Everything you’ve ever wanted to know about crypto trading—all in one comprehensive guide.
Crypto trading has quickly taken the world by storm. Cryptocurrencies like Bitcoin and Ether have picked up major steam over the last year. In March 2020, one Bitcoin was trading under $7,000. A year later, the largest cryptocurrency gained over 800% to trade above $64,000 at its peak. Today, it’s trading just under $40,000 — strong annual performance and a wonderfully volatile year for crypto traders.
This incredible volume is driven in part by new interest in options trading from those who traditionally trade the underlying equities. However, unlike stock trading, options trading is multi-dimensional. It’s not just, “I think it’s going up, so I’m going to buy.” There are strategies to take advantage of the passage of time, an increase or decrease in volatility, and upwards, downwards, and sideways price movement. If you don’t pair your trading outlook with the proper strategy, it is possible to be right about what happens in the market and still lose money.
The volatile nature of these assets is, in part, what makes crypto trading so appealing.
The short-term price fluctuations make crypto ideal for day and swing trading, while the long-term bullish case stays intact as long as the price keeps increasing.
Are you looking to start trading crypto?
You don’t need to understand every element of blockchain technology or the underlying system to hold or trade cryptocurrencies. Just like you don’t need to understand every aspect of the banking system to save money or use your bank card. But you do need to understand some of the basics before you get started.
This guide will help you get in on the hype and learn how to begin trading digital assets.
Everything you’ve ever wanted to know about professional options trading strategies—in one convenient guide.
Crypto is quickly rising in popularity. But don’t worry. If you’re just getting on the bandwagon, it’s not too late. One of the great things about the crypto market is that it’s still so new. The entire asset class is only a decade old. So, if you’re just getting involved now, you’re still way ahead of the curve.
In the past year alone, Wall Street and traders have just started to take notice. Even Goldman Sachs waited to get in on the hype. Just check out this headline from May 2021: Goldman Sachs Opens Crypto Trading Desk. What’re You Missing?
Anyone can take advantage of the opportunities available in digital assets, whether you’ve traded equities, options, forex, or none of the above. Cryptocurrencies are digital, but not fundamentally different from other asset classes (though they are more volatile).
Sure, trading experience can be a benefit that gives you a head start for technical analysis and understanding price action. But it’s not necessary to get started with crypto.
If you have capital and want the ability to grow it, crypto trading and investing could be a great option. Of course, there are a couple things you should consider before diving in.
The first thing you need to determine before trading crypto is your risk tolerance.
Crypto markets are volatile and trading isn’t always easy. Losses can pile up fast (especially if you employ leverage). If you’re not willing to take wide price swings, you seriously need to consider if crypto trading is right for you. Whereas the price of stocks will fluctuate 1 to 2 percent on any given day, Bitcoin or Ether can move 10% up and down in an afternoon.
Start small or consider paper trading if you’re simply testing the waters. As with all things, don’t risk money you can’t afford to lose.
Should you buy and hold cryptocurrency for the long-term? Or jump in and out of trade quickly to capitalize on short-term directional move?
This is as much a personality question as it is a trading and preference question. And it fits into the idea above — how much volatility can you take? There’s nothing worse than puking a position before it rebounds. Except maybe cutting out of a position after a small gain only to see it increase multiple times.
Either way, the goal is to make money on your investment over time. But the road you take will depend heavily on your time horizon.
Ultimately, you’ll need to build a trading strategy around your availability. Day trading on short time frames is great for fast gains. But if you work full-time and have children to care for, you might not be able to commit yourself to that style of trading.
Once you’ve determined your goals and time horizon, you’ll have the conviction needed to begin trading.
Crypto trading offers similar benefits as other assets such as stocks, options, futures, or fiat currencies. You can profit from short-term price action or hold them as long-term investments.
However, there’s aspects of cryptocurrencies that make them unique in the investing world.
Since crypto can be sliced and diced into minuscule slices, you can trade a variety of cryptocurrencies, regardless of the price of one coin or token.
You’ll need to establish your overall goals to determine which cryptocurrencies make the most sense to trade. There are many coins and tokens available that can help you reach various trading goals.
Need a place to start? Take a look at the most popular choices available for crypto trading. Here are the Top 10 Most Popular Cryptocurrencies according to CoinDesk
Monetary cryptocurrencies such as Bitcoin and Litecoin can be used as a medium of exchange. But they’re also used to hold equity. Bitcoin is often referred to as “digital gold” because it can provide long-term investors a viable option as a store of value due to its inherent scarcity.
Meanwhile, altcoins such as Dogecoin offer traders the ability to profit by speculating on short-term price action. So, whatever your goals may be, there’s a cryptocurrency that can help you reach them.
Cryptocurrency markets produce significant volatility due to huge amounts of short-term speculative interest. The volatility of crypto is what makes the market so exciting and sets it apart from other assets. Rapid price movements can provide a range of opportunities for traders to go both long and short.
But with volatility comes increased risk. So, you’ll need to develop a risk management strategy. We’ll talk more about that when we discuss crypto trading discipline.
