What Is Cryptocurrency Trading?

Can you make money from trading cryptocurrencies?

Last Updated August 10th 2021
20 Min Read

What is cryptocurrency trading, and how does crypto trading work? Can you make money from trading cryptos? What are the best strategies for trading cryptocurrency, and can beginners trade cryptos?

When you think about cryptocurrencies, Bitcoin probably comes to mind. Typically, if you aren't investing in Bitcoin (BTC), or trading Bitcoin, you imagine buying BTC and then selling it later for a profit.

Bitcoin created many millionaires in 2017 as the price hit the high of almost $20,000. Daily, the media coverage featured Bitcoin, bringing cryptocurrencies into the spotlight.

But many people lost money too as they foolishly bought Bitcoin at the high, anticipating that Bitcoin was heading to the moon or $100k at least.

If you want to make money from cryptocurrencies, you must understand how the crypto market works. Learning how to trade cryptocurrencies may be challenging. But if you have patience and determination, you can become successful in trading cryptocurrencies.

Cryptocurrency trading is speculating on price fluctuations by buying or selling crypto via a CFD trading account. CFD is an abbreviation for contract for differences, which is an agreed contract paying the differences between the final price between an open and closed trade. A CFD allows you to trade the direction of a security short-term.

But the rulings on CFDs have changed. More on CFDs later.

This guide will show you how to trade cryptocurrency for profit and explore effective crypto trading strategies. You may ask, 'is cryptocurrency trading safe?' and we'd have to tell you that you might be better off swimming with sharks or bear wrestling. Without crypto trading experience, you can quickly lose money because of the high volatility of the crypto market.

To trade cryptocurrencies successfully takes an edge. By the end of this article, you will have some ideas for creating an edge for trading cryptocurrencies. We'll cover a simple strategy for trading cryptocurrencies and talk about the mindset you need for making money from trading cryptos.

Cryptocurrencies are volatile and unpredictable. Up until May this year, cryptos experienced a big bull run, peaking at the highs in mid-May. The bottom then fell out of the crypto market, with prices dropping at least 50%.

For almost two months, volatility has been negligible, with daily crypto prices sticking at a few pips.

Trading cryptocurrencies during a static market is pointless. Traders moan about the volatility of cryptos, but you need some movement to make a profit.

Cryptocurrency trading for beginners is a dangerous pastime. Typically, novice crypto trader accounts are busting when they should be booming, and by the time they figure out what's happening, the party's over.

So, if trading cryptos is so risky and most retail traders lose, why bother trading cryptocurrencies at all? How do you trade in cryptocurrency for beginners? Is it possible to make money from trading cryptos? If so, how do you become profitable from trading cryptocurrency?

If you want to trade cryptos quickly and easily, check out eToro!

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.


Why Are CFDs So Risky When Trading Cryptos?

Earlier, we mentioned trading cryptocurrency with CFDs.

CFDs are risky and especially so if you add cryptocurrency to the equation. Trading cryptos is challenging enough by any standard of trading.

In January 2021, it became illegal for UK brokers to trade cryptocurrencies or offer trading CFD derivatives. Other countries may enforce regulations restricting CFD trading because retail traders cannot handle the leverage offered via CFDs.

CFD firms offer extensive leverage, which means retail traders borrow money to increase the size of their trades. Sounds good, borrowing someone else's money, but let's find out the pitfalls of over-leveraging your crypto account.

At one time, traders in Australia, UK and Europe could maximise their trades by a hundred times. Think about that. That's a lot of money to manage, especially if you are a beginner at trading cryptos.

Not only can you lose your money, but you could end up owing money to the broker. It was a dangerous game with an almost guaranteed negative outcome for retail crypto traders.

Retail traders have a 95% failure rate, so massive leverage is an accident waiting to happen.

With CFD trading widely available, traders lost their accounts, and many fell foul of scam online CFD brokers. CFDs can be complex and misunderstood by retail traders who don't realise the risks of CFDs.

To date, the U.K. The Financial Conduct Authority (FCA), European Securities and Markets Authority and the Australian Securities & Investments Commission have issued restrictions on CFDs. It's likely many other countries will follow suit.

How do restrictions on trading CFDs affect retail traders?

