Cryptocurrency Trading Guide 2020
This excerpt from my cryptocurrency trading guide PDF is not intended to be a crash course in crypto trading.
But if you’re serious about cryptocurrency trading, I would like to set you off on the right path if I can…
I’ve blown up my account numerous times while I was learning and I still make rookie mistakes far more often than I like to admit. I’ve spent a small fortune on different courses and strategies over the years trying to master it... and all I really learned was that...
Most of them were more about marketing than substance, and you don't need to spend a small fortune to learn this! What I eventually learned was, there is no quick option here if you want to do it right!
Setting Your Investment Goals
Is it too Late to Get Started in Crypto?
The first thing you need to understand is that time is on your side.
It's far too easy to look at the price history of cryptocurrency and think you've missed your chance... the boat has sailed, the big move is over, no point chasing it now...
Well there is always a chance that could be true, but virtually every pundit out there is telling you you're dead wrong.
This whole thing has barely gotten started!
Just before we jump into this cryptocurrency trading guide, it’s worth taking a minute to assess your own situation and expectations so you can set yourself a couple of goals. How you choose to put all this together will depend on a lot of factors that only you can assess.
The short version is, the less you have to start with, the more time it's going to take... either time to invest in working the systems, or time until it matures... or both.
If you’ve only got a few hundred to get you started, you might do better to make it a long-term plan like I did... for two years from today! The main thing is to be specific and dream big!
Time To Get Some Theory - It’s FREE
Even if you don't take a course, it is in your best interests to learn to read price charts. A great resource for learning about and studying charts is TradingView, a cloud-based charting and social-networking software for both beginner and advanced stock and cryptocurrency traders.
Easy and intuitive for beginners, and powerful enough for advanced chartists – TradingView has all the charting tools you need to share and view trading ideas. Real-time data and browser-based charts let you do your research from anywhere, since there are no installations or complex setups.
A price chart is nothing more than a graphical representation of what people are thinking about a given instrument over a period of time, and how they react to those thoughts.
If you can learn even a few of the fundamental price action patterns, you'll be able to see trends emerging and when a market is about to change direction.
It's not an exact science by any means, but the better you understand the LIKELIHOOD of these things eventuating, the better you'll be able to make smarter buys or sells.
Price Action is a wonderful thing once you 'get it'!
Princeton University Bitcoin and Cryptocurrency Technologies Course
If you have the time, Princeton University Online has an amazing free course you can take. After this course, you’ll know everything you need to be able to separate fact from fiction when reading claims about Bitcoin and other cryptocurrencies. And you’ll be able to integrate ideas from Bitcoin in your own projects.
Into Action and Some Friendly Advice
If you’re ready to get started investing in cryptocurrencies, I’ve outlined the major approaches in this cryptocurrency trading guide.
One important thing to remember with this kind of trading is, every winner has a corresponding loser. You only make a profit when you win because someone else has taken the opposite trade to you and lost.
And 98% of retail traders… that’s you and me… lose more than they win. That’s why the rewards can be so big… because only 2% of traders win consistently!
So your goal should be to find a way to give yourself an edge, in order to position yourself in the 2% for the long-term. And the only way to truly do that is with time and effort… study, practice, discipline and constant, honest self-assessment.
Remember, trading without a sound plan is just gambling, and sad fact is, most of the 98% are just gambling.
They might have a strategy or two, but without the knowledge to create a solid trading plan, they are going to be improvising any time the market doesn’t perfectly match their system.
So that gives you a real opportunity to find your edge and step into the 2%.
IMPORTANT! For every move in one direction there MUST BE A RETRACEMENT in the opposite direction, because the people who picked the move correctly are ALWAYS going to take some profit!
The good news is, after they take their profit, you may have a perfect entry point to get in for the next move up.... even if you missed the initial move. So it pays to study and understand price action and market cycles.
If you are new to trading cryptocurrencies, following traders on TradingView or joining a copy trading platform like ETORO or 3COMMAS can be a good low-risk way to get start.
Though they have a bad reputation, there are also some reputable auto-trading bots that can help you mitigate your risks as well.
Regardless of whether you choose to copy trade or decide to go it alone, understanding the different approaches to trading is critical.
These are part trading platform, part social network.
The emphasis is on trading of course, but you have the ability to watch what other traders do, check their past performance and then automatically copy the trades of anyone you like for a small fee.
This can be a great way to learn if you do it right. That means starting with a small account, (or even a demo account!)
… watch what your mentor does, make notes, ask questions, and really look to understand the context and signals behind each trade.
Also pay close attention to the stop/loss levels and profit targets used. Getting in is only half the story, the profitable traders spend just as much time working out when they need to get out. Whether it's for a profit or a loss.
You should also understand that all traders expect to have losing trades.
So note their success rate, and get a feel for the process of minimizing losses and maximizing wins, but don’t for a minute think that any copied trade is a sure thing.
This is a game of percentages. Knowing your expected win rate and managing your losses. Always remember that past results offer no assurance of future performance.
No matter how good a trader’s statistics might be, that is no guarantee that their run will continue.
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Trading Robots “Bot Trading”
Usually I have very little time for auto-trading robots. Most make more profits from bot sales than they’ll ever make trading.
They’re built to optimize returns based on historical results, and if they work at all, they usually have a very short life-expectancy.
Because they are built in reverse to match historical data most simply cannot adjust to changing market conditions.
That said, there are some that are based on sound technical patterns combined with smart money management, and that are updated regularly...
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Dollar Cost Averaging
It doesn’t hurt to play it safe when you’re first starting out. Dollar cost averaging is a conservative strategy you could employ.
