Should you engage in day trading the Bitcoin? Bitcoin daily trading can prove to be lucrative when you are more proficient in trading than most traders and adept at handling risks. So, day trading Bitcoins is not something that anyone can do because there are many things that you would have to consider before taking the plunge. According to estimates, almost 95% will fail at it. Incidentally, research shows that the numbers are even higher.
What is day trading?
Trading implies buying Bitcoins and selling them at profits. In the real world, people in stock markets trade a variety of things like shares, stocks, currencies, and metals like silver and gold. The intention behind trading crypto coins is similar, except that trading goals can be long-term or short-term. This refers to the duration for which you would like to hold onto an asset. Day trading is obviously short-term trading where you hold the asset for a day at the most; it could be as less as a few hours or even seconds. So, you need to be able to sell off the asset by the time a day ends, hopefully for profits. Traders will need to use different techniques for daily Bitcoin trading but the two key things are chart analysis and speculation.
Speculation refers to the trader’s belief that a price will either go up or come down due to a certain event. The other strategy used by day traders is chart analysis which is when they study price movements of a specific crypto asset and try and predict which direction it will take. This decision is based upon historical price movements. The charts will help you follow the crypto asset’s prices after a few seconds or minutes. While the odds of failure are so high, more and more traders want to give day trading a shot. Why does this happen?
Day trading may be profitable but it is extremely challenging, emotionally exhaustive, and much more likely to make your life difficult rather than fulfilling. Statistics shows that almost 80% traders give up after a couple of years, only 13% keep at it after 3 years, while only 7% remain after 5 years. Strangely though, traders having a 10 year negative record continue day trading. This fact is an eye opener that tells you that even when traders can spot negative signals they do not back out. Almost all day traders lose and they lose quite quickly; they make mindless investments and underperform; yet, they continue trades.
One reason for this fact may be because most traders experimenting with day trading are clueless about the challenges ahead. They find out the challenges and learn hard lessons once they have invested. They are unable to keep their emotions separate from trades and fail to see the psychological challenges. These traders also do not follow a defined system and take their trades beyond established rules.
Another possible reason why day trading may not work for traders is random reinforcement. This refers to using arbitrary events for qualifying or disqualifying an idea. Traders try to find support for their negative or positive behaviors from outcomes which are not consistent by nature. Novice traders had been making money with this strategy of random reinforcement in 2017 by simply investing in random altcoins and thereafter selling these with immediate gains. But the following year the Bitcoin bubble burst and amateurs had no idea how to handle the drawdown. So, for day trading, a trader has to have a well-defined and tested plan.