How to Trade Cryptocurrencies: Ultimate Beginner’s Guide (2022)

The cryptocurrency market cap recently crossed the $1 trillion and $1.5 trillion mark over the last two months. As we rush towards the $2T mark, now is as good a time as any to start learning about the market. In this guide, you will learn everything you need to know about how to trade cryptocurrencies.

Summary for Fast Readers

  • There are different kinds of cryptocurrency trading – day trading, swing trading, and long-term trading.
  • Day trading is for short-term traders who want to open and close their trades within the day. Long-term trading is for investors who believe in the asset they are putting their money into.
  • Swing trading falls in the middle of these two extremes.
  • Crypto trading is a combination of fundamental analysis (macro+on-chain data) and technical analysis.
  • Support and resistance, relative strength index, and trending lines are some of the tools used in technical analysis.
  • Good traders use a combination of fundamental and technical analysis and specific best practices to make the best possible trades.

What is Cryptocurrency Trading?

Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a trading account. When it comes to financial markets, the assets being traded are called financial instruments. These instruments could be stocks, bonds, cryptocurrencies, ETFs, derivatives like options and futures, etc. Now, before we go any further, let’s go through some common types of cryptocurrency trading.

Different Types of Trading Cryptocurrencies

Day trading vs Swing trading vs Investing

#1 Day Trading

Day trading is a form of speculation wherein the traders buy and sell a financial instrument within the same trading day. By following these tactics, a trader may avoid the risks between the day’s close and the next day’s price at the open. Many consider day trading to be a form of gambling.

Day traders are often glued to their computer screens catching on the daily news and hunting for trends to give them hints about the direction an asset will take. There are two ways that a day trader makes money:

  1. The day trader sees that an asset is moving higher or believes that it will go higher later in the day. They will buy that asset low and sell it once the price goes up.
  2. If they sense that the asset will go down, the trader takes a “short position” or bets against the asset and makes money when it goes down.

A typical day trader doesn’t have a long-term holding strategy and has a huge risk appetite. Day traders trade cryptocurrencies on exchanges with leverage, so they can maximize their profit.

#2 Swing Trading

Swing trading is trading strategy wherein a tradable asset is held for one or more days in an effort to profit from price changes or ‘swings.’

The swing trading strategy comes somewhere between a day trading position and “buy and hold” investment strategies for how long you are holding on to the asset.

Swing traders aim to mainly make a lot of small wins that add up to significant returns. So, while other traders may have to wait five months to earn a 25% profit, swing traders may reach 5% gains weekly and exceed the other trader’s gains in the long run.

For the naked eye, swing trading may appear to be the same as day trading. However, the main factor differentiating the two is the holding position time. Day traders don’t hold their positions overnight. They will close their positions before the end-of-day to avoid fluctuations in price overnight. Swing traders are exposed to overnight risks and do not continuously monitor their trades like the day traders.

#3 Buy-and-Hold

The buy and hold strategy is pretty self-explanatory and highly recommended by the likes of Warren Buffett, Jack Bogle, and Peter Lynch. The idea is to buy an investment asset and hold on to them for a long period of time, with the sole goal of riding through market fluctuations and making a profit in the long-term.

There are certain things that you need to understand about the psychology of buy and hold traders:

  • The traders are highly confident about the assets. They believe that its price is going to go up in the future.
  • They are unaffected by recency bias, emotions and are fully aware of the risk exposure.
  • They do not believe in selling at critical points, nor do they sell an asset to buy-in again.

The 101 Guide for Crypto Trading

When it comes to crypto trading, there are two methods that you need to be aware of – fundamental and technical analysis.

Fundamental Analysis

Fundamental analysis (FA) measures an asset’s intrinsic value by examining the related macroeconomic and financial factors. When it comes to the crypto market, a trader can use a host of “on-chain metrics.” Companies like Glassnode, CryptoQuant, and Santiment offer a host of different metrics like – hashrate, exchange inflows/outflows, top holders, number of addresses entering the market, etc.

Technical Analysis

Technical analysis is a tool or method used to predict the probable future price movement of a trading pair. It can be creative and dynamic, which helps you gain a profound perspective into the market. Technical analysts don’t care about the intrinsic value of an asset. They merely look at the historical trading activity and try to identify opportunities based on that. The advantages of technical analysis are manifold:

  • Helps you predict the future price movements of an asset.
  • Helps you with the risk management of a particular asset.
  • Provides a model for analyzing market structure with proper objectivity.

How To Do Technical Analysis?

Now, we will get into the meat and potatoes of cryptocurrency trading through technical analysis. We will be focussing on basic techniques and tactics. However, if you want to study further, then please feel free to do so.

Before we go, let’s check the interface that we are going to be working with:

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The above chart is for BTC/USD (Bitcoin and US Dollar trading pair) taken from the DXOne exchange. BTC/USD means the price of Bitcoin expressed in terms of USD. The chart above is known as a “Japanese Candlestick” chart, wherein a green candle shows a positive session, and a red candle shows a negative session.

  • Positive session = The opening price of the asset is lower than the closing price of the asset. The asset went up in valuation throughout the time-frame.
  • Negative session = The opening price of the asset is higher than the closing price of the asset. The asset went down in valuation throughout the time-frame.

The second thing you will notice are the different timeframes as pointed out by our arrow. Technical analysis of an asset can be done in different time-frames, which represents your overall outlook.

