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 capitalize on small price movements in the market by using high amounts of leverage, as well as short-term trading strategies.
This method can yield gains of 10% to 100% 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 instead recommend the ‘buy and 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, then selling it at the highest price possible. The day-trader is often lured by potential gains but it’s worth considering that impatience, inexperience and plain over-excitement can increase risk and potentially lead to steep losses.
Well-known investor Peter Lynch once said, “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”
The pitfalls of day-trading
Informed decision-making is paramount and applies to all aspects of investment. It’s important to weigh the good, the bad and the ugly before taking any action.
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 at the horse races last week but somehow fails to mention his losses over the past year. Similarly, a trader who has experienced the high of making big money that one time will have no issue discussing the trades that led to his financial gain, but will often leave out details of his ‘failed trades’ or trades that resulted in financial loss.
On top of that, day-trading requires high capital or leverage so traders can maximize profits. It also requires close attention and an in-depth knowledge of the market. These things are by no means impossible but must be considered carefully prior to engaging in any trade.
One must also take into account the emotional and psychological aspects of trading. If or when trades go south, there is expectedly a natural impact on the trader’s thoughts, feelings and behaviour. We are human, after all. This can lead to more mistakes and that’s where the slippery slope starts, often involving 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. Furthermore, the fees incurred can be pretty high as well.
For example, if a trader makes 10 trades a day with a $10,000 capital, each trade has a 0.2% fee for both taker and maker.
This equates to:
$10,000 x 0.2% = $20
$20 x 10 = $200
A total of $200 will be spent on fees, using up 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 that enables investors to plan, buy and sell prices for different cryptocurrency pairs. This function removes the emotional aspect of trading as investors are not involved in the buying and selling process, therefore reducing the chances of making mistakes.
Investors can either use an AI bot — which automatically plans the prices between grids —or manually key in the parameters they have in mind.
Figure 1: Manual Trading Settings | Huobi Global
The benefits of this include:
- The accumulation of the cryptocurrencies’ lower prices when the market dips
- The automation of buying, selling, taking profit and stopping loss without interference
With Manual Settings, investors can adjust the ‘quantity of grids’ that will affect the profit margin per grid. More grids = lower profit margins, fewer 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, maintenance or 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 their 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 from which you can withdraw any time, or a special featured account for when new coins are introduced onto the platform.
3. Huobi Prime Pool
Instead of going through a token offering or token sales, investors can leverage Huobi Prime Pool to receive new tokens being listed.
By locking up tokens in Huobi Prime Pool, investors can receive new tokens that have not yet been listed on the exchange. Once they have been listed, investors can sell these new tokens for other cryptocurrencies or keep these tokens and sell them when prices rise.
Figure 3: Huobi Prime Pool
The aim of this article is not to paint day-trading is bad or unprofitable because it can indeed be a highly profitable channel. The aim here is to be honest and realistic about how success ultimately lies in the hands of traders with the right skills and 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 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.