When trading cryptocurrencies, you practically speculate. You focus on one or more markets and try to indicate the direction. Will the market rise? Will it fall? It is all about its value. You do not actually own the digital asset and you do not buy it, but you place a bet on it. Obviously, trading cryptocurrencies goes further than that and there are more things to take in consideration before starting your journey.
Some people have earned impressive amounts of money over the past years. To some, it was a matter of good luck. To many others – including today's successful traders, making money involves serious analysis, good skills and a bit of experience with digital currencies. Everyone has started at the bottom and built their way up.
Before going into deeper details, why would you get involved with trading cryptocurrencies?
When compared to other markets, the cryptocurrency market is quite new. However, speculative interest has drawn plenty of volatility. Take a look at the price of Bitcoin in over a year – $19,378 in 2017 and $5,851 in 2018. Other digital currencies might be a bit more stable, but they also experience high fluctuations.
Is the volatility a plus or a minus?
While volatility is associated with risks, it could also be the answer to successful trading. There are literally hundreds of opportunities per minute to go short or long. Indeed, there is a risk and there is a chance to lose money. But on the same note, you may also go rich overnight if you do your homework when you trade.
Liquidity determines how fast something can be turned into cash. The same rule applies to digital currencies – while they do not exist in a physical form, they can, indeed, be converted into cash. Such things will not affect the overall price on the market. Liquidity may seem irrelevant, but it can affect the prices in a positive way, not to mention the quick transaction times.
What about liquidity?
Experts consider the digital currency market to be illiquid. How come? Transactions are scattered over different exchanges. In other words, a relatively small trade will have a significant impact on the price. This is what adds to the volatility too. But then, trading cryptocurrencies the right way will provide better liquidity.
As a general rule of thumb, you can trade digital currencies whenever you want – 24 hours a day, seven days a week. How come? The main benefit of cryptocurrencies implies the lack of a centralized governance. No one controls this market. Transactions occur between one individual and another – there are no middlemen.
Digital currency market hours as a benefit
Cryptocurrency exchanges go round the world, yet there are a few downtimes when it comes to updates to the infrastructure or forks. Other than that, such transactions go around continuously. Trading is different because you are not actually owning the currency. You bet on it – each broker or trading platform will provide different trading times, yet some of them work round the clock too.
Dealing with cryptocurrencies involves more games. You can purchase digital currencies, hoping they will gain in value. But when you trade, you practically take advantage of various markets. You bet on whether the market will go up or down. This type of trading is referred to as going short, yet some experts do not count it as actual trading.
The possibility to go short or long
Going long goes in the opposite direction. You make a longterm investment. You buy certain cryptocurrencies when they are down, new or at a certain value – you hope they will go up, so you can sell them later on and make some money out of this investment. Again, this is an investment, rather than trading.
Now that you understand the main advantages of trading cryptocurrencies, how do you start your venture in this industry?
Any product out there that fluctuates in price can easily be trained as a CFD – Contract For Difference – and digital currencies make no exception either. CFD is practically a trading tool that allows trading as little as small parts of a digital currency with a tiny deposit – the deposit is used as an initial margin in the trading world.
Trading cryptocurrency CFDs – What does it mean?
Relying on CFD gives you the opportunity to go short or long, regardless of the market direction. As the markets fluctuate, you gain the possibility to make some risky returns. Trading digital currencies in this form is better than other goods because you can do it round the clock – markets never open or close, so you can do it anytime.
The benefits of CFDs are fairly simple to understand – you can speculate on their prices without actually buying them as assets. You will not have to worry about crypto wallets or exchanges or open new accounts. Deposits are quite low and you can go long or short. You have some flexibility that pays off. The leverage is the most common risk though, while holding longterm positions is not always a good idea.
If you are not the patient type and you embrace the idea of making money overnight (as well as the risk as long money), cryptocurrency day trading is the way to go. While this technique involves more activity and attention, it can make a good profit from day one. As an investor, you can buy, sell and repeat a few times a day with no restrictions at all.
Day trading with cryptocurrencies explained
The digital currency market is extremely volatile and may look like a roller coaster. You go up and down round the clock. Things change more times within a single day. In an ideal case, you can buy at a low price and try to make money as the price goes up. The income will not be impressive at the end of the day, but longterm results will add up.
