We would like to give you all a precursor to Bitcoin and altcoin trading. This guide will help the complete beginner learn how this stuff works. We recommend you read all the guidance below and also make sure to learn your trading style to maximize your trading profits!
What will we go over?
- The different ways people trade crypto,
- The profit potential as a crypto trader,
- The different exchanges and their reputation, and
- The steps required to become a more profitable trader.
But, before we start …
Cryptocurrencies are highly volatile assets that can appreciate or depreciate tremendously in a short period of time. Many exchanges have been hacked and quite a few have scammed their users.
Be very careful in this industry. Trust only a select few sites/exchanges because many do not have the strength to protect your funds at all costs. Use paper wallets if you wish to hold your funds long-term or a Ledger wallet.
Now, let’s begin …
Decide Your Trading Style
This action falls into four main categories:
- Day-traders: People that invest in cryptocurrencies and open/close trades repetitively throughout the same day.
- Swing-traders: People that invest in cryptocurrencies and scout out swings in price action, while typically holding for 2-6 days at a time.
- Long-term holders: People who “hodl” their investment in anticipation of the price pumping to a much higher level in the future.
- ICO investors: People that buy into pre-token sales and wait for trading to launch (often takes months) before considering to sell.
Day Traders …
The 24/7/365 crypto trading action makes it possible turn sizable returns through intra-day trades. The constant price movements, viewable in live time, provide for better scalping opportunities for inexperienced traders. Day-trading is definitely a safer yet rewarding approach to investing in cryptocurrencies.
Day-traders have the benefit of focusing on their fiat (cash) account balance. You get to worry about earning more dollars only. The long-term performance of cryptos will not have much impact on you.
This market is highly volatile and your investment could go down 25% overnight if you fail to correctly time the market / make use of your exchange’s stop-loss feature (if applicable). For many, day-trading is the safest way to gain exposure to today’s volatile cryptocurrency markets.
Are you not interested in measly 2-5% gains per day?
Not every trade will be a winner. Watching your investment fluctuate by no more than 5% can be disappointing for some traders. Those that perform best while scalping small movements are typically programming their own trading bots.
As a result, many cryptocurrency day-traders turn to leverage to increase their profit potential… We’ll brief you more on leverage trading in a moment. Be careful if you go this route though, especially if you have suffered from gambling problems in the past. The opportunity to increase your gains by upping your leverage is incredibly dangerous. The riskier you become, the less variance you can survive and the quicker your trading bankroll will go bankrupt.
Swing Traders …
Some traders prefer a more passive approach and stick with swing trading price movements over a longer term. The typical hold time for a swing trade is around 2-6 days; keeping your position open for weeks, months or years would classify as a long-term hold.
Swing trading is profitable if you are responsible (and generous) with your stop losses. It’s very profitable if you can time the market right. For instance, calling the exact bottom before we reverse could give you a 20% to 50% gain after holding for just 3-6 days.
Swing trade with low amounts of leverage to minimize the impact that trading fees have on your position. Combined, the right market timing plus a technical reversal and some leverage will provide you with significant returns on your investment.
As for ICO investors, well that’s pretty straightforward … but the ICO market is stagnant in the second half of 2018 as the crypto world proceeds to push to new lows.
We recommend that, if you’re just entering the market now, you get experience with day trading Bitcoin and a few major alts (like Ethereum) before worrying about investing in ICOs. Once you get there, check out our ICO-related content to figure out how you can find highly lucrative investment opportunities.
Now, let’s go over some leverage trading fundamentals. If you’re a complete beginner … these tidbits of information should help you decide if leverage trading is right for you.
Bitcoin Leverage Trading Basics
Read our cryptocurrency leverage trading guide to learn all the important basic points. For a simple rundown though, here are some of the basics you will want to be aware of:
1) You are borrowing to invest more
Leverage trading is the act of opening a position with a greater amount of capital (increasing profit potential). To do this, one must put their funds up as “collateral” which means it’s possible that you lose your entire investment. For instance, at 2x leverage if the price slides roughly 50% it will liquidate your position and leave you with $0 in your account.
This trading option gives you the power to invest much more than you have. The idea here is easy to visualize by looking at what 10x leverage means. You put $10,000 down to buy 1 bitcoin and it rises to $15,000 for a 50% profit. If you use 10x leverage and the price rises by 50% the amount of profit is actually $50,000 (500%) which is much greater.
