How to trade cryptocurrency include a wide range of topics like what Cryptocurrency Trading Really Is, Main Points to Understand Before Trading Cryptocurrencies, Types and strategies of Cryptocurrency Trading and how to trade them
Cryptocurrencies started in 2009, and its pioneer is well known to all of us, the father of all cryptocurrencies The Bitcoin. Since then the digital currencies have become a famous instrument for trading because of their extremely volatile nature, making many fortunes but also destroying many more others.
There are now more than 3500 different types of digital coins available for crypto trading. But the beginners mostly want to stick with Bitcoin and Ethereum for trading cryptocurrency as they are the most well know and old cryptocurrencies to trade on with a lot of trading pairs multiple crypto exchanges
Other most common cryptocurrencies that are considered attractive for cryptocurrency trading are
- Binance Coin
- Huobi Token
- Stellar Lumens
- Ethereum Classic
- Bitcoin Cash
Cryptocurrencies are created by a process known as mining, by mining new coins are produced and added to the circulating supply of that coin. The process of mining gives cryptocurrencies the unique feature that allows anyone to mine crypto and produce new coins making it a decentralized solution against the centralized fiat currencies where the government or state banks can produce or print fiat currencies like Dollar, Euro, etc
Read in Detail: What is Cryptocurrency Mining-Everything You Need To Know
What Cryptocurrency Trading Really Is?
Crypto trading can be correlated to stock or forex trading. In stock trading, you invest in the stock of different firms like Nike, Google, Netflix and million others considering that the stock of that company will rise. In forex trading, you buy and sell fiat currencies against each other like Dollar, Japenese Yen, Euro, GBP, Chinese Yuan and hundreds of others. In the same way in trading cryptocurrencies, you trade these digital assets against each other
There are three cryptocurrencies whose trading pairs are most begged and most traded. Bitcoin, Ethereum and USDT.
Bitcoin has trading pairs like BTC/ETH, BTC/XRP, BTC/USDT, BTC/ADA and the list keep ongoing. USDT has many trading pairs like BTC/USDT, NEO/USDT, Vechain/USDT and many other and so like Ethereum
Now the thing to understand is that how that pair of BTC against any other crypto will work. Take an example of BTC/USDT pair (USDT stands for Tether USD dollar). In this trading pair when you will buy BTC you are going to give away your USDT to get BTC, At this moment if the price of BTC goes up while you are holding BTC then by selling BTC you will get back your USDT in more amount. But if the price of BTC dropped while you are holding it, selling it will give you a reduced number of USDT, against your original invested amount which shows that you have suffered from a loss.
Similarly in Bitcoin, Ethereum pair (BTC/ETH) to buy BTC against Ethereum you need to sell Ethereum to have bitcoin and vice versa
Other than the most commonly used trading pairs for cryptocurrency trading, the cryptocurrencies pairs vary from one crypto exchange to another. The pairs for Coinbase will be different form Binance Exchange and trading pairs from Binance exchange will be different from Okex Exchange. That’s why to trade your preferred crypto you need to have an account on multiple exchanges, where your needed trading pair is available
The superly volatile nature of the crypto market has allowed cryptocurrency exchanges to introduce margin and futures trading, these are the style of trading where you can use the utility of Leverage. In Leverage trading, you can multiply your profits with 1-100x of leverage but such type of cryptocurrency trading is only for advanced crypto traders, those who know how to take and manage losses in leverage trading.
Even intermediate traders show not try such type of trading because leverage trading takes no pity in completing liquidating (Abolishing) your crypto trading account in no time
Watch a video to understand how to trade crypto:
Main Points to Understand Before Trading Cryptocurrencies
Attention towards trading cryptocurrencies has been on the rise since 2017 when bitcoin crossed 19000$ mark. New and young investors are more attracted to trading.
Cryptocurrencies as crypto promise profits and loss in a very short time as compared to stocks where you have to wait for days to complete your trade-in either direction.
Happily, now top cryptocurrency exchanges like Coinbase, Binance exchange, Kucoin, Okex, Bitfinex, Kraken and some others have made buying cryptocurrencies very comfortable. They have offered methods like buying crypto with credit cards, Wire transfers, etc. Making the purchase and then trading cryptocurrencies accessible and simple for every one
However, some very common points need to be respected before you start doing trading
Market Cap and Trading Volume
The first cryptocurrency trader necessitate to think before beginning trading in any coin is the market cap and trading volume of any particular coin
More than 6000 cryptocurrencies are being traded on a list of very long crypto exchanges. So choosing your coins for trading wisely can be a difficult task. Market capitalization or market cap is the size of the company, It shows how much investment traders are willing to put in any coin.
