Become a Crypto Trader: Your Ultimate Guide to Trading Cryptocurrency
January 31, 2023
5 min read
Cryptocurrency trading has become somewhat of a hot topic over the last couple of years. Everyone wants to dip their toes into the vast waters of the bustling cryptocurrency market with the hope of making massive profits. But can we blame them, really? After all, trading has proven to be one of the most profitable financial instruments of the digital age.
Unfortunately, handling cryptocurrency is way more challenging than it sounds. That's why crypto trading requires specific skills, abilities, and knowledge, just like all other forms of financial trading. To become a professional cryptocurrency trader, you must have analytical skills. While cryptos promise massive profits, it should be noted that they are riskier and more volatile than traditional financial instruments.
This article will provide a comprehensive guide to becoming a professional crypto trader. You will gain extensive knowledge of how trading works, understand market performance and acquire skills that help you make more informed decisions. But before we get into all that juicy stuff, let's explore some basics.
So, what is Cryptocurrency Trading?
In essence, it is the act of speculating price movements of a digital asset via a CFD (Contract for Difference) account or the buying and selling of crypto coins via a digital assets exchange platform.
CFD trading is a form of derivative that allows you to make speculations on the price changes of specific assets without possessing the base currencies. For instance, if you believe the value of BTC will rise, you can go long on BTC or go short if you think its value will fall.
Since both long and short positions are leveraged instruments, you will only need a small deposit (known as margin) to have exposure to the market. However, both your profit and loss are still calculated according to the size of your entire position, only that the leverage magnifies the profits and losses.
When trading cryptocurrencies, the aim is to achieve profitable outcomes over a certain period. But keep in mind that trading is different from investing. And that's what we'll explore in the section.
Crypto Trading Vs. Investing; What's the Difference?
As you learn how to trade cryptocurrencies, it's crucial to differentiate between investing and trading. These are two general terms in crypto that sometimes tend to yield confusion. Trading involves gaining profits over a certain period, while investment involves holding assets for the long term. While these two concepts are different, the end goal is typically the same; to make profits from your activities.
To expand on that, crypto investing looks at the long-term trends of specific assets and ignores the small short-term fluctuations. For instance, if you buy 3 BTCs right now, you expect the investment value of your asset to increase after a couple of years in proportion to the asset's price at the time and yield you more coins.
On the other hand, when it comes to cryptocurrencies, it's all about short-term fluctuations. For that reason, it's essential to understand the daily market trends. Your goal is to earn dollars. You will be buying assets at low prices and selling them at high prices. As the value of a specific asset rises, you will need to sell it to make maximum profits from your investment accounts.
Cryptocurrency Market Vs. Stock Market
Cryptocurrency and stock market are the most popular ways fo investors to build massive wealth. While both intruments appeal to crypto traders and investors, cryptocurrencies are frequently viewed as a viable alternative to more traditional assets.
So how exactly do they differ? Unlike investing in the stock market, with cryptocurrency you don't get to own the stocks of a certain companies. In that, there are no dividends being paid to crypto ivestors in the traditional sense. Instead, it involves lending or staking of digital assets for passive income.
There are also significant differences in how cryptocurrency and stocks are traded. You can buy cryptocurrency at any time of day or night at any digital currencies exchange platforms, whereas stock exchanges have limited hours on weekdays.
The Best Techniques for Trading Cryptocurrencies
Essentially, two main methods are used for analyzing and evaluating the cryptocurrency market. These two techniques are Fundamental Analysis (FA) and Technical Analysis (TA). They have been around for generations and have been successfully applied to traditional financial market assets.
While these two techniques are often complementary, you can also use them independently. With that said, in this section, we will analyze these techniques and see how best one can apply them to become a professional cryptocurrency trader.
1. Fundamental Analysis (FA)
Fundamental Analysis is the art of a trader using an asset's financial and economic factors to determine its value. With this kind of analysis, you can tell if the asset is overvalued or undervalued at its current value. If you can get the answer to that question, you can decide whether or not to invest and how long you should keep the investment.
