Are you interested in learning how to trade the cryptocurrency market but unsure what to do or even where to start? Well, this guide might be precisely what you need! Crypto trading is pretty straightforward once you get the hang of it.
The cryptocurrency market is volatile and unpredictable. Cryptocurrencies are still in the infancy phase, compared to Forex and the stock market.
As a trader, you use historical data from the charts to analyse future price action. With Forex, you can track price action from way back. But don't let that put you off. Cryptocurrency for beginners may be challenging. But that doesn't mean it's impossible to trade cryptocurrency for profit.
More and more people are interested in learning how to trade cryptocurrencies and make a profit. If you are ready to learn how to trade cryptocurrency but don't know where to begin, this guide will help you get started trading cryptos.
Do you need a crypto trading course, the equivalent of cryptocurrency for dummies? Or can you start trading cryptos without investing in a cryptocurrency trading course for beginners? It depends on your aptitude and approach to trading cryptocurrencies. If you have zero experience of trading any financial instrument, such as Forex, you will, undoubtedly, find the crypto charts confusing and overwhelming.
New traders ask, 'Is it profitable to trade cryptocurrencies?' and the answer is, yes, you can learn how to trade cryptocurrencies and make a profit. But it's a learning process, and you can't be in a rush to make money from trading cryptocurrency.
To begin with, you need to practice trading cryptos with a demo account. You become familiar with the crypto market and learn the different order types, such as limit and market orders.
As you progress with trading cryptocurrencies in a demo account, you can formulate a crypto trading plan and establish one or two crypto trading strategies. You may prefer crypto day trading strategies, where you can open and close your crypto trades in the same trading session.
If you prefer scalping or swing-trading cryptocurrencies, you may need different crypto trading strategies for each form of crypto trading.
This guide will teach you how to create a crypto trading plan and learn two different cryptocurrency trading strategies to help you profit from trading cryptos.
To help you start trading cryptocurrencies, we will look at a couple of charts and assess price action and potential setups for high-probability trades.
The more you study the cryptocurrency charts, the easier it is to spot great setups for profitable crypto trading.
- What Is Crypto Trading?
- What Do You Need to Know Before Trading Cryptocurrency?
- How to Create a Trading Plan for Cryptocurrency Trading
- Understanding Support and Resistance for Trading Cryptos
- The Best Crypto Day Trading Strategy
- Recap of Trading Cryptocurrencies for Beginners
What Is Crypto Trading?
When you trade cryptocurrency, you are speculating on the price movements. Most cryptocurrency trades are via a CFD (contract for difference) trading account, but recently some countries have issued restrictions on CFD trading. The reason for the CFD rulings is the extensive leverage offered by CFDs.
Novice crypto traders cannot handle the significant amount of money provided by the CFD broker or exchange. In some instances, broker leverage was as high as 100 times your capital. With little trading experience, crypto traders can quickly lose their accounts, or worse, end up owing money to the broker or exchange.
Three countries have issued new CFD regulations:
- The UK Financial Conduct Authority (FCA)
- European Securities and Markets Authority
- Australian Securities & Investments Commission
If you cannot trade via a CFD, you can buy and sell the underlying coins via a crypto exchange. If you buy a cryptocurrency at a specific price, you aim to sell it for a profit later.
It seems like you have a 50% chance of getting it right, but it's so much more complex than that. Professional cryptocurrency traders do not adopt a gambling mindset of being right or wrong. They look for high-probability crypto trades, and this guide will teach you how to do the same.
Read More: What Is Cryptocurrency Trading?
What Do You Need to Know Before Trading Cryptocurrency?
There's a lot to learn before you can start trading cryptocurrencies. This section covers the basics of what you need to know before you start trading cryptos.
- Understand order types – learn the difference between a limit, stop and market order and grasp the concept of slippage, which sometimes happens in the crypto markets due to high volatility or lack of liquidity.
- Secure your crypto – if you buy crypto on an exchange, leaving your coins floating on an open exchange is foolhardy. When you are not trading crypto, transfer your coins to a secure crypto wallet.
Set up 2FA to protect your account from hackers and make sure you keep your account and crypto wallet details safe. Your crypto wallet has a private key and a public key. The private key gives you access to the wallet, so never share it publicly. The public key is for transfers from other platforms or people to send coins to your wallet.
For signing in to your exchange account, you can use an encrypted service like LastPass or Roboform.