Day trading could be a successful venture if you understand how it works and you take time. It takes skill and patience. Of course, you will lose some trades, but the point is to win more often than you lose. This type of trading is relatively inexpensive and allows multiple opportunities throughout the day, yet it requires more energy and time as well.
Longterm investments in digital currencies represent some of the easiest ways to make money in this industry. This is not a trading technique though. Instead, people buy digital currencies and keep them in their wallets. They are ready to sell when the price is big enough to make a profit. While not a trading technique, it is a good way to get used to the market and understand how it works.
Longterm investments in digital currencies
The point of longterm investing is fairly simple to understand – you have the knowledge, education and belief that the digital currencies you buy will gain more share in the long run. While there are thousands of options out there, it pays off going with the top rated and most famous currencies. Small or niche digital currencies may fail.
This venture is quite easy to start and suitable for beginners. On a more negative note, it takes a long time to provide some profits.
Scalping is defined as a short term trading strategy, but it could become a lifetime strategy if you gain experience and master it properly. Scalping is similar to day trading. The point is to make a plethora of small trades and focus on a minimal time duration. Of course, the profits are small, but numerous profits will inevitably add up.
Scalping for small profits
This trading technique refers to short time frames. In an ideal case, you should go for less than an hour. Volume is the primary asset to focus on if you are into scalping. The profit of a single transaction is irrelevant. Instead, you need to focus on the amount of trades. You should never aim for a high profit because it will not happen over a day or a week. At the same time, you cannot afford waiting for too long.
While there are more tips and tricks to consider to succeed in scalping, one thing in particular will make the difference. That is the market. This trading technique works wonders if the market is calm. You want limited volatility to make longterm profits. If a particular market is uncertain, scalping is more likely to lose money.
Reverse trading is a relatively advanced trading strategy. While a newbie can also try it out to gain some experience, it is highly recommended to do it with small amounts of money and have a good risk management strategy in place. Simply put, deal with the money that you can afford to lose or you might have some unpleasant surprises.
Reverse trading – Suitable for professionals
So, what does the strategy involve? Where is the catch? The technique counts on the reversal of a general trend in a particular market. Trends reverse all the time. They go in one direction before switching. They go up and down all the time. The idea is to spot the moment when the trend is about to reverse. This is when you need to go in.
There are more varieties of reverse trading. Another good idea involves identifying the right moment of the day – the highest and lowest values. You will need to check previous days, keep an eye on trends and use your intuition too. There are plenty of risks, hence the recommendation to go for reverse trading if you know what you are doing.
Fading trading might go hand in hand with reverse trading. While the two strategies are quite different, they rely on similar principles. Furthermore, they also involve high risks, so they are suitable if you know what you are doing and your income is disposable. Chances are you will face a bit of uncertainty as you become familiar with it.
Fading trading – Is it worth it?
So, what does it mean? Simply put, you bet against the trend. It is risky and involves some wrong predictions too. You know the trend, so why would you bet against it? The idea is to identify the right moment. The right move will bring in impressive profits. You need to focus on a few trends only, rather than go general.
Then, what is the best time to apply this strategy? The perfect time does not depend on you. it could be today or two years from now. Volatility is your best friend. You need to hunt volatility. If some big news is about to come out, it might be the right moment. If a country implements cryptocurrencies, the trend will change. If another country bans it, the trend will change again.
Everyone went nuts for Bitcoin when the price skyrocketed in 2017. Then, it faded. While most people understand the principles of trading, they fail to apply them. Everyone wanted in when the price was high and no one really cared anymore when the price was down. In fact, that is the best time to enter the market.
Buying dips – A safe way to make money
Just like other goods or stocks, digital currencies are relatively strong. They have managed to build their way in and they are less likely to go away too soon. In other words, just because the price went drastically down, it does not mean that it is over. Instead, join the market at that time and you will most likely gain in the future.
Indeed, volatility makes this market quite risky and dangerous. Directions change in no time. Digital currencies have gone up, fallen and recovered shortly after. This is one of the safest strategies out there, yet it requires time.
