This is a 7-step FREE crypto trading guide for beginners. In 7 simple steps, you will be ready to deposit and start trading today!
- What is Cryptocurrency Trading?
- Crypto Trading Strategies
- Crypto Trading Instruments
- Crypto Trading Risks
- Crypto Trading Exchanges
- Crypto Trading Analysis
- Crypto Trading Tools
Do you already know the crypto trading basics?
1. What is Cryptocurrency Trading?
➤The definition of trading is buying and selling goods or services. In this article, the goods are cryptocurrencies.
➤In other words, trading cryptocurrencies are the activity of buying or selling cryptocurrencies.
To be able to make a trade, a buyer and a seller need to meet and agree on a price.
How can crypto sellers and buyers find each other?
Cryptocurrency traders find each other by using a trading site for cryptocurrencies.
Why do crypto trading sites provide this service?
Crypto trading sites create online applications for online trading. They charge trading fees in different manners to support the business model.
Ok, but how do sellers and buyers agree on a price?
Most crypto exchanges use an order book. It’s a ledger where all buying and selling orders are publicly available.
Example: If you want to buy 1 Bitcoin for $20.000, you can check if anyone is ready to sell 1 BTC for $20.000 in the order book. If not, you can add your wish to buy 1 Bitcoin for $20.000 and wait until a seller accepts it.
I don’t understand what an order book is.
An order book lists buy and sell orders for a specific cryptocurrency organized by price level.
Above is an extract from an order book. The lowest selling price in red ($27615.25) and 1.99346 BTC are available for this price. Further, there are more selling orders at a higher price.
In addition, you can see the highest bid order ($27615.24), and traders are ready to buy 3.90964 BTC at this price. Also, there are more orders but at lower bidding prices.
The considerable green number $27615.25 is the latest agreed price on Bitcoin for USDT.
2. Crypto Trading Strategies
➤A trading strategy is a method of buying and selling in markets based on predefined rules used to help make trading decisions.
➤The predefined rules are helpful since they remove emotional trading.
➤In addition, strategies and rules can be constantly modified and improved to stay profitable.
Let’s name the most used crypto trading strategies and briefly explain their fundamentals:
- Crypto Day Trading
- Crypto Arbitrage Trading
- Crypto Swing Trading
- Crypto Trend Trading
- Crypto Scalping Trading
- Crypto Hedge Trading
Crypto Day Trading
➤ Crypto-day trading means buying and selling cryptocurrencies within a day or seconds.
➤Day trading aims to take profit from the rapid fluctuations in prices.
➤Decisions are often taken based on technical analysis of price movements and require self-discipline and objectivity.
Read more about the best crypto exchanges for a day trading strategy.
Crypto Arbitrage Trading
➤Crypto arbitrage trading is selling crypto in one market and, at the same time, buying it cheaper in another market.
Arbitrage trading is considered a low-risk trading strategy, and by its definition, the profit should occur immediately, or there will be no execution.
Since each crypto exchange has one isolated market, such opportunities always arise.
However, often, it requires more significant amounts than a retail investor possesses, and it also requires sophisticated strategies to make a profit over time.
Still, many institutions use arbitrage strategies in various markets, including crypto.
Crypto HODL (Buy and Hold)
➤HODL means parking your money in a cryptocurrency, often Bitcoin.
This is more an investing strategy rather than a trading strategy.
Many crypto traders are trading altcoins and investing the profit into their HODL portfolio, often Bitcoin and Ethereum.
Crypto Swing Trading
➤Crypto swing trading is about capturing profit in medium-term periods, often a few days to several weeks.
Traders often use long-term technical analysis to make decisions. Such indicators can be a 200-day moving average.
Crypto Trend Trading
➤The trend is your friend until it bends.
Crypto trend trading is about identifying momentum in the market. Trend lines and moving averages are common technical indicators, among others.
➤Crypto scalping trading is about taking profit often from small price changes in the market.
In day trading, scalping is a strategy to prioritize making high volumes off small gains.
Scalping, except when bots do it, requires a lot of time and energy since a trader implementing this strategy focuses on small trades. Still, numerous trades to add up profits that will ultimately be enough to satisfy his needs.
Because of its high volatility, the cryptocurrency market is ideal for scalping since the price tends to move in both directions, sometimes a few times daily.
