Cryptotrading attracts many newbies as one of the most obvious methods of making money in both the growing and the falling cryptocurrency market. Often there is the opinion that it is impossible to learn how to trade on the stock exchange without serious losses and mistakes. But this is an erroneous belief: if we approach the matter wisely, then even in the first stages, success can be achieved. What does the profitable trading of cryptocurrency for a beginner consist of and how to start? Understand this article!
How can a beginner start trading cryptocurrency?
Profitable crypto trading begins with an understanding of the traded assets. It is difficult to earn an asset if you do not know its basic properties. Cryptocurrencies differ from traditional assets by high volatility, and this feature is key in crypto-trading.
A novice should choose medium volatility cryptocurrencies. Low volatility, that is, weak jumps and failures, is unprofitable. But too high is also rarely profitable for beginner traders, since it is associated with a high unpredictability of the course. Average volatility allows you to earn good money and at the same time it is characterized by minimal risks, even for beginners.
In addition to volatility, each cryptocurrency has its own peculiarities, such as: a reaction to cryptocurrency market news, following another cryptocurrency rate, and so on. These features often become the basis or at least one of the elements of a trading strategy.
They also indicate the profitability or disadvantage of the asset for the trader. For example, following a course of another cryptocurrency is a profitable feature, since it allows you to easily predict changes in the course. On the other hand, frequent periods of a flat are a disadvantageous feature for a beginner, since at that time it is difficult to trade and easily mistaken.
All the features of all cryptocurrencies can not be immediately taken into account. Successful trading begins with:
- The choice of certain cryptocurrencies that the trader will trade.
- The study of their main characteristics, which will later become the basis of a trading strategy.
Beginners are recommended to start with the popular cryptocurrency. Their movement is easier to study, analyze and predict than the features of the movement of little-known assets, due to the fact that:
- About known currencies more information – from the provided developers to news.
- Known cryptocurrencies are more often traded, more often discussed on crypto forums and other resources, and it makes sense for a beginner to study such discussions before drawing his own conclusions.
Knowledge of cryptocurrency and their features will lead the trader to further understand the entire market. This, in turn, will allow to correctly choose strategies for each asset, regardless of its current state.
Profitable trading cryptocurrency for a beginner: the choice of strategy
Choosing cryptocurrency, it is worth to choose a strategy.
Strictly speaking, you can do and vice versa: first choose a strategy, and then look for suitable cryptocurrencies. But this is not the winning sequence. There are hundreds of cryptocurrencies, relatively few strategies, and just a few basic ones. A trader will spend much less effort analyzing several strategies than analyzing hundreds or even dozens of cryptocurrencies.
When choosing a strategy, you should focus on the following parameters:
- Market condition. Some strategies are used in a growing market, others are used in a falling market, and others are used on an uncertain one. There are strategies that involve earning on frequent trend reversals, and strategies that involve trading on long-term growth or on a long fall in cryptocurrency, but useless when changing trends. And so on.
- Cryptocurrency volatility. Cryptocurrencies with lower volatility (or during periods of weak fluctuations) imply the use of longer-term strategies: they will not benefit, say, scalping. High volatility cryptocurrencies or assets, the volatility of which increased in a certain period, on the contrary, show strong fluctuations more often and, therefore, allow more often to make profitable deals.
- The timing of trade. If a trader is willing to trade only three hours a day, he should choose strategies that involve earnings in short periods of time. If he enters the exchange from time to time, for example, once an hour, then, obviously, scalping will not work for him, but positional trading, swing trading, and so on may be appropriate.
- Basic capital. With a very small base capital, you should not use risky strategies, since you will have to make deals for 50% of capital for earnings, if not more, and the cost of a mistake will be excessively high: half or more money will be lost. With an average base capital, you can risk more. With large capital, you can take 1% and painlessly test any strategies on it: the losses will be insignificant.
- Trader’s goals. If a trader does not set himself substantial financial goals and is inclined rather to try trading as a method of earning, to study it and understand in order to make good profits in the future, then strategies may be more risky, in addition, they will often change. If a beginner needs to earn money as soon as possible, then the chosen strategy should at least not be risky, otherwise losses are likely instead of earnings.
- The speed of thinking. If a person is able to quickly evaluate the current picture and quickly draw a few, even if very simple, conclusions, then he will approach strategies that involve trading in short time intervals. If a person, on the contrary, is inclined to evaluate everything before making a decision, and without a detailed assessment of the situation, he cannot draw the right conclusion, then it is obvious that the strategy should give him the necessary time to assess the situation.
