What Is Cryptocurrency Trading? (2021 Guide For Beginners)

Did you know Bitcoin is the top 5 most actively traded asset?

But if you are new to the cryptocurrency market and wondering what cryptocurrency trading is all about, then you’ve come to the right place.

Of course, this question might not be that easy to answer. That’s why we’re explaining the concept in a more digestible way.

And this is definitely NOT your typical blog.

Ultimately, you’ll be able to decide for yourself if crypto trading is something for you.

Understanding The Concept Of Crypto Trading

CHAPTER 1
UNDERSTANDING THE CONCEPT OF CRYPTO TRADING

Risk comes from not knowing what you’re doing — Warren Buffett.

That is precisely why we’re helping you to set a good foundation.

And in this chapter, we’re going to show you where and how to start trading crypto.

So whenever the chance is here, you’re ready to seize the opportunity to grow your funds.

Let’s dive in!

What is Crypto Trading

What Is Cryptocurrency Trading?

Cryptocurrency trading is an exchange of digital currency between traders. It allows them to profit from price fluctuations caused by demand and supply. Trading cryptocurrency is also risky and rewarding at the same time due to its volatile nature. However, risk can be mitigated by hedging or diversification.

Cryptocurrencies may be in the infant stage. Still, the recent BTC price soared have been catching a lot of buzz in the news. Beyond Bitcoin, there are thousands of digital assets, including altcoins, to trade on different trading platforms. Typically, a trader would buy a digital asset and sell it at a higher price in just minutes or weeks, depending on his trading styles.

How Does The Crypto Trading Market Work?

The cryptocurrency market, as most financial markets, is driven by supply and demand. When demand is higher than supply, the price of the asset moves higher. When the supply is larger than the demand, the price of the cryptocurrency tends to fall. 

But is it that easy?

If it were so easy, we would all be millionaires. However, there are different ways to analyze the crypto market and recognize different trends. 

When a cryptocurrency moves higher for longer periods, then it is called a bullish trend. While a bearish market happens when the market falls for a longer time. Still, we can make some profitable trades during both bull and bear markets if you apply the correct strategy.

Trends are divided into impulse waves and corrections. In a bull market, the impulses are upward, and there are also dips – price corrections that are not large enough to start a bear market. In bear markets, the impulse waves are downwards, and the corrections are price spikes that are not strong enough to create a bullish trend. 

Breakout after Impulse correction

Therefore, traders aim for the impulses or the overall trend picture rather than for the correction. That is because trend impulses provide a more significant price change for a shorter time.

How Is Crypto Different From Stocks and Forex?

The main difference between cryptocurrency trading and stocks or forex trading is the underlying asset in respect to generate income. In the stock market, investors trade stocks. 

Some of these stocks include the following:

  • Apple (AAPL)
  • Tesla (TSLA)
  • Amazon (AMZN)
  • Alphabet (GOOGL)

The forex market is different as investors can handle a wide range of currencies. For example, they can trade USD against the JPY or GBP against the EUR. The most popular trading pairs in the forex market include EUR/USD, GBP/EUR, USD/JPY, and others. 

So where do cryptocurrencies fit in?

People trade cryptocurrencies through a wide range of trading platforms. These platforms are known as cryptocurrency exchanges. From there, you can select the types of products from spot trading, margin trading, derivatives trading, and more. Ultimately, you earn from the price fluctuation and speculation. 

volatile price fluctuation in the crypto market

When comparing the stocks and forex market with cryptocurrencies, the market is much more volatile. In fact, it is possible to see price fluctuations of 100% that can take place in just hours in the crypto market. Whereas stocks trading is rather quite conservative.

The stock and the forex market are very liquid, and they’re considered the largest and most liquid in the market. That’s because it handles some of the world’s largest trading, which prevents them from accounting for huge fluctuations.

Of course, cryptocurrency trading volumes are growing exponentially. Still, a major transaction or news event can trigger a significant impact on the crypto price.