One of the key differentiators between crypto and traditional asset classes is the ability to collect interest on your positions. Compared to traditional market rates, interest rates within crypto markets are incomparable.
An excellent rate from a nationally available savings account would be between 0.60% and 0.70% annual percentage yield (APY). In comparison, crypto interest accounts offer annual interest rates of 9% APY for USDC and 5.5% APY for Bitcoin.
Unlike equity markets, cryptocurrencies are usually available to trade 24/7, 365 days a year.
That’s because there’s no centralized governance of the market. Transactions take place directly between individuals on crypto exchanges all over the world. You can even see crypto prices change as the clock strikes midnight on New Year’s Eve.
But market hours are just one example of the major differences between trading crypto and other assets. Let’s explore some of the others.
The original idea behind many cryptocurrencies was that one day they’d become a commonly accepted medium of exchange for goods and services. Active crypto trading has recently changed that narrative.
Many people now place crypto and stocks in a bucket together, even though they’re completely different assets. Here’s some of the biggest differences between trading cryptocurrencies and stocks.
Equity Trading | Crypto Trading | |
|---|---|---|
What You Own | Stocks offer investors equity and ownership in a company. They come with legal rights, such as access to dividends and voting rights. Stocks are highly regulated and trading them requires paperwork to get started. When setting up a brokerage account for stock and options trading, you typically need to provide lots of personal information and declarations. | Buying crypto is slightly easier than owning stocks. In some cases, you don’t need any paperwork to begin trading crypto. There are no special requirements for brokers and there’s no need for declarations. That’s why crypto trading usually comes with much less red tape when getting up and running. |
Regulation | Stock and options markets are governed by Federal agencies like the U.S. Securities and Exchange Commission (SEC). They hold authority over the entire stock market to protect fair trade. | There’s no central authority regulating the crypto market. The decentralized nature of cryptocurrencies means they rely on the transparency of their public ledger and blockchain technology to maintain accuracy on the network. In this sense, crypto is self-governed. |
Fundamentals | Publicly traded companies produce earnings and revenues. They are required to disclose their business performance and what they’re planning to do in the future. | There are no traditional underlying fundamentals to analyze with crypto. But they do offer fundamental scarcity and face demand impacts caused by everchanging monetary policy. |
Market Hours | Regular trading hours 9:30am to 4:00pm ET Extended hours Premarket 4am to 9:30am ET After Hours 4pm to 8pm ET | Crypto markets trade 24/7, 365 days a year. Their decentralization allows digital assets to be traded non-stop. |
Choosing a crypto trading platform and broker is a critical decision in your crypto trading. Whereas, equity brokerages are highly regulated and hold stocks in your name, crypto brokers are less regulated. How’s that impact you?
First, crypto trading exchanges have gone bankrupt. Whereas equities brokerages (at least in the U.S.) come with SIPC insurance that protects against losses if the brokerage firm goes bankrupt, there is no insurance for crypto brokers and exchanges. If an exchange is hacked, they are under no obligation to return lost funds
That said, a lot has changed since Mt. Gox went bankrupt in 2014. Crypto exchanges like Coinbase are public companies, and, as such, have governance that Mt. Gox did not have. There’s still no guarantee of lost funds, but safeguards have improved tremendously. So, it’s not quite the Wild, Wild West that it used to be.
But before you jump into the world of crypto, you’ll need to set up a trading platform.
First, you’ll need to pick an exchange to place your trades. Just like stocks, there are several.
To get started you will need to register an account and make a deposit. Then you can start buying and selling crypto.
Here’s some of the most popular exchanges:
Since there are so many exchanges, crypto traders must find a way to transfer funds between all of them. Not to mention a place to store their digital assets.
Some exchanges like Coinbase are all-in-one platforms. They offer a safe place to keep your crypto right in your account.
But you’ll need to decide if an all-in-one makes sense for you. Perhaps you feel more comfortable using a certain exchange. Or maybe you just want added security by keeping your crypto offline.
Crypto wallets offer users an alternative to safely house their cryptocurrency and easily retrieve them. Several options exist. These range from web-based “hot” wallets to physical “cold” wallets that allow you to maintain crypto offline.
Cold wallets are typically for investors looking to store their crypto for safe keeping over longer periods. So, for active traders, this might not be the best option to quickly access and trade your assets.
Luckily, there are many online digital wallets to choose from. Many of the bigger names such as Bitcoin, Ethereum, and Litecoin all have their own official wallet for their individual currency.
There’s also plenty of options available for traders looking for multi-currency wallets where they can store different cryptocurrencies. For example, Exodus is a desktop wallet that can be used for storing and sending Bitcoin, Ethereum, Litecoin, and various altcoins.
Catalysts can cause a cryptocurrency’s price to fluctuate in large percentages in a matter of hours. For instance, when Elon Musk simply added #Bitcoin to his Twitter bio, the cryptocurrency jumped 16% overnight.
Active crypto trading over short-term intervals allows you to ride the wave without carrying the risk of long-term exposure. It allows you to profit on a quick pop in pricing. But going in big for a quick move is a high-stakes proposition, especially considering crypto’s volatility.