The fact is that retail traders can no longer trade CFDs, although Professional traders still have access. But if you break down what trading is, then at its purest, you buy a financial instrument at one price and sell at another price or vice versa. So there are ways around trading cryptocurrencies.

Read More: Cryptocurrency Trading For Beginners: The Ultimate Guide

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

What Moves The Cryptocurrency Market?

Supply and demand move all financial markets, and crypto is no exception. However, cryptocurrencies are decentralised, so unlike the stock market and the Foreign Exchange, cryptos are not adversely affected by economic and political concerns.

What affects the price of cryptos?

  1. Supply – the limit on market cap for coins. For example, Bitcoin is capped at 21 million, and there are currently just over 18 million BTC in circulation. As supply slows down, it increases the demand.
  2. Market capitalisation – this figure shows how many coins exist and are in circulation. (You can find market cap figures on CoinMarketCap)
  3. Media coverage – cryptos are sensitive to media coverage. Earlier in the year, Bitcoin dropped 10% following a tweet by Elon Musk. Connect to crypto media to keep updated with what is happening for the crypto you are watching.
  4. Major Events – for example, Ethereum is upgrading to Ethereum 2.0, and loyal ETH followers are massively attached to what happens next for the upgrade. If there are delays in the upgrade process, it can negatively affect prices, and, of course, the opposite is true.
  5. Integration – how well does the crypto integrate with existing infrastructure? Is the technology capable of solving existing problems? Many third-generation cryptos are streaming ahead with technology to enhance and solve existing issues for the infrastructure of society and the financial systems.

Understand what moves the crypto market, and you will know ahead of time when the crypto market may gather momentum.

After two months of static prices, something needs to kickstart the crypto market again. Watch out for what will move the crypto market, and you have established an edge for identifying when to trade cryptos.

Check Out: Top 10 Cryptocurrency News Sites To Read

The Sniper Approach To Trading Cryptocurrencies

Retail traders hear professional traders talking about developing an edge over the market and feel clueless.

How do you create an edge when trading cryptocurrencies? What does this advantage look like, and how do you use an edge to trade cryptos successfully?

Professional crypto traders understand that to take on the crypto market without an edge is professional suicide. If you want to lose money trading cryptos, go in without a plan and see how it works out.

The first step to trading cryptos for beginners is to sign up with an established exchange, one that you trust to secure your deposit and not run off to Seychelles at the first sign of trouble.

Although technically, retail traders can't trade cryptocurrencies in the strict sense of the word, you can still buy and sell cryptos and make a profit. In this guide, this concept is how we will guide you to find out how trading cryptocurrency works.

Before we cover the sniper approach to trading cryptocurrencies, let's get the onboarding instructions out of the way.

  1. Register with a crypto exchange – do your homework and select a trusted exchange that has a wide range of crypto coins for you to buy and sell. Find the best cryptocurrency trading platform and read the terms and conditions before depositing your funds
  2. Download the trading platform software – some exchanges have proprietary trading software, or they offer MT4 or MT5 (MetaTrader). Find your way around the trading platform so that you know how everything works
  3. Create a crypto wallet – when you buy and sell crypto on an exchange, your crypto is on the open market. When you finish trading for the day, transfer your crypto to your secure wallet. Most crypto exchanges have the transfer facility as part of their service
  4. Open a Demo account – You are going to need to practice (a lot). Jumping into the crypto market without experience is like jumping out of a plane without a parachute. You will get hurt. A little time spent getting used to the crypto market prepares you mentally for the challenges of trading cryptos
  5. Prepare a trading plan – yes, novice retail traders find the idea of a trading plan, well, plain boring. But, hey, you're a crypto trading sniper, right? Do you think the sniper doesn't have a plan for his target? Your plan WILL mean the difference between success or epic failure. And think how professional (smug) you will feel knowing you are doing what top crypto traders do
  6. Adopt one or two trading strategies – the crypto industry is full of so-called experts trying to sell you the magic beans or fairy dust strategy that is guaranteed to make you a crypto millionaire. Don't listen to the hype. All you need to trade crypto is a couple of simple, effective, and back tested strategies. When you start trading crypto with real money, you must know your strategy inside out. You know you can look at a crypto chart and KNOW when the signal appears for a buy or a sell. Knowledge helps you make informed decisions instead of randomly buying or selling crypto on every large red or green candle.
  7. Start small – trading crypto with a demo account is not like trading crypto with real money. As soon as you face the risk of losing money, your fear of loss kicks in. You start making poor decisions, chasing losses, increasing your risk and revenge trading. Trade with micro-lots. At this stage, your success is not about how much money you make. Measure your success by your ability to stick to your trading plan, execute your strategy and stay calm when the unexpected happens.