One significant difference is cryptocurrency trading stays active 24 hours a day, seven days a week, unlike stocks or forex, which only operates at a designated time-frame.

Types of Cryptocurrency

There are different types of cryptocurrencies. Typically it’s either Bitcoin (BTC) or Altcoins (alternative coins). Of course, there are still a variety of tokens like the ERC20 tokens, utility tokens, stablecoins, and more. 

In many instances, Bitcoin is the primary driver for the crypto market. Hence, if BTC is on the bull, most altcoins would follow the trend. Some of the famous altcoins include Ethereum (ETH), Chainlink (LINK), Litecoin (LTC), Ripple (XRP), Polkadot (DOT), Cardano (ADA), and more. 

Bitcoin works as a store of value and as a decentralized network to transfer funds. Ethereum is a smart contract blockchain that is powered by Ether (ETH). XRP, instead, is a digital asset used by RippleNet companies and users that send cross-border payments. 

There are thousands of virtual currencies (we will go into details in the next section). Each day new cryptocurrencies are being created and released to the market. 

How Many Cryptocurrencies Are There?

At this stage, you’re aware there are many altcoins.

Wait, how many cryptos are there exactly?

Types of cryptocurrency

According to data provided by Statista, there are around 4,000 digital assets in circulation. This is certainly a lot if we compared it with the market size a few years ago. 

Back in 2017 and 2018, there was an Initial Coin Offering (ICO) boom. At that time, different projects and companies were releasing their own tokens. These tokens were sold to users for BTC, LTC, ETH, and other digital assets. 

Nevertheless, most of the ICO tokens are obsolete. Just a few of them were able to sustain the fall and even soared in price. Some of these tokens include Ethereum and NEO.

It is worth considering that other digital assets are available for users but are often not reported on CoinMarketCap or Coingecko. Still, the number is expected to continue growing in the next few years looking at the exponential interest from beginners to institutional investors.

CHAPTER 2
ARE YOU A TRADER OR INVESTOR

One of the most frequently asked questions, “Is trading better than investing?”

While both methods help you profit in the financial or crypto market, but there is indeed a difference.

So, let’s see how they are different from one another.

Find out if you’re in for short-term profits or instead for long-term gains.

Crypto Trading Strategy & Analysis

Trading Crypto vs. Investing in Crypto

Cryptocurrency trading refers to traders who often take advantage of small mispricings in the market by entering and exiting a position over a short timeframe. It involves conducting deals on margin without actually owning the asset, speculating on the price moves.

In most cases, trading refers to opening and closing positions often based on the different market conditions.

While investors seek larger returns over an extended period through buying and holding. It also means an investor would purchase and own a digital asset with the belief that its price will increase. Then, sell it for a substantial amount of profit.

The Types of Crypto Traders

The cryptocurrency market, as well as other traditional markets, has short- and long-term traders. Some of them are searching for short-term profits, while others are trying to build a portfolio for several years. 

LONG TERMS

HODLERS (Hold on for Dear Life)

Hodlers are the most popular strategy for beginners who tend to invest in cryptocurrencies for the long term. Mainly because it’s the most straightforward strategy and it requires minimal supervision to manage a position.

Still, you maybe asking how long I should invest?

Typically, there is no rule regarding how long a hodler should hold onto its digital assets. Instead, a hodler would buy and hold their digital assets for long periods without an exact selling price.

That’s exactly how the famous sentence, “Stay strong, HODL even when the price drops” derived.

Regardless of the bull or bear market, a hodler would continue to invest instead of closing their positions. Financially, this could be a harmful strategy if the trader does not take profits when opportunities are presented. Still, there may be complications to every decision made.

Meanwhile, those users who can hodl and sell at the right time (when the price was much higher than when they purchased their digital assets) would make profits. 

Position Traders 

Position traders buy an asset and hold it for long periods until the market reaches the price level they were waiting for. The positive point is this trading strategy does not require traders to be actively involved in trading. The key is to invest from a holistic point of view by assessing the trends.

