In this article, we will talk about crypto trading strategies for beginners, however, we have to start from learning what trading is and how it works. In simple words, trading involves buying or selling an asset to earn profits. In merely one and half decades, crypto have become a more than $1.25 trillion asset class. This promising new digital asset has attracted millions of traders for its high-profit potential. However, even though it may sound easy to earn profit from trading crypto, it needs specific knowledge, analysis, strategy building, and a practical approach to be a big trader.
What are we covering here?
This cryptocurrency trading guide for beginners would provide new traders with a solid ground to start trading all crypto assets. In this guide, we are going to discuss:
- Crypto trading 101
- Crypto trading vs crypto investing
- Different types of crypto trading
- Spot trading vs. futures trading in crypto
- Trading and technical analysis (TA)
- Technical analysis vs. fundamental analysis
- How to start crypto trading
- Importance of Volatility in crypto trading
- Basic crypto trading rules
Crypto trading can be a profitable venture, no matter whether you are looking for an extra source of income or taking it up as a full-time profession. Read this complete crypto trading guide for beginners to know about different types of crypto trading and some practical crypto trading strategies.
- 1. Crypto trading 101
- 2. Crypto trading vs crypto investing
- 3. Different types of crypto trading
- 4. Spot trading vs. futures trading in crypto
- 5. Trading and technical analysis (TA)
- 6. Technical analysis vs. fundamental analysis
- 7. How to start crypto trading
- 8. Importance of Volatility in crypto trading
- 9. Basic crypto trading rules
- 10. Crypto Trading Strategies for Beginners - FAQ
1. Crypto trading 101
In any type of trading, we buy or sell an asset to earn profit from the price differences. When we apply this basic business concept to the crypto market, we call it crypto trading. Every day, millions of users (420 million and counting) are buying and selling cryptocurrencies. As the price of crypto changes over time, there is an opportunity to earn income from these price changes.
So, if you buy BTC today for $32,000 and sell it at, let’s say $40,000 a year later, you can make a profit of $8,000 in a year. That’s a decent profit of about 25% in a year. So, the basic idea of crypto trading is to buy a crypto asset at a lower price and sell it at a higher price to make a profit. All sorts of crypto trading are based on this basic principle of earning money from changes in the price of a crypto asset.
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2. Crypto trading vs crypto investing
Before we delve deeper into crypto trading, let’s distinguish between two related terms - trading and investing. Both these concepts involve buying and selling assets. But, they differ in timeframe, goals, and strategies.
Trading is mainly a short-term concept. When we buy/sell crypto to make quick profits in hours (it can be in a few minutes too) or in a few days, we call it trading. So, in trading, our main focus is the potential price changes rather than the fundamental quality of the asset. The bigger the potential price changes in the short term, the better the trading opportunity.
Investing is a long-term thing. We invest in an asset for the longer term by looking at its fundamental value. For example, someone might think that Bitcoin (BTC) will one day replace fiat currencies and become the primary currency for the global economy. This can increase Bitcoin’s value in the long term - let’s say, in 10 years. So, the person can keep buying Bitcoin and wait for many years to earn from its price appreciation. In short, trading is a fast game, whereas investment is a game of patience. In this post, our main focus will be on crypto trading rather than on investing for the longer term. If you would like to learn more about trading crypto, check out our investing in crypto guide.
3. Different types of crypto trading
A crypto trade can last from a few minutes to a few weeks. Also, we can deploy different trading strategies based on the type of crypto coin, volatility (price fluctuations), news & events, and technical analysis. Based on these above factors, we can have different types of crypto trading like scalping, day trading, swing trading, or positional trading. Let’s see how they work.
If you look at the price chart of any crypto, you will see there are some price changes with every tick. Scalping is designed to make a profit from these small price changes in a very short period - just a few minutes.
Typically in scalping, a trader buys a large volume of crypto and then sells it immediately after there is a small increase in the price. When the size of the position is large, even a small price movement can generate a good amount of profit.
Even though scalping may sound like an easy way to earn a quick profit, it involves high risks. None can predict the price of crypto. If there is an adverse price movement, a scalper can end up taking a huge loss. In scalping, you need to react fast and have a strict exit strategy.
Scalping also needs substantial experience and fast trading platforms. Many professional and institutional traders use advanced computers and trading platforms to enter and exit trades superfast to earn money from scalping.
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Day trading or intra-day trading
Day trading is probably the most popular trading method these days. Mobile trading apps have made day trading (also called intra-day trading) highly convenient and easy to access. In day trading, a trader enters and exists a position within the same day.
In the case of traditional assets like stocks, day trading can only be done within a few hours of a business day. However, since the crypto markets are open 24/7, crypto traders have extended hours for intra-day trading. Many beginners start their trading career with day trading.
In day trading, a trader makes money out of the price changes within a day. So, day traders look for greater price changes compared to scalpers. Both day trading and scalping need excellent trading skills, practice, and risk management.
As you may have guessed already, the time span involved in swing trading is higher than that in day trading. Swing trades are generally executed within a period greater than one day. So, in swing trades, a trader may enter into a trade today and exit tomorrow or after a couple of days. In many cases, a swing trade can last for a couple of weeks too, depending on the price movement and the trading strategies.
The idea behind swing trade is to catch larger price movements based on technical analysis. The name swing comes from price reversals. So, swing traders basically enter into a trade when they believe a particular uptrend or downtrend is almost over and there is an impending price reversal. Swing traders want to catch the full extent of these price reversals to make substantial profits.
Positional trading involves even a longer time frame compared to swing trades. In positional trades, a trader holds a position for a period that can extend to a few weeks or even months.