Novice retail crypto traders approach the crypto market with a chaotic approach. Driven by fear, greed and FOMO, most traders don't have the patience to adopt a sniper approach to trading. But the truth is, the most powerful thing you can do for trading cryptos successfully is to wait. If you can walk away when you feel emotionally driven to take a trade, you've cracked it.

Patience is like a muscle. The more patience you practice, the better it becomes. You develop clarity and the ability to spot the right signal in the crypto market that assures you of the decision to take a high-probability trade. Overtrading will eventually wipe your crypto account.

Make your sole purpose to become better at trading cryptocurrencies. Forget about the riches, the big house, and the Ferrari. If you practice discipline, these things may well come but not if you fail to stick to your trading plan and crypto strategies.

So, talking about strategies, let's explore the top strategy for trading cryptos.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

The Best Strategy For Trading Cryptocurrencies

You don't need to reinvent the wheel to find the best crypto trading strategies. Keep it simple, and it is far easier to execute your trade for a profit.

This strategy for trading cryptos is so simple you could teach it to an 8-year-old. Don't try and overcomplicate the strategy because it works as it is.

The Moving Average Crossover Strategy

This strategy uses two experiential moving averages

  1. 50 EMA (blue line)
  2. 200 EMA (red line)

The idea is we are looking for the 50 EMA to cross over the 200 EMA. When the crossover happens and the gap between the EMAs widen, it indicates a change in direction.

The below image is the 4-hour chart for ADA/USD

ADA/USD 4-hour chart

After the high of $2.47 in May 2021, Cardano (ADA) dropped back to a low of just above a dollar. The price drifted down in a descending channel at a snail-like pace.

But, over the last week, ADA/USD made some headway and today, the price is $1.42.

On the 4-hour chart, we are more concerned with the break of the upper channel trendline than with the moving averages. But, in the following image of the 1-hour chart, the strategy will make more sense.

Three things are happening on the 4-hour chart.

  1.   The EMAs (Exponential moving averages) have flattened (the red line and blue line), which indicates indecision
  2.   The price has broken the top of the channel
  3.   The price is approaching a previous resistance zone

Don't Miss: How to Identify Cryptocurrency Market Trends

Let's look at the 1-hour chart for ADA/USD

ADA/USD 1-hour chart

When you cannot make sense of a chart, it's always worth dropping down to a lower timeframe. On the 1-hour chart, you can see the EMA crossover on 24th July. The price touches the top of the channel line (black line) and retests the 200 EMA (red line). The price then breaks out of the channel and retests the 200 EMA again and the top of the channel.

So, in this instance, the EMA crossover serves as a signal. The channel breakout and retests serve as confirmation. The price of ADA/USD at the second retest is $1.22.

Where is the trade on this chart?

The trade is the second retest. An ideal exit target is $1.40. So, you would now be out of this trade and waiting to see what happens next.

However, there's a problem looming because now ADA/USD is facing a resistance area. Also, if you look left, the current price is only slightly above the last high (when the price first broke out of the channel.

Three things need to happen to create another high probability trade.

  1. A breakout above the resistance zone
  2. Wait for a retest of the resistance zone (now support)
  3. A momentum candle as confirmation.

The moving average crossover is only powerful when there is a confirmation signal (such as the breakout and retest of the descending channel).

Here are the crypto trading strategy rules.

  1. Wait for the crossover on the 4-hour chart
  2. The crossover must be at a crucial point - a breakout of a channel or trendline or breaking through support or resistance
  3. ALWAYS wait for a retest – the #1 failure of novice crypto traders is entering the market too soon. A retest means you can take a trade with a smaller stop loss, and it is a high probability trade. Nothing is guaranteed, but crypto trading success is about increasing the odds for a win

This simple strategy can help you to win more trades than you lose. But you must follow the guidelines. With a bit of practice, you will identify these setups on the chart and know that you have a chance to take a great crypto trade.

