At what point do you know when you’re ready to start trading cryptocurrency? It’s a brave step to take and there’s a lot you should know in advance.
You likely got interested in cryptocurrency trading because of the large amount of money you can make.
Maybe a friend got you interested or you just got sucked into to all the news and excitement.
Yes, a lot of money can indeed be made. Bitcoin, the most well-known cryptocurrency, for example, is perhaps the most volatile market instrument in the world.
And plenty of people have made their fortunes trading cryptocurrency.
However, don’t think that trading cryptocurrency is easy. It’s no get-rich-quick scheme, there is a lot you need to know.
In this article, we’ll look at all the things beginners should know before taking up cryptocurrency trading.
Want to learn how to trade cryptocurrencies like a pro? Take our cryptocurrency course!
You already understand the basics
There is a lot to learn about cryptocurrency which can get very technical and you need to devote time to learning how it all works.
Don’t think a five-minute video on YouTube on the basics will be enough! It is a very big topic and information can become outdated very quickly.
The first thing you should learn is all the terminology surrounding cryptocurrency.
Many terms are unique to cryptocurrency or have been borrowed from trading or other have a different technical background.
But perhaps more importantly, you need to understand the philosophy behind cryptocurrency and its origins. You must understand why people believe that cryptocurrency is important.
A good understanding of how the current banking system works is vital, as well as how cryptocurrency plans to replace third parties, such as banks seek to profit from this.
Further to that, cryptocurrency, in some senses, seeks to include more privacy and be faster than the current banking system. They seek to separate of state from money, taking back control.
Another great area to have some understanding of is smart contracts and dApps, other concepts that come up a lot when talking about cryptocurrency.
Don’t jump into trading cryptocurrency if you do not have an understanding of how it works!
If you do, you expose yourself to the risk of getting scammed or sucked into poorly developed cryptocurrency projects.
If you don’t feel you know the basics yet, you can check out our cryptocurrency guide for beginners here.
You have good research skills
The cryptocurrency industry is still very young and changing dramatically, which is why you need to keep constantly up to date on the latest developments.
One of the best ways to do this is by reading cryptocurrency news and constantly stay updated by watching cryptocurrency videos on YouTube.
However, in most cases, this is not enough. You need to be obsessed with cryptocurrency and want to learn everything you can about it and research as much as you can.
Before trading any cryptocurrency, you should learn how it works, what makes it unique and know about the individuals behind the cryptocurrency.
You should also know about the cryptocurrencies limitations and challenges and view them from an objective point of view.
Do not let your personal feelings or biases get in the way of your decision-making process.
On top of that, you should understand how cryptocurrency is regulated in your country. Different countries classify cryptocurrency in different ways and tax profits in different ways too.
An important piece of advice about cryptocurrency is don’t be persuaded by other people’s opinions. Come to your own conclusions.
You can spot scams
One of the most important skills you can have as a cryptocurrency trader is the ability to spot scams. This skill is only obtained by conducting thorough research.
Scams can come in many different shapes and forms. Sometimes they are cryptocurrencies themselves other times they are services related to cryptocurrency or cryptocurrency trading.
You need to develop the skill of differentiating the difference between well-known cryptocurrencies and projects and scams.
Only use wallets, apps and exchanges that are well-known. But be careful, some scammers are great at replicating real apps.
The more you understand cryptocurrency, the better you will be able to spot scammers. Be especially cautious of individuals offering to make you vast returns for a small investment.
You know how to trade
If you already have trading skills, you will be very ahead. You may have already traded forex or stocks.
At Trading Education, we believe that anyone can learn to trade, no matter their age or financial experience.
You may understand the basics of trading; buy low, sell high. But in actuality, it is a little more complicated.
What you want to do is trade in the direction of a trend. If you do not understand how trends work, you may find it difficult to trade cryptocurrency.
Further to that, you may not understand what indicators to use. If you start trading without any knowledge of how indicators work, you will not know when to enter or exit the market.
What kind of trader are you?
Early on beginners should make a decision; to choose to trade cryptocurrency in an exchange or will they trade cryptocurrency as a CFD through a broker?
If you decide to trade cryptocurrency as a CFD, you will likely not need to understand how to store cryptocurrency.
A crucial thing cryptocurrency traders should know is the dangers of using cryptocurrency exchanges that have a bad habit of getting hacked.
It has happened time after time after time and millions have been stolen.
If you do decide to use a cryptocurrency exchange, don’t ever leave your cryptocurrency there, always withdraw it and put it in your wallet.
CFD trading removes this risk because you don’t technically own the underlying asset.
However, the advantages of trading via an exchange or with CFDs is not always clear cut.
Traders who don’t stick to just CFD trading will have the advantage of taking part in ICOs (Initial Coin Offering).
ICOs are a great way to make a lot of money as typically after an ICO is finished, the price of a cryptocurrency soars.
Finally, traders also need to take into consideration the fees associated with their chosen trading method.
Day trader or swing trader
You also need to decide if you are a day trader or a swing trader.
Day trading is essentially a full-time job where you trade throughout the day and close all your positions at the end of the day.
Swing trading takes place over a much longer period of time. Swing traders may not close a position for days, weeks or even months.
The trading style you pick should fit in with your lifestyle and the time you can commit to trading.
The basics of trading
You need to know how to read charts and candlesticks. If you do not understand how to read these, you will find it very difficult to start trading.
You understand the risks involved
Everything has a risk, there’s no escaping it. If you can’t handle the pressure related to trading cryptocurrency, it might not be for you.
You really can lose everything if you do not have a plan and a risk management strategy.
A general rule that many traders follow is not to risk more than 1 to 2% of your account on any trade. This will make your trading account last much longer.
Do not trade with money you cannot afford to lose, especially at the beginning when you are just starting. You will lose money when you are learning how to trade.
You should believe that cryptocurrency has some kind of future
Yes, as a trader, you will likely just want to make money from trading cryptocurrency and will likely care less about how cryptocurrency can potentially change the way our world works.
However, you should hold the belief that cryptocurrency will last long enough for you to profit from it.
If you remember anything from this article, make it these key points.
- Before taking up cryptocurrency trading, you should understand the philosophy behind it. You should know what they are trying to achieve and why it is important.
- Good research skills are vital. You will need to understand how different cryptocurrencies work, what makes them unique and how to spot scams.
- Knowing how to trade is a whole other ball game. While understanding cryptocurrency is crucial, knowing how to trade is equally important.
- Trading cryptocurrency is very risky. You should never overlook the risks associated with cryptocurrency trading.
Learn to trade cryptocurrency with our cryptocurrency trading course
Want to learn more about other cryptocurrencies and how to trade them? Then sign up to our cryptocurrency trading course!
If you enjoyed reading this article from Trading Education, please give it a like and share it with anyone else you think it may be of interest too.