If you think you have already missed the crypto boat, think again. It’s true that many early investors made massive profits from cryptocurrencies and other digital assets like NFTs. It’s also true that people are still making money from cryptocurrency, and you can too. Cryptocurrency trading is one way of doing this, and we’ll guide you through the basics to get you started on the right foot.
What Is Cryptocurrency Trading?
Trading generally involves buying, selling, and exchanging assets. In the financial context, the assets can be stocks, currency pairs in Forex, bonds, options, or in this case, cryptocurrency.
Most people assume that cryptocurrency trading only involves short-term trades. This is called scalping, and it’s only one strategy among several others, like swing trading and day trading. There’s more on these strategies later in this article.
Another common misconception is assuming that trading and investing are the same. As stated above, cryptocurrency trading involves buying or selling cryptocurrencies according to market movement. Cryptocurrency investing, however, deals with buying cryptocurrencies to sell later at a profit.
Methods of Trading Cryptocurrency
There are two major approaches to trading cryptocurrency. The lesser-known option involves manually buying and selling digital assets according to market movement.
The more popular option is Contract for Difference (CFD) trading. In CFD, you predict the direction of the market, and your gain or loss will be calculated based on how correct your prediction is. If you sell and the market also sells, you’re in profit. You’re at a loss if the market moves otherwise. Your profit or loss is the price difference between your entry and exit position, hence the name.
Cryptocurrency Trading Terminologies
There are many terms used in crypto trading. We’ll treat the commonly used ones here to give you a general idea.
- Fundamental Analysis
Fundamental analysis is a technique for predicting the future value of an asset. It requires a study of external and internal economic factors that can influence an asset’s value. Such factors as the general economic state, industry conditions and global events are carefully studied to predict how they will affect the asset’s value. However, fundamental analysis is not of much use in cryptocurrency trading due to volatility, and lack of reliable economic models.
- Technical Analysis
Technical analysis serves the same purpose as fundamental analysis, but it uses historical price behavior to predict future price movements. In other words, you predict price movement based on the asset’s past behavior. Technical analysts use technical indicators, chart patterns, and other tools to analyze the market.
- Market Trend
This is the overall direction of an asset’s price. A trendline is a line that shows the general direction of the market, irrespective of small fluctuations. A downtrend indicates that the market is selling or “bearish” while an uptrend means the market is buying or “bullish”.
- Market Cycles
The market moves in certain cycles and each cycle is divided into four parts: accumulation, markup, distribution, and decline (in order of occurrence). Successful trading requires you to adjust your positions according to the market cycle.
Cryptocurrency Trading Strategies
It’s easy to get started with crypto trading; simply register with a trading platform and fund your account to start trading. Check this post if you want to know more about setting up a trading account. To trade successfully is not as easy. You need robust trading strategies, risk management, and other strategies for successful trading. Here are some trading strategies you need to know:
Scalping is a trading strategy that involves predicting price fluctuations within short timeframes and taking quick and small profits. The timeframes range from a few seconds to minutes.
- Day Trading
Day traders trade with daily timeframes, predicting what will happen to the market in a few days. There is more profit here, but it takes more time.
- Swing Trading
Swing trading requires predicting market trends for weeks or months. The profits are higher, but it requires complex strategies and takes time.
- Portfolio Management
Portfolio management deals with the selection and management of investments. In the cryptocurrency context, your trading portfolio will consist of a selection of cryptocurrencies or other digital assets. It’s important to build the right portfolio and manage it well.
- Risk Management
Risk management means, well, managing risks. It involves weighing up potential risks (internal and external), predicting how they affect your portfolio, and then tackling them with the right strategies. Risk comes in many forms, and recognizing them is the first step to successful risk management.
Cryptocurrency trading is an extensive subject, and it might seem difficult to master. We hope this guide has simplified crypto trading and made you more comfortable with it.