Cryptocurrency trading can be profitable on occasion but it can also come with huge losses. In other words, the expectations for profits when trading must be balanced by the expectations for taking a loss. Crypto prices can change almost every minute and within no time, you may find yourself saddled with an instant loss or graced with an instant profit, regardless of the cryptocurrency you are trading.
It's called volatility. Still, that volatility can be a good or a bad thing depending on your trading acumen, knowledge, timing and the market forces that consistently affect the space you're in.
In addition to these considerations, remember that there are always ways to invest in crypto beyond trading including: masternodes, staking, and even investment products such as lending crypto for profit on different exchanges or apps, saving or hodling plans on many exchanges and which come with interests, etc or let's say you are doing mining some investment to mine. If, however, you've decided to trade, and you are a beginner, this guide is for you.
The markets/crypto exchanges
Crypto trading works more or less like any other kind of trading with any other kind of asset class. There are sellers and buyers on opposing sides, there are markets where these sides meet, and there are demand and supply forces that exert themselves on said markets. The key difference is that all transactions occur digitally, without most of the existing third parties standing in the way.
Cryptocurrency exchanges or trading websites, cryptocurrency trading apps, and many of the existing native cryptocurrency wallets now host their own markets, allowing people who have signed up for accounts with them to meet to buy, sell, and trade cryptocurrencies without using any other service. So if you want to be one of the people who's on the forefront of such an opportunity, keep reading. If, however, you want to dive deeper on crypto exchanges first, please visit this link.
If you're ready to start trading, then you need to buy some cryptocurrency. You can either buy it directly from these crypto exchanges and apps or wallets. On the other hand, you can choose to forego these options completely in favor of trading with your friends. If you're buying from an exchange, what you need to ensure is that the cryptocurrency you want to buy or sell is listed on that exchange. Once a cryptocurrency like Bitcoin is listed on a crypto exchange, then you as the buyer or seller can visit that exchange and buy or sell Bitcoin from others. This means for example, as the seller, you get to deposit your Bitcoins there and begin posting sell orders for interested buyers.
Most of the exchanges and trading apps require you to create an account with email or mobile and probably secure that account with 2F authentication enabled. Additionally, make sure to save your password and authentication keys and codes when the service you're using asks you to save them. Some exchanges allow you to trade without signing up at all, you merely choose a coin pair, enter the amount you want to swap and that's it.
Those are called decentralized exchanges, even when they're not fully decentralized.
Otherwise, on other exchanges, you basically place a buy order if you want to buy cryptocurrency or a sell order if you want to sell it. To facilitate quick and reliable liquidity, cryptocurrency exchanges allow you to deposit your existing crypto from any other wallet you have by sending it to a given wallet address. Once you follow the sending protocols from your wallet or other sources to the exchange, your balance will show on the exchange you've chosen.
Cryptocurrency wallets and wallet addresses
Generally, cryptocurrencies are stored in digital wallets and every wallet has a dedicated address to which you send crypto. The wallet is similar to your bank account and the address your back account number. A wallet address is a string of alphanumeric characters that identifies a wallet, to which you can send, receive and store crypto.
Most of the existing crypto projects have their native wallets designed in-house by their developers. Ideally, they're designed to have no one controlling them but there will always be a group that had the initial idea and funds for the project and works on developing it over time. In essence, a crypto project is set up to be sort of a community thing that's controlled via decentralized consensus and decentralizing a crypto is not that easy to achieve. Crypto exchanges are different because most act as owned third party projects or more accurately, as secondary markets for certain groups of cryptocurrency projects. That's because crypto is peer to peer and once you buy and own it, you can send it to anyone and they can send it to you, free of any sort of third party. With this, it's important to note that the importance of a secondary market is clear -- you find more people wanting it and you can also easily find people to trade crypto with, quickly. Listing is a term used when a crypto project agrees to have its crypto to be traded on an exchange.
