Full Crypto Trading Guide for Starters

Trading

Crypto Trading: Everything Newbies Should Know

When compared to stock market in real time, the opportunities for making profits with crypto are much more palpable. However, the cryptocurrency market is also incredibly volatile, which implies that there are high risks involved as well. Before you become even moderately successful in this niche, you will need to develop a sound trading strategy.

In this article, we explain what a crypto strategy is and write about its implications for newcomers to cryptocurrency trading. We will go over some of the most common trading methods that allow you to actively make profits in this market. Alternatively, we present a couple of passive investment strategies that will grant access to moderate profits, but with reduced risks.

What Is a Crypto Strategy?

The first thing you should understand about crypto trading is consistency. While a couple of successful trades here and there can be great, you should always be looking at the bigger picture. Your goal is to consistently make good decisions and slowly accumulate profits to build up capital.

Consequently, applying a crypto strategy is essential to becoming a consistent, and therefore, successful trader. To achieve this, you should:

  • Learn technical analysis.
  • Research crypto fundamentals.
  • Follow the market news closely.
  • Learn to differentiate between margin and spot trading.
  • Learn about risk management and capital accumulation.

Once you’ve done this, your next step will be to create a trading plan and stick to it. While this might sound basic, these fundamentals will be the building blocks for making profits in the crypto markets.

Active Trading Strategies

Depending on the type of trader you are, you will likely adopt one trading technique over the other. Thre’s also the possibility of combining different ones to capitalize on different market situations.

Day Trading

This short-term method implies that you will execute multiple trades within a 24-hour period. The goal is to make smaller profits many times a day and accumulate them to increase your total capital.

However, where stock and forex markets have closing times, the cryptocurrency market does not. It’s open 24/7, which can be incredibly taxing on your morale. For this reason, day traders usually close all their positions at an arbitrary hour of the day. This allows them to take a breather from trading and start fresh the day after.

That said, you can enhance your day trading ability by automating your trading with different mechanisms, such as trading bots. This will allow making profits even while you are sleeping.

Swing Trading

As a mid-term trading technique, swing trading capitalizes on larger price movements over a few days or even weeks. The goal is to purchase a cryptocurrency and sell it later at a higher price, by anticipating this upwards movement.

To allow you to anticipate such large price movements, you will need to do some thorough fundamental research on the market. You should learn about blockchain technology and the factors that influence prices on a macroeconomic level. 

Trend Trading

This method requires you to follow a price trend, upwards or downwards. The goal is to detect price momentum in the market that can be sustained for a longer period of time and enter the market at the beginning of the trend. Detecting a trend reversal is equally important, as it will signal you when you need to exit your positions.

Scalping

Scalping is a very short-term trading strategy that requires dozens, even hundreds of trades a day. The goal here is to make very small profits on microscopic price fluctuations but in very large quantities.

Since the positions are very small, they are also the safest. By scalping, you will make only fractions of a percent in profits, which will accumulate over time. This strategy works exceptionally well with CFD trading.

Passive Investment Strategies

Not everyone is ready to jump into the crypto markets and start trading right away. Trading requires some decent acquired knowledge and can be a very stressful venture. Fortunately, cryptocurrencies are incredibly versatile assets that provide some great passive investment options. You can use one of these strategies while you are getting the hang of trading and learning the ropes of technical analysis.

Buy and Hold

The simplest strategy of investing passively in crypto is buying and holding a cryptocurrency like Bitcoin and Ethereum. However, there’s an even better way to do this, called dollar-cost averaging (DCA).

This implies that you will be purchasing a fixed amount of crypto, at a predetermined time frame, regardless of price. For example, $100 worth of Bitcoin every 2 weeks. This will help you ease up the price curve in the long run and average out your positions.

In a market like crypto where the price is constantly fluctuating but keeps upper momentum, it will allow you to stay ahead of the game.

Index Investing

This investment strategy allows you to mitigate risk and get a consistent stream of income. With index investing, you will be attempting to replicate the overall performance of the entire market, instead of just investing and picking a single cryptocurrency.

Considering the crypto markets have grown from a few billion to a trillion-dollar worth industry, this is a sound strategy for any type of investor. Essentially, you are betting on the entire market’s performance as a whole, showing that you believe cryptocurrencies are the future.

Conclusion

If you are willing to put in the time, trading cryptocurrencies can become a lucrative venture and even replace your full-time job. That said, you will need to accept that there are some serious risks involved and that it requires a lot of work to become successful in this niche.

With that in mind, you should know that crypto trading also provides a lot of versatility in how you can approach the market. From day trading, following trends, or scalping, there’s a strategy for every type of trader out there.

And if you’re not too enthusiastic about trading, keep in mind that you can generate some serious passive income with crypto by simply buying and index investing.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.