Cryptocurrencies have been around for over a decade, and by now anyone that has an internet connection and a computer should be familiar with them.
Everybody that’s heard of it knows that cryptocurrencies can skyrocket in value in a short period of time. And because of this volatility, the opportunity for incredible profit is available to those that decide to buy and sell this asset (aka, you the trader).
The fact that you are on our website means that you are one of those people that see the advantages of trading crypto.
This blog is aimed to help you further understand why you made a smart decision by looking up how to trade cryptocurrencies and further down the article I’ll give you tips on how you can get started.
What are Cryptocurrencies?
Let’s give a quick explanation for Cryptocurrencies because it’s essential to understand what they are. In the simplest terms, Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units (also called tokens or coins).
Most well known cryptocurrencies, like Bitcoin and Ethereum, are decentralized, meaning that no single entity controls them but rather control is spread across all actors that use the asset. In other words, It’s not centralized banks that determine whether they are valuable, but the people that use them.
I could go on about the history of money and value and why crypto can potentially replace the current system of money, but to keep this article short and sweet, we’ll be moving on.
Why Should You Trade Cryptocurrencies
As you already know, trading cryptocurrencies come with a lot of advantages.
Cryptocurrencies exhibit a level of volatility that allows for significant price fluctuations in short spans of time. If you can accurately predict market movements – usually done through different types of analysis – you can yield substantial profits.
Its accessibility sets it apart from traditional investments like stocks, forex, or real estate. Unlike those assets, there’s no need to go through a broker and not much hassle is required for you to get started. A huge amount of capital is not a prerequisite for entry. Even with a modest investment, you can bank big.
If you have a stable internet connection, a cryptocurrency exchange account, and basic knowledge of trading, you have all you need to get started. This makes the barrier to entry relatively low, which makes it a good place to start if you want to get into trading.
Volatility - A Trader’s Frienemy
Let’s talk about volatility for a second.
Just as the volatility of cryptocurrencies can be an advantage, it can also pose challenges. The cryptocurrency market is highly volatile which means the price of cryptocurrencies can change rapidly, this may make it more challenging to predict the market’s movements accurately as compared to other assets like stocks.
Crypto’s volatility can result in significant losses if you’re not careful. But volatility is where you, as a trader, should feel at home. Further below I’ll explain capital preservation and risk management so you can navigate the volatile world of crypto like a pro.
Getting Started with Cryptocurrency Trading
Choosing a Cryptocurrency Exchange
To trade cryptocurrencies, you’ll need to sign up for a cryptocurrency exchange account. The best exchanges are free and do not require too much information from you to get started.
There are several exchanges to choose from, each with its strengths and weaknesses. It’s essential to research and compare various exchanges to find one that meets your needs.
Here at ProfitFarmers, we’ve partnered up with one of the most secure exchanges in the world: Binance.
Binance is the world’s largest cryptocurrency exchange in terms of trading volume. It offers a wide range of cryptocurrencies for trading and is known for its low fees and robust security measures.
If you don’t have access to Binance, some great alternatives include Coinbase, Kucoin and Gemini.
Our platform connects with Binance.com to deliver convenient trading automations to our members. But if you can’t use binance.com don’t worry, check out Kingston’s case study to see how one pro user increased his trading account by +15% whilst using Kucoin alongside our trading signals. No Binance, no problem!
Choosing the Right Trading Strategy
Let’s run through the basics of trading.
Before you start trading you have to understand what type of trader you want to be.There are three main styles to consider: day trading, swing trading, and trend trading. But which one is right for you?
Day trading involves buying and selling within the same day, aiming to profit from small price movements. It requires a lot of attention and quick decision-making, so it’s not for everyone.
Swing trading involves holding positions for several days or weeks, taking advantage of medium-term price fluctuations. It requires less attention than day trading but still demands a good understanding of the market.
Trend trading involves following the overall trend of the market, either up or down, for an extended period. This is the least demanding of the three strategies, but it requires patience and discipline to hold positions for a long time.
ProfitFarmers generally favors a combination of trend trading, because these offer the highest win rate trade ideas, and day trading, which means your trading capital is typically only in use for a few hours/days. This gives the perfect recipe for fast and reliable profits, the downside is that we don’t trade much during periods of choppy price action.
Understanding Market Analysis
Once you’ve chosen a strategy that suits your goals and risk tolerance, it’s time for you to start looking into market analysis. There are two types of market analysis.
Technical analysis involves looking at price charts and indicators to identify trends and potential entry and exit points. On the other hand, fundamental analysis involves considering news, economic data, and other external factors that can impact the market.
Now, you may be wondering, which type of analysis is better? Well, it depends on your trading style and strategy. Technical analysis is more suitable for short-term traders, while fundamental analysis is better suited for long-term investors.
If you want to learn how ProfitFarmers does its market analysis and achieve a 78% average win rate, check out our article here.
How to Effectively Manage Your Risk When Trading
Here we arrive at the most important part of trading. And it’s not making money. It’s preserving your capital.
Cryptocurrency trading can be highly rewarding, but it also comes with its share of risks. This is why it’s crucial for you to have a solid risk management plan in place to protect your capital!
Think of risk management as your trusty shield, protecting your investments from crippling losses.
One of the most powerful tools that you can add to your arsenal is the stop-loss order. This nifty tool allows you to set a specific price point at which you’re willing to sell your cryptocurrency. If the price drops to that level, the stop-loss order is triggered, and your investment is automatically sold, limiting your losses. Many amateurs don’t know where to place a stop-loss and are constantly ‘stopped out’ too early.
A well-defined trading plan is also critical in managing your risk (and becoming a successful trader)
Think of a trading plan as a map to guide you through the treacherous terrain of the cryptomarkets. This is because your trading plan includes your goals, strategies, risk tolerance, and rules for entering and exiting trades. This helps you stay disciplined, focused, and less prone to impulsive trading decisions driven by emotions.
A trading plan is very important because emotions can play a significant role in trading and can often lead to impulsive and irrational trading decisions.
Fear of missing out (FOMO), greed, panic, and overconfidence are some common emotions that can cloud your judgment and lead to poor decisions. It’s important to be aware of the emotional aspects of trading and develop strategies to manage them effectively. This includes sticking to your trading plan, avoiding impulsive trades, taking breaks when feeling overwhelmed, and not letting emotions drive your trading decisions.
Keeping yourself informed
And last but not least, stay in the loop. The cryptocurrency market is a dynamic and ever-changing landscape. Keep up with the latest news, market trends, regulatory changes, and technological developments to make informed trading decisions.
Being in a trading community can help you stay informed as other like minded individuals will usually share news, tips and good trading opportunities.
With these risk management strategies in place, you’re ready to navigate the world of cryptocurrency trading with confidence. So gear up, stay vigilant, and may the market be ever in your favor!
If you want to read more on risk management and how to apply it, check out our risk management article here.
If you want to learn how risk management helps you make money in the long run, learn the risk:reward ratio. Read more about it here.
At the end of the day, trading cryptocurrencies can lead to big profits, it’s easy to use and trade, and it has low barriers to entry. But beware, high volatility can cause significant losses if you’re not careful – which is why you need to manage your risk properly by sticking to a plan and using trade automations (like the stop loss) so you’re always protected.
Choose the right digital currency exchange, understand the different trading strategies and market analysis, and apply proper risk management and soon you’ll find your seat in the round table of profitable traders. Best of luck with your trading!