Basically, crypto exchanges allow any trader willing to trade or speculate on crypto prices to create a wallet where they can save a digital thing called crypto. Creating a wallet is not necessarily a long process. Most exchanges let you reveal your wallet address for the cryptocurrencies they list with just a click of a button. Say I join an exchange and I want to sell or buy crypto from other people so I can speculate on it, then hold it as I wait for its price to go up. Maybe I also want to buy it and transfer it to a different wallet for some other reason. In both situations, all I need to do is create a wallet on the exchange, in which I can store my crypto. With some of the more advanced trading apps and platforms such as TabTrader, I'd also be able to sync my wallets from different exchanges without creating any new ones, then directly begin trading or buying.
Depositing and withdrawing crypto
For buyers, most exchanges allow for the trading of crypto for crypto. On the other side of things, the main link between crypto and fiat currencies is Bitcoin and Ethereum and other popular Altcoins which you can easily buy with fiat (USD, Euro or your other local currency) and then you can use these popular cryptocurrencies to buy other cryptocurrencies that are not possible to buy directly with fiat or national currency.
Most cryptocurrencies are not directly paired with fiat currencies and don't support mainstream payment methods like PayPal, Stripe, Western Union, or your bank account. That's just the way things are, at least for now. There is a limitation in regard to linking crypto with national currencies right now but there are several projects on-going about that. That's because ideally, a crypto is designed as a peer-to-peer thing for direct transactions.
Currently, if your native crypto wallet or your exchange does not support the direct buying of your coin with your local fiat currency like USD, you can use almost any national currency to buy Bitcoin for instance on sites like localbitcoins.com or Paxful.com. Typically, these sites support paying with PayPal and other mainstream local payment methods including bank transfers, mobile payments and cash. Paxful allows you to buy Bitcoin and many other cryptocurrencies locally as well using these mainstream methods. If your crypto is not available from Paxful or some other local method, then buying Bitcoin, Ethereum or USDT stable coin is advisable. Once you do so, you can then deposit the BTC, ETH or USDT to an exchange where the crypto you want to buy is listed. Keep in mind that new coins are only listed on a few exchanges so this is an easy process for many people.
So you basically buy BTC with your local fiat currency and then deposit it on your exchange wallet address as explained above. Then, you can buy the coin you wish or hold BTC to await its future appreciation in price.
Using exchanges to deposit and withdraw
Just a few cryptocurrency exchanges also allow you to deposit fiat such as USD, Euros, or other national currencies. By fiat we mean being able to allow you to deposit local currency as well as international ones like USD and EURO in order to buy the crypto that they list. Most exchanges have a USD/BTC pairs but lack USD pairs for other less popular cryptocurrencies, which means you will still need to begin with fiat, transfer it to something like BTC, and then buy your desired cryptos.
The best ones are the local peer-to-peer ones I mentioned earlier and crypto Visa debit/credit cards listed here which allow easier conversion from fiat and to crypto; but on top of that there are several other centralized exchanges that allow fiat deposits to trade with crypto. For a list of those that allow you to trade cryptocurrencies with fiat directly, find this link here. The most common are Coinbase and GDAX (Coinbase Pro) which support the buying and selling of crypto via debit and credit cards in hundreds of countries but may require more verification procedures in order to begin trading with them. See an additional list here.
Other exchanges that allow you to buy and sell a number of cryptocurrencies with fiat directly include Bittrex, Kraken, OKEx, Bitfinex, KuCoin, Poloniex, Cezex, Gemini, Kraken, and Bitstamp. Keep in mind that fiat-to-crypto exchanges still allow you to deposit or withdraw any crypto they support only that you cannot sell or buy them with local currencies. Then, there are apps such as Square’s Cash App and Robinhood that in the first case, act as Venmo with Bitcoin support, and in the second case, acts as a stock exchange for the average person with crypto support as well(beyond just Bitcoin). In general, these centralized exchanges list hundreds of cryptos but still refuse to support hundreds of others.