You can simply buy an asset and hold until they consider it is time to sell (usually when the price moves higher). The main difference between position traders and hodlers is related to the attachment that position traders have with their assets. A position trader is not attached to the asset as a hodler might be. 

Consequently, it is much easier for a position trader to sell his funds as soon as the opportunity is present in the market. 

SHORT-TERMS

As there are long-term traders, we can also identify short-term traders. Cryptocurrency trading is ideal for short-term investors to make large profits. That’s because the volatile crypto market is in favor of short-term trade. But there are different strategies for short-term traders, which can be day trading, swing trading, and scalp trading. 

Day Traders

Day traders open and close their trades within the day. A day trader would have his position open for just a few hours. In some cases, only a few minutes. These traders need to be very disciplined. They must have an exact selling point to realize their profits. A small tick of 0.1% is sometimes enough on their positions to make a few hundreds of dollars per day. 

Additionally, day traders work with very tight stop loss. That allows them to reduce their risk and be ready to open a new position if the market does not move in their expected direction. 

Swing Traders

Swing traders are different from day traders. The main difference is related to the time they can wait for an open position.

Swing traders are the ones who keep their trades from more than one day to sometimes a month. The goal is to understand where the market is going in the next few days and aim for that move. Usually, these traders wait for larger profits. Let’s say that a trade that is open for three days and registering a 2%profit could be considered a successful swing trade.

Since swing traders aim for higher price moves with their trades, they also tolerate higher risk. A swing trader can mitigate a more significant price fluctuation against his trade, where the day trader will already be out of the market.

Scalp Traders (Scalping)

Scalp traders are day traders that open and close trades every single hour. These traders are searching for minimal price fluctuations that would allow them to make small profits on their funds. 

Dozens of positive scalp trades could help the scalper get as much money as a day trader. The goal is to catch as many positive trades as possible in a short time. In many cases, scalp traders can make hundreds of transactions per day. Also, they would never leave a position open for the next day. 

Understanding The Cryptocurrency Trading Environments

Spot Market

The spot market is the most popular trading market environment for cryptocurrencies. It allows traders to buy or sell an asset now at its current price (spot price).

But how does it work exactly?

Supposed you want to buy 1 BTC now, then you go through the spot market. The trade executes as soon as your order gets filled. If you use, for example, a market order, the trade will go through as soon as you click on the buy or the sell button.

The spot market allows you to trade the cryptocurrency you want in a more realistic approach. That means you will be the owner of the cryptocurrency you are trading. 

The cryptocurrency spot market operates 24 hours and provides liquidity to trades at any time of the day. 

Derivatives Trading

Derivatives represent an underlying asset such as cryptocurrencies.

Through derivatives, traders can get access and exposure to different markets without necessarily holding the underlying asset. Derivatives contracts can include cryptocurrencies, stocks, commodities, currencies, and even a basket of different assets. 

Each of these categories has different characteristics and would provide traders with different trading solutions to speculate on the price or hedge against risks. 

Forward and Futures Contract

Another popular cryptocurrency trading method involves futures trading and forward contracts. 

Futures contracts are traded on exchanges, where the price is settled daily at a future rate. Crypto futures are more suitable for margin trading, where leverage takes place to maximize profit.

Forward contracts lock in the two parties into a formal agreement now to execute a trade in the future at a preliminary agreed rate. Forwards are a great solution to hedge exchange rate risk.

Margin Trading

Margin trading allows traders to borrow funds to open larger positions in the market. In other words, you can use capital that you don’t own (leverage) to aim for higher profits. It is crucial to know that trading cryptocurrency on margin exposes you to higher potential returns, but at the same time, you can account for losses of the same size.

But what does this mean?

Here is an example with leverage of 1:125.

Say that your account size is $1,000. A margin of 125 will give you a buying power of $125,000.

That helps you to increase your profits in a winning trade. But if your position moves in the contrary direction, you can lose all your funds used as collateral. 

