Ethereum day trading. Some traders use the On-Balance-Volume to determine the possible direction of Ethereum in this case. But there is a simple step. Traders can use the common trading volume strategy highlighted above. When the 24 hour trading volume of Ethereum increases, and the price shows a downward movement in relation to the Bitcoin upward movement, it is an indication that the Ethereum price would surely increase since there is a strong purchasing power or demand of the asset. The volume must always correlate with the price. If there is an inverse relationship between volume and price, traders are advised to follow the direction of the volume to predict the price. This is because the price is always determined by the buyers and sellers in the market.
Avoid Greed and Don’t Trade with Emotions.
To make profit, you must set a proper daily target and money management system. It is natural for greed to set in when traders start reaping profit. However, there is a high chance of losing everything if that greed is not managed. Traders must set a daily target of maybe 5%, 10% or any feasible percentage gain, and withdraw from the operation after the target is reached. Trading with your emotion can also do a lot of harm than good. Day trading a sensitive asset like Ethereum demands a good understanding of the market and making of rational decisions to make a substantial profit.