Bitcoin, with it’s occasionally extreme volatility, and low fees per trade, is a day trader’s dream, and worst nightmare, at the same time. Due to the huge influx of novice traders attempting to day trade Bitcoin, heavily invested individuals manipulating the market, and a plethora of trading bots pushing the price in often unpredictable directions, it can often seem impossible for the average day trader to know when to trade. However, it is possible. I cannot speak for anyone else’s results, but I have had quite a bit of success by following the steps below.

1. Be disciplined when trading Bitcoin.

One of the biggest mistakes I see in Bitcoin traders, both beginner and experienced, is allowing emotion to influence their trades. I am guilty of this myself, as are all people, because my rational brain will attempt to justify an emotional decision. If all indicators are pointing down, and you are stuck holding coins, don’t allow yourself to irrationally hold onto them, hoping for an unrealistic upturn. That would be acceptable for an investor, but not for a day trader. From time to time you may get lucky, and catch a bull trap to sell into, but more often you will not. The same is true for the inverse. Do not get stuck in fiat during a strong rally. Accept your mistakes, buy Bitcoin before you have lost too much, and learn what to look for in the future.

2. Even with Bitcoin, Trust your Indicators.

Pick a chart with the indicators you want, and use them. There is a reason that most professional traders use a multitude of indicators, and often create rules, or algorithms, based around them. Charts, when combined with the proper indicators, will give you a huge advantage over the majority of the market. They allow you to spot trends, simplify decisions, and logically analyze the market. While Bitcoin may not behave exactly the same way that other markets do, it is similar enough to use many of the same tools as a traditional day trader.

3. Intelligently Choose Your Tools to Analyze Bitcoin Charts.

Choosing random indicators, with random settings, will not tell you anything about the Bitcoin market, or potential trends. Worse, you run the risk of misleading yourself with incorrect information. If you have no experience analyzing charts, or using indicators, then I suggest starting off with a couple of moving averages. I prefer EMAs (Exponential Moving Average) over SMAs (Simple Moving Average), but actually use 2-4 of each. When you are starting out, one long EMA, with a number of periods between 17 and 50, and one short EMA, with a number of periods between 5 and 13, should suffice. Also, try to avoid using time intervals that are too short. A 5 minute time interval will contain too much noise to be of any use. 15 minutes is better, but still a bit short for my tastes. 30 minutes, or more, will generally make spotting trends significantly easier. Shorter intervals can be useful to see potential trends, but should not be used exclusively to make trading decisions.

4. Do Not Overload Yourself With Information. Too Many Indicators Can Skew Your Perception of the Trends in Bitcoin Price.

It can be tempting to fill a chart with every kind of indicator available, expecting to analyze the market completely, but that is a trap. When piling on more and more information, you may lose sight of the bigger picture, as well as the small details. Too much analysis of a single chart can blind you. Try to limit the number of indicators on a single chart to an amount that does not cause an overwhelming amount of clutter. Also, choose indicators that synergize with each other, rather than ones that have little relation to the style of trading you are doing, which is day trading Bitcoin. Analysis going back a year is unlikely to help you, as you should be more concerned about today, and Bitcoin’s long-term growth has very little to do with the charts. If you still want to use more indicators, I suggest using multiple charts. I tend to use a few charts at a time, with varying time intervals and indicators, so I can quickly get a feel for the different aspects of the market without “missing the forest for the trees.”

5. Read the News. Not All Bitcoin Related News Will Have an Impact, but Big News WILL.

In most markets, good or bad news can have a huge effect on the price of a stock, future, derivative, etc. This is not only true for Bitcoin as well, but is often amplified. Good news can send it rocketing up to new heights, while bad news can cause it to crash down to lows that are a fraction of a previous high. Keep tabs on all Bitcoin, and general digital currency, news. If something amazing has happened, it may a good idea to buy and hold. If the news is bad, then expect the bears to come in. While it is a bad idea to trade on your own emotions, it is still important to understand the emotional trading of others.

6. Be Ready for Breakouts, in the Bitcoin Price, with Strong Trends.

This idea was touched on in #5. Day trading Bitcoin is a lot of fun, and can be very rewarding. However, you need to be prepared to switch to bullish investor mode if the market goes into another bubble style rally. This generally happens at times when new sections of the population are starting to adopt Bitcoin, a new, positive breakthrough in use, regulation, or development has happened, and large investments are coming in. In the past, these rallies have resulted in the price increasing by an order of magnitude or more. Conversely, if the news has been nothing but negative, Bitcoin related companies are going bankrupt, and the general population is becoming more skeptical, it may be time to sell and take a step back. Never try to catch a falling knife. It is much better to miss a bottom, and buy in when the price has stabilized a bit, than it is to buy in during a strong downtrend, only to have prices sink lower and lower. In both of these situations, the usefulness of charts and indicators is deteriorated significantly. They can still be used, but should not be completely relied upon.

Following these rules, along with a bit of research into how the various indicators function, will allow you to day trade Bitcoin with relative safety. Of course, nothing is a guarantee, and that is especially true in a market like this. Unlike many other investments, Bitcoin has the potential to go to both extremes, in terms of worth, very quickly. On top of that, the exchanges themselves can be dishonest, as has been demonstrated over recent months. I have faith in the current leaders of the exchange market, and there are very trustworthy players working to enter the market, but trade at your own risk. Never day trade Bitcoin, or day trade at all, with more than you can afford to lose.