Momentum trading is the classic option in trading. Most beginners will start with this strategy. The principle is simple to understand. You see a trend, you climb on it and you make some money before it goes away. You follow the crowd. You are not one of the best money makers who climb on it before it goes public, but you are not a bad trader either – you join in the middle.
Momentum trading – Going the classic way
It sounds easy, but it could also be very risky and challenging. After all, predictions go two ways. The fact that it looks so simple is what makes it so scary. Other than that, volume is key in momentum trading. After all, the actual momentum is given by the volumes that the trend makes. Obviously, it also depends on how early or late you jump on it.
Traders join the trend and wait until volumes seem to stabilize a little. At that point, the trend could continue to grow, but it may also fall. In order to cut potential losses and maximize their earnings, many traders exit the trend when it reaches that peak. This is the hardest moment in the process – judging the optimal moment to exit.
Range trading asks for a bit of experience – you need to understand the trading industry and some of the aspects related to it. This form of trading depends on the support and resistance associated with goods and stocks – common in more types of trading. Before diving in, make sure you understand how candlestick charts work and what they do.
Range trading – Analyzing the volatility
Candlestick charts were originally used in Japan more than a century ago. The western world has made them perfect. What do they involve? While there are some connections between the supply, demand and overall price, markets are also influenced by another factor that no one can control – emotions of traders involved in the industry.
These days, the actual emotions are not used in charts. However, they show it by representing the price moves in specific charts. Furthermore, they help you determine the volatility of the market by suggesting two different price ranges. The plan is to get digital currencies at a support level and get rid of them when they are close to the resistance level. Prices are less likely to go beyond specific levels – the main risk of this technique.
Sometimes referred to as algorithm trading, high frequency trading is a complex strategy that requires a deep understanding of the market, as well as a solid amount of experience. The result involves good profits though, so it is totally worth some consideration. The general idea is to automate everything – work on setting some steps for your strategy and get a platform to work for you.
High frequency trading – Taking complexity to another level
When everything is automated, you may come up with dozens of trades within a couple of seconds. In fact, such a strategy will perform multiple trades within less than a second. This is not really possible if you want to do everything manually, so take advantage of the autopilot associated with your platform and customize everything in the smallest details.
Things will not improve overnight. You have to test different trends, ideas and strategies. You need to try out some techniques and repeat them. You will make some money, but you will also lose. This is the price you have to pay to develop the perfect strategy. It sounds easy, but it is extremely challenging – everyone would be rich overnight if it was easy.
This strategy may seem pretty safe once you figure it out, yet it takes time to understand everything. Most importantly, you have to understand what these two terms refer to. The golden cross is that point when the short term average of a specific coin will get over the longterm average. The short term average is normally based over a couple of months, while the longterm one will take over six months.
Golden and death cross trading – A longterm strategy
The death cross goes in a different direction. When the short term average is under the longterm average, you have reached the death cross. The good news is you do not always have to wait for 50 days to check everything. Instead, you can conduct a professional analysis and check the trends over the past months. Whether you analyze past prices or you start your own analysis today, the process is time consuming.
Should you choose to consider other indicators for the job, some traders rely on MACD or RSI. However, most of them agree that the volume is one of the leading indicators. All in all, once you have all these sorted out, the strategy implies buying at the golden cross and getting rid at the death cross.
While it looks like a scientific approach with proven benefits, the actual research is what makes it difficult and challenging. On the same note, it is not a risk free strategy. You could still end up losing money and nothing is certain in such a volatile market.
As a short final conclusion, these are the best methods to learn cryptocurrency trading. Some of these strategies are easy to apply and can bring in decent profits. Some others are more sophisticated and require experience, as well as financial knowledge and education. Just like for any other type of assets, you need to do your homework before diving into cryptocurrency trading.
Most traders try out different techniques and ideas in order to find something that works for them. From this point of view, what works for some people may not work for everyone else. You need to experience and explore various trading techniques. Just like you have probably guessed already, you have to rely on small amounts of money – disposable income.
As a beginner, it is relatively easy to get lost and waste large amounts of money – you get a couple of successful trades and you think you can pull a few millions by the end of the year. Everyone has been there, but it never happens. Indeed, you can make money out of cryptocurrency trading, but it takes experience and hard work.
Meta: Go through some of the best methods to learn cryptocurrency trading and find out what each of them implies.