The crypto world is an exciting space filled with volatility, hype, and uncertainty. If you are an individual just starting out in this fast-paced industry, you most likely want to succeed. To achieve this, there is one thing you need to do. You need to learn how to earn from crypto trading.
This beginner crypto trading guide provides all the information you need in a simple and concise manner.
Introduction to Crypto Trading
Cryptocurrency trading simply means buying and selling crypto assets such as bitcoin (BTC) or Ether (ETH) to make money. It involves buying cryptocurrencies at a certain market value and selling when the value increases to profit from market volatility.
Cryptocurrency Trading Vs Cryptocurrency Investing
Crypto trading and crypto investing are quite similar.
They both involve buying cryptocurrencies at a perceived low price and selling at a higher value. They also have the same goal: to leverage on volatility to earn profits.
However, these two activities have some specific differences.
Crypto traders hold their coins for a short period (a few days or months) and sell them. Crypto investors, on the other hand, hold their assets for an extended period (sometimes for many years or even decades). They do this with the belief that the prices will increase over time.
Crypto trading requires more active participation than investing because traders buy and sell more frequently than passive investors.
Additionally, crypto investing involves more patience and is less risky compared to crypto trading. This is because investment holdings are mostly long term as against the short term nature of trading.
Types of Trading
Discussed below are four types of trading namely, spot trading, swing trading, day trading and long-term investing. Swing trading and day trading are both short-term trading.
- Spot Trading
Spot trading means buying or selling cryptocurrencies at the ‘spot’ or current market price. In other words, it involves the immediate exchange of one cryptocurrency for another or fiat currency at the current price.
When you engage in spot trading, the transaction can be said to be executed on the spot. This means that the crypto asset is transferred to its new owner immediately.
This type of trading differs from futures trading.
Spot trading involves buying or selling the actual underlying crypto asset immediately. Futures trading involves buying or selling contracts, which obligate you to trade the asset at a specific price in the future.
- Day Trading
Day trading is a form of short-term trading where traders buy and sell their crypto assets within 24 hours or one day. Simply put, day traders sell their cryptocurrencies the same day they buy them.
This type of trading is done to generate quick profits with less risk. However, it may be stressful for traders who engage in other activities during the day.
- Swing Trading
Swing trading is a type of crypto trading where traders buy and sell their cryptocurrencies within one month. It is also a form of short-term trading.
Compared to day trading, swing trading can be less-stressful and less time-consuming. This is because it allows traders more time to strategize.
- Long-term Investing
Long-term investing is also known as long-term trading, trend trading or position trading. As the name implies, it is a type of trading where traders buy and hold their assets for long periods.
A long-term trader can hold their crypto assets for up to one or two years before selling. As such, it is quite beneficial for traders who value accumulated gains.
Long-term investing is less-stressful and easy to learn. Thus, it is the most preferred type of trading for beginners. However, it is also risky because long-term price actions in the crypto market are quite unpredictable.
Setting Up for Success
To succeed in crypto trading, you are not required to meet formal educational qualifications. You simply need to be informed on the basics of how to start trading crypto. This includes choosing a reliable exchange, securing a crypto wallet and understanding the fees involved in trading.
Choosing a Reliable Exchange
A crypto exchange is a digital marketplace where users can buy, sell and trade crypto assets using fiat currencies or other cryptocurrencies. To choose a reliable exchange, look out for these factors:
- Licensing: In many countries, regulatory bodies oversee internal financial service providers and give crypto exchanges licences to operate. Thus, before choosing an exchange, ensure that it is legal to use it where you live.
- Reputation: Before using a cryptocurrency, thoroughly check for positive reviews. What are users saying about this platform? A reliable exchange must have positive reviews.
Additionally, dig into the history of the platform. Has the exchange been hacked before? If yes, how many times? What steps were taken then to prevent a recurrence or reduce its possibility?
- Security: Is the exchange secure? Are there security features such as two-factor authentication (2FA)?
- Beginner-friendly Interface: A reliable cryptocurrency exchange must be simple to navigate and easy to use.