When it comes to cryptocurrencies, the Fundamental Analysis will involve both on-chain and off-chain metrics. Some on-chain metrics include active and dormant wallet addresses, hash rates, network fees, token inflation and deflation, network applications, and transactions. The good thing is that most crypto networks are public, so you can easily access all the necessary on-chain information.
To track on-chain metrics of different assets, you can also utilize sites such as Bitinfocharts.com. The website has loads of valuable data that is easy to navigate. On the other hand, off-chain metrics in crypto include factors such as government regulation, exchange listings and community development.
2. Technical Analysis (TA)
Technical Analysis is generally a trading discipline where the trader uses an asset's historical price action to predict its future price movements. A trader will need to use a wide range of technical indicators in technical analysis. That includes trade volumes, candlesticks, chart patterns, moving averages, and trend lines.
Technical analysis helps the trader to identify trading opportunities and potential entry points to the market. The good thing is that technical analysis can be used for day trading, scalping or long-term investments.
Fundamental Analysis Vs Technical Analysis
Fundamental and technical analysis are both great trading techniques. So, if you're wondering which one is better, I'll tell you this; it depends on your trading profile. What do I mean? If you want to make short-term trades and get in and out of positions multiple times daily, then the technical analysis will work best for you.
On the other hand, if you prefer to do extensive research and make informed decisions to support long-term trades, then you will need a blend of both. After all, while the FA might confirm that a particular asset is worth investing in, the technical analysis could show it's not yet the right time to do so.
Indeed, there are advantages to using FA and TA trading techniques. That's why to become a professional crypto trader; you should learn how to leverage both techniques so that you have a complete outlook of the market.
Cryptocurrency Trading Strategies
To become a professional crypto trader, you need a solid trading strategy. Simply, it is a plan investors follow when executing their trades. It includes the kind of assets they want to invest in, how frequently they should execute trades and the size of their investment.
With that in mind, this section will analyze some of the best crypto trading strategies. But before that, let's discuss reasons why every trader, whether seasoned or beginner, needs one.
Why Do You Need a Trading Plan?
It helps keep your emotions in check: One of the most significant challenges every trader faces is the interference of emotions. Your emotions are likely to impede your judgement, especially if the price of an asset starts moving in the opposite direction of your prediction. And when this happens, you will likely spiral into an emotional roller coaster and make bad calls. Luckily, with a strategy, you can successfully keep your trades free of emotions.
It's a map: Your trading plan is more like a map. Therefore, it's crucial for you to stick to your trading strategy. That's because it helps to direct your trades and advises you on when, how and why to execute specific trades.
It helps with managing risks: To create an effective trading strategy, you must conduct the necessary research. And part of that research involves the risk factor involved in each trade. Identifying the amount of risk involved in each trade takes you a step closer to managing your risk accordingly.
Which is the Most Common Cryptocurrency Trading Strategy?
Professional traders implement four popular cryptocurrency trading strategies across the entire industry. They help to securely buy and sell assets depending on the short-term markets, gaining profits from the market's instability. They include;
i. Day Trading
This is a strategy that involves holding an asset for a day. In essence, the traders will enter and exit a position within the same day. With this kind of trading, you need to pay attention to fundamental technical analysis as it will help you identify the current market trends and conditions. While day trading offers small profits, it gives you a hedge against overnight market volatility. You only get to hold a position for a couple of hours.
Scalping is a short-term trading strategy that most experts use to gain instant profits. With scalping, traders hold the coins for just a few minutes or seconds. Although the gains aren't as much as other strategies, scalping helps you accumulate profits that compound to large sums throughout the day.
To successfully execute scalping, you must enter the market during the busiest hours. That improves your chances of profiting from the market. Professional crypto traders use scalping in order to benefit from the small price movements throughout the day.
iii. Swing Trading
When it comes to the swing trading, traders could hold a position for several days or weeks. The trades could be intermediate trends from 1 to 30 days. If you are not available to trade assets every day and spend most of your time on your primary job, you can implement swing trading.