Coin with a larger market cap determines the trust of the investors. Market cap is calculated by multiplying the price of a digital coin with its circulating supply. Coins with large circulating supply and market cap are less exposed to huge dumps and pumps and price manipulations and the price of the coins with a low market cap can very comfortably be shaped by the whales.
Crypto traders also must see what trading volume a coin has before jumping into trading. Large trading volume means that it is easy to buy any coin and then sell it, and in low trading volume, traders can struggle to buy or sell the coin. Very low trading volume is also the indicator that explains the crypto coin might be dead, crypto exchanges also delist such coin frequently.
Setting up Stop Loss and Take Profits
Cryptocurrency trader or any other market trader must not fall to emotion trading and should have a proper plan about its entry and exit points even before getting into any trade. Generous traders always stick to their trading plans, losses and profits don’t weigh that much than to stick with your trading strategy
Setting up Stop loss is a must-do thing for all the new crypto traders. As the crypto market is very volatile, the price of a coin may go up 20% in no time but it can come 30 to 60% falling like a stone in hours, so its better to take 1, 2% losses or whatever you can afford to lose than to take 40 to 50% losses, losing your capital and then keep on waiting for a long time that the price may increase to cover your losses
Stop-loss depends upon the crypto trader. How much any trader can afford to lose makes his strategy for a stop loss. The most practice is setting up a stop loss of 2-4% below your purchase price. But you must remember that in this sharp moving market of crypto, Large traders most commonly known as crypto Whales will use Stop Run and Stop Hunt strategies to drive little investors out of their trading positions
So in this fast-moving and manipulated market, it’s safer to take small losses and live to trade for a different day than to hold any coin that keeps on losing its worth over time and so you will your capital
Protecting You Digital Coin
Next, when you are set up for trading cryptocurrencies, the big step is to keep your cryptocurrencies safe, you can keep your coin protected on top crypto exchanges as these exchanges have taken very strict security measure to protect themselves from hackers but still, the most basic method is to hold your crypto on hardware wallets like Trezor, Ledger Nano S away from the internet, You can also secure your crypto in mobile, online or Desktop wallets
Financing in cryptocurrency is not complicated or unsafe. Crypto Trader just needs to have a plan of trading and one must do its research before beginning
Types of Cryptocurrency Trading
There are two basic types of crypto trading. Short term and Long term trading. Let us get into the details
Short-Term Crypto Trading
As the name shows in short term cryptocurrency trading you buy any crypto for a limited period of time hoping that the price will go up. This period of holding can be minutes, hours or for some days
The main advantage of short term trading is that price if goes up can give you some very quick profits, unlike traditional stock markets where price move almost 1% a day, cryptocurrencies can give you fast 10 to 30% instantly
As mentioned again and again the crypto is a fast-moving market o you need to check your emotions, it is very disturbing for new crypto traders if the price moves in the opposite direction of their interest.
Plus you need to investigate a lot to pick a right coin for you that can give you quick profits as there are hundreds of coins available to trade, picking a right coin with sufficient volume along with right timing can be a challenging task for any cryptocurrency trader
Point to Remember
Always apply stop loss to restrict your loses as financial markets care for none plus start to endure losses and no one is capable to make 100% profits right from the start
Long-Term Crypto Trading
The long term cryptocurrency trading is that when you purchase the digital coin and hold it for months or years, you should have heard the term “HOLD” in the crypto community which means to keep on holding your coins don’t sell them at lower prices and a day will come when you will be in profits
The style of trading is most beneficial when a market is moving upwards for a long time, like Gold that has been on the rise for more than 15 years, in the case of cryptocurrencies Bitcoin is a great example. Those who were able to acquire Bitcoin in 2011 in large size and held it till today are bitcoin millionaires now
The main advantage of long term crypto trading is that you do not have to do a lot of technical analysis of charts and graphs, you don’t have any need to keep on checking the prices after every hour or minutes, it’s uncomplicated in the sense that once you have done buying you have to do nothing else but wait
The other benefit of this style of trading is that not a lot of investing amount is required to start with, you can grow your investment with time by buying periodically with the amount of extra money you save from your earnings
The disadvantage can be you can lose some very good opportunities to make quick profits, assume a price of the coin rose over 50% in a day and then came back to its starting point after another day or two, you missed that 50% rise in price because you are holding for longterm and not selling you assets
Another limitation can be that as your ambition is to hold for the long term, you don’t pay attention to the bad news affecting your holding assets, any bad news regarding the team of your asset or government regulations can dip the price of that coin to that extent from where it may not recover again
Point to Remember
Even if you are holding coins for the long term always be in contact with the social media and crypto news to keep yourself updated to avoid complete loss of capital in case of any grieve news
Cryptocurrency Trading Strategies
Five main cryptocurrency trading strategies can be used in short and long term trading cryptocurrencies
Automated Crypto Trading
As the world of cryptocurrencies continues to mature, more and more services are being offered to a crypto trader to simplify the crypto trading process and make gains, Automated crypto trading is done by Crypto trading bot
A cryptocurrency trading bot is a software that is designed to analyze cryptocurrency trading data and place sell or buy orders on behalf of a crypto trader.