Read Also: Cryptocurrency Day Trading Strategies

Recap Of What Is Cryptocurrency Trading

Retail traders can no longer trade cryptos with CFDs, but you can still buy and sell cryptos as a form of trading.

Accept that it's challenging to trade cryptos. If you want to become a crypto millionaire, start small. Be patient, do your due diligence and commit to being a better crypto trader every day.

Take the first steps to begin trading cryptocurrencies

  1. Register with a crypto exchange
  2. Download the trading platform software
  3. Create a crypto wallet
  4. Open a Demo account
  5. Prepare a trading plan
  6. Adopt one or two trading strategies
  7. Start small

Think like a sniper. Wait for the trades to come to you. The better you prepare, the more chance you have of a successful outcome trading cryptos. Set up your trading plan. Never take a trade until you know 100% your entry and exit plan and what you will do if the trade suddenly takes a nosedive.

Learn to understand what moves the crypto market, so you are ready to look for crypto trades before other retail crypto traders have any idea of what is happening.

  1. Supply
  2. Market capitalisation
  3. Media coverage
  4. Major Events
  5. Integration

Practice the best crypto trading strategy. The moving average strategy will be your number one strategy if you use it correctly. Be patient and allow the trades to come to you instead of chasing after trades like a hungry wolf.

So many people ask how to trade cryptocurrency as a beginner. This guide is the way to get started trading cryptocurrencies and be prepared for the challenges.

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.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Read More:

Can Cryptocurrency Trading Make You Rich?

Top 7 Cryptocurrencies To Day Trade

The Psychology of Trading Cryptocurrencies

What Are The Best Cryptocurrencies To Trade

Crypto Price Predictions

The Top 7 Crypto Trading Tools You Should Use

How Much Money Do I Need to Trade Cryptocurrencies?


What is the spread in cryptocurrency trading?

When you buy and sell cryptocurrencies, there is a difference between the buy and sell price. For instance, Cardano (ADA/USD) could be $1.3650/$1.3620. The base price (ADA) and the quote price (USD) are slightly different (the spread). The spread is how many brokers and exchanges make their profits.

Before taking a trade, always check the size of the spread. If the crypto market is especially volatile, the spread can widen, making it harder to profit.

What is a Lot in Cryptocurrency Trading?

A lot is a measurement of the size of your crypto trade. For instance, a 0.01 micro lot may be $0.10 per pip. The price per pip varies for each crypto pair, but this information is a guide. It is better to trade micro-lots, especially when you are a beginner trading cryptocurrency.

What is Leverage in Cryptocurrency Trading?

We discussed leverage in the CFDs section. It means you are borrowing money off the broker or exchange at an agreed level of exposure. Whilst leverage seems an attractive way to make more profits trading cryptocurrencies, the risks of significant losses are amplified. It's a dangerous game to play. Part of the art of trading cryptocurrencies successfully is learning how to manage your risk.

Is Trading Cryptocurrency Safe?

Trading cryptocurrency is high risk, but so are all forms of trading. To trade cryptos successfully, a retail trader must develop risk tolerance. At first, managing your response to risk may be challenging. When the crypto market moves, it moves fast and can wipe out your stop loss in the blink of an eye. If you are seeking a safe way to make money, trading cryptos is not your best option. You can learn how to trade cryptocurrency for a profit, but it takes a lot of hard work to become comfortable with risk, so it doesn't unbalance your trading skills.

What is Cryptocurrency Used for?

Out of the thousands of cryptocurrencies on the market, there are many and varied utilities. For instance, Dogecoin (DOGE) is a peer-to-peer platform for content creators, like musicians. Uniswap (UNI) provides guaranteed liquidity on trading and investing platforms. Binance Coin (BNB) is for transaction fees on the Binance exchange and travel bookings, financial services and many other valuable purposes.

To find out the utility of a coin, visit their website for all the information.

How do I invest in Cryptocurrency?

Investing in cryptos is not dissimilar to any other investment. You purchase crypto at a price you feel is a reasonable buy. You then store the crypto in a secure wallet and decide how long you want to hold the crypto. You may have a date in mind to sell the crypto or sell at a specific price.