In simpler words, margin trading gives you the ability to open bigger trading positions with smaller capital. Typically, the larger the leverage, the higher the potential returns. However, it is crucial to maintain leverage proportional to your trading size, as bigger leverage can vaporize your whole bankroll in seconds.

When we trade with leverage, our profits would be calculated on the funds we have borrowed. Let’s use a clear example:

If we had $1,000 and opened a long position with x125 leverage, we would have a buying power of $125,000. If the market goes up 1%, the profits are calculated on the $125,000 rather than $1,000. In this case, a 1% increase would bring returns equal to $1,250.

BTCUSD margin trading

BTC/USD moving from $55,000 to $55,550 is an example of a 1% jump in price. And it happens for only 12 minutes.

That was just a raw example to get the picture around the leverage numbers. In reality, you will never put your entire account on a single trade because a single tick against your position will liquidate your whole account. After all, you will have no funds for collateral. Also, we need to take into consideration that trading platforms have fees. Moreover, if you borrowed funds to trade with leverage, you would have to return them and pay the interest rate to the lender. 

Note:

Remember, the less you borrow on margin, the lower the risk. And the more you borrow, the higher chance you take as margin maximizes your losses too. Thus, it is very important to use risk management techniques and apply stop-loss orders to limit your potential loss.

Perpetual Contracts

As compared to the futures contracts we mentioned before, perpetual contracts do not have an expiry date. At the same time, perpetual contracts are usually traded at a price very close to the underlying cryptocurrency spot price. When comparing perpetual with spot trading, perpetual contract trading is great because you can both short and long trades flexibly, unlike spot trading.

Cryptocurrency trading experts use these contracts to trade with leverage.

Perpetual contract markets usually have high liquidity. In many cases, the trading volume of perpetual contracts is larger than the spot market’s trading volume. Therefore, perpetual agreements provide an excellent opportunity for traders to get exposure to higher returns from digital assets. 

Call and Put Options 

Call and put options are derivatives in financial terms. They quote an underlying asset price, which can be a stock, currency, commodity, or cryptocurrency. Options contracts are an agreement between two parties that grants you the right but does not obligate you to buy or sell a financial asset at a specific price – the strike price.

There are two types of options contracts – a call option and a put option.

A call option will increase in price if the underlying asset moves higher. If you purchase a call option contract on the BTC cryptocurrency, you will account for profits if the cryptocurrency increases in value.
Contrary to this, a put option would increase in value if the asset’s price goes down. 

CHAPTER 3
FUNDAMENTAL VS. TECHNICAL ANALYSIS

Fundamental analysis is great for long-term investment as data collection duration tends to be longer as compared to technical analysis. 

Still, there are proven instances where traders made their millions using technical analysis. 

Still, wondering what truly defines fundamental and technical analysis?

Let’s dig deeper!

Fundamental Analysis: Explained

The fundamental analysis references tools that can help us understand the valuation of cryptocurrencies and whether they are overvalued or undervalued. It’s widely used by traders for long-term investment.Some of the tools that traders and investors use to do fundamental analysis include market capitalization, liquidity, volume, supply, and demand. 

Market Capitalization

Bitcoin Market Cap

Market capitalization in the stock market refers to all the stocks of a company that have been released to the market multiplied for their value. Whereas in the crypto context, the market valuation can be obtained by multiplying the virtual currency price for the supply of the asset. 

Some digital assets have a small supply of tokens but a higher price. Other virtual currencies have a larger coin supply and a lower price per coin. 

Liquidity and Trading Volume

Cryptocurrency trading volume

Liquidity is crucial for all financial assets and crypto, nonetheless. The more liquidity of an asset, the easier it trades on that asset as the demand and supply are present. Naturally, it means you can easily open a position and exit the market, too (if necessary). 

Lesser-known cryptocurrencies (mostly tokens released through ICOs) have little to no liquidity. Entering a large fund into a virtual currency with low liquidity is risky. It could only mean that the coin could only be another obsolete project deemed detrimental to your funds. 

Instead, it would be a wiser choice to trade on assets with larger trading volumes. Usually, the larger the trading volume represents better prospects.

