Cryptocurrency trading is one of the fastest growing areas of trading. It attracts investors with the opportunity to quickly get an impressive profit. But in order to trade effectively, you need to devote enough time to training. And you need to start with the basics.
A cryptotrader must understand what cryptocurrencies are and how to choose a coin suitable for trading.
You need to study trading strategies, understand their advantages and disadvantages, and master several of them.
It is critical to understand how to work in the market and be able to use fundamental and technical analysis.
Perhaps, independent training in all the subtleties of cryptotrading will seem too difficult, then you need to find out the criteria for choosing training courses.
A trader should understand all the variety of crypto exchanges and choose one or more platforms for constant trading. Of course, he must also understand where and how to store coins, so as not to lose their earnings.
Finally, they should know the basics of trading psychology and the key rules of risk management.
We will tell you about all this in order. And let’s start with the question of selecting coins for work.
Correct selection of cryptocurrencies to work with
Before you start trading, you need to conduct an analytical study to choose a cryptocurrency or several coins that are supposed to be traded.
However, if a trader is a novice and takes the first steps in the digital market, it is better to start trading by choosing the most popular assets, since there is enough information about them on the Internet. A well-known cryptocurrency will be a good simulator, because it is most often used to show the effectiveness of trading strategies, these coins are discussed on forums and social networks, and their behavior is more predictable.
When the initial training period for trading on popular coins is completed with positive results, you can try trading another cryptocurrency.
First of all, you need to evaluate the following parameters:
how long has the coin been around;
features of its technology and infrastructure: where and for what it is used, whether there are applications, what is the speed of transactions, what is the frequency of updates;
how competent is the development team, in particular, whether there are well-known figures in the cryptocurrency industry;
media background: cryptocurrency representation on specialized sites, forums, popularity dynamics, expert reviews, reviews of ordinary users, the frequency and nature of news, and so on.
Further, a more detailed analysis of the most interesting coins is carried out. When evaluating cryptocurrencies, you need to consider the following factors:
What is the peculiarity of the cryptocurrency, what it was created for, what is its utility – this will determine its prospects and applicability for trading;
Whether the coin is traded on exchanges: obviously, you should invest money in assets that are invested in several, better on many, crypto exchanges;
Number of coins: if there is already a lot of digital currency on the market, then its price is small and will not be large in the future;
Issue: if a large volume of coins is programmed to be issued in the long term, then its value will grow slowly and slightly; on the contrary, if its issue is limited, then the price will grow, especially if most of the currencies are already issued;
Mining: the more complex and energy-consuming the process of working here, the higher the price of the coin;
The higher the asset price, the higher the risk of correction – earnings can be large, as well as losses;
The lower the price of a cryptocurrency, the easier it is for trading and, theoretically, the higher its growth potential and less risks;
Market Cap: you can check this parameter on the website coinmarketcap.com. For trading, it is believed that the coins of the TOP 100 list are more suitable; the interface of the Coinmarketcap site with the main market parameters of cryptocurrencies looks like this:
The volume of trading within 24 hours — the larger it is, the better for working in the short term;
Volatility is a key quality of cryptocurrencies, which allows traders to earn money in this market; the higher this indicator, the more opportunities to make a profit on a short distance; price fluctuations are evaluated in a short period of time, but they also analyze the dynamics over 3 months, six months and a year; also, you need to consider how it corresponds to the General market trend;
The ratio of risk and profit, which is determined by: at the minimum price — the risk of falling to this level; at the maximum price – the potential profit for a period of time (six months or a year); the trader determines the data, focusing on what parameters should start trading. The optimal solution is considered to be a situation when the potential profit exceeds the risks by 5 times.
After determining the main parameters of the cryptocurrency, it is worth evaluating additional factors that affect the dynamics of its price. For example, its anonymity can be considered an additional advantage.
Having gained experience in trading cryptocurrency, you need to look more closely at new coins, so as not to miss a promising asset. New currencies can be more useful than old ones: if they are designed with the disadvantages of popular assets in mind, and if the community appreciates their progressive qualities, they can significantly increase in price.
Trading strategies: what is it
The trading strategy arranges trading and makes it convenient for analysis. Out-of-system actions will never lead a trader to stable positive results.
