Many Bitcoin enthusiasts believe that cryptocurrency trading for beginners is a waste of time. They stick to old-school mottos and focus on amassing as many coins and tokens as possible hoping that they will appreciate them in the long run. While there is nothing wrong with this strategy, experienced retail traders think of the crypto market differently.
All cryptocurrencies are inherently speculative assets just like fiat currencies. Stocks are not speculative assets because they usually represent the material, real value of a company inflated by its potential. Fundamental analysis tells us to evaluate revenues generated by certain companies and take their real estate and other assets into account to figure out a fair value for their stocks. We don’t do that in crypto.
Cryptocurrencies have as much value as someone is willing to pay for a coin. If no one wants to buy your Bitcoin, its price is zero. If many people want to buy it and compete against each other in a bidding war, it will go up in price regardless of whether a BTC comes in a form of a physical coin or an entry in a digital ledger that can be read by anyone.
Speculative assets are great for money-making. Let’s learn about cryptocurrency trading and how a newcomer to this extremely complicated industry can start investing.
How to Become a crypto trader
Retail traders engaging with financial instruments offered by the crypto industry are called crypto traders. They buy and sell various digital assets which are usually represented by tokens issued by various DeFi projects and whole networks. Some tokens have more value than others and many people think of them as stocks.
In some ways, tokens are like stocks. They often represent ownership of some fraction of a network and its product. For example, buying tokens issued by a DeFi money-lending platform would allow you to get some profits (in certain cases). Most of the time, these tokens are issued just to raise funds and become speculative quickly. It is one of the core reasons why many projects nosedive after just a couple of months following their ICOs.
Some tokens, coins, and even NFTs manage to stay afloat and stabilize. For example, the BAYC (Boring Ape Yacht Club) is a perfect example of an NFT project that continued generating headlines even after the whole market collapsed leaving many investors with nothing.
There are several things that you need to become a crypto trader:
- A sizeable starting capital. Investors who want to start accumulating resources may enter the crypto market with a small sum of money and just use automated DCA buying to slowly grow their portfolios. It is a valid approach, but it is not suited for people who want to make money by trading. The latter requires you to have a sizeable starting capital or the willingness to take on risk and use the leverage provided by centralized exchanges.
- An account at a centralized or decentralized exchange. Crypto exchanges are online platforms where traders buy and sell assets. If you want to make money by trading, you need to choose a large exchange with enough liquidity to allow for instant order execution. Binance, Coinbase, Kraken, KuCoin, and many other centralized exchanges will work excellently.
- A place where you can learn how to trade Bitcoin and other tokens. Without any prior exposure to the technology behind cryptocurrencies and the nuances of trading, you will quickly lose everything. Learning more about the industry, flagship tokens, and how they are being used is critically important for the long-term success of your future trading endeavors.
- A solid grasp of technical analysis. This analytical approach uses two key metrics: price action and trading volume. The theory behind it is that the price action already contains all the necessary information to make a good investment decision. Technical analysis is widely used and generates good results for scalpers and day traders. You will also need to learn how to use TA strategies to use advanced tools like automation and copy trading strategies.
Contemporary traders have a much richer and more versatile arsenal of tools at their disposal. Take automation as an example. Just a couple of decades ago, only huge investment companies and other financial institutions could afford to use automated trading systems. Today, you only need an account at WunderTrading or 3Commas to start automating your strategy. With the former offering a free plan to run up to five bots, it is cheaper and easier than ever to use ATS.
All retail traders can access leverage by using margin accounts offered by large centralized exchanges like Binance. Leverage is a dangerous tool to use, but it offers many advantages to newcomers who do not have a large capital to try to make money quickly. If you are smart with using leverage and get lucky, you will be able to quickly grow your portfolio.
How to start trading cryptocurrency
Let’s talk about specifics. It is not easy to explain how to become a Bitcoin trader to someone without any experience with blockchain and using cryptocurrencies in general. However, you can start from the very beginning.
- Create a Bitcoin or Ethereum wallet. These are two flagship blockchain networks that will give you access to a wide range of financial instruments. Registering a new address is not hard. You can do it with any wallet. Try Electrum or Mycelium.
- Create a MetaMask account to work with ERC-20 tokens. These are the most popular and intensely traded tokens. Many DeFi platforms also use MetaMask and its API to provide rich functionality to their users. You will need this wallet for many trading techniques.
- Register at a centralized exchange. While some traders work with DEX platforms, it is easier for newcomers to the industry to start their investment journeys on user-friendly platforms like Binance or Coinbase.
