Crypto Trading Advantages: Algorithmic vs Day Trading
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Day trading is the buying and selling of assets on the same day, on the basis of small, short-term price fluctuations. The practice has existed for decades and has been used in other markets long before the invention of Bitcoin and other cryptocurrencies.
With the proliferation of centralized and decentralized exchanges, crypto investors have thousands of assets to day trade at any given moment around the globe.
Investors also have the ability to automate many of their strategies with automated, or algorithmic trading on exchanges such as KuCoin, Pionex, or Binance. Automated trading has immense benefits, like automated stop losses and grid trading.
Both day and algorithmic trading methods have their share of advantages which will be discussed in a concise manner throughout the remainder of this article.
Day Trading Advantage:
NFTs and DeFi
When utilizing a day trading strategy, investors have access to a larger pool of assets and instruments than automated traders. This is because day traders have access to NFTs and DeFi, which provide myriads of new opportunities that cannot be found on centralized exchanges.
If you’re looking for a quick “in and out” play, OpenSea or MagicEden could provide hundreds of short-term NFT investments.
Also, if you are looking to invest early in a project that isn’t listed on major exchanges yet, you could visit Decentralized Exchanges such as UniSwap or PancakeSwap to purchase newly minted projects.
Automated Strategy Advantage:
The crypto markets are volatile and unlike the stock market, they run 24/7. With day trading, you need to manually buy and sell all of your positions, which can be difficult when balancing a job, a family, or simply any commitment throughout a lifetime.
With automated trading, you can set your stop losses and take profits with participating currencies on centralized exchanges.
For example, if you are only willing to take a 10% loss on that asset, you can set those parameters from the onset of your trade, freeing you up to search for your next investment opportunity.
Day Trading Advantage:
Arbitrage is purchasing an item or goods at one location and selling it at another, ideally making some profit along the way.
An example would be if you find that Ethereum is going for $1215 USDT on KuCoin, while it is going for $1225 USDT on Gemini. You would purchase the lower-priced ETH on KuCoin, and immediately sell it on Gemini to make a low-risk, $10 profit.
Automated trading bots do not have this ability, meaning exchange-to-exchange arbitrage needs to be done manually. Arbitrage will always exist in cryptocurrency because of Automated Market Makers, the underlying technology that makes much of DeFi possible.
Due to the mechanisms of AMMs, there will always be under and overvalued (within a small %) cryptocurrencies on open marketplaces. Arbitrage traders actually help the cryptocurrency market by stabilizing and unifying asset prices among multiple exchanges.
Automated Trading Advantage:
Crypto prices move fast, and with the amount of noise in the space, most traders will miss key moments and miss out on gains. Delays in transaction throughput or exchange executions can also slow down day traders.
By utilizing a grid trading bot, investors can make a profit off of market volatility in the background. Essentially, the user sets prices in which the bot will always buy or sell a given asset.
Let’s say the bot is ordered to buy $100 worth of ETH every time it goes below market rate, and then it automatically sells the $100 ETH above market rate. You may be making hundreds, if not thousands of small but profitable trades daily all while removing the human error of manually executing each trade.
There is no trader that will be able to notice and execute such grid trades faster than a well-designed bot. Grid trading can also provide traders profit during a sideways market, something difficult to do with manual day trading.
At the end of the day, comparing day trading to automated trading is like apples and oranges. Sure, they’re both fruits, but that’s about it. Utilizing both strategies in the correct situations will yield you far greater results than just relying on one strategy alone.
By utilizing your time to study and learn about upcoming NFTs and promising ICOs, you can generate profit off the swing trades of those riskier assets while the bots generate revenue on more mainstream assets like BTC or ETH without any human error that comes with day trading.
The upside of a low market cap NFT or cryptocurrency is much higher than day trading large market cap projects like ETH, BTC, or Solana. An NFT with a $10,000 market cap, will only need $10,000 to double in price. While ETH would need an additional 15.7 billion dollars to go up 10%.
This isn’t an endorsement of low market cap projects or any NFT, but if we were to take the risk of a day trade, we would want the upside to be far higher than the safer route of automated trading. When deciding how you choose to invest, always DYOR and consider the risks involved with any asset.
Is day trading better than automated trading, or vice versa?
Each strategy has its own benefits and risks. A combination of both trading strategies may yield the best results.
How can I get involved in day trading?
You can day trade on centralized or decentralized exchanges.
How can I get involved in automated trading?
You can participate in automated trading on centralized exchanges like KuCoin. Pionex, or Binance and through signing up for a trading app such as Stoic AI.
Is there anything illegal about either type of trading?
Please consult a legal professional within your locality to determine the legality of your trading activity.
Who is Cindicator?
Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.