That's because, with swing trading, you don't have to worry about the daily ups and downs since you are holding the trade for more than a day. But at the same time, it's crucial to keep up with daily trends to ensure you gain maximum profits from your trade.
iv. Position Trading
Also known as trend trading, this is a strategy that involves long-term investment in assets. A trader invests in an asset when its price is low and sells when it is high. In most cases, there could be a long period between opening and closing the position.
Trades executed through this kind of setup could take months or years. And for that reason, it's an excellent strategy for crypto traders looking for a more hands-off approach. That's because crypto traders are not concerned about minor fluctuations, only the major market trends. Some people may refer to this strategy as HODL- Hold On for Dear Life.
Risk Management in Crypto Trading
This is another crucial aspect every trader should pay attention to. It refers to the chance of an undesirable outcome happening. That's why it's an essential part of your success journey. Trading cryptocurrency is risky; that's why you need to properly manage your risk. With that said, in this section, we'll cover the different kinds of risks involved in a cryptocurrency market so that you can factor them in when making trades.
a) Liquidity Risk
Liquidity risk often happens when you are unable to exit the market. Usually, it occurs when you can't find a buyer for your assets.
b) Market Risk
Market risk is the most widespread of all. It happens when a specific digital asset or the entire market swings unexpectedly and the prevalent market conditions negatively affects your open positions.
c) Operational Risk
Operation risk occurs when a trader is unable to perform a trading activity, such as opening or exiting a position. A malfunction of a trading app or platform could cause this.
d) Systemic Risk
System risk refers to loss incurred due to the failure of the entire system. While systemic risks are closely related to market risk, this is caused by a market downturn and the unexpected collapse of vital systems in the marketplace. For instance, the financial crisis that occurred in 2008 was a systemic failure that further led to a market meltdown.
e) Legal Risk
Legal risk occurs when government regulations or policies negatively impact a trading platform or an asset. For instance, if buyers are barred from purchasing a particular asset, you could start experiencing liquidity risk. Also, if a specific platform is banned from your jurisdiction, you could lose your assets if you have them stored on the platform.
Cryptocurrency Portfolio Management
Most professional crypto traders often have more than one asset in their portfolio. And for that reason, they need specific tools to manage their investments and trade efficiently. This is where portfolio trackers come in.
A portfolio tracker is a mobile or desktop software application that helps track all kinds of investments in the crypto market. It also enables you to measure your performance so that you can quickly improve on it by making better investment decisions.
Portfolio management systems tell you how much of a particular asset you hold and where it's stored. It also indicates how much you've lost or made from specific trades. As a seasoned trader, sometimes you may have to maintain multiple portfolios.
After all, you might employ different trading strategies simultaneously. In that, you could be actively position or swing trading while still scalping and day trading. To become a certified cryptocurrency trader, you will need portfolio trackers, news aggregators, and data portals to gain real-time data that can help you make better trading decisions.
Factors to Consider When Picking the Best Cryptocurrency Exchange
As cryptocurrency popularity and widespread adoption increase, traders must identify the best platforms to trade crypto assets. And with that, there are multiple factors to consider that will help you choose the best exchange for your needs right off the bat.
While crypto traders have specific priorities when choosing cryptocurrency exchanges, most of the people in the crypto space will consider the following variables;
Before picking your ideal cryptocurrency exchange, familiarize yourself with the fee structure. That helps you determine the ideal trading strategy. Why does that matter? Let's say you decide to scalp or day trade.
That means you will be entering and exiting trades multiple times in a day in order to make a profit. Your overall profit will depend on the buy/sell spreads as well as the trading platform's fees. So, if other factors remain constant, you will likely profit more if the fees are lower.
Liquidity refers to the number of assets and the sizes of different order books. To determine the reliability and popularity of a digital asset exchange platform, you should check the trading volume in that specific exchange and compare it to other platforms.
