There are plenty of tales of massive losses by new traders who have made and attempt to trade in the infamously volatile cryptocurrency market. Though at the same time, there are also a small number of traders have been making profits in the market.
Making a consistent profit from the crypto market is less about market conditions, and more about trading strategies. A strategy is a course or series of actions that will help us achieve our goal. This statement implies that profitable traders an approach that beginner cryptocurrency trading do not.
This article aims to lay the foundation that you need to trade the crypto market profitably.
Overview of the Cryptocurrency Market
The cryptocurrency market is a global network of buyers and sellers of different cryptocurrencies. This market is very similar to the Forex market in several aspects, including the decentralisation of its operations. The crypto market is growing at a pace that many people would not have imagined possible.
So how did the crypto market evolve to this stage? There have been several digital assets and currencies, before mainstream crypto as we know today. In 2018 with the advent of Bitcoin by Satoshi Nakamoto , cryptocurrencies weren't as popular as they are today and cryptocurrencies were not a tenth of their value today.
However, as bitcoin became more popular, other cryptocurrencies began joining, and more professional exchanges were set up. The markets became more formal. Trading no longer had restrictions to the deep web, people began looking at various charts to determine entry positions, the same way as for forex or stock markets.
2017 was an outstanding year for cryptocurrencies as the market expanded by over 1000%. The year climaxed with a bullish market, which saw bitcoins selling at an all-time high price of around US$20,000. By the December 2017, there were over 900 altcoins on the market, many of which were selling at high prices.
Why people buy cryptocurrency
People purchase crypto for different reasons, and some of them in the list below.
1.Transaction purposes:
Some cryptocurrencies are created when a company starts a project using their own or build on another blockchain. Tokens/ coins represent a stake in the project or are generated to facilitate transactions within the ecosystem of the company. Individuals also buy crypto for international transactions, the same way you would exchange your local currency to USD.
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2.Trading
People buy a cryptocurrency for trading purposes, the same way they trade traditional currencies. A trader's ultimate goal is not to store the coins, but to sell them at the right time when prices move in their direction. This art is like a how to guide for beginner cryptocurrency trading strategies
3.Investment
This category of people see cryptocurrency as an investment and they usually buy for the medium to long term. Buyers in this category store their crypto assets in their software wallets or hardware wallets. They are not so concerned with the daily movement of the coins.
Discussion of Trading Concepts and Terms
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We will be looking at several terms that traders use in the crypto market.
Daytrading: Beginner Cryptocurrency Trading Strategies 1
Trading cryptocurrencies, stocks or forex using strategies that give profit within the shortest possible time, usually within a day. Day traders are the most active traders because they monitor their trades for every movements that will give them profit.
Long-position
This means to buy at a lower price and sell at a higher price. Traders who take long positions will benefit more from a bullish market.
Short position
This happens when the trader expects the price to go down. A trader takes a short position when they sell an asset that they do not own, with the hope of buying later when the price is lower.
Leverage trading: Beginner Cryptocurrency Trading Strategies 2
This kind of trading allows a trader to open a position with more capital than they possess. It is trading on borrowed money, only that, in this case, it is done with a ratio to the equity capital by the owner. E.g. If I have US$1000 and I want to enter a trade of US$10000, I can request for a 10x margin. In this case, for any movement in price in my direction, I get 10 times the profit, but I am also exposed to 10 times the loss if it goes in the opposite direction. Margin trading should only be used by experienced traders because of the high risk of losing all your capital if the trade goes against your prediction.
Support
In trading, support refers to the lowest price that the stock or coin reaches each time before it bounces back. The support level is usually when buyers rush in to buy more stocks or coins because the price is the lowest at the time. The increase in demand pushes the price up after that time.
Resistance
This is the opposite of support. The resistance level is the highest price that the product reaches before sellers flood the market. As sellers flood the market with their product, the price drops.
Types of coins/cryptocurrencies
There are over 1000 cryptocurrencies today which can be classified under three broad groups:
1.Bitcoin
This is the first and most prominent cryptocurrency, with a fixed supply of 21 million bitcoins. Since its inception, bitcoin has had more than five forks. These forks have created different variants of bitcoin such as bitcoin cash, bitcoin gold etc.
2.Altcoins
These are other coins apart from bitcoin. These are other types of cryptocurrencies apart from bitcoin, that have their blockchains, with peculiar protocols. After the entrance of bitcoins, there have been more than 100 altcoins that have entered the cryptocurrency space. The most popular altcoins are litecoin, ethereum, ripple, neo, Tron, ethereum classic, bitcoin cash.
