7 Ways to Reduce Day-Trading Risk and Increase Profits

Hi! My name is Patrick, and I have been day-trading cryptocurrencies for over a year, and in that time I have learned many valuable lessons. Day-trading is appealing because it offers high rewards at the expense of high risks. Whereas holding requires a general outlook on the state of a coin, day-trading involves countless specific variables that can change at any second. Being able to reduce the risk at which these variables impact your investment while maintaining relatively high reward values makes your trades that much safer, and can help tilt your investment flow in a positive direction. Here are some steps you can utilize to reduce risk while day-trading:

1 - Invest in popular, high-volume coins:

Although ICOs and pennycoins offer the potential for unimaginable rewards, your risk is also unfathomably high. Even with less popular alt coins (market cap position 25+), you run the risk of the market sinking due to a string of bad events, failed technology, etc. High popularity cryptos are generally considered more stable in the long-term, and are more resilient to market changes. They follow TA more closely, and this is proven by the sum-of-gaussians theory. If more people are trading a currency, outliers are less likely to affect the price, and the overall coin value trends with the consensus of the traders.

2 - Invest in high-turnover coins:

Many cryptocurrencies are prone to hoarding. Although in theory this is a good concept, as nobody wanting to sell their coins indicates a bullish outlook, it can have devastating effects. Changes in volume for low-turnover (average % of total volume traded per day) coins have larger effects than changes for high-turnover coins. Additionally, higher turnover rates can coincide with lower rates of FUD, however turnover rates should be studied, as there are positive and negative signs associated with each type.

3 - Invest in Proof-of-Stake (PoS) that are set to rise:

PoS coins are an amazing way to mitigate risk and losses. The concept is that you have a threefold system for securing earnings:

1 - The trade works out well, you held the coin for a short period of time and made no/negligible PoS rewards.
2 - The trade took some time, but eventually returned to previous levels or even higher. Additionally, some of the PoS reward currency was received.
3 - The trade became a long. Since the long-term is set to increase, the larger PoS rewards will become more valuable, making holding the coin even more valuable.

PoS doesn’t reduce your risk in the actual market, but it does reduce your overall risk by compensating you during your trade. Look for PoS coins with high rewards and/or high prospects. For example, NEO, QTUM, and OMG are expected to make gains in the next few years. Receiving small amounts of the currency now can add up to large payoffs in the long-term, and this often happens when day-trades go wrong. Additionally, holding onto those high-prospect coins incentivizes trade gains and PoS gains.

Day-trading can go hand-in-hand with PoS. Use day-trading to increase the total number of staked coins you can have. Use the staking rewards to add on to your day-trading cap. No, PoS rewards usually aren’t substantial, but if you plan on day-trading often over the course of the next year or more, you’d be silly not to utilize it to increase your gains.

4 - Plan short-term, and medium-term, and long-term:

Most day traders are eager to get their hands on a good trade, and this often means impatience and fear when a coin doesn’t go in the direction predicted. We’ve all been there: you find a coin at what you believe is a great entry point, and after a few hours, the coin has fallen to what seems to be irrecoverable lows. Every minute you sit on those coins is another lost opportunity that might arise if you find another good coin. Especially if you get stuck with a coin that doesn’t have much long-term potential, you get stuck asking yourself: will it ever recover?

To reduce this risk, research the hell out of the coin, and make predictions about what you think the price will be in an hour, a day, a week, even months from now. If they all look good, you can be confident in any trade you make. If you buy in and the price drops after an hour, sit back and wait a day or two. If it still hasn’t recovered, bunker down and give it a few days or a few weeks. If any of your outlooks was correct, you’ll have an opportunity to cash out.

If you’re forced to wait longer, make sure to increase any stop-gains you have. You want to capitalize on large movements if you’re forced to wait a longer amount of time. Whereas in the short-term you want to cash out quickly to mitigate risk, long term recovery usually indicates resilience and can be met with higher expectations of earnings, which brings me to the next point…

5 - Cash-out fast and cash-out often:

Don’t be afraid to make small, quick trades. Finding an opportunity and getting 1% returns in 30 minutes is great - even if the price rallies up 25% over the next day. Cryptocurrencies are too volatile to get hung up on opportunities that you cashed out on too quickly, you could have just as easily lost 25%, and losses penalize you more than gains do.

For example: if you have $100, and you lose 50%, you now have $50. If you make another trade that gains 50%, you’ll only have $75 at the end. If you have the same $100 and gain 50% after one trade, you’ll now have $150. If you lose 50% on another trade, you’ll end up with $75 again. It’s more important to cash out on positive movement when possible, and to mitigate possible losses before they happen. The longer you keep a good trade open, the more possibility there is for it to go awry.

6 - Don’t be scared to fail:

If you’re ever scared of a big drop or incurring large losses, remember this: you can only lose up to 100% of your money, but the amount you can gain is unlimited. The goods outweigh the bads in cryptocurrency investing right now, because growth is unbounded. If you invest $100, you can only lose up to 100% ($100), and even then the chance of a currency tanking to $0.00 is very unlikely if it is somewhat reputable. That $100 can rise 100%, 200%, 500%, etc. Positive movement is unbounded, negative movement is bounded. That said, don’t be scared if a price moves down after you initiate a trade. If you’ve done your research, the gains that you planned on realizing quickly may come slower, but they are (probably) still there, and can grow unbounded as time goes on.

7 - Never buy at all-time highs:

Don’t do it. Just don’t. The risks outweigh the reward. Yes, I have made super quick super big returns on pumps that bring a currency to all time highs even after the surge has started, but I have been burned way more times. If that’s what you’re after, by all means pumps are quick and easy ways to get high returns quickly, but if you want to make safer day-trades, just ignore pumps altogether. It’s so tempting when they’re soaring, but don’t do it. Seriously.