If you have a short-term outlook, you can checkout the 1m, 5m, 15m, and 30m charts. For a mid-term outlook, you can checkout the 1-hour and 4-hour charts. Finally, for a long-term perspective, you can checkout the daily and weekly charts.

Alright, let’s look at some of the more valuable tools that you can use in technical analysis.

Support and Resistance

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One of the most common tools used in technical analysis is the concept of support and resistance. A resistance level is a line at which the price of the asset stops rising. Looking at the chart above, we can see that BTC/USD has failed to go above the $59,200 level. So, in this case, $59,2000 will be our resistance.

A support level is a line where the price of an asset tends to stop falling. In this case, more often than not, the $57,450 line has acted as a support for BTC/USD and prevented the premier cryptocurrency from dropping any lower.

Most traders tend to sell their asset as it reaches a resistance barrier and then buys back in when it reaches a support line.

Relative Strength Index

Relative Strength Index or RSI measures the strength and speed of a market’s price movement by comparing the current price of a cryptocurrency to its past performance. Ideally, this metric should hover between 30 and 70. If the RSI goes below 30, then the asset is considered undervalued, triggering a bullish price action. Conversely, when RSI goes above 70, the asset is deemed to be overpriced and could trigger a bearish price action.

In the chart below, the Bitcoin price went up from $45,165 to $61,140 between March 1 to March 13. This drastic jump in price caused the RSI to enter the overbought zone. The RSI is the line graph at the bottom of the price chart.

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Eventually, the bears jumped into the market, taking down both the RSI and the price.


A trending line is a diagonal line that connects consecutive highs or lows. This line helps us determine the prevailing momentum of the price.

An upward trend line is drawn at the two to three consecutive lows of an upward trend. This line also acts as the support for the asset. On the other hand, the downward trend line is drawn at the two to three consecutive highs of the downward trend.

A break below an upward trend shows us that the market’s current positive momentum has reversed to negative and vice-versa for a break above the downward trending line.

In the BTC/USD chart below, the Bitcoin price broke below the upward trending line, which shws that the market trend has reversed from positive to negative.

image 153

Top 5 Crypto Trading tips for Beginner traders

#1 Keep a trading Journal

Maintaining a trading journal is an excellent way to keep track of trading activity and improve your overall performance. Ensure that you are maintaining a close journal of yourself and your trades every time you are trading. This a great way of building up discipline surround your trading activities. Later on, you may also review your journal and check how your trading psychology works, and note how you can improve yourself in the future.

While it may be tempting to trade relatively unknown coins to find the “next Bitcoin,” we advise you to stick with coins with a decent amount of market cap and trading volume. The reason being, mid-to-large cap coins will be relatively free from potential pump and dumps and are a lot more secure investments.

#3 Choose a good wallet system

One of the biggest mistakes that traders make is storing their coins in the exchange hot wallets. While exchanges like DXOne are incredibly secure, you should still try to secure your investments as much as you possibly can. If you are doing a “buy and hold” strategy, then you should look into hardware and cold wallets to store your coins safely in the long run. Always make sure you have control over your private keys of your wallets. The best wallets for bitcoin and other cryptos.

#4 Be strict with price targets

Cryptocurrencies are unpredictably volatile, so it is vital to keep your greed under control. If you are not doing a buy and hold strategy, we advise you to fix a level wherein you will be happy with pocketing your profits or closing your losses. Being greedy is going to hurt you ultimately, so you must be very strict with your targets.

#5 Don’t put all your eggs in one basket

The cryptocurrency world is a vast, diverse marketplace. Some of the projects are more than just assets to trade. They are gateways to rich DeFi ecosystems (Ethereum, Cardano, etc.), or maybe they are a cross-border financial ecosystem asset (Ripple). Do your research and diversify your portfolio by investing in different projects.

Trading Best Practices

FAQs about Cryptocurrency Trading

How do I best start with Cryptocurrency trading?

Well, the first thing you need to do is to read this guide! Get yourself acclimated with cryptocurrencies and the overall ecosystem by reading up on it. Following that, check out a beginner-friendly exchange like DXOne, and create your account (with full KYC) and start trading!

How much money do you need to start trading Cryptocurrency?

You mustn’t spend a fortune in trading your different currencies when you start. We suggest that in the beginning, you use around $100-$150 to play around with different coins and create a strategy that works best for you. Following that, you can start dealing with serious money

Which cryptocurrency is the best for trading?

Any mid-to-large cap cryptocurrencies that are backed by a solid team and brilliant fundamentals are suitable for trading. For starters, you can trade the top 15 coins as detailed here.

What is the difference between Trading and Investing?

With trading, you are focused on the short-term buying and selling of an asset. On the other hand, “investing” means buying and holding on to an asset for an extended time period.

Should I use a Trading bot?

No. By using a trading bot, you are giving up control over your trades. Often while trading, you need to use a combination of skills, knowledge, and research to adjust to different situations. A bot with a pre-programmed disposition will fail to do so.

Summary

Cryptocurrency trading utilizes fundamental and technical analysis, which helps you enter and leave the market in the best possible position. Follow the best practices and trading tactics detailed here to help you position yourself optimally in making various crypto trades. The crypto market can be a little unpredictable, but technical analysis can go a long way in helping you see certain patterns.