These three steps will provide you with everything you need to start investing in cryptocurrencies. However, you will also need other tools to improve your efficiency and increase your chances to make money.
A short guide to cryptocurrency trading instruments
Contemporary retail traders do not have to limit themselves to just long and short market positions placed manually. Multiple approaches to crypto trading allow newcomers to make money even if they lack knowledge or experience. Use these instruments carefully, but learn them as well as you can.
- Specialized trading bots. Thousands of retail traders diversify by using preset bots from companies like WunderTrading. Launching a bot is not a hard task. People without any technical know-how can set it up for a couple of minutes. The idea is to automate a trading system that relies on signals from indicators and can be performed systematically. Usually, automation is employed by day traders, scalpers, and swing traders.
- Copy trading strategies. When you lack the necessary level of expertise in this field, using copy trading is a good idea. Pick a good retail trader who performs excellently and start following them to repeat their actions on the market. These traders are usually referred to as managers and may take a small fee for allowing you to copy them. This approach is a good choice for newcomers to the industry.
- Trading derivatives. As the crypto market evolved and grew in size, many financiers realized that it could be further expanded with financial instruments commonly used for other commodities and stocks. Futures and perpetual futures are traded all over the world and represent a sizeable portion of the crypto market. You will need a margin account and trading derivatives can be risker than engaging with plain digital assets.
How to trade crypto for profit
The main goal of any investor is to make money. It is possible to do so in the crypto market, but you need to understand when to trade cryptocurrency and where. First of all, we will need to pick a good place to trade.
- Decentralized exchanges. These platforms use a variety of blockchain-powered technologies to provide their financial services. Many of these platforms are non-custodial and interact with clients’ wallets directly. Depending on your preferences regarding security and speed, you may find it more appealing to work with DEX platforms.
- Centralized exchanges. Large companies like Binance or KuCoin provide custodial financial services and allow their users to access the market and conduct trades instantly. If you want to try day trading or scalping, you need to work with a reliable CEX platform. Many centralized exchanges also have functional APIs and can be integrated with automation vendors like WunderTrading.
- P2P exchanges. Peer-to-peer trading is a staple of the Bitcoin community. It started with people directly exchanging tokens. P2P services do not take your assets into custody and often operate as moderated public forums where users are free to look for a favorable deal on their own. Advanced platforms provide escrow services and try to further protect their users from fraud.
- In-built exchange services in wallets. Many software cryptocurrency wallets offer their users exchange functionality by directly connecting to certain exchanges. It is a convenient way to swap tokens quickly, but you should be aware of high commissions and service delays.
When can you trade cryptocurrency?
The crypto market operates around the clock without any days off. It means that you can start investing immediately after creating the necessary accounts and crypto addresses. However, picking the right moment to enter the market is a completely different story. You can trade crypto anytime you are connected to the internet. The most important question is whether you should.
How to pick the right time?
The best way to learn crypto trading is by practicing technical analysis. With enough training and practice, you will become more confident. Technical analysis is an approach to predicting the behavior of prices using theoretical methods and indicators that try to extract useful information from price action and trading volumes.
Technical analysis is used to identify optimal moments for opening and closing market positions. Here is a quick guide to trading cryptocurrency for dummies who want to start learning technical analysis:
- Price action is the change of price over a certain period on a price chart. It paints an illustrious picture of the market at any given moment. Many technical indicators can make good predictions based on price action alone. Moving averages and MACD are two perfect examples.
- Trading volume is the number of assets traded during a certain period on a price chart. Volumes allow traders to evaluate the price action importance. For example, a price change can be dramatic but together with a small volume it will indicate that there is nothing special about it.
- Technical indicators can be good signal generators for newcomers, but they are used in conjunction with a variety of other tools. Retail traders call it “signal confirmation” or “alert confirmation”. When the main indicator shows a good moment to enter the market, other tools help you identify its significance.
- Cryptocurrency traders prefer using TradingView, one of the best charting tools that can be used by anyone. The free plan is awesome and allows users to run up to three indicators simultaneously. You can also run sophisticated analytical systems or write your own. The platform is also integrated with automation service providers.
Learning technical analysis is hugely important for any retail traders interested in working with crypto. Since these assets are mostly speculative and cannot be analyzed using techniques commonly employed by “fundamentalists”, the only reliable way to make somewhat informed market decisions is to employ various technical analysis tricks.