2) Leverage trading fees can dramatically vary
You must be careful when using a leverage trading exchange. Many platforms come with very high fees; while very beginner-friendly, unfortunately eToro and IQ Option are all known for having high fees. Even Bitmex can get pricey if you hold for any real amount of time. Bitfinex and Okcoin contracts can be cheaper to invest in and hold… but the leverage isn’t as high.
The biggest thing you need to know is that you need to beat the fees on your trade by a considerable amount before you should close your position. This fact is important to realize for beginners to leverage trading. Every time you open a position you are negative the fees until you close for at least enough of a surplus to recuperate that. Your profit is harder to find and your losses can really magnify if you make a few bad trades, especially with high leverage (10x or more).
3) Your stops are more important than ever
Day trading crypto with leverage requires calling price movements in the very short-term. The profitability of leverage trading decreases the longer you hold your position / the higher the leverage you use. The idea of a highly-leveraged trade is to enter and exit your position in just a short period of time.
For example, 50x leverage means Bitcoin going from $8,000 to $8,160 would double your investment (not factoring fees). You could enter at $8,001 with a stop at $7,988.9 if you believe the market will bounce right at the $8,000 mark. This tight stop gives a high risk-to-reward ratio because the upside potential is much greater than the downward risk.
Most Reputable Bitcoin & Altcoin Exchanges For Crypto Traders
Crypto traders often group together unanimously and decide the best and most popular cryptocurrency exchange. The industry sentiment will change with time and everyone will flock elsewhere.
In 2013, everyone was trading at MtGox or BTC-e. Soon after it was Bitstamp, then Bitfinex and Poloniex and now Binance is on top. We recommend their exchange whether you are trading Bitcoin/fiat or Bitcoin/altcoin pairings. They also have other altcoin pairings (non-BTC/USD) but we don’t recommend these complex trading pairs if you are a beginner to crypto trading.
Check out our Binance trading guide.
How do you get your crypto in the first place? LocalBitcoins, Coinbase, etc. If you don’t already own any… Make sure you pay close attention to the actually fees and look out for any discrepancy in the Bitcoin rate when compared with the current exchange prices.
Can CFD Exchanges Be Trusted?
We recommend that you trade through CFD exchanges for the utmost security. CFD stands for ‘contract for difference’ which means you are essentially trading derivatives with an underlying value that’s based on the market (index) price of a coin.
Why are CFD exchanges so safe? People are not trading the altcoin. It’s a virtual contract which is produced by the exchange. This contract cannot be stolen and withdrawn.
Furthermore, when Bitcoin withdrawals are requested they usually go through manual approval which makes it easier to catch a hacker before you lose your bankroll.
Check out our Bitmex trading guide to learn how their platform works.
How to Become a Profitable Crypto Trader
As a beginner, chances are you will lose quite a bit of money before you get the hang of how to profitably trade and manage your funds. The struggle is real for newbies because, as with any kind of trading, we learn from our mistakes.
Let’s go over some basic factors that will help you become a more successful crypto trader … without having to get years of experience under your belt.
Learn TA, Even If You Don’t Want To!
Technical analysis terminology can be scary at times. That’s because it’s a foreign subject. We’ve all been new to it before, but the more you familiarize the more it all makes sense. As you come back to the subject of TA/charting potential trades, suddenly it all clicks.
So just commit yourself …
If something is too confusing just move on to the next point. Never give up and continue to learn more. Paper trade or use a testnet account (if your exchange offers such) and see how you do with pretend money first, especially when trying out a new TA-based leverage trading strategy.
Knowing how to read charts is fundamental for success if you wish to day trade these markets. It’s also important for swing traders and long-term holders too.
Your goal is to become fluent at charting trading channels, support levels, resistances and volume-based indicators. These basic points, even if you don’t fully trade based off of technical analysis, will help you avoid entering at the wrong time.
Basically, with TA on your side, you know when to enter and when to sit out of the market. If you trade 10% smarter, meaning 1 in 10 trades are neutral/profitable and not losses — imagine how much more you will make after 100 or even 1,000 trades.
Risk Management = Low Exposure, High Reward
We will never tell you that going 10x leverage or more is a safe way to day trade cryptocurrency. In fact, we will go as far as to say that this high level of leverage is more of a form of gambling than it is a way of trading as a speculator.
