Cryptocurrency Trading:
Step-By-Step GUIDE for 2018

Cryptocurrency trading is maddeningly profitable. You don’t need me to tell you that. The numbers speak for themselves. But most of the fortunes we keep hearing about involves folks who were early adopters.

It’s shouldn't come as a surprise if you’re wondering if it is still possible to make obscene amounts of money from cryptocurrencies. I would like to remind you of something in this regard. If you look back, bitcoin was worth no more than a few cents just 7 years ago.

When the price of a bitcoin hit $100 for the first time, many fortunes were made. But people were also wondering if there was any potential was left for future gains. In late 2013, bitcoin was trading for over $1,000. Again, people were wondering if there was any potential was left for future gains.

Today, we sit again wondering if bitcoin has any potential left for future gains. Bitcoin has, after all, achieved the unachievable. At its peak, bitcoin was trading for more than $20,000. Many new fortunes were made.

Helpful cryptocurrency trading guide.

So if history is to serve as our guide, it would be foolish to assume that bitcoin can no longer go any higher. Believe me when I say this, there is immense potential in cryptocurrencies. You might not become a millionaire tomorrow, but it will definitely happen if you play your cards right.

In this article, I want to talk about that one thing we’re all thinking about. I want to talk about money. I want to talk about how to trade cryptocurrencies and more importantly, how to make money trading cryptocurrencies. And, I don’t mean spare change, I mean real money. The kind of money that fundamentally changes our life, our worldview and our approach to finances.

Understanding the Cryptocurrency Markets

Don’t Let the Numbers Fools You

Stocks are the first thing that comes to mind when we think of trading or investing. So it should not be any surprise that our perception of investing, trading, prices, etc is formed on the basis of how stocks and stock markets work.

cryptocurrency trading

Just look at the numbers of these assets. Berkshire Hathaway is trading over a quarter million a share.

So when we look at bitcoin, it's no wonder that we get intimidated by the numbers. Bitcoin at its peak (Dec 2017) was trading at $20,000. That’s a big number and there aren’t many comparables in the stock market. So we might have trouble reconciling that fact that bitcoin might be too high now and might not go any higher.

Let me remind you that these figures are extremely misleading. Did you know that companies intentionally keep the absolute number of their stock price low?

The Case of Apple

AAPL is currently trading for $177 (Jan 2018). Don’t you think the world’s most valuable company should have a higher share price? The company intentionally keeps its price low by increasing the number of shares through stock splits. On the other hand, Berkshire Hathaway has never had a split, so it’s currently trading around $320,000 per share (Jan 2018).

A $1,000 dollar share is difficult to buy for small investors, which is why companies keep the price low to make it easy to invest in the company. However, when it comes to cryptocurrencies, that problem doesn’t exist. Even if bitcoin is worth $100,000, we will still be able to buy bitcoins for $1,000 or even $100


The Underlying Forces Behind
Cryptocurrency Markets

If you’re a student of the financial markets, you will no doubt know that different markets have different characteristics to them. For example, price action in forex markets is inherently different from stock markets.

bitcoin trends

You don’t need to be an expert to see how differently these markets move. Look how smoothly bitcoin trends.

Forex Markets

Forex markets represent a currency that is tied to a country’s overall macroeconomic performance and its political situation. If a currency appreciates or depreciation 20% in a year, there would be a fundamental shift in the country’s economy. That’s why forex markets don’t fluctuate that much and a change of 1 or 2 percent in a short period of time is considered a lot.

Stock Markets

Stocks, on the other hand, are tied to the performance of the company it represents and the overall market trend. A 20% increase in a stock is a lot but not a world-changing event. Also, a company could be performing poorly but still stock could still be increasing in value if the market is in a general expansion or bullish phase.

Cryptocurrencies

Cryptocurrencies are fundamentally different from other tradable assets. Despite being a digital currency, it is not tied to the fortunes of a particular economy. Similarly, it doesn’t have earnings calls, stock buybacks, and whatnot. Cryptocurrencies are highly volatile as well and an increase of 20% is not out of the ordinary.

So despite what people might say, there are not many fundamentals underlying cryptocurrencies. The only factors to consider are halving events, which affects supply and the adoption rate, which affects demand. Aside from that, the entire market is driven by investor sentiment, which makes it ideal for chartists and technical analyst.

Characteristics of the Markets and Price Action

When it comes to price action or how the price behaves in the short-term, you need to align your expectations with reality. Yes, bitcoin can give you gains of 200% in a month but you can also lose 50% of your capital in a week. The potential for outsized gains comes at a cost and that is the sharp downswings.

key_to_trading_cryptocurrency

Trend, correction, trend. This, my friends, is the key to trading the markets.