Read more about the best crypto exchange for a scalping strategy.
Crypto Hedge Trading
3. Crypto Trading Instruments
➤Trading instruments are the markets that are available for you to trade.
➤While cryptocurrencies are classified as trading instruments, there are several trading instruments within the crypto trading sphere.
Here, we list the most common crypto trading instruments available.
4. Crypto Trading Risks
➤Risk in crypto trading, or any financial market, is the probability of losing part or all of your initial investment.
➤Risk can be seen as a measure of the uncertainty of your trade or investment outcome. This uncertainty exists because there’s no guarantee that markets will behave as you expect.
➤ It’s essential to understand the risks and master crypto trading risk management.
Several strategies to minimize or manage risk in a crypto trading portfolio exist.
Portfolio allocation means you should never have 100% of your portfolio in one place. Examples are in one exchange, on one hardware wallet, or similar.
Diversification means you shouldn’t hold idle assets in one cryptocurrency. This might be possible if it’s Bitcoin but never in a small altcoin or similar.
Bankroll management is about never putting more than a confident % in a single trade. A typical number is 0.1-0.5% of the total bankroll capital in one transaction.
Crypto Hedge Trading
Crypto hedge trading is a risk management strategy to offset investment losses by taking an opposite position in a related asset.
An example is going long in Bitcoin but at the same time going short in ETH. At some point, the gain in the BTC position is more significant than the loss in the ETH position, and you decide to close the trade. If the market moves in the opposite direction, you might win in the ETH position but lose in the BTC position.
Hedging is about taking small profits but, at the same time, never taking significant risks.
Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for greater potential returns.
Read more about crypto trading risk management.
5. Crypto Trading Exchanges
➤Crypto trading exchanges are an online business that provides services for cryptocurrencies.
➤Most crypto exchanges are centralized. This means they operate similarly to a regular bank but handle crypto assets instead of fiat currencies.
➤There are also decentralized crypto exchanges that never control your funds.
Several computers connect to a centralized crypto exchange server
Example of services a crypto exchange offers
- Trading and exchange products (Fiat deposits, crypto exchange, margin trading, derivative trading)
- Earn products (interest accounts, staking, liquidity mining)
- Additional services can be NFT marketplace, Launchpads, Crypto loans, P2P trading
Centralized Crypto Exchange
When you deposit to a centralized crypto exchange, they own your assets, and you get a claim on them in return.
Decentralized crypto exchange
A decentralized crypto exchange is never in control of your crypto assets. Here, you sign a smart contract with the counterpart before the exchange. The code will execute the trade once both parties sign the smart contract. This system eliminates the counterparty risk a traditional bank or centralized crypto exchange always has.
How can a crypto exchange earn money?
All the different crypto trading instrument charges trading fees. Unfortunately, trading fees can be complicated to understand and understand initially, especially when you trade the derivative market with leverage.
What is crypto exchange trading volume?
The trading volume is the value of all crypto assets exchanging owner in a particular time interval, often 24 hours.
Is my crypto safe on crypto exchanges?
All platforms dealing with financial assets must fulfill a certain level of security since they deal with their client’s money.
Therefore, most of the best platforms enforce multi-level checks to keep their users’ funds safe on the user’s side of the system:
- 2FA (two-factor authentication)
- Multi signatures
- Allowing IP
- Allowing crypto-addresses
- Email verification
- Daily limit withdrawal
- ID verification
On the back end, regarding the safety of funds already stored on the platform, some companies have cold storage where they keep cryptocurrencies that are not being used for trading. Cold storage is a crypto-security system not connected to the internet, contrary to a hot wallet.
Still, history has taught us that centralized trading systems are vulnerable to hacker attacks. As a result, many platforms have fallen victim to various malicious actions, losing their clients’ funds.
6. Crypto Trading Analysis
➤Crypto trading analyses are about identifying trading opportunities by analyzing data trends.
➤Financial trading analysis is often divided into
- technical analysis
- fundamental analysis
Crypto Technical Analysis
➤ Crypto technical analysis (TA) is a tool traders use to discover market trends and reversals through a series of technical indicators and oscillators.
Every charting tool offers technical calculations visually, either on the chart itself or underneath it.
There is what seems like an infinite number of tools you may use for TA. Still, to be as accurate in your predictions as possible, you must devise your strategy, implement those indicators you know how to utilize best, and stick to what you are comfortable with.