Crypto trading has been around long enough for market participants to identify template strategies that are convenient for a beginner to start trading with. Later, when they have mastered one or more of the most frequently used strategies, they will be able to develop an individual methodology.
All cryptotrading strategies can be divided into two main types: taking into account time parameters and analyzing the market situation.
Intraday trading: analogous to a normal business day, when a trader opens and closes positions during the day or day. When exiting trading, it closes all positions until the next session. One of the most common and quite pragmatic strategies. The price of cryptocurrencies can change dramatically over night and the closing of all positions to prevent losses. But on the other hand, the trader will not get the profit that would be waiting for him if he correctly predicted a sharp price movement.
Positional trading: with this strategy, the trader only works at a certain point in time, for example, when a trend reverses. It is impossible to predict events on the crypto market with sufficient confidence. if a trader predicts a reversal, then he starts trading at any time when this happens. This strategy has certain advantages: the market player works with one factor that is easily identified, he uses few tools, reacts monotonously and makes mistakes less often. But in doing so, he misses the opportunity to make money outside of the event that he is currently focusing on.
Swing trading: trading here is carried out within a certain long cycle from 10 hours to several days. The trader puts a position at the beginning of the transaction, waits for the end of the cycle, puts another position and fixes the income. So, it works with cycles of decline or growth of the coin price, a period of increased volatility or flat. The advantage of this strategy is that to a large extent the cycles follow the laws and the results of trading are more predictable. On the other hand, a crypto trader does not earn on short sharp price fluctuations that are very typical for virtual coins.
Scalping: a crypto trader tries to make money on every price movement. This is high-frequency trading based on a superficial market analysis. Minimal fluctuations in the cryptocurrency exchange rate are always observed, so scalping is possible at any time. The strategy requires constant attention of the trader, the ability to quickly predict the situation and respond to its change, which comes only with experience.
Among the trading strategies that are based on the analysis of the market situation, it should be noted:
Trading on a pullback: the investor tracks the moment of a small correction after the maximum or minimum price within the trend. For example, the value of a coin is steadily growing, an uptrend prevails, but a continuous growth of any asset is impossible, at some point there is a correction – a slight decrease in the price. It is at this point that the trader buys the cryptocurrency, and the coin returns to the uptrend. Given the prices of many cryptocurrencies, even a small correction can bring a significant profit to the investor, but this strategy requires a very good understanding of the market.
Trading on the rebound: implementing this strategy, the player waits for such a mark on the falling trend, after which, as follows from the analysis of the situation, the price will begin to grow – this is called a rebound. After that, it can sell cryptocurrencies at a higher price. This technique also assumes a very good knowledge of the market.
Impulse trading: to work with this strategy, the trader must see an impulse – a certain movement of the price rate towards growth or decline without correction. In this case, it buys the asset at the beginning of an uptrend or sells at the beginning of a downtrend.
Trading for a breakout: this strategy implies an accurate forecast of the moment of the breakout – the price level that “breaks” the trend changes. That is, if we are talking about downward trends, the trader determines when the price has broken through the lower mark and buys the asset at the lowest price, and the price rushes to growth.
There are many more methods of working on the crypto market, but the options listed here are essentially ready-made trading templates, using which a trader can create an individual strategy. At the same time, it may not develop something new, but use already proven methods.
It is believed that for effective trading, it is enough for a trader to master no more than five strategies, but for some cryptocurrencies, 1-2 is enough. Some investors make do with a single system, the use of which is brought to perfection.
Choosing a strategy, a trader proceeds from what cryptocurrency he plans to trade, from the state of the digital asset market, his financial capabilities and goals that he sets for himself.
Technical and fundamental analysis
For cryptotrading to be effective, you need to carefully study the market. There are two types of analysis that allow you to predict the price of a cryptocurrency and the dynamics of its development to some extent — technical and fundamental analysis. Let’s look at them in more detail.
This type of analysis focuses on factors that are believed to determine the dynamics of the cryptocurrency’s value. In particular, the trader studies the features of the coin – practical application, popularity, media background, involvement in the real economy, and much more.
Fundamental analysis is more time-consuming and complex, since it requires knowledge and understanding of many factors of the crypto market and the real economy, and the relationships between them. When used correctly, it allows you to evaluate the value of an asset in comparison with its speculative price. A trader can identify overvalued and undervalued cryptocurrencies and use this information when trading.