Cryptocurrency trading bots are made on predefined rules. But once you’ve purchased a bot, you can customize the trading bot according to your trading liking.
The person cannot stay awake all day and night and can never control its emotions while trading cryptocurrency but cryptocurrency market is active all the seven days of the week so crypto trading bot are becoming popular as they perform cryptocurrency trading without emotions and 24 hours a day
Read a Detail: Review on 3commas trading Bot
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Read in Detail: Cryptohopper Trading Bot Review
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Read in Detail: Top 17 Best Crypto Trading Bot
Holding Your Coins
The most common term that is used in crypto is to Hold your coins. Some time holding is not respected as any strategy of cryptocurrency trading because you do nothing else and just hold your coins. The holding includes buying any digital coin and leaving it hoping that its price will increase in future but the opposite (the price fall of that coin) can also occur
Crypto trader that is involved in scalping is the most active cryptocurrency traders, such type of trading require a lot of time in analyzing markets, sitting in front of the computer display for a long time to take profits from the small market movements
Scalping is a trading strategy in which crypto traders make profits from small price changes. Traders who execute this type of trading make ten to hundred trades in a single day with the hope that little moves in crypto prices are more straightforward to catch than large ones
Scalpers must take into account trading fees of the cryptocurrency exchanges, as traders make a lot of trades every day to take small profits, their gains are useless if their profits are not more after deducting the exchange fees
Scalping involves the trading time of seconds or minutes, the main ideas is to quickly book some profits before the price start a big movement again, scalping require a very strong exit strategy and strong decision-making skills to catch the price movements and remain profitable
Day Trading Cryptocurrency Strategy
Day trading cryptocurrency strategy involves a trading technique where cryptocurrency trader keeps their trades open for long hours and sometimes even for a day or two depending upon the market situation
The difference between day trading and scalping is that day trader takes a lot more time to finish their trades and in scalping trades are executed in minutes not if in seconds
Day trading crypto needs a lot of trading knowledge, Charts reading ability, Use of technical indicators, Strong decision-making skills and control of emotions. Day trading is done by active traders and most of them are full-time crypto traders that try to generate their living from day trading cryptocurrency
In swing trading, the crypto trader tries to take advantage of up and down movement of the market for a few days to some weeks. Swing trading also needs a lot of fundamental and technical analysis of cryptocurrencies
Swing traders are more patient than day trading cryptocurrency as they are more measured and do not fear from small price fluctuations.
The main difference between the day trading cryptocurrency strategy and swing trading is the time factor. Day trading crypto is based on a few hours or a day or two but swing trading is for a longer period
Swing trading is considered to be the most profitable and widespread type of trading cryptocurrency strategy
In Position trading, the crypto trader holds a trade for a longer period of time almost for a month or year. Such traders ignore short term price movements. In position trading, most investors go long on their trades while holding for a longer period
Position trading promises very huge profits but the factor of risk cannot be ignored. Such type of trading strategy cannot be used for the option of livelihood.
Position trading demands a lot of detailed research on white paper and preceding market history of any coin before investing in it for long term
Buy The Rumour, Sell The News
That another day trading cryptocurrency strategy to buy the coins on the rumor and sell when the real news comes.