Security is one of the most vital factors that you can't overlook, by all means. When choosing a crypto trading platform, ensure it offers the best security protocols. That ensures its assets and those of its customers are well protected. And on top of that, see if the platform provides an insurance policy as an extra layer of security.
iv. Payment Options
Before you start trading or investing your money through a specific trading platform, traders should check the available payment options. That could be wire transfers, credit cards or crypto-to-crypto transfers. This is vital as while some platforms offer a wide range of options; others can have pretty limited options.
v. User Experience
When choosing the ideal crypto trading platform, ease of navigation is another critical factor to consider. Whether you are a seasoned crypto trader or buying Bitcoin for the first time, an easy-to-use UX makes it easier to find any features you'd want to use, place orders and track your orders.
vi. Customer Support
While most platforms are very easy to use, it's good to consider how easy it is to reach the customer support team. To determine the efficiency of a platform's help care desk, you can read reviews online, especially on Reddit. You need a quickly accessible Help Care Desk as sometimes unprecedented issues may arise.
Best Practices for Successful Cryptocurrency Traders
Although cryptocurrency trading might sound easy and straightforward, many factors work together to determine your chances of success. To start with, keep in mind that crypto trading is not a get-rich-quick scheme. While the crypto market has the potential to bring in massive profits, so are the risks involved.
It's more of a wealth-building and income-generating method that requires skill, discipline, and patience. With that in mind, here are the best tips that successful cryptocurrency traders practice.
i. Always Do Your Research
The cryptocurrency market is vast and comes with a wide range of trade protocols. Therefore, it would be best to find a way for researching and understanding the market from your own point of view. Make sure you know all the pros and cons of investing in such a broad market. Only proceed to trade once you are sure what you're doing.
ii. Set Clear and Well-Defined Goals
The cryptocurrency market is one of the most volatile financial markets. Therefore, entering the market without well-defined goals is like financial suicide. You need a well-defined trading plan and a goal to succeed. For instance, you could choose to put higher sell orders and lower buy orders.
This strategy could work pretty well to ensure you get maximum profits. But don't let your ego take over. Always strive to be realistic, start small, and work your way up. After all, the smaller gains are the ones that make the most profit in the crypto industry.
iii. Manage Your Risks
We cannot stress this enough; digital currencies come with pretty high risks. So unless you can control your emotions, you won't be able to make any reasonable profits. And now that you understand the extent of risk involved with trading cryptocurrencies, it's imperative you manage your risks properly.
Risks management starts with measuring the market's instability to determine each trade's possible positive or negative outcome. While it's essential to take chances with the prospect of winning more significant profits, always make sure your moves are well calculated. This applies to positions you open on all coins.
iv. Explore Different Trading Strategies
Since the crypto market is volatile, it changes almost every other day. So, if you want to be on top of your game, you must try different trading strategies on the same assets. You can use dummy accounts for the practice.
And the best part is that they reflect exactly what happens in the actual market. Also, you can thoroughly back-test strategies you are interested in to make sure they work before utilizing them in your live account.
v. Diversify Your Investment Portfolio
You'll often hear the phrase, 'don't put all your eggs in one basket,' being used. Well, this rule heavily applies to the crypto market. While trading certain digital assets can be lucrative, the risk of loss comes in equal measure.
Therefore, if you want to become a seasoned cryptocurrency trader, you need to do your research and diversify your portfolio. If you have put your money into trading different assets, you can cut your losses in case of sudden market movements in the opposite direction.
vi. Invest Only Money You Can Afford to Lose
Like all other financial instruments, trading cryptos can be profitable, or you could lose all your money. That goes to show you just how risky it can get. Therefore, as a trader, only invest money you can afford to lose. Market crashes happen all the time, and the worst part, in most cases, is that they are unpredictable.
Crashes have happened before and almost every crypto analyst says they will likely occur again in the future. Also, there's never a guarantee that you'll get your money's worth even if you do everything according to the book. Therefore, avoid investing all your savings and retirement plan in the cryptocurrency market.
vii. Stay ahead by Keeping up with Trends
The cryptocurrency market is ever-evolving, meaning we have news aspects of trade every other day. With that in mind, if you want your investments to do well, you must stay up to date with what's happening in the industry. You need a place where you can collect information and perform data analysis to help you make an accurate judgement regarding trends.
