Since the inception of Bitcoin back in late 2008, the crypto market has seen its fair share of ups and downs. Digital assets have bright prospects due to increasing demand and market cap, resulting in high volatility and liquidity. Over the years, big financial institutions and traders have developed several strategies to capitalize on cryptocurrencies’ lucrative opportunities. While many would say that there is no perfect way to beat the markets, having a good game plan can increase the odds in your favor. Our article will cover various tips and tricks that even a beginner can utilize to trade cryptos like a professional.
Steps to trade cryptocurrencies
Similar to other instruments trading digital assets involves you to go through several steps. The detailed process is listed below.
- Find a broker. You have to find a good broker who can provide you with a place to buy and sell cryptos. The exchange should offer low fees, minimum latency, an easy-to-use platform, and good education, to name a few.
- Open an account. Click on the register or sign up button, provide your email address and other credentials to open a trading portfolio. Some brokers may require you to verify your identification due to their KYC policies.
- Deposit funds and start trading. Put money into your account through various deposit methods that the exchange offers. Depending on the route, it may take some time to appear, but it’s time to start trading once it does.
What are the best strategies I can follow to trade cryptos professionally?
There are tons of different trading strategies in the market that offer high win rates and risk/reward. However, only a few can make good of their promise. Let us take a look at a few good plans for both long and short-term traders.
Golden or death cross
A long-term strategy uses the crossover between two moving averages such as 50 and 200 over daily or weekly charts. Bullish positions are generated when the 50 MA crosses the 200 from below, and bearish trades are at hand if the 50 MA takes over the 200 from the top. We refer to the long and short signals as golden or death cross. This method of trading is useful for trending and volatile conditions. When the market is trending sideways, it can generate multiple buy or sell opportunities.
Image 1. Notice how the cross-overs generate accurate signals over the long term. The blue line represents the 50 EMA and the red line 200 EMA.
Dollar-cost averaging DCA
Dollar-cost averaging is more like a market-making strategy used in trading equities. It involves chopping up your total investment into several chunks and buying a particular instrument over several periods.
Let us take the example of trader Micheal who would like to invest his $100,000 into buying Ethereum. He decides to use DCA and divides the initial investment into 50 portions of $2,000 each. As the week begins, he begins buying $2,000 worth of Etherium at regular intervals. Using this approach, he can mitigate the effects of volatility.
Your success as a crypto trader will depend on how you can adjust yourself according to the forefront conditions. If you see the golden or death crosses are not performing due to less volatility, switching over to range trading is possible.
This strategy is simple: buy or sell at subsequent support and resistance levels with stop losses beneath or above. To utilize it better, you have to develop a good understanding of technicals and candlestick charts. Use this plan unless the price breaks out of the zone.
Image 1. Range trading on the H1 chart at BTC/USD. You can place buy and sell limit orders upfront with predetermined stop loss and take profit points.
This form of strategy is impossible for traders to implement on their own as it involves buying and selling at a rapid rate. Therefore we use autopilot services such as trading algorithms to perform the deed. By coding the robot, we set it to follow our desired game plan.
Most of these complex automated software is only available to professionals, but various exchanges allow retailers to utilize their pre-built bots or customize one using their strategy designer.
Specific tips for trading cryptos
Follow the following vital tips for trading cryptocurrencies that professionals themselves utilize.
- Set proper stop losses and take profit targets.
- Stay away from negative emotions such as greed, fear, FOMO, etc.
- Use risk management in your trading. Never invest more than 5% of your total portfolio on one single trade.
- Stop buying the dips as the market can still keep on moving downwards.
- Before putting your cash within an ICO, do a thorough background check of the company and team.
- Diversify your cash as much as possible by investing in different instruments within the crypto sector.
- Do not go on to cultivate your own strategies. Follow the ones that are already available as big financial institutions thoroughly backtest them.
- Choose a reliable crypto trading platform that offers the best experience. See if the exchange is exposed to hackers beforehand.
- Cryptocurrencies can be super volatile. Always be careful of the ups and downs.
- Use paper trading to your advantage before proceeding to trade live. You can also choose to follow signal services in the initial stages of your financial career.