Traditionally, people who want to buy crypto with fiat but discover that the crypto they're interested in is not yet listed on these exchanges can still deposit fiat to buy BTC or ETH. Following this, they can then withdraw their BTC to a different exchange, app or wallet that lists/supports the crypto they want to trade. Most exchanges will list BTC or ETH pairs for any new coins.
Of all existing exchanges, crypto-to-crypto exchanges are the most common. They only allow you to trade crypto with other crypto and there are no fiat options, so the only thing you can do in this case, is deposit any crypto they support and then you trade it with another crypto on the same exchange. With this, you should remember that you can always withdraw the crypto involved, at any time.
Again, the tradition has been if you want to sell your crypto on these exchanges for fiat or local currency and there is no direct USD pair for that crypto, then it's better to use Localbitcoins or other peer-to-peer local exchanges. If the crypto that you want to trade for a local currency is not BTC, ETH, Monero, or BCH, then the likely option would be to convert the crypto involved to one of these currencies on an exchange where both currencies are listed. Once this is done, you can then withdraw the crypto as BTC(for example), then trade it on localbitcoins.com or other peer-to-peer exchanges in exchange for your local currency.
Advanced trading brokers such as MetaTrader and its alternatives, that feature advanced trading orders are also very common today among traders. These apps allow you to create an account and sync all of your accounts from all other crypto exchanges, apps and wallets so you can trade crypto on a single platform (across all of these accounts). So if you have many accounts with many different exchanges and are looking for advanced orders or maybe, looking for a platform on which to benefit on price differences on different exchanges, these broker apps are some of the best alternatives to use (most are desktop-based but there are mobile alternatives).
Apart from MetaTrader, other similar platforms exist like: AvaTradeGo, eTrading, FXCM/Trading Station, JForex, L2 Dealer, LMAX, MetaTrader, OREX, Power E*TRADE, ProRealTime, Thinkorswim, Trade Interceptor, XM, CryptoCapital, and XStation. These are also good options for finding USD pairs or being able to buy and sell crypto with fiat, directly.
Placing your crypto trading orders/order types
For traders, most trading technicalities involve understanding the exact type of orders you can place on the exchange to serve your purpose. When you place an order to buy, for it to fill, there has to be a matching sell order on the market or order book which is placed by other traders who either wait for a match or make the placement simultaneously to yours. Some exchanges do not use order books but do depend on peer to peer or some other kind of swapping, in which you do not have to place your order with an order book.
For those with order books, the primary order types are buy and sell orders that you place for those purposes of buying or selling. Beyond that, you are able to place sell and buy orders in the current or future market prices and these are called market orders. A market order is executed immediately at the current price you have set, just in case there is a matching sell or buy order. If you are placing a buy market order, it is to be placed at the current lowest sell price from the order book. If you are placing a market sell order, then it will be executed at the highest buy price from the order books. In other words, if you are buying, then the market price is the lowest sell price in the order books and if you're selling, then the market price is the the highest buy price from the order books.
Limit orders are the kind of orders you want to place to buy or sell crypto at a future price whether you are expecting it to fall or rise. A limit order sits on the exchange until the price you specified is reached to execute automatically by selling or buying at your pre-set prices. Another common example in this respect is the trigger order that allows you to set a price at which your order should sell or buy when a certain market price is reached. So you ask that the crypto be bought or sold (order be triggered) when the pre-set price is reached. The trigger and sell price are different or equal.
The others are advanced order types like trailing orders, trailing stop orders, stop orders, stop limit orders, take profits, scaled orders, one cancel other orders, fill or kills, good till cancelleds, hidden orders, iceberg orders, margin orders, post-only orders, close on triggers, and bracket orders. Most of these order types are explained here. Some of the exchanges supporting advanced order types include Bitmex and Bittrex.
Different types of cryptocurrency exchanges will support different types of orders. This usually depends on whether they are centralized or decentralized, and most will not support all kinds of orders we mentioned above.
Nevertheless, think about the different types of orders you can place in terms of the end goal you want to accomplish. Do you want to take a profit, limit losses, monitor a price, or sell a particular asset? If you're considering more advanced options, remember that they're usually only possible with algorithmic trading or bot-facilitated trading.