One of the provisions of fundamental analysis States that the price of a cryptocurrency is set speculatively during trading in a limited time, that is, it is more or less than some of its real value. However, in the long term, it inevitably reaches objective values. The definition of this indicator is the goal of the trader’s conducting of fundamental analysis. His followers believe that only he can accurately predict the dynamics of the value of cryptocurrencies.
This method has a number of disadvantages. In particular, fundamental analysis involves the study of a large number of factors. The reality of the crypto market is that the exact relationship between price and certain facts is a matter of debate. By itself, a large selection of factors makes it difficult to find really significant ones and may leave actual factors outside the analysis. This will lead, for example, to the fact that the trader will analyze a lot of unnecessary information and miss the most important thing.
Interpretation of materials also presents significant difficulties for players, there are no stable rules for evaluating them, so traders interpret the same factors in different ways.
Technical analysis involves predicting the value of a cryptocurrency based on information from price charts and a stock glass. Followers of technical analysis believe that the price dynamics already includes all the factors that affect it, and there is no need to study each of them separately, no need to look for reasons why the price has changed or may change in the future. Instead, you should focus on the dynamics of the price and volume of cryptocurrency trading.
According to the basic position of technical analysis, the aggregate of changes in supply and demand over a certain period of time forms trends – downward or upward, short-term, medium-term and long-term. If the supply and demand for cryptocurrencies are balanced, there is a sideways price movement with small fluctuations, which is called a “flat”.
It is also believed that the market development conditions are repeated and, accordingly, the price dynamics are repeated. This allows you to use trading schemes that have already been used many times. Technical analysis tracks such indicators as changes in price, volume and dynamics of trading, the ratio of supply and demand using support and resistance lines and a number of other data, figures-stable and repetitive patterns, indicators such as “moving averages”, which show the average price of cryptocurrency over a certain time, Japanese candlesticks, trading volume charts, etc.
The disadvantages of this analysis are due to the fact that it is impossible to predict the movement of the value of cryptocurrencies. The market can move in full accordance with the trader’s expectations, and then change dramatically for a completely unknown reason.
Learning to trade cryptocurrency from scratch
Before you start trading cryptocurrencies, you need to get basic knowledge about this market, about the cryptocurrency that you plan to trade, and about the factors that affect price dynamics.
Here you should start with the study of the most basic concepts. Among them: blockchain or distributed data registry technology, smart contract, cryptocurrency, fork, altcoin, mining.
Some novice traders do not consider it necessary to delve into the specifics of the cryptocurrency industry and this negatively affects the performance of trading, since it is much more difficult to predict the movement of asset prices without understanding the basic basics.
At the same time, the investor does not need to delve deeply into the technical features of cryptocurrencies and blockchain, since this knowledge is not useful for trading.
It is important to understand in detail the work of crypto exchanges — how to Deposit money to the account, buy currencies, on what terms to withdraw income, with what commissions. You need to select a resource or even several platforms on which you want to trade assets.
You also need to understand how cryptocurrency wallets work and choose the most suitable one for you.
Learning to trade cryptocurrency from scratch
Basics of trading
Once you understand the basics of the crypto market, you need to move on to the next stage – theoretical preparation for trading. You should start by learning the terminology and slang: find out who are the bulls, bears, hamsters, Cobra throw, order, pump and dump, high (peak), bottom, long, short, swing, and so on.
Fluency in terminology will allow you to read the forums of traders and chats of crypto-exchanges where players communicate, and this is necessary for a deeper understanding of digital trading.
Chaotic trading on the crypto market will quickly lead to defeat, so every novice trader should learn the basics of fundamental and technical analysis, strategies. Before you invest in crypto-exchanges and start trading, you need to be able to analyze the price and trading volume of the coin, use charts, make deals, analyze the results and adjust your actions.
Before you start real trading with specific cryptocurrency, you need to know about it, appreciate what place it occupies by a large community around it, how actively it is traded and on which markets, what is the speed of transaction, what is its mediafon. It is also worth evaluating the history of its price dynamics.