In parallel, it is necessary to take into account the features of cryptocurrency, which were discussed in the first part of the article. They may not influence the choice of the basic strategy and be used both on short time intervals and on long ones, both on a falling market and on a growing one.
But it may be that they only benefit at short time intervals, or only during the fall of the market. Then the strategy should be chosen in such a way as to make the most of these features in the specified situations.
Profitable cryptocurrency trading for a beginner: other elements of preparation
In addition to the choice of cryptocurrency and strategy, the beginner should take a few more important actions:
Choose a cryptotrader
There are a lot of resources for trading cryptocurrency, and they are significantly different. For example, registration on the exchange may be complicated or simplified. Exchanges from the first category are on average more reliable.
If anonymity is important to a trader, it is worth choosing exchanges that declare it as one of the main advantages. If it is not important, then it makes sense to choose large stock exchanges that involve the identification procedure, but are notable for reliability.
It is worthwhile to read reviews about the exchange, find out by whom and when it was created, what is the reputation of its creators, what is the reputation of the exchange token, if any.
The commission for operations is also important. An exchange with too low a commission may not be completely reliable. But if the strategy involves the conclusion of a large number of transactions on a daily basis, then it is worthwhile to calculate commission expenses and compare them with the possible risks associated with the unreliability of the exchange.
If the deals will be concluded relatively infrequently, it is better to choose the exchange for reliability, and not for the size of the commission.
To decide on the terminal for trade
There are two options: either limit yourself to the exchange functionality, or buy or download a program for trading for free.
In the first case, the functional is worth paying attention to when choosing a cryptobirth. It should be clear, convenient and fast.
There are not many trading programs; cryptocurrency trading software is even less, although some traditional terminals allow trading and cryptocurrency. Free terminals are often unreliable, failing from time to time, which can lead to losses. Paid are often unjustified for beginners: it makes no sense to pay $ 100 for a program if the trader is trading $ 50.
Novice traders are usually advised to get by with exchange functionality. As a rule, the exchanges are equipped with all the necessary tools for the beginner, and there are too many of them in the programs: the majority of the beginners do not yet know and will not use them.
Choose trading tools that will help analyze the situation in accordance with the strategy
For example, if the strategy is based on a trend reversal, you need to use tools that help predict the pivot point. If volatility is important, you should constantly see its index. But do not choose too many tools. It is better to choose no more than three for each strategy and study them thoroughly.
Learn the theory of trading
It makes no sense to study dozens of textbooks in detail, because trading on stock and currency exchanges is different from crypto trading. However, you should look through two or three books for general information, read articles, forums, see trainings.
It is not necessary to try to remember everything read and heard. Basically, the theory of trading at odds with practice, because each asset has its own characteristics, and a lot of theory will not work in practice.
Communication with another trader, analyst or expert who worked with the cryptocurrency being traded is most justified. To find such a person is sometimes obtained in the communities of traders or on the sites of consultants.
The main mistakes of novice traders in cryptocurrency trading
But even with such detailed preparation for trading in practice, beginner traders encounter mistakes. The most common ones are:
- Departure from strategy. Often it seems to a novice trader in the trading process that he can make a profit in the current market situation, and he begins to act, although the current strategy does not imply such actions. Basically, it ends with losses due to an incorrect assessment of the situation, and sometimes the omission of a good moment, which allows you to make money using the current strategy. Exit – always follow the chosen strategy.
- Trading in risky circumstances. It is very difficult to react to events occurring, for example, on an unstable cryptorinker, since they are characterized by increased unpredictability. Many newcomers overestimate their strength, resulting in incorrect predictions, open requests and losses at the wrong time. The way out is to wait for situations when it is harder to predict market events than usual.
- The desire to “recoup” in case of failures. It is often difficult for beginners to lose money, and after each failure many try to recover losses. The result most often becomes an abundance of careless actions that entail even greater losses. The way out is to preset yourself that some of the money will be lost and learn how to lose.
- Work with only one strategy. Many beginners learn one strategy, a couple of tools and work only with them. As a result, they miss all the market situations that other strategies could have earned. The solution is to use one strategy in parallel to study and carefully try others.
There are other errors. But the main mistake of newbies is an unserious approach to trading. Some people think that there is nothing difficult in it, that there is no need to study theory, determine strategies, carry out fundamental analysis of cryptocurrencies, and you can trade intuitively.
Others understand that a serious approach is important, but it seems overly complex, and they again hope for intuition. Still others consider trading as a hobby, and therefore initially do not pay special attention to it.
The result in all three cases is the loss of money due to a lack of understanding of the characteristics of the assets, their movements, the strategies used and much more. The way out is first of all to realize the importance of a serious approach.