Securing a Wallet
To secure your trading funds and make sure your wallet is safe, here are steps you need to take:
- Never share your private key and recovery phrase with anybody. Rather, write them down and keep them safe offline.
- Use a cold or hardware wallet: Cold wallets such as Ledger are offline and are safer to hold large amounts of your trading funds than hot wallets.
Understanding Fees
Different types of fees are involved in crypto trading, each performing different roles. Some of these fees include:
- Trading fees charged by crypto exchanges for executing buy and sell orders.
- Withdrawal fees charged when you transfer your funds to your wallet.
- Network fees (also known as gas fees): These are paid to network miners and validators who process transactions and add more blocks to the blockchain.
Basic Strategies
Here are three strategies that can help beginners build confidence in crypto trading and earn from it:
Dollar-Cost Averaging (DCA)
Dollar-cost averaging in crypto trading involves investing a fixed amount of money at regular intervals regardless of market price action. For instance, you can decide to invest $1 worth of BTC every week, irrespective of whether the price rises or falls. After a while, you can then decide to trade your holdings for profits.
Trend Following
This strategy means allowing market trends to influence your trading decisions. In other words, buy when prices show an upward trend and sell or hold when it takes a downward turn.
The idea behind this strategy is this: When an asset sees an uptrend, there is a tendency that the market value will rise even higher with time. That is an indication to buy.
When the market value falls, it might fall even lower. That is an indication to sell to avoid loss or wait for the next uptrend.
Risk Management Techniques
- Spread your investments across different cryptocurrencies.
- Do not invest more than you can afford to lose.
Tools for Beginners
- Portfolio trackers: These trackers help you monitor all your trading assets stored in multiple platforms at once.
- Price alert apps: These apps offer users real-time price notifications for cryptocurrencies.
- Simply charting tools: These are platforms that provide charts which visualize price movements.
Common Mistakes to Avoid
- Emotional trading: Never allow your emotions (fear or excitement) to influence your trading decisions. This is because emotions lead to buying high and panic-selling (selling low).
Instead, do thorough research before making a decision. Considering the volatile nature of the market, trade only funds you can afford to lose.
- Over-leveraging: Leveraging means to borrow additional funds to trade with from a crypto exchange. For instance, if you have $20 and use a 10x leverage, you will be able to trade as if you have $200. Any profit or loss incurred from this trade will also be multiplied by 10.
Over-leveraging occurs when you leverage too much. As a beginner crypto trader, avoid leverage if possible. However, if you want to, keep it minimal (1x or 2x).
- Ignoring security: Do not leave your long-term holdings in a crypto exchange. Transfer them to a cold wallet. In addition, do not share your private key or seed phrase with a third-party. Keep them safe offline. Also, enable two-factor authentication on all your trading accounts.
Learning Resources
As earlier explained, you do not need formal educational qualifications to become a crypto trader as a beginner. Instead, put into practice all that was explained in this article and do continuous research.
Here are some trusted resources to keep learning about cryptocurrencies and how to earn from crypto trading:
- Crypto blogs and news media: Reputable crypto news media, such as CoinTab News, provide up-to-date news, comprehensive guides, and analysis suitable for both beginners and experts. You will also be able to find clear signals to cash out before a bull run ends.
- Online courses and tutorials: You can take online courses or watch tutorials on reputable platforms that provide crypto trading tips for beginners.
- Demo accounts: Practice, they say, makes perfect. Some crypto trading platforms allow their users to create demo accounts when they sign up. With these accounts, you can practice trading using fake funds instead of real money. This will help you become familiar with price movements, charts, and others.
Summary
Crypto trading, the buying and selling of cryptocurrencies to earn profits, can be a rewarding venture if done the right way. This is why you need to be well-equipped with the right information as a beginner.
Bear in mind that trading is not a get-rich-quick method of making money or a shortcut to hardwork. It requires patience and attention to details. The crypto market is volatile. Thus, do proper research and never trade more funds than you can afford to lose.
With the right amount of patience, practice and research, your confidence level will increase over time. You will even be able to teach others how to earn from crypto trading as a beginner.
