A Complete Guide to Cryptocurrency Trading for Beginners

In the eyes of numerous analysts, $AVAX stands out as a top-tier cryptocurrency investment in 2023. Its reputation is primarily founded on its exceptional transaction speeds, boasting an impressive rate of approximately 6,500 transactions per second. This remarkable throughput is achieved by leveraging a network – of blockchains designed for distinct purposes and fortified with unique consensus mechanisms. When choosing what to invest in, consider asset liquidity, volatility, and trading volume. For example, Bonnie purchases $250 worth of Ethereum every Tuesday, for the entirety of 2023, investing a total of $13,000.

Crypto derivatives trading often includes using leverage, which can substantially magnify gains and losses. Traders can also open short positions to directly profit from cryptocurrency price drops, mitigate their risks by hedging and make big trades even if the markets are relatively quiet. If you’re an experienced trader, you may already have a strategy you use to trade stocks. A personal favorite trading strategy that many traders use is Elliott Wave Theory.

Learn how to trade Bitcoin and other cryptos with our step-by-step beginner’s guide.

As a general rule of thumb, once you have your exit plan, you should stick to it. Resistance means a level where the price finds a “ceiling.” A resistance level is an area of significant supply, where sellers step in and push the price down. For example, a 1-hour chart shows candlesticks that each represent a period of one hour. A 1-day chart shows candlesticks that each represent a period of one day, and so on. Cryptocurrencies have taken the financial world by storm, redefining how we perceive money and transactions. By tracking your portfolio and measuring your performance, you can easily improve upon it and make better trades.

• Most experts believe that active trading strategy changes with the long-term strategies where investors buy and hold the assets.
• This guide aims to equip beginners with the foundational knowledge necessary to navigate this potentially rewarding landscape.
• Similarly, cryptocurrency gains are taxed at different rates – either as income or capital gains.
• If a position moves against them, they’ll still have money in reserve to trade with later.
• A trader’s primary goal is to identify favorable opportunities to purchase an asset at a particular price and sell it at a higher price, commonly referred to as a long trade.

An exploration of exchanges and their strengths and weaknesses wouldn’t go amiss either, and we’ve actually done that already for Binance and KuCoin so you can check those out before you start trading. Swing trading focuses more on longer term trends in the markets, and positions can be held for days or even up to several weeks. The goal is to identify undervalued assets that are just beginning to see an increase in buying momentum and upward price – movement. The swing trader looks to get into the asset as it trends higher, and then sell at a later date for a profit. One of the top methods used to determine potentially profitable entry and exits points for cryptocurrencies is crypto technical analysis. This is the analysis of the past price action of an asset to identify possible patterns, such as support and resistance areas, current trends, and potential trend reversals, among other things.

Top crypto exchanges Community choice  – September 2023

If you can figure out that question, you can then decide whether or not to invest, when, and for how long a period you would look to keep the investment. Bitcoin has spurred a whole new digital coin class that can now be bought and traded on cryptocurrency exchanges worldwide. Traditionally, selling an artwork involved finding a buyer willing to purchase the entire piece, making liquidity challenging.

• Similarly, unfavorable price movements result in “paper losses” that are also only realized when you exit the position.
• EToro accepts Visa, Mastercard, Maestro, bank account, PayPal, and wire transfer as payment methods.
• According to Greenberg, a technical understanding of the technology and team behind an altcoin project gives traders a competitive edge.

It is about unusual and significant price changes that occur regularly at certain periods of the year. They let traders set a minimum price and will only execute at that price or higher. This allows traders to have better control while granting them the option of staying away from monitoring the market constantly. Knowing when to buy, when to HODL, and when to sell is something you learn through practice.

Cryptocurrency trading strategy

The long straddle is a popular option in crypto trading because of the crypto market’s volatility. A crypto day trader using this strategy is betting on the change of a crypto asset’s price. The day trader earns regardless if the price rises or falls in the long straddle. For prospective day traders, certain websites allow users to track and copy the most successful traders on the platform. Below are some of the most popular trading strategies in the crypto day trading game. There are many techniques day traders use to make gains on short-term fluctuations in the crypto markets.

Also, you have probably heard “to go short” or “to go long” on an asset. If you are longing an asset, you buy it convinced its price will rise. Shorting an asset is your profit-making action based on your belief that the asset’s price will drop. Shorting itself is a bit more complicated and will be explained in more detail later.

How to trade cryptocurrency

It is not only disrupting the financial sectors but also other major sectors like information technology, health care, retail, tour and travel, automotive, and many more. However, owning cryptocurrency sounds great but handling it in the right way is challenging. Cryptocurrency trading is trending, and people are keen to learn about how it is done? If you are someone who is interested in starting cryptocurrency trading, then you have landed on the right page. In most jurisdictions cryptocurrencies are now considered to be taxable assets, and there are tax implications for trading cryptocurrencies.