Supply Mechanism

Supply and demand is also an important thing to analyze when buying and selling virtual currencies. Many virtual currencies have a limited supply. For example, there is only going to be a total of 21 million BTC in supply. That means when demands are high and supply is low. Usually, demand will then reflect in the price.

When traders and investors become bullish, BTC is withdrawn from exchanges. That creates a shock in the supply (fewer BTC available). If demand remains high, then the price of the asset could move higher. 

Nevertheless, the contrary could happen. 

If more BTC coins are deposited to exchanges and demand falls, then the price could plunge. 

Technical Analysis: Explained

Technical analysis requires analysts to understand a wide range of indicators and patterns in the charts. Rather than taking into consideration fundamental aspects of the digital assets traded, analysts focus on the charts. 

Trend Lines

The most important technical analysis tool in trading is the trend line. A trend line matches the tops or the bottoms of a cryptocurrency chart to identify a bearish or a bullish trend, respectively. If you match more than two increasing bottoms with the same line, this is a bullish trend line. It signals for a bullish market.

If you match more than two decreasing tops with the same line on the chart, then this is a bearish trend line. It indicates the presence of a bearish tendency on the chart.

This is an example of a bullish trend on the H4 chart of the BTC/USD.

Bullish Trendlines

Psychological Price Levels

The psychological price levels are on-chart areas, where the price is likely to show a turning point on the chart. These can be older levels, where we have already seen a reversal, or round-number levels, which the mass of the market participants don’t anticipate to see broken.

An example of a big psychological level was the $20,000 at the BTC/USD. In 2018, the price clearly reached that level but didn’t manage to break it initially. The overall attitude was against this, which reflected the supply-demand market factor, causing a reversal. Now, this $20,000 level is long broken, and we are anticipating other significant psychological levels.

Candlestick Patterns

Bearish and Bullish Candlestick

Candlestick patterns are on-chart Japanese candle formations that allow traders to discover specific price behavior. Although this does not provide certainties, it helps analysts understand how the market can behave if certain conditions are made. 

Some of the most popular candlestick patterns are Japanese candlesticks like Doji candlestick and Hammers, Engulfing, Evening and Morning Stars, and many more. Some of these patterns would show a change in the trend, while others would help to confirm a continuation.

Sample of a candlestick pattern:

Gravestone Doji Candlestick trading chart
Gravestone Doji candlestick pattern.

Technical Indicators

Technical indicators are different from candlestick patterns. These indicators are additional tools added to the charts that allow traders to identify price continuation or reversals. 

Technical analysts focus on what they see on the charts rather than on fundamentals. 

Some popular technical tools include Fibonacci levels, the RSI indicator, Moving Averages, the MACD indicator, or the pivot indicator. Traders do not necessarily have to follow just a straightforward indicator, but they can follow many of them to match signals and act with a higher certainty.

Are They Reliable?

Yes, technical and fundamental analysis work in cryptocurrency trading. However, different crypto coins tend to respond better to different analysis approaches.

So, Is Technical or Fundamental Analysis Better?

In the cryptocurrency market, the technical analysis is more reliable for short-term trading. The interest in digital currency grows exponentially daily, which from a technical perspective creates unpredictable price spikes.

However, these spikes can sometimes be foreseen, considering fundamental factors like Elon Musk and Grayscale heavily invested in Bitcoin could be a signal for that asset to grow.

CHAPTER 4
MARKET INTERPRETATION AND ANALYSIS

By assessing the market quantitative and qualitatively, it helps you to understand the value of the market, buying patterns, and of course, the overall economic environment.

In fact, many traders agree that keeping up with the market helps them make better buying and selling decisions.

So, what exactly is market analysis and interpretation? And what does it involves?

Crypto Market Interpretation

Reading The Price Chart

The basic and most important technical analysis technique is to read the price chart of the financial asset. Making your trading decisions based on price chart analysis is called price action trading.