- Cryptocurrency is a highly volatile market – at times, the crypto market behaves crazily. Unlike other financial markets like Forex, the crypto price swings can be enormous, wiping out your trades in the blink of an eye. Always have a stop loss to protect your account if possible.
- Avoid trading on margin - leverage is the hardest thing to manage for crypto beginners. It's how many new cryptocurrency traders blow up their accounts. While it may seem tempting to borrow money from the broker, it isn't worth the risk. One of the primary ways to keep your account from disappearing is learning how to manage risk.
- Cryptocurrency trading is taxable – yes, that may come as a surprise. Check with your country what the tax implications are for trading cryptos.
- Cryptocurrency exchanges are unlike the stock exchange – when you trade the stock market, you have protection from the financial governing bodies of your country. In the U.K, it's the FCA (Financial Conduct Authority), and in the US, the SEC protects against fraudulent practices. Cryptocurrencies are decentralised, and, as such, you have zero protection from authorised financial bodies.
Become familiar with the above list and especially learn about the order types before you start trading cryptocurrency.
How to Create a Trading Plan for Cryptocurrency Trading
'Fail to plan and plan to fail.'
A trading plan is essential for trading cryptocurrencies because it is challenging to maintain clarity of mind when trading cryptos. After a couple of hours of looking at the charts, you may make poor trading decisions.
Having a clear plan minimises the need to anguish over trading decisions.
A crypto trading plan provides a foundation to know what to do, when to do it and why. We'll cover the basics of a cryptocurrency trading plan, but be aware that, as you gain experience, you may wish to tweak your plan.
- Know which cryptocurrency to trade – establish which cryptocurrencies have liquidity and volume and reasonable volatility. Become familiar with a few cryptos, so you learn the price action patterns and identify support and resistance zones. Study the website for your chosen crypto and connect with the media so you can stay ahead of price reactions for cryptocurrencies.
- Strategies for market conditions – not every crypto strategy suits price action. You may need a different strategy for a ranging market to a trending market. Backtest your strategies and practice until you know the clear signal on the charts that indicates a possible high probability trade setup.
- Risk Management – Risk no more than 1% of your account balance. For instance, if you have $1000 trading capital, your risk is $10 per trade. Managing your trade risk protects your account. Using 1% risk means you would have to lose 100 consecutive trades to wipe out your crypto account. Another bonus is when your risk is manageable, you are less likely to become stressed about the outcome of your trades.
- Managing your emotions – professional crypto traders became successful because they learned to manage their emotions when trading. You may think you will be different, and you won't have issues with your emotions. But the subconscious fear of loss kicks in when trading cryptos with real money.
Typically, revenge trading, chasing losses, or FOMO are symptomatic of emotions taking control. We are twice as reactive to losing as we are to winning. Emotional mastery equals profitable cryptocurrency trading, so it's worth taking this subject seriously.
- Have a set time to quit – after a maximum of two hours, get up and take a walk. Move away from your trading station. Determine when to quit for the day. It could be after three consecutive losses or 5% of your account. Also, learn to quit when you are ahead. When you win several crypto trades, you will become over-confident. If you continue to trade, you may likely lose your gains.
Understanding Support and Resistance for Trading Cryptos
You can learn how to use support and resistance for trading cryptocurrency. Crypto beginners often get confused about where these zones are on the chart. Once you understand support and resistance, you can use it to map out potential trades. Rather than try to describe it, let's take a look at the Bitcoin chart.
The above image is the daily chart for BTC/USD
- Look at the green bottom line, which is at around $30,000. The first touch on this support zone is January 2021.
- The market immediately rejected the second touch.
- On the third touch, the price broke above and gained momentum.
BTC/USD continued upwards and consolidated in a range (above the red line). Notice there are at least three touches here (support/resistance zone)
- The price broke through support (red line) and, in mid-May, dropped back to original support at $30k (green line).
- The price reached up to resistance (red line) but failed. Once again, the price returned to $30k.
- After failing to make a higher high, BTC/USD returned to $30k. From here, the price was rejected and gained momentum to the upside.
Most crypto trading beginners fail when the price action fails to make a new high or low. They assume that the price is weakening and will change direction. Many crypto beginners place sell orders between #5 and #6, mistaking false price action for confirmation.
Note that when price action breaks support and retests, this zone becomes a resistance zone and vice versa.
BTC/USD stays between $43,550 and $46,370. Why? To find out, let's look at a lower timeframe.