In any case, the most important thing to understand about crypto orders is whether or not the certain exchange on which you want to trade supports your most important order types. The second most important thing to understand is when you need to use the different types of orders during trading.
For instance if the market price is $10 and you perceive that your coin is going to drop in price in the future, you should place a stop loss order to limit future losses or a trailing stop buy order to buy more crypto at a lower price if you're actually hoping that the price will go up.
When to buy or sell: The techniques of buying and selling
With all of this in mind, let's just say you have determined that crypto trading is your thing. If that's the case, remember that the when to buy and sell a cryptocurrency question becomes clearer once you launch your actual trading strategy.
From the outset of things, your entry and close positions or the when you buy or sell a crypto is determined by the value of the project and then whether you are taking a long or a long shot on things. If you are hodling, you could enter early before prices plumpet but if you are shorting crypto, then you want to enter when prices are high. That factor is dependent on your choices.
Zooming out, as you get into an in-depth analysis of the market, your trading entry position is also defined by your analysis of the historical, present and possible future prices of the assets you're interested in being involved with. Furthermore, you can also build your strategy around buying events when for instance you do not have in mind a particular crypto to buy, or just let your strategy determine your entry and exit positions. Once you have a working and tested strategy, the rest is history. Most experienced traders recommend buying the dip.
The concept of buying dips is based on the theory of price waves where an investor buys when the price is low or has gone down and hopes or estimates that the price will go up so that they will sell the asset at a higher price for a profit. Even so, a drop can happen for many reasons and it may not necessarily reflect a true fall in the underlying value of an asset.
The rest of the buying and selling events are estimated through buying and selling signals, which is in the trading charts for each crypto, which are drawn using indicators (such as moving price averages) including long term and short term indicators; and/or defined through social sentiments about that given coin. Sometimes sell and buy pressures are created through pumps and dumps and one may adjust appropriately in order to achieve gains or avoid losses. It's pretty safe.
The other buying times could be during ICOs, IEOs and token sales and in bear then holding the tokens to gain some value to sell later.
Get yourself a crypto trading strategy
90 percent of traders lose money and only 10 percent win, while 96 percent of traders lose money and end up quitting. What kind of crypto trader do you want to be?
The purpose of a strategy is to let you fit your skills into the market instead of trying to constrict an entire market to fit your strategy. That's a major mistake for many traders. Instead of seeing the market from the outbox of their strategy, they want to see it inside of the particular box they've created. This determines whether or not you will be able to successfully open and close positions with much more freedom while you're trading.
In short, crafting a trading strategy involves more than just choosing the correct trading opportunities.
These are a number of factors to consider when coming up with an appropriate crypto trading strategy. The first thing to consider is the amount of money you have decided to trade and with this, it is advisable to ensure you invest after understanding how you can avoid losses and get real profits. Starting small is advisable and knowing how to handle the emotional bit of trading in the market will prove very helpful. Everyone loses trades sometimes.
Even coming up with a strategy is not a perfect process and neither is trading. In a general sense, a good strategy is built over time and even then, there will be times you win and times you lose.
First, let's look at some of the stupid mistakes to avoid when trading even though some are unavoidable. First on this list is overloading oneself with analysis with lots of indicators when the most important indicators to use are price, price candles, and volume; over-trading thinking that many trades will earn you a lot especially if you have set yourself a goal for a fixed number of trades per day or when trying to force trades in a falling market; trading without any understanding of the market; following pump and dumps and not acting appropriately inside of them -- a pump and dump can be generate profit or loss. A good rule of thumb is that if a pump is forcing you to buy, then it is the time to sell and if a dump is forcing to sell, then it is the right time to buy. The reason that people run pumps is so the price of a particular crypto asset can gain a huge value in a short amount of time, which is followed by a dump to drive prices lower and allow the pumper to buy the asset at an even lower price and perhaps, pump it again.