Price action refers to using only on-chart tools, which do not involve extra calculations. These include analyzing the support and resistance levels, trend lines, Fibonacci levels, chart patterns, candle patterns, trading volume, and more. 

The Bulls and Bear Crypto Market

Cryptocurrency trading experts are always searching for bulls and bear markets. A bull market refers to a positive trend in a specific trading pair. Whereas, a bear market is a trend that moves downwards.

Bull markets are typically good news. Even if the investor does not sell at the right moment, there is a high possibility they would still register gains. After all, every financial asset exists with the idealistic purpose to grow and increase in price, right? But if you’re shorting a position during a bull run, it’s most likely bad news for you.

Contrary to this, if the market moves against the bulls, only those who open short trades would profit from the bear markets. 

Support and Resistance Levels

Support and resistance levels are psychological on-chart areas, where the asset’s price used to show a turning point. If a support or resistance level gets broken, the price is very likely to be setting up the base of a new trend.

A support level accumulates price bottoms in the same area, while the resistance level refers to price tops. If the price drops and breaks the support level, we might see the beginning of a new bearish trend. Contrary to this, if the price increases and breaks a resistance level, this might be the beginning of a new bullish trend.

Support and resistance levels work exceptionally well for determining entry and exit points on the chart.

Use Case: BTCUSD Technical Analysis

Below you will find a trade suggestion on the BTCUSD chart analyzing using different technical analysis.

BTCUSD Chart buying signal

The chart starts with an increasing volume. The price breaks its previous top during the increasing volume, and we get a buy signal. We assume the price is entering a bullish trend, and we buy intending to collect profits from the eventual price increase.

In this case, the proper place for your stop-loss order is below the chart’s previous bottom.

The price confirms the bullish trend and tests twice the established trend line as a support.

The breakout in the trend line during low trading volume indicates that the trend is probably exhausted. That is a signal to close your trade.

This trade catches a bullish price move of more than 10%.

CHAPTER 5
MUST-KNOW CRYPTO TRADING TERMS

Profit aside, the fundamentals are still important. Imagine you misunderstood a limit order and a stop loss, seeing your positions got liquidated because of the silly mistakes.

For sure it hurts!

If you don’t want to pay the price for these mistakes ever again, here’s exactly what you need.

Learn the key terms in crypto trading here.

Must-know Crypto Trading Terms

1. Brokers vs. Trading Platform

A trading platform is used for trading digital assets. Meanwhile, the broker is the company that is in charge of connecting your trades with the market. Thus, you trade on a crypto platform that is connected to a broker. 

2. Spread

The spread is the difference between the buy and sells price of a cryptocurrency. That is where the broker collects the commissions for its service. Suppose an order book shows a selling BTC price of $56,000 and a buying price of $55,950, the spread between buyers and sellers is $50. The larger the liquidity and the volume, the lower the spread. 

3. Leverage

Leverage is the amount of credit a trader borrows to open more significant trades. Leverage can vary from 0.5x to 125x, depending on the broker or the exchanges. Users who trade with leverage could make larger profits but also mean they can be more exposed to potential risks when speculation goes against it. 

4. Margin in Cryptocurrency Trading

Margin in cryptocurrency trading allows users to use their funds as collateral to loan money from brokers or other traders. In this way, investors can add leverage to their positions and register larger gains while trading in the market. Thus, margin and leverage are closely related in terms.

5. Order Book

Order Book

The order book of a cryptocurrency exchange is the list of orders created by traders. These are trading orders that are waiting to be filled. When investors open a sell limit order, then it would be registered in the order book until it gets filled. The same happens if a trader would create a buying limit order. 

6. Volume

The cryptocurrency market volume is the number of coins or tokens that have been transacted during a specific time. Exchanges usually use 24-hours and 1-hour measures to understand their volume levels. The volume can be measured in fiat value as well.

For example, we can say that in the last 24 hours, 100,000 BTC changed hands or that the BTCUSDT trading pair registered a trading volume of $10 billion in the last 24 hours.

Volume Trading

Above, you see an example of a basic volume indicator and the signals we can take from it.