Picking up a trading strategy is a critical step in cryptocurrency trading. Therefore, by utilizing the trading indicators with the correct fundamental and technical analysis, you can achieve high profits in cryptocurrency trading. However, if you are a beginner, pursuing a cryptocurrency trading course and becoming an expert is recommended. Traders should set time aside to familiarize themselves with the upcoming rules and regulations taxing profits earned from crypto. For day traders, the sale of any crypto held for less than a year is taxed as marginal income. Make sure to include your crypto gains when reporting earnings online or with your accounting professional.

Risk Management in Cryptocurrency Trading

Seasoned traders like to use golden and death crosses, primarily in higher time frames, but some traders have managed to build a working strategy around them on lower time frames as well. This happens when the 50-day moving average crosses below the 200-day moving average. In essence, this tells you the short-term trend is weak and a downside can be expected in this duration. The moving average follows price action with a delay because it takes a while for a price move to be reflected in a 100-day average.

• It helps you deal with emotions during market volatility, as you have time to get used to the size of a position.
• A closely followed crypto strategist believes that the recent Bitcoin (BTC) rally is setting up the crypto king for a much larger upswing.
• But, how different or similar is it from or to the nascent cryptocurrency market?
• Off-chain metrics basically include community engagement, exchange listings, government regulations, etc.

Traders aim to buy these cryptocurrencies when prices are low and sell when prices surge, effectively profiting from the market’s volatility. This fast-paced landscape presents both opportunities and challenges for beginners. It’s hard to talk about crypto trading without talking about risk management in cryptocurrency trading.

Swing Trading

Leverage is how much the position is amplified and is expressed in terms of 2x or 10x. The stop order is a type of limit order that is placed below the current price or your entry price to protect from sharp drops in price that could lead to large losses. This type of limit order is placed above your entry price at a target level that matches the amount of profit you’d like from the trade. Another good idea along the way is to educate yourself about other areas of the crypto investing universe such as mining and staking.

Do you want to be the kind of trader that prefers to get in and out of trading positions multiple times a day (i.e., day trader)? Instead, do you prefer to research and make informed bets every time (i.e., swing trader)? As a beginner, you probably want to choose a trading strategy that involves medium to long-term trading and investing.

Margin trading (trading with leverage)

This is why so many crypto enthusiasts just HODL their Bitcoin and other cryptos. Many investors like to trade cryptocurrency because it’s an extremely volatile asset class. If you can time the market right, trading crypto can give you much higher returns than traditional investments. Of course this volatility also incurs significantly more risk than less volatile assets. Arbitrage and scalping are strategies that beginners can apply in active trading. Scalping entails purchasing a cryptocurrency, monitoring it throughout the day, and then selling it when the price rises above the initial buying price.

• Entering a trade — whether you’re going long or short — is also known as taking a position, and it can be exciting to see your position grow as the market moves in your favor.
• Some cryptocurrencies can be used as money, but others are used for identity, governance, data storage and much more.
• Understanding and accounting for volatility is a day trader’s best friend.
• The safest crypto exchange is one that holds most of its assets in cold storage.
• Trendlines are drawn lines that give an investor an idea of the direction an investment might move in.

We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. One way is to use limit orders to take profit or place a floor on maximum loss that you can stand.

A Beginner’s Guide to Cryptocurrency Trading

That’s the case for Bitcoin, for example, where investors rely exclusively on someone paying more for the asset than they paid for it. In other words, unlike stock, where a company can grow its profits and drive returns for you that way, many crypto assets must rely on the market becoming more optimistic and bullish for you to profit. When trading crypto, it is crucial to remember that you also have crypto currency trading to pay fees to crypto exchanges. But, on top of the crypto exchange fees, it is essential to know that crypto tax comes on top of the trading platform fees. Just like with crypto exchange fees, if tax is not accounted for, it can lower your profits. Scalping (a trading strategy in which traders profit off small price changes) is a part of day trading but typically involves concise trading periods.

• Conversely, a short trade involves selling an asset at a higher price first and then repurchasing it at a lower price, aiming to earn from a declining market.
• It is a CFD’s property to allow traders to trade multiple times the amount of their chosen crypto compared with buying it directly.
• Every individual market order placed equals one entry less in the order book.
• A trading bot is an automated software tool investors use to buy and sell financial instruments at a preconfigured time or when predefined conditions are met to maximize profits.
• There are makers for both buy and sell orders, and consequently, there are takers for both buy and sell orders.

Due to the short time frames, scalping usually has thin profit margins. Scalpers generally trade large amounts of assets in order to achieve sizable profits. “I’d suggest starting off with what is called paper trading,” says Shaun Heng, VP of operations at CoinMarketCap. No matter the market, a day trader should have a thorough understanding of crypto as well as trading principles.