3.Tokens
You can generate through the functional structure of decentralised applications. Tokens refer to coins that are built on a third-party blockchain. They are usually created to facilitate smooth transaction flow within the ecosystem of the decentralised applications.
Investment Goals
There are three types of investment goals as part of this Beginner Cryptocurrency Trading Strategies article. These goals influence the kind of strategy that we use to trade cryptocurrencies. They are
1.Short term goals
These are goals that the trader or investor sets for themselves to achieve within the shortest possible time. In cryptocurrency trading, traders who have short term goals of making profit will apply day trading strategies to achieve their goal. The strategy for achieving a short term goal is quite different from the medium or long term goal.
2.Medium / Long term goals
The industry is still quite young and some people are hoping to cash out from their investment in specific cryptocurrencies within 2 to 5 years. Investors who have medium-term goals to achieve usually consider the fundamentals of the project they are investing in. They are not so concerned with the daily trade statistics of the coin or asset. Instead, they focus on the performance of the project in achieving a developmental milestone that brings value to its consumers.
In some cases, some medium-term investments may be classified as long term investments depending on the sector in question. Long term investors usually buy investments when they are at their infancy stage, with a focus on the fundamentals. They tend to stay with the investment for a long time following the development roadmap and are not too concerned with the charts.
Fundamentals of Beginner Cryptocurrency Trading Strategies
We are still laying the foundation that is necessary to be a successful trader, and this time, we would look at some critical factors to consider that will impact your ability to be successful as a trader.
1)Trading psychology:
The mindset of a trader is critical as this will influence the way they respond to the market. When it comes to making money through any method, there are two significant things that prompt people to make irrational decisions. These are the emotions of fear and greed.
So how does fear impact our ability to make the right trading decisions? This can happen in two ways, fear of missing out of an excellent opportunity of making money (FOMO), or the fear of losing money. Trading decisions inspired by fear will not bring consistent results of success, as our emotions are clouded when we try to reason under that kind of condition.
Similarly, greed is another emotion that can affect trading decisions. Greed is an emotion everybody has, and it does not have to be a bad thing as long as it is not in control of your decision-making ability.
Some traders don't know when it is time to take a profit and exit the trade. We understand that every trader would like to maximise profit from every trade, but it is also essential to know that you cannot sweep all the profits every time.
As a trader, you learn to be content with whatever profit you make instead of beating yourself about how much more you could have made. It is ok to look at areas where your strategy can be improved, but it has to be a conscious decision that is well planned after some study and research.
2)Time management:
Even though the crypto market is open 24 hours a day, it is not always a good time for trading, notwithstanding factors such as an individual's personality type and schedule. A trader should adopt a schedule that will help them achieve their trading goals, while taking into account how they respond to market events.
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In managing your trading routine as a trader, you can determine the maximum number of trades you place in a day. If you decide that you will not place more than five trades in a day, then try to stay within that limit. There are days when the market will have cyclical movement and the urge may be there to trade as often as you can in those cycles. Try not to do that unless it's part of your trading strategy, as it could become a habit which could cause you severe losses, especially if the market takes an unexpected turn (which is not a rare occurrence).
A trader should not approach trading with the mindset of a gambler, as that would influence trading decisions.
3)Risk management
Every business venture has some element of risk involved. Even when we make the most detailed research possible, we will still not be able to get all the answers. Therefore, while we may not be able to avoid risk totally, we can minimise and manage the outcomes of a risky venture.
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So how does risk management apply to crypto trading? Remember that the trader aims to maximise profit and minimise losses. He or she should first assess how much risk appetite they have, i.e. the amount of risk they can accommodate, without jeopardising the capital.
Even though we anticipate profits from every trade, it is essential to note that the trade might not go our way. For these reasons, traders use tools like stop losses for long positions to limit the loss exposure if the market goes in the opposite direction.
4)Money management
This is another topic that is closely associated with risk management. However, money management focuses on the percentage of capital that is used to enter each trade. This is a fundamental concept that should be understood by all day traders in order to preserve capital.
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So how should I manage my capital? The first rule is to never use all your money in one trade, no matter how appealing the prospects are. While some have advocated for 1% or 2% of trading capital for each trade, this recommendation may not work for traders with little capital.
Therefore, the money apportioned for each trade would vary from one trader to another based on their risk appetite. Individuals should ensure that the portion of capital deployed in a trade should not be so much that if it does not go as planned, trading activities will be disrupted.
Conclusion
We have laid the foundation for trading cryptocurrency profitably in the chapter by looking at the basics of the crypto market and explaining some key terms. We have also looked at some non-technical skills that will help us position our mind properly before we trade. Our next chapter will focus on short term trading strategies.
