How to Crypto: Basic Trading Guide
A quick guide on how to start trading cryptocurrencies and (hopefully) not lose all your money.
Maybe you are someone who is just fine and happy holding their tokens, maybe even staking them, and trading seems simply too risky for you. But maybe you are someone who is looking to introduce a little bit more thrill into their live, as well as more potential profits. If so, then trading might be exactly what you are looking for.
You may be asking yourself: But where does one start? Hopefully, this article will point you in the right direction:
I assume you have already created your own wallet and possibly even created an account on a trading platform (e.g. Binance). These steps are important because trading usually takes place on a trading platform. To trade, you will also definitely need some funds, which you can either buy directly on the platform (at least usually that is the case) or you can deposit them from your wallet or other accounts.
Now, if you are all set and ready, you can open the trading console (or however you want to call a trading interface) and start. But wait… there is so many different pairs, which one should you trade? And what type of orders should you use? What about this order-book? Do you need to use stop-loss? How much of your funds should you put into one trade?
Starting can be sometimes overwhelming (and that doesn’t apply strictly to trading or even cryptocurrency). A good strategy to overcome this (in my opinion) is:
- Get yourself familiar with the interface you will be using. Click around, read, observe, try different features, get to know all the buttons and icons until you feel comfortable.
- Make a trading plan. A very important step, especially if you are a beginner, but unfortunately often times overlooked.
Making a plan
So, how to tackle this? I like to keep things simple and intuitive, so in my opinion you can start by answering these four questions: What, Where, How and How much? Let’s take a closer look at each one of them.
What pairs will you trade?
It’s not a bad idea to limit yourself to trade only on certain pairs. You can do so by self-imposing some criteria, for example: “I will only trade tokens that have been listed for more than 6 months and also have 24h volume at least 100 BTC.” You can also decide to only trade cryptocurrencies you have done your own research on. If that is the case, I would direct you to our article about How to determine a good cryptocurrency, or even an article about Fundamental analysis. Both will help you determine real value of a cryptocurrency, avoid pump-and-dump schemes or scams and therefore save you money.
This chapter also ties into the question of what timeframe will you trade. This is highly individual and depends entirely on your goals. If you are aiming to become a day-trader for example, you will probably trade 1h timeframe and smaller, maybe even scalping on 1m charts. However, it is always a good idea to keep in mind the overall state of the market and even more so, current trend(s).
Where will you trade?
This one is not too difficult — as mentioned above, you have probably already chosen a trading platform. If not, try comparing benefits of different platforms, as well as their fees and other features to choose the one best suited for your needs.
How will you trade?
A.K.A. what is your trading strategy? You cannot simply trade based on your whim or good/bad feeling — that is the quickest way to lose all your money and not even learn anything. Many traders use technical analysis to make trades, so perhaps you will find our intro to Technical analysis helpful. You will still have to determine and set your own strategy, for example: I will open a long position when this indicator hits this value and the price is above 50MA at the same time. My take-profit is X % and stop-loss is X % below buy price. This is probably the most difficult task of making a trading plan but, arguably, also the most important one.
An important thing to note here is that you must absolutely stick to your strategy. Otherwise, what’s the point of making one? Additionally, do not expect all your trades to be profitable, that is simply an unachievable goal. You should focus on making your strategy overall profitable.
How much funds should you put into each trade?
The rule of thumb is that you should never put more than 10% (some say even 5%) of your funds into one trade. If you are starting out, do not shy away from only putting a few dollars into each trade until you get the hang of it. Remember, patience is a virtue and percentage are what really matters here.
Reflecting on results
Equally significant as planning is evaluating final results of your plan and trading strategy. Even here it is important to remain patient and not dismiss a strategy after 3 non-profitable trades, if you only traded 4 times. You will definitely need a bigger sample to determine the final profitability of a strategy.
Some use spreadsheet as a tool to record each of their trades, but again, choose what feels most natural to you. If you like to write each trade down onto a paper, that’s also fine. But, however you decide to do it, don’t forget to record your results. By doing so, you can later decide which strategies are best for you, you can absolutely rule out what doesn’t work and eventually try and make improvements to your trading strategy. It’s also a good idea to evaluate the results in context of overall market sentiment — are we in a bear/bull market; were any big dumps/pumps happening during the time of the trade?
If you won’t neglect this seemingly boring chore of recording and evaluating, you will be able to, slowly but surely, refine your strategies over time and make them more and more profitable and consistent.
As I have mentioned in some article before, I have never been a big trader. I have tried to trade for some time after my introduction to the world of cryptocurrencies, but, not following any plan, I have quickly found myself losing money. So, I have stick to holding and long-term, slower trades since. However, lately I have become increasingly interested in day-trading so maybe, eventually, I will attempt it and will document my journey here.