Again, you must consider your own goals and choose the best strategies available to reach them. If you’re looking short-term, you can choose a strategy to capitalize on the quick price action. But if you want to be invested in crypto for the long haul, there are other strategies to consider.
Let’s take a look at a few crypto trading strategies you could take advantage of.
Dollar cost averaging is a popular crypto trading strategy in which a trader divides the total amount to be invested across a period of time.
DCA could be great for someone who wants to stack coins for the long-term. It’s a way to scale into a cryptocurrency by purchasing tokens at regular intervals — eliminating some of the dangers of trying to time markets for the best possible price.
The golden cross is a bullish technical pattern found on charts. It indicates a short-term breakout and a long-term bull market for the asset. The set-up occurs when a cryptocurrency’s short-term moving average such as the 50-day SMA ‘crosses’ above a longer-term moving average such as the 200-day SMA.
The strategy behind the golden cross is all about momentum. It requires a downtrend bottoming out and then reversing to the upside. The shorter moving average crosses through the longer moving average as it breaks out — confirming the reversal before setting new highs.
A death cross is the exact opposite of a golden cross. It’s a bearish technical pattern that occurs when the shorter moving average crosses through the longer moving average on its way to the downside.
Once an uptrend peaks and begins reversing, it may break through the longer daily moving average. This action confirms the chart is now on a downtrend.
Both the golden cross and the death cross give traders the confirmation and conviction needed to trade crypto effectively. Once the chart breaks a trend, the long and short moving averages typically act as resistance levels for crypto traders to reference.
Relative strength index is a chart indicator that measures momentum over a 2-week time frame. It calculates the average gains and losses to determine when a cryptocurrency is considered overbought or oversold.
Understanding when a cryptocurrency is overbought and oversold can help
you determine the best time to go long or short the asset.
The bullish engulfing candle is a pattern many crypto traders use to identify trend reversals. You’ll normally see it at the bottom of a downtrend, and it indicates a surge in buying pressure.
A bullish engulfing pattern typically results in a reversal that drives prices higher. It can be identified on the chart when a green candle completely engulfs the body of the previous red candle.
The bearish engulfing pattern is essentially the opposite. It appears at the top of an uptrend and signals a reversal to the downside.
Knowing how to spot short-term trend reversal will allow you to identify potential buying or selling opportunities. That makes engulfing patterns particularly useful for crypto trading.
Just like other assets, successful crypto trading relies heavily on the discipline of the trader.
We have a saying at Market Rebellion: discipline dictates action. It means striving to trade on pure discipline. Enter a trade with a plan, take profits off the table when necessary, and cut losses fast. When you stick to discipline, it ultimately dictates how you execute a trade.
Human psychology and emotion is the underlying driver behind markets.
When you trade with discipline, you become a machine programmed to win. Deviating from discipline leads to failure more often than not.
Whether your trades are short-term or long-term, you need to remain disciplined. But it’s not always easy. Trading crypto with discipline will require you to follow several rules.
The first step before entering a trade is to create a plan. Are you a buy and hold investor? Or are you a short-term opportunist? The last thing you want is to take a short-term trade, which then becomes a loss, and turn it into a long-term investment.
You also need to have a destination in mind before jumping in. Create a risk management strategy and determine how you will manage trades. (for example, where you will take profits or cut losses). This must be done before you enter the trade, and you need to stick with your plan.
Don’t FOMO or panic sell. Analyze chart technicals and market sentiment. Then set triggers and stop-losses to help ensure you adhere to your strategy.
One very powerful tool for helping you stick to your crypto trading plan is a trade journal. Recording trades helps you keep track of them. But more importantly, it can assist you in understanding where you had success or failures.
The best way to maximize the effectiveness of your trade journal is to be consistent. Include the cryptocurrency that was traded, the time and price you entered and exited, profit targets and stop-loss used, important technical levels, and a few short notes about why you entered the trade and how it played out.
Sometimes it’s difficult to jot everything down, especially if you’re trading crypto on quick momentum. But always record the data afterward. Consistently working through the process will keep you honest and ensure you’re still developing a plan — even if it’s on the fly.
Not every strategy is going to work for every crypto trader. As mentioned before, you need to trade with strategies that work best with your own time horizons.
If you’re an investor who works full-time and has a family to take care of, it’s not going to help you to attempt day trades with a large amount of capital. You might not be available to take the necessary action on that type of trade.
The most important thing is that you find strategies that work best with your lifestyle. Then, stick to those strategies.
Cryptocurrencies have come a long way in recent years. Their applications and usefulness have garnered the attention of investors all over the world. And while hype may seem to be at all-time highs, the party could just be getting started.
Successful crypto trading means finding the right opportunity and deploying the best strategy to capitalize on it. Create a plan, remain disciplined, and stick to strategies that work best for you. That’s how you can ride the wave and learn to trade crypto effectively.
Are you ready to start trading crypto? Then check out Market Rebellion Crypto and discover how we give you all the trading tools you need — all in one place.
Everything you’ve ever wanted to know about crypto trading—in one convenient insider’s guide.
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