But we aren’t talking slot machines … we’re comparing it with poker. In poker, players try to set themselves up with the most probable odds. This process begins with establishing a bankroll management to make sure a bad run doesn’t bankrupt their account. The idea is to continuously grow your funds, but you must survive the variance / volatility for this to work.
So, go ahead and trade with 10x leverage when you’re ready … but our one suggestion is to do so with a small fraction of your day trading capital. If you use 5x a greater allocation is possible. The same is true for even lower levels of leverage as your loss potential is reduced on the losing side of the trade if your margin is lower.
Ultimately, leverage trading can be done safely if you’re responsible with your trading funds. Don’t go all-in at 50x in hopes you will become a millionaire overnight. Partition your bankroll based on investment risk, segment some funds for riskier plays and limit your leverage exposure.
You can advance your risk management strategy as you develop. For instance, you might wish to dollar cost average into a larger position size for the purpose of pushing your liquidation price further away.
On the flip side, if you enter a leveraged trade at the exact bottom and we reverse … you can dollar cost average on the way up to maximize your gains. You’ll be especially “rolling in the dough” in such a scenario if we push for a new ATH once again.
Many other variables come into play when trying to be a successful trader…
For instance, knowing how to follow and trade different news stories is crucial. Catching this info before the whole market prices it in is even more important. Be active on sub-Reddits, set up Google News alerts, etc.
How to Profitably Trade Altcoins
Trading altcoins is a whole different ball game. We are in a serious bear market and alts are dropping hard. Many coins are currently or will be dramatically undervalued. The profit potential on these trades is massive but you need to know how to spot the right altcoin to go long on.
To show you how much altcoins have fallen … look at Bitcoin’s dominance level. This percentage is how much Bitcoin makes up the entire crypto market cap.
As BTC has been dropping continuously while dominance has risen — we’re very clearly seeing a deep, deep capitulation in many (most) alternate cryptocurrencies right now. BTC lost its dominance as fears over the hard fork began, ICOs rolled out and Ethereum and Ripple both saw significant price gains.
As you can see, ever since the all-time-high turned into the 2018 bear market … we’ve steadily witnessed Bitcoin retake the crypto market, while many alts have faded into oblivion. Past trading volumes also do not matter so much.
With so many cryptos to choose from, high-frequency trading whales aren’t looking to make markets. Most likely, even when some alts boom … quite a few that were once dead will fail to be resurrected due to a lack of demand. After all … the market is more rational now!
How to Find the Undervalued Altcoins?
Many methods can be used for the purpose of finding undervalued alts. The main thing to remember is that community growth and interaction, project developments and team commitment are driving factors for the coin’s speculative value.
Some traders might also look for cryptos with masternodes that are very undervalued. In fact, Ambrosus (AMB) is an example of such … they hyped hard for much of 2018 before falling with the rest of the market and became another coin with masternode staking opportunities.
Remember, investing in and holding a masternode generates you passive income which can be a long-term play but it’s also potentially very lucrative. We saw many DASH and Vechain masternode owners get handsomely rewarded for their investments.
Other tokenomics factors can also play into a coin’s true value. Some cryptos are worth more for the utility they serve than the speculative interest they command. Thus, market caps could inflate purely out of adoption — thus, projects with a ‘minimum viable product’ (MVP) or greater should also be analyzed for such potential.
We do recommend that you look into potential altcoin investments if you plan to hold your investment over months or years. Right now, August 2018, with “blood in the streets” — it is the perfect time to buy both BTC and altcoins.
For example, ElectrifyAsia (ELEC) was on the way up and eying a $100 million-plus market cap. It’s now trading for below $5 million after holding $10 to $15 million before it was on anyone’s radar.
The community and project has grown, it serves a real purpose (P2P energy marketplace serving Asia) and the tokenomics support a wading supply as adoption grows. If BTC goes up 4x from here and you put $10k into ELEC, which hypothetically goes 10x, you would see a 40x return on your investment.
Anyway, we won’t guide you to compare alts too much right now … that’s another read.
Trading cryptocurrencies is fun, mentally demanding and often-times stressful. Novice traders are at serious risk of losing some or all of their investment capital. We don’t want you to make the same mistake that many of us have … especially in today’s market where anyone can run a 100x long if they really wanted to (throw money away).
Our Getting Started guide here is merely an introduction. We hope you now know the different areas you want to research further — whether that means reading up on leverage trading, ICOs, masternodes, etc. It’s our goal to educate you … so check out our other beginner guides too!