More specifically, pumps are dangerous because certain insider groups usually buy large amounts of a particular cryptocurrency to pump it up before announcing it as an opportunity to their groups. Shortly after this announcement, there's usually a flurry of fear-driven messages that are designed to pull prices down so as many people as possible will panic sell. In general, the best way to stay safe from these events is to have a strict trading strategy you can stick to because that makes it harder for you to follow indicators that are emotionally driven.
The other mistakes include being overconfident, failing to do your due diligence about possible price movements (from instance from market sentiments and technical analyses and being vigilant about news etc), and expecting to get rich quickly. In crypto buying and selling, being greedy is acceptable when others are not. Still, when it comes to a strategy, it might actually only hurt your trading especially when it has negative results in the end. Make sure to set achievable benchmarks relative to the amount of money you have invested. Adding more positions to a losing position is also a huge mistake. If there is evidence against your positions, it might be the time to close them or wait for the situation to improve before you can open more positions.
Besides this, profiting in a bear market is harder than doing so in a bull market unless you have a stringent set of rules you can stick to.
A number of crypto trading strategies are already available for copying and others for testing on a number of platforms before you can go full blast with a strategy. This strategy is known as "paper trading," and it can help you prepare for market events as well as win more trades over time. Simultaneously, you also buy yourself some time to learn what works and perfect your findings before experimenting with them in live trading. The other thing is to understand what exactly affects crypto prices, which are the most influential forces determining prices, how do crypto respond to these force and how to respond to each. Some of these are developed as you trade along.
Here are some strategies that are tailored towards beginners:
1. Long-term holding (The HOLD method): Hodl is the simplest trading strategy because it has less hustles: you just buy a coin, hodl it for a while and then sell it when it is the right time to make profit. Even with little knowledge, you can become successful as a Hodler. It is successful because most cryptocurrencies have grown or will grow over time since starting. With this strategy, you do not need to trade daily or do anything but buy a coin that has growth prospects, secure it in your wallet, resist selling pressures over time due to momentary drops, and wait to sell it one day to a make profit.
Still, we're not saying that HODLing is the most effective or profitable strategy in this list. Plus there are no guarantees that the price will go up at any given time or project would grow. Cost averaging, which is the buying of a fixed dollar amount of a particular investment on a regular schedule, can help you make the most of a Hodling strategy. For instance, if you can buy 1 BTC at $7,000, then after several days buy another at $6,400, then the average cost paid per BTC is now $6,700. You would still need to make sure that there are some real reasons for the growth of the crypto project before you can invest in a given coin, by doing some fundamental analysis before you make any sort of decision on the project in question.
2. Day Trading/intra-day: Day trading is buying and selling crypto within the same day and even multiple times during the day. This is in an attempt to take advantage of small price movements intra-day. This strategy, hopefully, seeks to have the trader benefit from volatility of cryptocurrencies. Being ideal for short term basis trading, it can be riskier than long-term holding and a person can lose significant amount of money trying to day-trade a coin that is greatly unstable and crashing. Although it is possible to trade several times a day, it's better to do so two or three times per day so you don't overdo. Day trading can be based on your trading skills as well as on helpful indicators that can help you identify trade entry and exit times.
3. Scalping: Scalping relies on identifying trading opportunities based on microfluctuations in coin prices over short time frames such as one, three and five minutes. Scalping is far more effective with crypto than traditional markets due to the crypto market's substantial, sustained volatility.
The method works best with high volume coins that are listed on major exchanges. In these cases, 0.5 to 1 percent movements in a minute are most common, even during periods of low volatility. Scalping is a very exciting method but it's also the riskiest and to protect one's investments, it is recommended to do tight stop losses. It is also recommended for more advanced traders who can apply algo trading or bot trading.
4. Swing Trading: Swing trading means trading over a slightly longer timeframe, which is usually a week or two. Typically, it's targeted towards harvesting larger gains over a longer time frame than day trading and scalping, and hence, it's ideal for beginners.
A swing trader is more concerned with daily and weekly charts than the shorter time frames. Both technical and fundamental analysis are, however, important to help determine whether a crypto will experience a significant price swing or has enough momentum building to change a trend. Both technical and fundamental analysis are important in determining price movements as are new developments in the news and events.
