How to Trade Cryptocurrency Like a Pro

Times are changing, as is the way we are handling our finances. Among these changes is the main method of payment transitioning from traditional currency to cryptocurrency. While achieving widespread adoption is still some time away, it is difficult to ignore just how prominent it is becoming. And along with that growing popularity is an increasing need to get in on the potential profits.

With the growing numbers in the crypto market, more and more people are taking an interest in this innovation. Really, it is no wonder that the people across the globe are waking up and deciding to get into this industry. Curiosities are being piqued, especially with new digital currencies appearing, and a lot of people are starting to invest in it. However, if you are a beginner, trading crypto can come across as rather confusing. The reason for this being that the process diverges from trading on fiat exchanges. Put simply, it is different from what many investors and traders understand.

Anyone who shows even a little bit of interest in learning about crypto has experience in some form of trading. Its mainstream attention is continuously on the rise, which means that newer players want to enter the market. They want to get in on the action and earn a profit. What’s more, they want to know the ins and outs of trading like a specialist in the field.

This article will explain how you too can trade cryptocurrency in the ways of a professional.

What is it?

Let’s first briefly define what ‘forex trading’ is because it plays a role in better explaining cryptocurrency trading. The word “forex” is a combination of the terms “foreign currency” and “exchange.” Foreign exchange is the process of transforming one currency into another currency. The reason for doing this varies, with it typically being for commerce, trading, or tourism.

Why are we bringing up forex trading? Well, because cryptocurrency trading is, in a lot of ways, comparable to forex trading. The markets in an array of fiat currencies from all over the world frequently trade against each other. In forex trading, one can use U.S. dollars as a means to purchase a position or option in other currencies. These include euros and Swiss francs, among many others. They are then sold again at the time of the investor’s choosing. At the same time, they book either a profit or a loss on the trade.

Cryptocurrency trading’s similarities with forex trading include allowing traders to purchase cryptocurrency by using U.S. dollars as payment. In regards to forex, cryptocurrency traders are able to trade with a buy-and-hold strategy. Alternatively, they can trade the daily or weekly up-and-down volatility. As a matter of fact, there are a variety of strategies that allow you to potentially profit from a cryptocurrency’s value decreasing. Such strategies include futures contracts and binary options.

It should come as no surprise that trading cryptocurrency is a volatile practice. Moreover, there is the frequent use of leverage when it comes to these types of trades. Therefore, betting on a downward move in price (aka. ‘shorting’) is not exactly a wise move for novice traders.

Profiting on a trade

Similar to stock market investing, gains and/or losses on cryptocurrency are on paper until an exchange event or sale takes place. That is to say, they are on the digital equivalent of paper. 

  • Long-term trends – On the surface, it looks like an oxymoron to discuss long-term trends with cryptocurrency. Mainly because the second most popular currency (Ethereum) is only about five years old. Be that as it may, take a look at the charts of the most prominent cryptocurrencies since their inception. You will find that the direction has been on the rise. A lot of cryptocurrency traders do not engage in such trading. Instead, they bet large portions of their position on long-term gains.
  • Trading volatility – Cryptocurrencies have a tendency of being one of the most volatile investments if you watch the short-term price action. One can easily make or lose fortunes in the significant up and down swings of a majority of cryptocurrencies, even the popular ones. Suppose you are an active stocks day trader. In that case, you will find many of the same technical indicators in cryptocurrencies.

Steps to trading

From here, we will start getting into how to trade cryptocurrency. This guide will be broken down into four steps:

  1. Picking the right exchange
  2. Selecting a suitable crypto wallet
  3. Finding the proper sources of information
  4. Utilizing technology to boost productivity and alleviate risks

While four steps may not look like much, there is actually a lot of valuable information.

1 – Picking the right exchange

First and foremost, much like fiat currency, you will need an exchange to trade on. To trade in cryptocurrency directly rather than investing in a fund, you have two choices. You can either use an exchange or use a Forex broker. For the sake of this guide, we will use an exchange.

To start, you will need to register and put some funds into your account. Following this, you can commence the purchase and selling of crypto. There are a variety of popular crypto exchanges to choose from, some of which include the following:

  • Coinbase
  • Binance
  • CEX
  • Poloniex
  • Bittrex
  • Bitfinex
  • KuCoin

Websites of this kind very often have different terms of service. Not only that, but their trading platforms will likely be different from one another. With that in mind, it would be smart to do some research and go through various reviews of exchanges. Doing so will help in deciding on a venue that is the best for you.

There are two important things to keep in mind when choosing an exchange. There are some cases in which exchanges will suddenly discontinue their operations with little explanation. Such random terminations can result in the complete loss of funds. Thus, it is imperative that you choose a reliable exchange. In the beginning, it is smart to go with the biggest and most prominent options.

The second important thing to remember is that not all exchanges accept fiat money. So, it is possible that you will have to buy cryptocurrency first before depositing coins into the exchange to start investing. There are, however, exchange-broker-wallet hybrids like Coinbase where you are able to do everything in one place.