There are more than 1,500 coins on the crypto market, each of them has its own supporters, but it is believed that only currencies from the TOP 50 can be effectively traded. Beginners are recommended to start with the most famous of them, because there is a lot of information about them on the web, Analytics, opinions of experts and leading traders are fully available. The difficulty in this case will be the choice of reliable information.
At the beginning of such work, mistakes are almost inevitable, and they happen regularly for experienced traders. However, before trading, you need to know about typical mistakes that are caused by a lack of understanding of the specifics of trading cryptocurrencies.
- Lack of concentration: beginners underestimate the speed and scale of changes in currency prices. As part of the chosen strategy, you can not lose concentration, you always need to be ready to determine the situation in the market and respond to it correctly;
- the Desire to “recoup”: losses when trading cryptocurrencies are inevitable, but beginners often lose their composure and try to compensate for losses, which leads to even greater losses;
- Using one strategy: one trading system can be effective, but only if it is used by an experienced trader. Novice players work with one strategy because they are afraid to try other strategies. This also leads to losses;
- Underestimating the seriousness of trading: cryptocurrencies are a high-risk asset, and attempts to engage in trading as entertainment only lead to losses.
How to store cryptocurrency
Ways to store cryptocurrency a bit, the trader selects the relevant method on the basis of the goals it plans to achieve in the stock market. If constant trading is expected, then a significant part of the funds will have to be stored on the exchange’s account. Most of these platforms allow you to convert cryptocurrencies to Fiat and withdraw money via Bank cards or transfers.
But it is unlikely that any of the traders keep all their cryptocurrencies on the exchange. Almost all of them were subjected to effective hacker attacks and they had technical failures. In other words, there is always a risk of losing money on the crypto exchange. Every time you start trading with buying digital money in Fiat, it is not advisable, since these coins are volatile. Therefore, traders get part of the funds to the exchange, and the profit is withdrawn in cryptocurrencies to wallets.
Wallets can be hot and cold. They can be used with an Internet connection on a computer or smartphone. In fact, this is a well-protected Internet service, the advantage of which is the ability to quickly transfer funds to or from the exchange. For identification, a private key is used, which is stored in the cloud. The advantages of this solution turn into its disadvantages: if there is no Internet, the service is unavailable, the wallet can be opened, the smartphone can be lost, and so on.
A cold wallet is a program that is installed on a computer or external media. A desktop wallet can be “thick” or “thin”. It will require a lot of space on the computer, because it contains the entire blockchain of a certain cryptocurrency and this blockchain will be constantly updated. “Thin”, in contrast, does not take up much space, but is considered less reliable. Cold wallets can function without a network connection, but it is clear that you cannot withdraw money from them without the Internet. On such a wallet, the money is completely safe. Problems in this case can be created by the user himself: forget the password or identification information.
A hardware wallet is an analog of a flash card. you can use it on any computer and carry it around like a normal wallet. Obviously, you can just lose it — this is its main problem. It can also be very difficult to restore access to it in the event of loss of identification data.
Currently, the most popular cryptocurrency wallets are:
Jaxx, desktop, mobile and as an extension of Google Chrome wallet;
Coinbase, an online wallet;
Best wallet, hardware wallet.
Psychology is often of key importance in cryptocurrency trading. First of all, we are talking about the need for stability during periods of sharp changes in the value of digital coins. Simply put, a trader needs to have strong nerves when the price of an asset is growing strongly or, conversely, falling. Here it is important to know several important rules that will allow you to maintain psychological stability in any development of the market situation.
Don’t be greedy
Most often, greed manifests itself when the price of cryptocurrency is growing rapidly and steadily and the trader does not sell coins, but buys them up, as he waits for a certain highest price. But in reality, it often waits for a decline in the price, and then the collapse of the asset price. On the crypto market, it is not possible to accurately predict the movement of the currency’s price, so “better a bird in the hand than a crane in the sky” is a justified tactic. Another manifestation of greed is buying coins that for some reason seem promising, but are not. To avoid this, you need to initially evaluate each crypto asset skeptically, not giving in to the hype, advertising and promises of quick profits.
A trader does not need to rush to buy or sell coins – do not need to reset them at the slightest sign of growth, do not need to arrange a mass purchase of currencies when the price has moved down a little. Fluctuations in the crypto market can be fast and significant, but they are still not instantaneous, there is always time for a rational assessment of the situation. In addition, the current trends here last for months.