Market Trends and Corrections

Two of the most important thing you need to remember, in my opinion, is how cryptocurrencies trend and how corrective structures form. Corrections are brief counter-trend moves that create temporary interruptions in the prevailing trend.

Trends in the cryptocurrency markets are quite formidable. You need to understand this bit. The current bullish trend began in 2015 and despite the recent correction is still in effect. You can clearly see this in the chart above. You can use these corrections to short-sell but they offer a better opportunity for a buy-setup.

Corrections Are Opportunities to Buy

My advice is to wait out the correction and buy into the market when the price clearly breaks out. Though short-selling can be extremely profitable, it requires exquisite timing if you are to fully profit from it. And if you’re late even the slightest bit, the losses will be insurmountable. 

Trade with the trend and never assume the trend is over. Since 2015, bitcoin has returned around 12,000% at its peak. There were numerous occasions since 2015 where you could have assumed the trend to be over. Doing so would have cost you greatly and you would have missed out on all of the subsequent gains. Maddening gains, if I may.


Approach to the Markets

Difference Between Trading and Holding

The approach you take to investing in cryptocurrencies is also extremely important. The most important question you will probably ask yourself is whether to frequently trade for small frequent profits or hold large long-term gains.

cryptocurrency trading

Just look at how differently a trader and holder views the market. Both are lucrative. Which do you want to be?

There is no right answer to this question. You can have huge gains through either approach. The decision depends more on your preference, circumstance and skill level. If you have a full-time job, then it will obviously be impossible for you to be keeping an eye on the markets at all times. In such cases, the buy-and-hold strategy would work better for you.

However, if you can afford the time to pay attention to the markets, then you can easily take the trading approach. Frequent trading does increase the risk of selling too early or buying too early. It is extremely difficult to time the market with consistency. And, it also requires considerable understanding of technical analysis, also known as chart analysis.

Moreover, if you do approach the markets with a buy-and-hold strategy, remember, holding forever is not a smart strategy either. You should regularly take profits and hold some cash on hand to buy dips.

Trading Methodology

One of the most amusing things to me is how traders argue that their trading strategy is superior. As far as I am concerned, there is no one particular right way to trade. The bottom line is, are you making money or not? It's not about being right or wrong, your trading account should be net positive and you should be making money.

There are hundreds of indicators, strategies, and systems. None of them are inherently superior to the other. As long as you make money, you should stick with it. You should remember not to switch from strategy to strategy. If something works, stick with it. Focus on making money and nothing else. It's better to be able to make money using one indicator than knowing how to use 50 different indicators.

If you are new to Cryptocurrency Trading, you should definitely check out our guide about basic trading indicators for beginners. 


Cryptocurrency Trading

1. Short-Term Trading

Short-term trading differs from long-term investing in a number of major fundamental ways. Long-term investors don’t react to short-term fluctuations in the market, whereas short-term traders want to get out when the market starts to correct and get back in when the trend resumes.

short-term_trading cryptocurrency

You buy after a correction and place your stop loss. Increase your position if the market goes your way and move your stop loss.

cryptocurrency trading

Trading on the downside is the same as trading towards the upside. You must limit your losses and the profits will always come.

I have to be honest with you. Trading can allow you to get better returns than holding but it is considerably more difficult and riskier. The mere fact that you are constantly doing something with your investments opens the door to errors. You could sell too early and miss out on potential gains or you could sell just at the right time but be unable to buy back in time because the cryptocurrency markets are open 24/7 and you’re sound asleep.

Limit the Potential for Loss

The most important thing you can do as a trader is to limit the amount of money you can lose on any given trade. You can’t control the markets. You have no say in whether the markets will go up, down or sideways. You can, however, control the risk you take and limit the money of money you can lose on a trade.

Don’t Focus too Much on a Single Trade

Remember, you can never profit on every single trade. You have to lose some money to make money. Trading is a game of probabilities. And in order to win at a game of probabilities, you need to be able to lose a couple of times without losing a significant amount of money.​​​​

Embrace Stop-loss Orders

This is why it is extremely important that you always have protective stops in place. And don’t just randomly place your protective stops. Do so based on price action. And always calculate the amount you would lose if you get stopped out of the market.

Wait for Corrections

Always buy into the market after a period of correction. This is extremely important. A correction guarantee that the market will continue in the direction of the overall trend. And since the market just recently corrected, you can expect the price to move in the direction of the trend for at least some period of time before another corrective phase begins.

