In this article, we will see what cryptocurrency is best to trade based on day trading or swing trading.
We will discuss the advantages and disadvantages of trading different cryptocurrencies and what to be aware of, depending on your strategy. We will discuss which cryptocurrency is best for you to trade based on your conditions and requirements. We will go through various factors that influence the choice of which cryptocurrency to trade.
We will give you some cryptocurrency trading tips on what cryptocurrency to trade based on the following factors:
- Liquidity and Trading Volume
- Spread and Fees
The best cryptocurrency for you to trade will be highly dependent on your crypto trading strategy.
Therefore, before we start, let’s update and clarify some strategies that will be mentioned throughout the article.
- HODL Strategy: Long-term investor with a couple of trades per year
- Swing Trader: A medium-term investor with a couple of trades per month.
- Day trader: High-frequency trader with several trades per week or even per day.
Best Cryptocurrency to trade based on Liquidity
Liquidity means how much value is exchanged during a certain time frame.
A trader is looking for high liquidity in the market because it creates less volatility and the risk for a large market gap decreases. Often, the liquidity correlates well with market capitalization. The larger the market cap is, the higher the liquidity. For extremely large volume traders, such as institutions, the importance of liquidity is paramount. However, for small volume traders, like most retail investors, liquidity is not a crucial factor.
Pros: High liquidity reduces the risk of the market gap
Cons: Low liquidity creates larger turns and entails higher risk
Example: Bitcoin and the top cryptocurrencies offers high liquidity and high trading volume.
Best Cryptocurrency to trade based on Volatility
Volatility means how much an asset or a cryptocurrency moves at a certain time interval.
A trader wants volatility as this means a change in price and that is what creates a potential for profitable trades. When trading, you can make a profit both in an upward price change but also during a downward movement.
Bitcoin (BTC) is the least volatile cryptocurrency.
Volatility often correlates with total market value. The higher the market value is, the lower the volatility.
Pros: High volatility creates prerequisite for profit
Cons: High volatility increases the risk of large losses
Example: Bitcoin and the top cryptocurrencies offers low volatility compared to the altcoins with lower market cap.
Best Cryptocurrency to trade based on Availability
Bitcoin is known to be the most accessible digital currency in the market. Traders can find Bitcoin basically on all crypto trading platforms.
Actually, Bitcoin and cryptocurrency gains more and more availability in former fiat and forex trading platforms.
Availability is important since the more available a cryptocurrency is to trade, the more platforms, trading tools, and trading features are available for traders to use.
Swing traders and day traders need extra trading tools and features since they often rely on several factors for their trading, such as crypto technical analysis, technical indicators, stop loss, limit trades, margin trading, etc.
Pros: If accessibility is high, you can choose between several platforms
Cons: You may need to choose a platform that lacks trading features you are looking for
Example: Bitcoin and the top cryptocurrencies offers high availability compared to the altcoins with lower market cap.
Best Cryptocurrency to trade based on Spread and Fees
The spread is the difference between a buy and a sell order in the order book. For some trading platforms, this is the only “fee” you pay while using their service. It can vary between different trading platforms and it is very important for high-frequency traders since they might have several hundreds of trades during the day.
If you are a long-term investor and are trading with a low frequency, you don’t need to consider the spread and fees at all.
Pros: Tight spreads reduce costs and increase your trading margin
Cons: High spread and fees can eat up your winning margin if you are a high-frequency trader.
Example: Bitcoin and the top cryptocurrencies offers tighter spread compared to the altcoins with lower market cap.
Best Cryptocurrency to trade based on Potential
Small investors are always looking for that $1 million-worth trade or get rich fast. High potential can make a lot of money. However, you should always remember to weight the potential profit and the risk involved. That is one of the key points that differ professional traders from unprofitable amateurs.
Pros: With great potential, you can do a higher profit in terms of percentual gain.
Cons: When you are looking for small altcoins with high potential you need to conduct thorough research. It is very easy to fall for ICO scams or promising projects that will, most likely, fail. This is a borderline to a lottery.
Example: Bitcoin and the top cryptocurrencies offers lower potential than the most promising altcoins. Nevertheless, many altcoins don’t have any potential at all.
Conclusion – The Best Cryptocurrency for Day Trading and Swing Trading
In this crypto trading guide we went through the most important parameters to look into before you choose what cryptocurrency is best to trade for you.
There are different cryptocurrencies that might be the best to trade dependent on your requirements and strategies.
HODL Strategy: You should look for availability and great potential. The spread and fees are not important at all. The liquidity and volatility are nothing to consider either. If the cryptocurrency is very volatile you should split your investment into several deposits to minimize the risk buying at the peak.
Swing Trader: You should look for high liquidity, trading volume, availability and low fees. You don’t need extreme low fees but still, they will cut your margin.
Day trader: You should look for high liquidity, very high trading volume, high volatility, and extremely low spread or fees. The long-term potential is not highly important.