2 – Selecting a suitable crypto wallet

There are a lot of exchanges out there. Because of this, investors typically have to somehow be able to transfer funds between them. Moreover, they need a place in which they can store their assets. This is where cryptocurrency wallets come into play.

These wallets are tools that give you the ability to store and send crypto coins back and forth. There is an array of crypto wallet types available, which include mobile, desktop, hardware, and paper. First things first, you will need a mobile or desktop hot wallet. This particular wallet type is the one that connects to the Internet.

A majority of cryptocurrencies nowadays have their own wallets. Some noteworthy examples of this are the Bitcoin Core Wallet, Ethereum Wallet or MyEtherWallet, Litecoin-QT, and Dash Core. Most of the time, you will be able to find a link to their official wallet on a lot of cryptocurrency websites.

Another wallet type that is widely available is multi-currency wallets. Below are some examples of this specific wallet:

  • Jaxx Liberty Wallet – This wallet allows transactions with a wide variety of coins. These include Bitcoin, Ethereum, Litecoin, Dash, Dogecoin, and Zcash, among many others. You can read the full list of cryptocurrencies it supports here.
  • Coinomi – This is a wallet that supports up to 125 cryptocurrencies.
  • Exodus – This is a desktop wallet that one can use for storing and sending various cryptocurrencies. These include Bitcoin, Bitcoin Cash, Ethereum, Litecoin, OmiseGO, Dash, and Aragorn, among many others.

There are a good amount of opportunities to utilize exchanges with built-in wallets. Two of these exchanges include the likes of Poloniex or Coinbase.

Once you have selected the wallets that you would like to use, you are all set to go. At this point, you are ready to begin investing.

3 – Finding the proper sources of information

Among cryptocurrency’s, most notable qualities are the fact that they are highly unpredictable assets. Their prices are prone to moving up and down in large percentages within the span of a few hours. Multiple events can lead to the trigger of these movements, so a cryptocurrency trader needs to regularly monitor market information.

Prior to putting your money into a coin, it would be wise for you to study the asset. Probably one of the best tools for this type of research is CoinMarketCap. This is a website where you can easily find information on every coin and token that is on the market. Such data includes capitalization, supply, and trade volume, among others. The site is quite useful for comparing cryptocurrencies. Cryptocompare is another beneficial site for this specific type of data.

The best method of tracking news pertaining to crypto is to follow major publications and blogs in the industry. Coindesk, News Bitcoin, Hackernoon, and The Merkle are a few choice examples. You can find more useful information on social media. A good idea would be to look into channels on Telegram and Discord, crypto subreddits, and Quora threads.

An additional way of sourcing data is a CoinMarketCal. This is an economic calendar that tracks crypto events that have the potential to affect tradeable coins on exchanges.

4 – Utilizing technology to boost productivity and alleviate risks

By this point, you should be well-equipped with the proper knowledge and instruments you will need for trading. However, when you compare them with the process of fiat investment, there are still certain elements that are missing.

First off, fiat investors are able to utilize stock indices as a means to benchmark when building their portfolio. Two notable examples of these benchmarks are  S&P500 and Nasdaq Composite. They are what allow investors to effortlessly trade whole sectors and manage complex portfolios in a clear-cut investment. This effectively reduces the portfolio’s risks and unpredictability.

You have to find tools that are similar to the crypto market. For example, Cryptoindex 100 (CIX100) is an automated index whose calculation is by a machine learning algorithm. This algorithm also closely examines cryptocurrencies. This tool gives traders the ability to cut down on volatility and risks for their portfolios. Moreover, it does the same for the cost and effort instinctive in investing in various coins. This typically results in sizable savings in trading.

Following the portfolio’s construction, you can track coins with the use of specially-designed apps, like Delta or Blockfolio. These provide helpful observations, such as real-time exchange prices and the order book for each and every coin. Employing the use of these tools also boosts productivity.

Diversification & Risks

Much like the diversification of other investment types, risk management is possible by diversifying a cryptocurrency portfolio. Going “all in,” so to speak, on one specific currency can be an incredibly risky move. Because of cryptocurrency’s volatility, novice traders may want to start at a slow pace and gradually build a position. This is akin to dollar-cost averaging within stock investing. Plenty of traders also solely trade with only a fraction of their available funds or holdings.

Admittedly, keeping a portion of your money out of harm’s way could limit potential gain. However, it also limits losses. This means that you can continue to trade, as well as gain some wisdom from the experience.

Conclusion

Cryptocurrency trading has a wide variety of differences in comparison to more traditional fiat exchanges. If you want to thrive in crypto, you will need to find the right assets. The process requires reliable information sources, careful research, selecting a suitable exchange and wallet, and portfolio management benchmarks and tools.

Digital currency is among the most exciting and interesting new asset classes in the markets. It is still in its infancy and has very few consumer protections in place, though. With that in mind, it is the trader/investor’s responsibility to stay safe when engaging in crypto trading. It is a burden they must carry, but it is an important one nonetheless.

If you want to learn more about crypto trading, read “Guide to Trading Cryptocurrency.”

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