2. Long-Term Investing

Investing for the long-term is basically the buy-and-hold strategy. The buy-and-hold strategy guarantees that you will profit despite the number of corrections that occur in between. Of course, the market needs to be in a bullish trend for you to profit from a buy-and-hold strategy.

long-term_investing

Isn’t life simple as a long-term investor? You barely do anything in the markets and you still make crazy profits.

From a long-term investor’s perspective, there have so far been three major trends in the bitcoin market.

First Major Trend - $2 to $1,000

The first long-term trend began in late 2011 and ended in late 2013. In that two-year bull market, bitcoin went from $2 to around $1,000, gains of about 40,000%. This is when the bull market came to a glorious end and a year-long bear market commenced.

Second Major Trend - $1,000 to $150

The bear market began in late 2013 and ended in early 2015, lasing an entire year. The second trend was a long and painful year-long bear market. As a long-term investor, you don’t want to be invested for such a long period of time. And if you are able to sell, even if not at the top but at a decent price, you should sell. This way, you can buy back at a much better price after the bear market is over.

Third Major Trend - $150 to $20,000

The third major trend began in early 2015 and unless market conditions change soon, is still in effect. The current bullish trend has been in effect for 3 continuous years. As you can see from the chart, there were numerous long drawn out corrections but the market was still in the bullish trend, appreciating by around 10,000%.

As long-term investors, you want to weather through the short-term turbulence in order to profit from the long-term gains. Doesn’t matter if the price doesn’t go anywhere for months. You’re in it for the next few years.


A Few Investing Strategies

Cost Dollar Averaging

​Remember, a bear market is a blessing in disguise. They offer the best time to invest. It is the time when you can buy in when all of the cryptocurrencies are cheap.

cost dollar technic

With cost dollar averaging you get the best possible average price in a bear market. Just make sure to follow through with the plan no matter how painful the drawdowns.

Since less established cryptocurrencies are worth no more than a few dollars if not pennies. You can buy a considerable amount of them without investing too much capital. This way, you will have some exposure to the next big thing. And, when you’ve identified the next ether, you can invest even more.

The following is a simple study that will show you how to invest using a technique called cost dollar averaging. It is the best way to invest in a bearish market. It allows you to whether a down market and get the best average price for your portfolio.

The study will show you what would have happened if you used cost dollar averaging. The first purchase of bitcoin takes place on 30th Nov 2013 (See table and chart), at the peak of the market. Notice that when the bear market was over, you break even at one-third of the initial price you paid for your first purchase. And, when the price reaches the previous high, you’ve made a profit of over 100%.

Build a Diverse Portfolio of Cryptocurrencies

Another excellent way to invest in cryptocurrencies is through building a diverse portfolio of different cryptocurrencies. Of course, the bulk of your capital should be in well-established assets such as bitcoins, ethereum, dash, ripple, etc. But you can also buy a large number of other cryptocurrencies.

Building a portfolio cryptocurrency

Building a portfolio essentially allows you to properly have skin in the game. Just make sure not to invest too much in unknown altcoins.

Since less established cryptocurrencies are worth no more than a few dollars if not pennies. You can buy a considerable amount of them without investing too much capital. This way, you will have some exposure to the next big thing. And, when you’ve identified the next ether, you can invest even more.


Cryptocurrency Trading Software

cryptocurrency trading

If you are serious about short-term trading you should definitely check out one of the trading software. Trading off the chart complete changes the game.

Coinigy is a cryptocurrency trading software. The reason I really like Coinigy is that I can use the trading platform to connect to virtually all of the established cryptocurrency exchanges. This way instead of manually entering the price levels and the amount I want to buy, I can simply click on the charts and place my order.

If I need to adjust my orders, I can simply click on the chart and drag the order wherever I want it. This is particularly useful if you’re into day trading cryptocurrencies. Day trading requires immediate execution and the ability to enter and adjust orders right off the chart is simply amazing.

trading cryptocurrency

There is nothing better than a properly customized personal trading station.

CrypTrader is another cryptocurrency trading platform. The first thing veteran traders notice about CrypTrader is that it is designed and functions like MetaTrader, a popular trading platform. You can customize it to create personalized workstations for all of the cryptocurrencies you trade.

You don’t have to log into your exchange account. You simply log into the trading platform and start trading directly off the charts.

For more cryptocurrency trading platforms Follow our article.


Summary

If you take your time to learn the ropes, trading can be quite profitable and an excellent way to make a living off the financial markets. If you want to learn more about cryptocurrencies, you can check out our blog. I do my best to make sure every article will add to your knowledge and help you better position yourself to take advance of the cryptocurrency revolution.