The above image is the 4-hour chart for BTC/USD
Look at the lower red line and the blue line (the current price of around $46,370). When the price of BTC/USD consolidated, it created a support zone at the blue line with four touches (blue arrows). Once broken, this area became resistance and that is why the price of BTC/USD is sticking in the price area.
A Potential Trade for BTC/USD
- Look for the price to break above $46,370/400 and wait for a retest and bullish momentum
- Wait for the price to break below $43,500 and retest, followed by bearish momentum
Hopefully, you have a greater understanding now of support and resistance for trading cryptocurrencies. You've also gained another valuable lesson.
Here it is.
Don't be attached to the trade direction.
Be open to BTC/USD going either way, and this prevents confirmation bias. If you overly commit to bullish or bearish price action, you will find confirmations that don't exist.
Your brain cons you!
Read Also: Technical Analysis - Cryptocurrency Trading
The Best Crypto Day Trading Strategy
The best trading strategies for cryptocurrencies are the ones easiest to spot on the charts. Below are two strategies for trading cryptos that you can use for day trading cryptocurrencies. Equally, both are good strategies for trading cryptos if you are a scalper or swing trader.
1. Breakout Trading Cryptos Strategy
Many traders dislike breakout trading because the cryptocurrency market does produce many fake-outs. Unfortunately, novice traders often fall for these false moves because of impatience and inexperience.
The image below is the daily chart for BTC/USD
From May 2021, BTC/USD became bearish and formed a descending channel.
But, despite the falling prices, the chart shows constant rejection to the downside (the bottom of the channel). The first rejection was enormous, and then the price ranged sideways before testing the bottom of the channel again.
Once again, the market rejected the price.
Then, you see a fake-out move at the top of the channel. It was a significant move of some 300-pips, but it was still a fake-out because the price quickly fell back into the descending channel. But, there was a positive indication that the bearish cycle wouldn't continue.
The price of BTC/USD failed to get below the medial line within the channel. Bullish momentum started and broke the top of the channel.
If we moved to a lower timeframe, it shows there is no retest. The price shot out of the top of the descending channel and moved approximately 800-pips before a pullback and consolidation.
Breakout trading takes practice, and there are rules.
- Trade breakouts from clear areas on the charts – ascending or descending channels, trendlines and ranges are typically areas for breakouts
- Don't fall for the fake-out – FOMO may kick in. It looks like an excellent crypto trade. But the price often tests the market first, taking out retail traders stop losses
- Predominantly, always wait for a retest - In this case, you'd not have taken the trade. But, it's unusual not to get a retest
- Look for other confirmations - The second featured strategy in this guide can act as a confirmation.
The fabulous thing about breakout trading is that momentum can be significant after the retest, meaning you will get great profits from trading cryptocurrencies with breakout trading.
2. The Moving Average Crossover Strategy for Crypto Trading
The best strategies for trading cryptocurrencies are the simplest.
This strategy works in combination with another confirmation signal. It's advisable to always look for at least two confirmation signals on the charts before taking a crypto trade.
The image below is the 4-hour chart for ADA/USD
For the moving average crossover strategy, we use two EMAs (exponential moving averages).
The red line is the 200 EMA, and the blue line is the 50 EMA.
Moving averages follow the price and track by time. The 50 EMA on a 4-hour chart tracks 50 x 4-hour candles. On a daily chart, it would be 50 days candles.
The above chart is great because it combines the breakout trading crypto strategy with the moving average crossover crypto strategy.
Here are the signals and structure for the trade
- ADA/USD breaks out of the descending channel and retests the 50 EMA
- The price tests the 200 EMA and retests the 50 EMA
- The price gets above the 200 EMA then retests both EMAs
- The price crosses over, followed by a momentum candle
Where do you take the trade?
In this scenario, you can take the trade at #1 after the retest.
You can add to your trade at the crossover. The other alternative is to wait for the crossover and momentum candle.
This strategy works best on the higher timeframes, such as the 4-hour and the daily charts.
The trade works and is high probability because there are at least two confirmation signals. As a beginner to trading cryptocurrencies, waiting for confirmation signals will make you profitable from your crypto trades.
Both of the crypto strategies are simple. But that doesn't mean they are easy. You have to develop the patience to wait for a trade to set up. Most new crypto traders fail to profit from trading cryptos because of impatience and lack of discipline.
Master the art of waiting and see your crypto profits grow.