RSI or MACD and other similar indicators can help your to determine trends with regards to longer time frames. Chart patterns are also helpful when swing trading and can offer a good amount of information about the coin you're looking into, including when to enter or exit a position.
This sort of strategy is also advisable for those with a small to medium amount of capital to invest. It does not require tight losses like scalping does. However, even with this strategy, it's still advisable for beginner traders to avoid margins or leverages where you borrow crypto.
5. RSI Trading Strategy: This is a trading strategy based on the Relative Strength Index (RSI) which is very common and recommended for beginners. RSI measures the speed and change of recent price movements to help identify overbought and oversold markets.
In practice, most traders use an RSI of between 30-70 range and if it drops below 30 it means the coin is oversold (a potential for recovery) and if over 70 then it is overbought, which latter leads to a sell-off. However, many coins overextend for long periods of time, staying above or below the 30 without price reacting. For that reason, stop loss are recommended to be set right below the entry price.
Other things related to trading crypto
In most cases, you won't need portfolio tracking tools if you are using a modern exchange or a native crypto app (with trading feature) that allows you to track your portfolio as you buy and sell. However, a multicrypto portfolio tracking app can be helpful if your trading apps or native wallets do not have those features. Usually, these exist by default in modern multi-crypto wallet/app and crypto exchanges/apps.
For additional information on crypto portfolio tracking, refer to this article.
If you want to trade crypto, you would basically be keeping your crypto on your wallet and trading them whenever and however you want. Beyond this, there are also other crypto related products/derivatives with which you're not trading the crypto itself, but products pegged on the particular crypto's value.
These include futures contracts like Bitcoin Futures that launched for the first time last year, and perpetual futures where you buy a contract to bet on the direction of crypto prices (whether they are falling or rising). Basically, both of these options allow you to purchase a contract pegged onto a specific crypto's price and you will be able to buy or sell it at a predefined price and make a loss or profit that depends on the difference between the two bets (when you buy the contract and when it expires for settling). You can either opt for your purchased futures to be settled in cash where you pay the losses or the company hosting the futures pays you the profit, or you can opt for them to be settled in BTC where you will be able to do the same, free of fiat.
Perpetual futures are normal crypto futures that do not have a maturity date and are only settled in BTC or another crypto. Crypto options and binary options allow you to bet on crypto prices in the future and depending on your bet, you can lose or gain (just as things work out with perpetual futures contracts and similar options). For more details on futures, options and perpetuals, read this article.
Crypto variance swaps are another similar type of product where two parties can bet on the annualized variance or volatility of Bitcoin as their futures contract's underlying market. In the end, one party will pay the difference of this bet on volatility to the other party. The second party will have bought bitcoins at a given price and locked them in to avoid being affected by the volatility and the price will have moved in his or her favor.
Price manipulation, rogue advise, FUD, scams, hacks, falsefied data etc
There are bad sides to crypto trading. It is true that not all but some exchanges and trading apps and wallets inflate data to survive and so trading relying on that data will be as flawed as is the data itself.
Plus, if the deal is too good, remember to think thrice in crypto trading. There may be a pump pending a dump and while these can make you money, they can make terrible losses. Do you know when a pump and dump is happening and how you should respond? Price manipulation through FUD, wash trading, etc are real and gamified in crypto, it depends on your response.
Remember also to take responsibility for securing your crypto by not publicly exposing your passwords, using 2F authentication procedures and generally, every other security procedure that it is possible to use, for your wallet.
Finally, making lots of riches trading crypto is possible, but in most cases, it does not happen. Trading requires patience and attention.
The ball's in your court
If you know a way we can improve this crypto trading guide for beginner or advanced traders, don't hesitate to leave your comment in the comments section and share or send us your story.
As always, we do accept compliments and constructive criticism, including asking how much we have earned through trading crypto so far.
"Trading crypto is never a perfect process, it is a learning process."