Trading crypto for beginners: preparing for entry
Newcomers are often intimidated by the complexity of the crypto market. Mastering it is indeed close to impossible and you need some technical expertise to become successful. However, it does not mean that you should postpone investments indefinitely or until you amass the necessary volume of knowledge.
You need to prepare yourself and your finances:
- Money management is the key to success in any investment endeavor. Make sure that your finances are in order and can withstand a series of unfortunate events including losses in the crypto market and unexpected mishaps.
- Create an emergency fund that should never be touched until you lose your job or have a big problem. This fund is the first thing any rational adult must create and maintain over everything else. You should also set aside all the money required for mandatory monthly payments like rent, utilities, food, and mobile plans.
- The initial cost of investment is quite low. Some centralized exchanges allow users to start trading with just $10 in their pocket. However, it will not be enough to invest and diversify. Have a sensible amount, at least a couple hundred bucks.
- Be ready to pay for some services. For example, TradingView and WunderTrading have free plans that allow newcomers to test the waters and even run some basic automated trading systems, but you will want to expand and pay extra for extended features.
Is it a good idea to start investing in cryptocurrency?
Novices should be warned about the dangers of the crypto market. It is one of the most lucrative financial markets ever conceived by humanity, but it is also very young and immature despite what other people might tell you. Many digital assets have been around for less than a decade. “Volatile” is still the best word to describe the crypto market as a whole.
Newcomers without any prior exposure to trading should be aware of many risks that accompany any crypto investment endeavor:
- The future is not set in stone. While many Bitcoin enthusiasts make bold claims about global adoption and the inevitable digitalization of the worldwide economy, the reality is closer to the ground. Nations are still on the fence on the issue of cryptocurrencies with many countries preparing to roll out their versions of digital currencies. BTC is still slow compared to VISA or MasterCard. Laymen are not prepared to switch to crypto.
- Decentralization also means “no oversight”. People who strongly believe that decentralization is a good way toward a freer economy often overlook the fact that decentralized systems are prone to be exploited both on technological and social levels. People fall victim to scammers, and phishing attacks, and compromise their security. DeFi platforms are often hacked, leak data, or have technical difficulties resulting in the loss of assets. If something goes wrong, the Federal Government won’t bail you out.
- The market is still limited in scope and diversity. Cautious retail traders know that the enthusiasm of the masses should not overwhelm them, causing lapses of judgment. While it seems that the market is booming with thousands of various tokens traded back and forth, only certain coins and tokens should be taken seriously at the moment. Bitcoin, Ethereum, Litecoin, stablecoins, and some ERC-20 tokens are stable digital assets. Everything else is still too questionable for true consideration.
- Trading crypto sounds great to beginners who are infatuated with heavily romanticized stories about overnight millionaires from Instagram and YouTube influencers. Many dive into the market without any additional contemplation or preparation. It is not something that a reasonable person should do, especially when your livelihood is at stake.
Consider all potential risks and do not work with digital assets that seem fishy. If only your friend and a couple of weird dudes know about an “exciting” investment opportunity, you need to double-check whether you are friends with the right person. The main motto of the crypto community is DYOR (Do Your Research). You should follow it too.
Have realistic expectations
People who are into crypto to become billionaires without applying any effort should abstain from investing in crypto. Days, when it was possible, are gone. Many early adopters did not chase wealth; they simply wanted to use something new and exciting.
Many were and remain strong supporters of decentralization and free self-regulating financial systems. They did not buy BTC for fractions of a cent because they thought that they will earn billions. They wanted to use it and hoped that it would be valuable at some point.
If you want to be successful in the world of crypto, you need to have the same attitude toward digital assets. Do not try to outsmart the market. Trade with a cold head and use time-tested analytical techniques to make informed decisions. Do not expose yourself to risks unnecessarily or focus on risky market positions that could potentially bring you millions. Be reasonable and contemplate each move multiple times before committing.
Work with platforms that have been around for a while and proved that they can be trusted. A new centralized exchange that offers unimaginably low fees and offers unique investment programs could be real, but many are just scammers trying to lure in naïve victims. Start investing in cryptocurrency with respectable platforms like Binance, KuCoin, Coinbase, Kraken, OKX, and others.
The main takeaway
It is not hard to start trading cryptocurrencies. You don’t even need a large starting capital and technical know-how. On the other hand, newcomers may feel overwhelmed with the variety of digital assets and complicated terminology employed by experts. We recommend our readers to start slow and focus on learning whatever they can about the crypto market and cryptocurrencies.
We hope that your journey through the world of crypto will be enjoyable, safe, and profitable.