Suppose there is a rumor that some coin may soon launch on any top cryptocurrency exchanges like Binance exchange, the price of that coin will begin to increase after that rumor, that might be a great time to buy that particular coin for good profits and then selling it before the real news of launching comes in
You should sell the news because the whales in the market are far more active than you. They gather the coin, in much more numerous quantity than you and when the real good news of any crypto comes, they sell their large bags to buyers than come in much bigger numbers to buy that coin after hearing the good news
So that’s why after the real news happens, the price of already pumped coins may dump instead of going more up
How To Trade Cryptocurrency
Trading cryptocurrencies is very similar to trading forex or stocks, in trading cryptocurrencies, cryptocurrency trader must focus on using the best crypto trading platform like Binance exchange, Coinbase or others
- Open an account on any Top Cryptocurrency Exchange
- Deposit Funds to that Exchange
- Start Trading
- Securing your Funds in Wallets
The opening of an account on any crypto exchange is the easiest task. You just need to provide your Email and password and your account is created.
After opening an account you need to verify your account if you want to increase your withdrawal limits
Read in Detail: How to open an account on Binance exchange
Read in Detail: How to verify your identity on Binance exchange
Open Account on Binance Exchange
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Open Account on Binance US
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After the account is opened you need to fund your account to start trading
Read in Detail: How to deposit cryptocurrencies on Binance exchange
Read in Detail: How to buy Bitcoin on Binance exchange with a credit card
Read in Detail: How to buy bitcoins with cash?
Read in Detail: How to Buy Bitcoins with Paypal?
Read in Detail: How to Get Bitcoin?
After depositing funds into your account now you are all set up for trading cryptocurrency
Read in Detail: How to Trade on Binance
Read: Margin Trading on Binance Exchange
Read: Future Trading on Binance Exchange
Securing your Funds in Wallets
After trading, you can keep your funds in the exchanges but most desirable is to put them in cryptocurrency wallets
Main Types of Cryptocurrency Wallets
The main types of cryptocurrency wallets are
A desktop wallet is installed on the user’s computer, giving complete control over funds and relative security.
There are thick desktop wallets that allow users to download network blocks and verify their authenticity, as well as independently manage their funds.
Users of thin wallets do not have to download blocks and can download them on a portable device.
Best desktop wallets are:
Also read What is Bitcoin Halving?
When using a web-based wallet user’s private keys are stored online on a server that is controlled by someone else and is connected to the Internet.
In this way, users can easily access their credit from any device around the world.
However, there is always a risk that the server will be hacked or even the organization running the service will take control of your bitcoins
Best online wallets are:
Mobile phone, cell phone Wallets
The main advantage of a mobile wallet is that the user’s credit is always available. It is a very convenient method of paying for goods by scanning QR codes
Best bitcoin mobile phone wallets are:
Hardware wallets are dedicated portable devices that contain private keys and make payment easier.
There are different types of hardware wallets, but all of them allow users to virtually carry any amount of cryptocurrencies in user pockets.
Best Hardware wallets are:
One of the safest options for Bitcoin storage is to use two QR codes that are generated using a specific service.
One of them is a public key, address through which BTCs can be received.
The other is a private key that you can use to send bitcoins stored at that address.
Frequently Asked Questions
Is Trading Cryptocurrency profitable or not?
Trading cryptocurrency is no doubt profitable. But you need a lot of trading knowledge and emotionless performance. The more you are emotionless in trading cryptocurrency the better results you will generate from your trading. But you must remember that trading is not that easy that you will start earning from the first day because if that had been the case everyone would have been committed to doing trading cryptocurrency. Trading is a very intricate job that wants a lot of mixed skills of trading and analysis
How much amount is required to start trading cryptocurrency?
There is no fixed amount to start your cryptocurrency trading journey rather minimum cost depends upon the trading platform you are willing to trade, For example on Binance exchange you cannot perform any trade with less than 10$ amount
Do you need any License to start trading crypto?
You do not need any license to trade cryptocurrencies. But you may need to verify your identity after making an account on a crypto exchange. The condition for verifying your identity may vary from exchange to exchange. Binance exchange allow you trade and withdraw up to 2 bitcoin without verifying but on Coinbase you need to first verify your identity before depositing and start trading
Is Trading Cryptocurrency Legal?
Trading cryptocurrency is legal or not depends upon which country you are living in. Some countries may allow you to trade while some will put obstacles on every action related to cryptocurrency