Although Bitcoin was invented in the first place as an alternative means of payment, its current volatility prevents it from being adopted at a mass scale. Constant price fluctuations undermine all the benefits that it provides, and the same thing can be said about all its derivatives such as Litecoin, Ethereum, Ripple, and others. However, this aspect opens the doors to advantages of another sort and makes it possible to make good profits by simply purchasing and selling the right coins at the right time.
In this article, we are going to share some tips that can help you get started in such a risky business as cryptocurrency trading.
Cryptocurrency trading tools
First of all, let’s overview the landscape of basic tools that you will need on a daily basis when starting your journey as a cryptocurrency trader.
Now that cryptocurrencies have hit the mass market, numerous services have been created to facilitate the onboarding process for newbies. Many platforms make it possible to buy crypto for cash, however, not all of these platforms work worldwide due to legal restrictions. Below we have listed some of the most popular services and their key peculiarities:
- Coinbase. This is one of the most reputable platforms for purchasing crypto. Apart from Bitcoin, it also supports a range of popular cryptocurrencies such as Litecoin, Ethereum, EOS and a few more along with online wallets for their storage. Initially targeting the European region, it has expanded its geographical coverage and now works across all the continents. However, the US is not included.
- Binance. This is one of the leading cryptocurrency exchange platforms. It has the biggest daily trading volumes, the widest geographical coverage and the biggest variety of digital assets. Verified users can buy cryptocurrencies not only for USD, EUR, and GBP, but also for a variety of other local fiat currencies such as Turkish Lira, Japanese Yen, and even Thai Baht.
- Local Bitcoins. This service works across the world and helps those who want to buy Bitcoin find those who sell it within their own region. Perhaps, one of the best things about Local Bitcoins is the variety of payment methods: a bank card, Paypal, Wechat, cash deposit and many more. The exchange rate and the fees may not be the best, though, so pay attention to these aspects.
Select cryptocurrency wallet
Another important element for every trader is a wallet where cryptocurrencies are stored. Basically, cryptocurrency wallets can be divided into 2 key groups:
- Hot wallets.
Web wallets that allow accessing your cryptocurrencies online, browser-based and mobile wallets, software wallets that you install on your desktop — all these wallets fall under this categorization.
In most cases, they have user-friendly interfaces and are pretty convenient to use, but their key disadvantage is reduced security. With most of these services, you have to entrust your funds to a third-party platform exposing them to the risk of being hacked. With desktop wallets, you are the only owner of your keys, but your funds are as safe as your PC.
Coinomi, Metamask, Jaxx, Exodus, and Coinbase are some examples of hot wallets’ providers. It’s recommended to store only small portions of crypto on such wallets for security reasons as it’s much easier for hackers to get a grip on your funds when they are stored online.
2. Cold wallets.
These are the wallets that have no access to the internet, that’s why they are regarded as the most secure ones. If you aim to become a long-term investor, storing your digital assets on paper wallets or hardware wallets such as Trezor or Ledger Nano S would be the best option. But do keep in mind that these hardware wallets also have a software part, and are hence not 100% cold, technically speaking.
Select cryptocurrency trading platform
Cryptocurrency exchanges are aplenty. The variety of options may be truly disorienting for a newbie, but when you know what to look out for, the task may become easier. Here are some important aspects that you should consider when selecting a platform for exchanging cryptocurrencies.
- Geographical limitations. This is the first thing to study as different platforms may be restricted in different countries. Look out for those that operate in your region.
- Security. Find out if a platform has ever been hacked. If a breach has ever occurred, see if the platform has refunded the victims.
- Stable coins’ support. Typically, funds withdrawal takes from several hours up to several days. If you want to fix your profits, it may be convenient to convert your funds into stable cryptocurrencies to avoid price fluctuations until you get your funds under your own control.
- Transaction fees. See how much you have to give away on every transaction.
- Daily trading limits. If you want to trade big amounts of crypto, learn beforehand what are the limitations of the selected platform.
Learn to read candlestick graphs
You must have seen these charts on practically all cryptocurrency exchange platforms. The best thing about these charts is that they provide you with most of the information that you need to make a decision on your trades.
The candles on the graph show how the price of the selected assets moves in time. “Bullish” candles colored in green show that the price moves up while “bearish” red ones show that it goes down. The body of each candle shows the difference between the price in the selected time period and the shadows sticking out of it show how high or low the price has gone.
Knowing how the price moves, traders can analyze the trends and make decisions on the best time to buy or sell a selected asset. There are different indicators and signals that are worth studying, but we won’t spend too much time on them as this topic is too broad to cover in one article.
Short-term vs long-term trading
Now that you have prepared all the necessary infrastructure, it’s time to make a decision upon your strategy. Do you want to become a short-term trader or a long-term investor? Each of these approaches has its upsides and downsides.
Typically, short-term trading implies holding coins for a very short period of time. This may be a day, an hour or even a minute. The key goal here is to quickly spot a correct signal and buy or sell a selected coin. Higher profits are the biggest advantage of this method as an experienced daily trader can make tenfold more than a long-term investor. However, the enormous risk and the necessity to spend most of your time studying graphics can scare off newbies.
A long-term investment is a much safer method. All you need to do here is to make initial research of a selected project, purchase its tokens and store them until their price rises. This approach is a much better fit for a newbie. However, if you are still inclined on becoming a trader, consider converting the following tips into your habits.
Top 7 things to keep in mind when trading crypto
- Buy low, sell high. Don’t follow the crowd. If you see that the price for a specific coin has significantly increased, most likely, it will drop soon, so it’s not the best moment for a purchase.
- Buy at rumors, sell at news. In the world of cryptocurrencies, the price of any asset tends to grow as rumors about some significant events begin to spread and it drops after the event actually occurs.
- Only invest as much as you can afford to lose. If you are a newbie in this business, your risks are even higher due to the lack of experience, so invest only as much as you are ready to lose.
- Beware of FOMO. This abbreviation stands for the “fear-of-missing-out”. The cryptocurrency market is highly manipulative, so don’t give way to emotions and don’t rush to buy along with others.
- Diversify your portfolio. Follow the golden rule and never put all the eggs into a single basket.
- Set up stop losses for short-term trading. Look out for a dedicated option on the selected exchange platform.
- Watch Bitcoin. Since Bitcoin domination has always been pretty high, most altcoins follow its pattern.
Many people have called cryptocurrencies a scam and predicted their failure. Yet here they stand with more and more people getting involved in this industry every year. Every new “bullrun” sends Bitcoin’s price higher and higher along with all other alternative coins. This is one of the key reasons why it’s worth considering cryptocurrencies as an alternative investment target.
However, note that we do give any financial advice here and only pursue educational goals. Investing in cryptocurrencies is quite a risky business, so always make your own research and don’t follow other people’s opinions. This rule is relevant at all times.
Originally published at https://medium.com on April 22, 2020.