One more thing to remember when implementing a strategy based on TA is that while it can give you an upper hand in a day or swing trading, TA may not provide as much when you are looking to keep hold of your crypto for the long run (HODL).
However, if you want to know much more about crypto technical analysis, we suggest you read our article, which dives deep into that topic and thoroughly discusses it.
Crypto Fundamental Analysis
➤Crypto fundamental analysis is about understanding the underlying technology, tokenomics, and its adoption.
This information covers a lot of fundamentals, such as the circulating and maximum supply, the development and founders’ team pedigree, the underlying technology, possible competition, the upcoming development milestones, and even the number of exchanges a coin is listed by.
Fundamental analysis is what crypto traders usually refer to as DYOR (do your research) because we are all different individuals who tend to think differently about the same things.
For example, while your friend can think all the best about Ethereum because it was the first innovative contract platform allowing the issuance of crypto tokens to the masses, you may realize that there are some severe problems with Ethereum’s scalability in comparison with its competition, making it a less desirable asset in the future.
While it is true that fundamental crypto analysis may vary from person to person, it may be good for you to educate yourself more by reading our article covering that topic in-depth.
7. Crypto Trading Tools
➤A crypto trading tool is something that facilitates specific tasks for you.
- Crypto trading bots: Help you to monitor and execute trades 24/7
- Portfolio tracking software: Helps you to keep track of your whole portfolio if you keep assets on different exchanges and wallets
- Crypto tax software: Helps you to analyze events and report tax liabilities
- Technical analysis software: Helps you to analyze big sets of data
Crypto Trading Bots Software
Crypto trading bots utilize their one significant advantage to benefit their owners – they don’t have to sleep. They can be in the market 24/7, trading for their user, and, depending on how well the algorithm was set up, score higher o lower gains.
There are two basic kinds of crypto trading bots:
Arbitrage trading bots
Automatically use the previously mentioned price differences and make needed transactions.
Market making bots
Placing buy and sell orders on a single exchange, profiting from the price movement.
There are many versions of crypto trading bots claiming to be profitable, but some of the most established and used are:
We can learn more about crypto bots in our article about the best crypto trading bots.
Crypto Trading Tax Software
Cryptocurrencies, back in the day, used to be non-taxable as governments worldwide haven’t yet devised a taxation policy towards these new, arising assets. However, lately, most countries are taxing cryptocurrency trading gains.
Just like it is a bit difficult to fill out your tax application, keeping track of everything you do in the market and filing an accurate tax calculation yourself would be even more awkward. That is when crypto trading tax software solutions can be critical.
Cryptocurrency trading tax software can be downloaded separately, or it is already a part of your portfolio tracker (like with Cointracking.info). It follows your market actions and calculates the realistic tax rate in real-time, making it possible to get the exact taxable amount and the speed.
Some of the best such software solutions are:
- Cryptotrader. tax
To learn more about them, please refer to our article on paying crypto tax in depth.
Crypto Trading Portfolio Tracking Software
Tracking a portfolio is also essential for those who make a lot of transactions across various platforms, as things tend to get more complicated that way.
Creating a portfolio in some portfolio tracking tool is always a good idea because it is automated to show the overall value of your funds and the value of all your investments compared to when you acquired them. Good portfolio trackers also have a notification system, which, much like an alarm clock, tells you if your cryptocurrency has reached the desired price or fallen below some valuation.
All these functions are beneficial for managing your investments and making decisions.
Let’s name a few of the best options for tracking your portfolio:
A desktop and mobile portfolio tracker with trading fees, multi-portfolio options, and a wide range of tokens and exchanges.
By far the most popular mobile portfolio tracker. Has multiple-portfolio management options, outstanding exchange, and token coverage with excellent charting.
One of the few desktops and mobile portfolio trackers with advanced tax-report possibility. However, the mobile version is limited, so desktop access is necessary.
Coinmanager is a portfolio tracker with, by far, the best charting available in the market. Also, it has an integrated arbitrage detection function and, most importantly, an in-app trading function.
Simple-to-use App allows users to import Bitcoin, ERC20, Litecoin, and Dogecoin wallets. Cointracker also has a good tax calculation option but falls short on charting and exchange support.
Read more about the best crypto day trading tools and portfolio management tools.
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