7. Stop-loss

The stop loss is a market order that will automatically close your trade if the price reaches a certain level of loss that you choose in advance. Stop-loss orders are very useful for professional traders to limit their risk. If the market moves in the wrong direction, then the stop-loss order would be executed, and the user would avoid registering larger losses. 

8. Limit Order

The limit order takes you out of the market at a certain winning level, picked by the trader. This way, you can protect the profits from your trade against a returning move.

A well-planned trade will include a stop-loss order and a limit order. This way, you’ll have a clearer picture of what to aim for (with the limit order) and how much you’re ready to lose (with the stop-loss order).

9. Long and Short A Position

A long position reflects a financial contract, where the profit comes from an expected price increase. If you buy a cryptocurrency, then you have a long position with it.

Opposite to this, in the short position, the profit comes if the asset’s price decreases in value. If you short sell a cryptocurrency, then you have a short position there.

10. Maker and Taker Fees

Maker and taker fees are related to the fees users have to pay for providing liquidity or taking liquidity from the market. When a trader opens a limit order, he is adding liquidity to the order book. 

Instead, if the trader uses a market order, he takes liquidity from the market order. Hence, the fees for opening a market order (taker fees) are higher than maker orders (maker fees). 

CHAPTER 6
CRYPTO TRADING STRATEGIES

Crypto trading is exploding RIGHT NOW!

But, how much do you know? Do you really have a strategy that can help you profit from the bulls?

Despite the fact that you’ve already understood the fundamentals, still, you must know how to execute and formulate a strategy for sustainable gains.

Understanding The Concept Of Crypto Trading

Dollar Cost Average (DCA)

The golden rule when it comes to trading or investing is you never want to go all in. That’s why you need to know dollar-cost averaging (DCA) to even out the losses. This trading strategy is simple, and all you need to divide your capitals into smaller amounts subsequently open a position at the right time according to your perfect entry price.

Let’s say Ash wants to invest $5,000 in BTC, but he uses DCA strategy to split his capital into 10 different lots with $500 each. According to his plan, he’ll be buying $500 worth of BTC consecutively at a fixed time or whenever his limit order is filled until he invested all $5,000.

Note:

By doing that, Ash is actually strategically protecting himself from the market volatility considering the BTC price can soar and plunge more than 100% within minutes. In the end, when Ash averages out his investments, he’s most likely to get more BTC as compared to invest them all at once at an overvalued price.

The Golden Cross

A cross means when two chart indicator line crossover shows the average price of an asset over a period of time for a convergence and divergence signal. This crypto trading strategy is usually used when you’re trading long-term as it deals with price monitoring over a broader timeframe.

Typically, a golden cross indicates the buy signals. But to do that, first, you’ll need to look into the Moving Averages (MA) indicator. When the 50MA crosses above 200MA, buyers dominate the power to drive the current price even higher.

On the contrary, if the 50MA crosses below 200MA, it tells you that more traders are leaving the market, indicating a divergence (sell signal).

On the downside, this strategy is for long-term trades, meaning it only works best if you’re combining other indicators like RSI to analyze the trend for more than 18 months.

Relative Strength Index Divergence

Trust me; you would want to know when trend reversals happen. The RSI divergence strategy works in a simpler way than you could imagine. The profits and losses are average out over two weeks to calculate the momentum in the range of 0 to 100.

That said, when the indicator line goes beyond 70, it means an asset is overbought. But if it breaks below 30, it’s oversold. It’s recommended to use a 4-hour time frame to look for divergence and when the price is in the oversold or overbought areas.

But, what does oversold or overbought really mean? And how can you gain from this information?

To put everything in context:

Overbought– also means the price starts to go against the momentum. Indicating the price will fall.
Oversold– is when the price starts moving from the opposite direction—indicating the price will likely rise.

Of course, it’s great to spot the trend. But, only things are so simple.

In fact!