For example, you may anticipate that a certain new development (like a new use case) in a crypto project can take a crypto’s price to a very high level in 2–3 months. You can buy this crypto today and hold it for the time period, and then sell it when your expected price level is reached. This would be a positional trade as the time frame is longer than a swing trade.
Many traders call positional trading ‘trend following’ as it involves following a longer-term price trend based on technical analysis. Positional trading is targeted at large price movements. However, it needs significant patience as one needs to hold the crypto for a longer period.
4. Spot trading vs. futures trading in crypto
The concept of spot trading is straightforward. You buy a cryptocurrency, like ETH, and then sell it at a desired price to a buyer. The crypto is then transferred to the buyer while you receive the payment.
Futures trading is a little advanced. In futures trading, you don't buy any crypto to begin with. Instead, you buy a derivative contract based on an underlying contract. So, futures trading allows you to benefit from the price movement of crypto without buying or selling the crypto itself. Rather, you will buy/sell a derivative contract.
One major advantage of a futures contract is leverage. It allows you to enter into a trade with a lower amount of capital. For example, if you want to trade 1 BTC in the spot market, you need to first pay for its entire value (which is larger than $30,000 by the current price). However, futures trading would allow you to take a futures position on 1 BTC with a fraction (like 5% or 10% of the total cost). Capital efficiency and multiple trading options make futures trading immensely popular among beginners as well as expert traders. You can learn more about cryptocurrencies with the biggest potential by reading our article.
5. Trading and technical analysis (TA)
Technical analysis is one of the most used tools in trading any asset, including crypto. In technical analysis, we analyze the historical price charts and price patterns of crypto to determine its probable future price levels. So, in the technical analysis, we look at past performance and the pattern of price movement to take a trading position in anticipation of certain future price movements.
In technical analysis, there are many indicators, tools, and models to forecast the future price movements of crypto. Some of these concepts are support, resistance, trend lines, breakout levels, moving averages, candle patterns, and leading & lagging indicators. Studying and applying these concepts and tools can potentially improve your trading outcomes.
6. Technical analysis vs. fundamental analysis
While technical analysis focuses on past practice patterns and performance to forecast future price levels, fundamental analysis intends to find the true value of crypto by analyzing fundamental factors. These factors can include the real-world implications of crypto, its use cases, adoption rate, security status, and reputation.
Technical analysis is mainly used by traders, while fundamental analysis is used by long-term crypto investors. However, expert traders apply the knowledge of both technical and fundamental analysis to devise optimal trading strategies. After you have read onwards and learnt how to start trading crypto, we suggest checking out one of the best crypto exchanges on the market. When you register with our BTSE referral code you will get an exclusive welcome bonus as you start your crypto trading journey.
7. How to start crypto trading
Let’s look at the simple steps required for starting to trade cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH):
- Register with a crypto exchange like Coinbase, Binance, Kraken, or OKX to create a trading account.
- Verify your Know Your Customer (KYC) details with relevant supporting documents to activate your trading account.
- Fund your trading account with fiat currencies to buy crypto. You need to add a payment method with the exchange platform to add funds.
- Buy/Sell crypto of your choice to start trading.
- Arrange a crypto wallet for the safekeeping of your crypto.
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8. Importance of Volatility in crypto trading
In simple words, volatility refers to the fluctuation in the price of crypto. When a crypto asset’s price moves up and down by a large percentage, we call the crypto highly volatile. In general, cryptocurrencies are more volatile than traditional assets like stocks. High volatility in crypto means the price of crypto tends to change by a large margin in a short period. It’s not uncommon for a crypto’s price to move by 15% or 20% in a day.
Volatility brings both risks and opportunities for crypto traders. Large short-term price movements can potentially generate huge profits for traders. However, volatility can also cause huge losses if the trade size is too large, an excessive margin is taken or proper risk management has not been followed. For this reason, many people tend to begin trading with the most stable and valuable coins, such as Bitcoin. If you would like to learn more about this subject, check out our buying Bitcoin guide which explains the basics of purchasing BTC to first-time traders.
9. Basic crypto trading rules
There are some important trading principles that all beginners should keep in mind. These are some of them if you want to start your crypto trading career:
- Stay updated with market developments, news & events, and crypto market dynamics to look for trading opportunities.
- Always have a trading plan in place and don't deviate from your trading plan.
- Stick to a few crypto (rather than targeting numerous them), study them well, and observe their price movements to devise trading strategies.
- Don’t over-trade and never indulge in revenge trading.
- Trading is all about making logical decisions rather than getting driven by impulses or emotions. So, control your emotions and impulses, which can be very harmful to your trading success.
- Leverage is a double-edged sword. While leverage allows you to trade bigger with small capital, it can result in huge losses too. So, use leverages carefully.
- Never trade with capital that you can't afford to lose. So, stay away from trading with borrowed funds.
- Be careful while trading on news and events. These factors can increase volatility significantly.
- Remember that the market is always right. Never fight with the market if your forecasts fail.
- Never trade based on tips or suggestions from social media. Always do your own analysis before entering into a trade.
- Manage your risks to protect your capital.
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10. Crypto Trading Strategies for Beginners - FAQ
10.1 ❓How do I choose a crypto trading strategy?
When starting, you have to set smart goals and define your risk tolerance, as day trading volatile cryptocurrencies can be really unpredictable. Prices can move fast in day trading, so the main focus of your efforts should be put on a limited number of cryptocurrencies (three to five).
10.2 ❓What is the difference between crypto trading and crypto investing?
In general, crypto investing is based on buying crypto assets and keeping them long term, because their price will rise over time. Crypto trading, on the other hand, makes profits from market volatility and traders hold their coins for a shorter period of time.
10.3 ❓What are the best crypto trading strategies for beginners?
Common crypto trading strategies for beginners are: positional trading, swing trading, day trading or intra-day trading, scalping.