This strategy is best for beginners to the investing world because you don’t need to worry about entering the market at the right time.
You don’t have to stress yourself waiting for the price of cryptocurrency to go down; rather, you just buy at regular time intervals to spread the risk and hold/store your cryptocurrencies in a cold, secure wallet (like a paper wallet or hardware wallet).
For example, if you have an extra $100 to spare every week, you can buy cryptocurrencies every week. Some weeks your $100 may buy you more cryptocurrency, and some weeks the same amount will buy you less.
This method gives you peace of mind because you don’t need to worry about the dips in price.
You just have to be disciplined enough to follow your regular schedule and buy when you need to buy without looking at the price charts. You don’t wait for the price to go down just because you see a downward trend on the charts, you just go right out and buy your cryptocurrencies.
With the dollar cost averaging method, your profits will also average out when you decide to sell your cryptocurrencies.
Lump Sum Investing
The lump sum method is a much riskier method of investing in cryptocurrency because you will be buying your crypto at a single price point. Swing-trading, day-trading, and margin-trading are all forms of this method.
If you have $10,000 to invest, you will, of course, want to buy the maximum number of coins, so you wait for the price to go down. To maximize your investment, you will be compelled to wait for the possible lowest price before buying your cryptocurrencies.
This means you will have to ‘time’ the market, so you try to buy at just the right time. Of course, this is easier said than done with a volatile commodity like cryptocurrency. The price varies so much it’s extremely difficult to predict when the next price dip is so you can buy at that price.
Trying to time the market can cause a lot of headache and stress to an inexperienced investor. It just brings too many ‘what ifs’ to mind. When it comes to selling off your lump sum investment in the future, you may find it hard to sell as well because you’ll be waiting to sell at the right time so you can make the most profit.
You’ll try to predict the highest price point, and you’ll berate yourself if you sell too soon and lose out on the possibility of much greater profit.
The good thing with lump sum investment method though, is if you manage to buy at the lowest possible price, and sell at the highest possible price, you will maximize profits although at a greater risk.
Of all the options we’ve discussed for growing your cryptocurrency wealth, this is easily the most powerful. Done correctly, you can take a relatively small stake and turn it into something very substantial in a short period of time.
Or lose the lot in the blink of an eye. And it’s all due to leverage.
THIS IS NOT A TRADING METHOD FOR BEGINNERS!
When you trade cryptocurrencies, you can do so with a margin account, usually at a much higher rate than any other type of trading.
Crypto exchanges that facilitate margin trading commonly offer new traders a margin rate of 100:1 or higher, meaning you can control $10,000 worth of currency with just $100 of your own money, or margin.
Because cryptocurrencies can be quite volatile and liquidity can be quite low at times, most brokers wind back the margin on Cryptos to about 30:1 to 50:1. And that’s really a good thing for most people… especially when you’re learning.
If your exchange offers you a higher margin rate than that, then they probably don't have your best interests at heart and you might do better to look for a different exchange!
A Quick Lesson In Margin Trading
Let’s imagine this scenario and say that today 1 Bitcoin is worth about US$2700. Depending on who you talk to, the price could hit $4000 in the next few months...
Or there could be a correction that will see it dip to $1600 or lower before it continues on up.
So if I think it’s headed straight up, I could ‘buy’ 10 Bitcoin using $900 in margin as collateral for the $27000 purchase.
If the price of a Bitcoin does reach $4,000 I can sell it to close out the trade, and I’ll have a tidy profit of $13,000.
But if the price drops to $1,600, I’d be looking at a $11,000 loss instead.
If I had sufficient funds in my account, I could wait it out and wear the ‘paper loss’ until the price came back up…assuming it eventually does… and still reach my profit target of $4000 per coin.
But if I didn’t have enough reserves in my account... i.e. anything less than the $11,000 required to cover it... I'd get a margin call.
Basically the broker would tell me I had to either deposit more funds or close the trade at a loss... immediately. If I had no money to add, the paper loss would become very real, very fast.
The lesson here though is simply that high margins and high volatility are a very dangerous mix. Especially if you don’t have the protection of deep reserves.
It can be extremely profitable if you know what you’re doing, but if you get in over your head it can punish you just as fast.
Despite all that, I believe this kind of trading is a valuable skill for everyone to learn quite possibly the best option for many people to achieve long-term financial independence.
Yes there are most certainly risks, but they are manageable… if you get out of the Get-Rich-Quick mindset and treat it as a long-term business strategy.
A Word About Day Trading
Day-trading is a method that involves making numerous “micro-trades” based upon extensive technical analysis garnered from price charts. Trades are executed and closed within the course of a “day” or sometimes even just hours.
Daytraders aim to make multiple small profits on their trades and set well thought out stops and limit orders.
ONLY THE MOST EXPERIENCED TRADERS employ this method. Not many have the risk tolerance for cryptocurrency day trading. It is not for the faint of heart.
For more in-depth information on day trading check out our blog post - Cryptocurrency Day Trading
Remember this….....Whatever time-frame you trade on , your actual trading plan is the key… Your trading plan should specify the following:
And that my friend...is it! If you’ve made it this far you now know everything I know! Many would have charged you thousands of dollars for the information contained in this book.
But at heart, I am a true cryptocurrency enthusiast and I want to see the space grow and flourish. The more people that understand how to navigate and profit from crypto the more it will grow.
I hope you have found this article worth your while. If so, you can always find me at my blog - CryptoVerrified.com. I put out fresh content about the growing crypto universe on a regular basis.