Using RSI divergence does not guarantee 100% accuracy on the trend signals as market manipulation, and breakouts can happen anytime. Instead, you should use this crypto trading strategy to look for discrepancies between the price and the RSI indicator as the price are almost moving in parallel.

CHAPTER 7
RISKS MANAGEMENT

Successful investing takes time, discipline and patience.

Warren Buffett

Even if you’re confident enough to know how trading works, you’re NOT 100% shield from risks.

That’s every decision you make involve risks!

To mitigate risks, here are what you must and must not do.

Portfolio Management

The Risks of Crypto Trading

Cryptocurrency trading, like any other trading activity, incur risks. 

When we open a trade, we need to know that there is a high possibility we will not close it profitably. That means we might lose money on our trade. And since the cryptocurrency market is very volatile. You should be aware that you can gain from the difference quickly within minutes but can also be liquidated if the market goes sideways and you did not set a stop-loss.

Unlike stocks, the crypto market is fluctuating more violently!

While start-ups or newer released tokens have wider rooms for price growth, it also means it can be just another pump and dump situation where the market is manipulated for personal gains. This means the price of the asset would move up very fast, and early buyers would sell at the top. This leaves late investors with large bags of tokens that are now worthless.

Bitcoin Cash Price Plunge

Cryptocurrencies can be affected by forks or discontinuation. When a hard fork occurs, it’s likely to have price volatility around the event. For example, Bitcoin Classic (BCH) is a hard fork of Bitcoin. And BCH has split into two blockchains again causes a significant plunge in its price. 

Top Mistakes You Must Avoid 

There are some things you should avoid while trading crypto:

Never trade on illiquid tokens, as you risk not getting liquidated.
Avoid pumps and dumps.
Don’t try going against the market trend. The trend is your friend!
Try using leverage carefully, and start with less leverage until you are confident with your trading methods.
Never open a trade without a stop-loss order to protect every single of your trade!
Never give your private keys to anyone; these are only yours!

CHAPTER 8
BONUS CHAPTER

According to the survey, 90% of beginner traders would ask how much should I start trading cryptocurrencies. And if it’s the right time to trade cryptocurrency at all.

Truth is!

When you stay on top of the market, you’re almost 50% there.

Here are some of the burning questions you may ask, and we answered!

Bonus Chapter

Should You Trade Cryptocurrency?

It is up to you to decide if you want to take a risk and start trading crypto. If you are an enthusiast, who likes being involved in world innovations, then cryptocurrency trading might be a suitable job. But trading is not for anyone, as it requires technical and analytical thinking.

You should know the benefits and risks of each decision you make when investing your funds in cryptocurrency trading. Moreover, you should be informed about market conditions, do your research, perform technical and fundamental analysis and take the proper risk management decisions. 

How Much To Start Crypto Trading?

You can start trading cryptocurrencies with small amounts of money. Nevertheless, the larger the funds you invest, the larger the possible profits you can make. However, this might be a risky activity. 

Exchanges are allowing users to deposit small amounts of digital assets. Thus you can eventually start trading with just $10. Nevertheless, this is not recommended, considering that you might not be allowed to purchase more funds if you lose part of your investment due to being lower than the $10 threshold. 

Investing between $100 and $1000 would be much more logical. 

Important Note:

However, we are not financial advisors, and this information should not be considered investment advice. This material is for educational purposes only. You should never invest more than what you are ready to lose. 

Users that would like to expand and increase their trading position can use leverage. Nevertheless, they should know the risks involved in trading with margin. 

In The End

Cryptocurrency trading gains more popularity among financial enthusiasts nowadays. This is because it gives exposure to a new and expanding marketplace, which is considered the future of money. 

Crypto trading might be overwhelming at the beginning. But as soon as you start trading with smaller amounts, you would be able to understand the processes, the tools, and how trading platforms work. If everything goes well, you can always set higher budgets and aim bigger. 

You can always do it as long as it works. If it is not working and you are not profitable, you can always reconsider your trading approach and decrease your trading sizes again. You will find your best cryptocurrency approach. But one thing is 100% sure – it will all start with an attempt.