Recap of Trading Cryptocurrencies for Beginners
Crypto trading for beginners is a test of determination and skill. It takes time to become a profitable crypto trader. But it's possible.
Before trading cryptocurrency, learn about the crypto industry and the crypto trading market. Study the crypto charts and follow crypto news.
- Understand order types
- Secure your crypto
- Cryptocurrency is a highly volatile market
- Avoid trading on
- Cryptocurrency trading is taxable
- Cryptocurrency exchanges are unlike the stock exchange
You can get started trading cryptocurrency with a few hundred dollars. The caveat is that you can't risk more than 1% on each trade. If you have $300 to trade cryptos, you can only risk $3 per trade, limiting your trading to small trades. At this financial level, it would take years to build your cryptocurrency account
Create a trading plan for cryptocurrency trading. It will help you to be disciplined and minimise decision making.
- Know which cryptocurrency to trade
- Strategies for market conditions
- Risk Management for crypto trading
- Managing your emotions
- Have a set time to quit
Practice spotting support and resistance on the charts for trading cryptos.
Many traders think that crypto trading is chaotic and random. But as you saw with the BTC/USD charts, the support and resistance areas often halted the price and, in many cases, BTC/USD reversed. Resist the temptation to trade in these areas blindly. Always wait for a confirmation signal before taking a crypto trade.
The best crypto day trading strategy is the one you use every day.
Stick to simple strategies like the breakout strategy for cryptos. But avoid the fake-outs. Wait for a retest before taking a crypto trade.
The moving average crossover strategy can act as confirmation for another crypto strategy or stand-alone. That said, always wait for another confirmation before entering the crypto market.
When you learn how to trade cryptocurrency, you have a skill for life. Play the long game and focus on improving your cryptocurrency trading skills every day.
Most novice crypto traders overly focus on the money. To make money from trading cryptocurrency, forget about becoming rich from trading cryptos. Be the best trader you can be, and the money will come in time.
Use this guide to get started trading cryptocurrencies and start making profits from cryptos.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments such as cryptos may not be suitable for all investors. It does involve risk and the possibility of a loss of capital. There are no guarantees for profiting from cryptocurrencies, and it's advisable only to risk what you can comfortably afford to lose.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Trading Education.
eToro – The Best Platform To Trade Cryptocurrencies
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.
Is cryptocurrency dangerous to trade?
If you are a complete beginner at trading cryptos, then, yes, crypto trading can be dangerous. Compare it to learning how to drive a car. Do you recall how challenging it was at first? Now, imagine the driving instructor turns up on day one with a 5 litre Ferrari and asks you to start driving. The sheer power of the engine would blow your mind, and you'd probably wrap the car around a lamppost during the first hundred yards.
If you learn how to trade cryptocurrencies and start small, trading cryptos is less dangerous because you understand the risks of the market and the risks of trading.
How do day traders make a living from trading cryptocurrencies?
Successful day traders understand the crypto market and have a lot of experience trading cryptocurrencies. They started like you, with no knowledge of cryptocurrency trading, but learned to use technical analysis to look for crypto day trading setups.
Profitable crypto day traders trade with market volatility, spotting patterns on the charts, and they may use technical indicators for confirmation. They understand market liquidity, know their exact entry, and exit points for a crypto trade, and manage and tolerate risk successfully.
Developing crypto day trading skills takes time. Keep at it and maintain a determined approach to learning how to trade cryptos.
Can you scalp crypto?
Yes, scalping crypto is popular with many cryptocurrency traders, but there are a few provisos:
- It is best to scalp crypto during a trending market. Wait for a pullback and trade with the trend
- You can scalp a range – after a long bull or bear run, crypto prices consolidate into a range. Establish the parameters for the range and scalp the highs and the lows.
If you are trading the 5-minute chart, check the higher timeframes to establish the trend or the range.
Do I need to learn advanced crypto trading strategies?
No, you do not need to know advanced trading strategies for cryptos. Indeed, it is preferable to use simple strategies for trading cryptos. The main thing is to always look for a couple of confirmation signals for your crypto strategy. And wait for a retest if the price has broken support or resistance.
How Much Money Do You Need to Start Trading Cryptocurrency?
Most exchanges have a minimum deposit for trading or buying cryptocurrencies. In most cases, you can start trading cryptos with as little as $100. But, there is a caveat to trading cryptos with little money. If you risk 1% of your account, that's only $2, which doesn't give much room for a stop loss on your trades.