The good thing is that there are multiple reliable news sources, including cable news, Telegram, Twitter and Blogs. To maximize your profits, constantly adjust your portfolio accordingly. On top of that, keep up with notable trends and recent developments in the crypto industry.
viii. Leverage Automated Tools
There are multiple tools out there you can use to make the most out of your trades. Just like what happens in tradional financial markets, automating your trades helps you take advantage of dollar-cost averaging. Luckily, most exchanges allow you to set up recurring buys at specific price points.
For instance, you can set up the platform to purchase a fixed amount of their preferred digital aset every week or every month. That ensures you are constantly accumulating your preferred currency when the prices are low.
ix. Be Aware of FOMO
If you make the right moves, cryptocurrency trading can be a gold mine. However, putting in your money just because of Fear of Missing Out is the most unprofessional way to make a market move as a trader. Of course, FOMO is a significant factor that drives prices in the crypto market; it should always be treated with great precaution. And why is that?
FOMO could present you with a chance to double your gains, but it could at the same time trick you into getting into the market at the wrong time. Remember that sometimes the sudden movements in price could be a trick by the whales.
These significant coin holders (whales) have a proven track record of artificially boosting the prices of cryptocurrencies to trick novice traders into buying specific assets at a higher price then they dump the market.
x. Understand that Mistakes Do Happen
Even with all these tips at the back of your hand, crypto trading is not a get-rich-quick scheme. To make it in this volatile market, you need skill, patience and discipline. However, remember that even professional crypto traders could sometimes make mistakes and make huge losses.
Sometimes, traders could even lose their capital. That's why discipline and risk management are crucial at the end of the day. All in all, when such mistakes happen, learn from them. Don't lose hope.
What are the Benefits of Cryptocurrency Trading
There are several benefits to trading cryptocurrencies. The obvious and most talked about is that this entire system runs on a decentralized network compared to the centralized authorities that have been dominant in the financial markets. But that's not all!
1. Cryptocurrency Volatility
Even though the crypto market is relatively new to the financial space, it has experienced significant volatility due to speculation on the short-term frame. Typically, new technology is likely to attract speculative interest; hence, this market has rapid price jumps that investors, traders, and leverage.
More importantly, this market's unpredicatability makes it so attractive and exciting to traders. Generally, rapid price movements allow traders to go short or long, depending on their analysis. However, this also comes with a high risk of liquidation when the trade doesn't go your way. With that in mind, ensure you have done enough research and 'safe' risk management strategies.
2. 24/7 Crypto Market hours
Contrary to the other financial markets, the crypto market is available daily throughout the year. More importantly, transactions occur between individuals on a decentralized exchange platform.
3. Faster account opening
Compared to other financial markets, cryptocurrency buying and selling accounts are easy to open. Within minutes, you can create an account and begin trading almost immediately, which is not the same as other financial markets.
4. Improved liquidity
Undoubtedly, liquidity is essential since it brings about better asset pricing. Traders get excited when they enter the crypto market. That's because they can easily exchange their cryptos for cash without affecting the market price. What's more, the transaction is swift.
Frequently Asked Questions
Q: What moves the cryptocurrency market?
A: Supply, the media, key events, market capitalization and integration of crypto into existing infrastructure.
Q: Which is the best technique full time trading?
A: While there's no specific strategy you should use a full time trader you can take advantage of different strategies to create your personal plan. That includes; scalping, technical analysis and automated trading. All of these can make you massive wealth if well utilized.
Q: Is trading digital currencies profitable?
A: Yes, it can be profitable just like any other financial trading market. However, that will only be the case if you accurately predict the direction of price movements at the right time. But since the crypto market can be very volatile, always take steps to manage your risks accordingly.
Q: How can you tell if an exchange platform is secure?
A: Generally, almost every certified cryptocurrency trader considers the biggest and most popular crypto exchanges the most secure. That's because they have many users and an equally large team supporting their operation.
CEO, Benco Services
I have been heavily involved in social media development, growth, marketing strategy and community management of culture related channels for 2 years, working on and owning numerous social pages with hundreds of thousands of members/followers. I then moved to more project management and business management positions within the projects I operated in.