Cryptocurrency has become one of the highest traded asset in the world. The global market cap of cryptocurrency is worth over a trillion USD, and the daily global crypto trading volume is over $100B. As you can see, and it’s a wise idea to join the crypto bandwagon and have your share of pie.
In this guide, this is exactly what we’re going to help you with. We’re going to tell you everything you need to know about how to become a crypto trader, so you can start trading crypto and earn profits.
Are you ready? Let’s start by defining crypto trading.
Before we tell you how you can become a crypto trader, you must know what crypto trading means. Crypto trading means investing in a cryptocurrency, and make a profit when the price moves up or down. Since crypto market is constantly moving, there is ample of room for anyone to make a profit.
Furthermore, cryptocurrencies are highly volatile, which means traders can earn huge profits. The downside of high volatility is that traders can incur huge loss as well. Some people have became a millionaire overnight, and others have lost millions overnight as well.
In order to become a crypto trader, the first thing you must do is set-up your account. Here are the 3 steps you’ve got to take.
- Sign-Up On An Exchange
- Create A Wallet
- Fund Your Wallet
Let’s discuss each step in detail. But, let’s discuss one thing before we do. You can get the all the latest data from crypto exchanges for crypto trading by using Algory Crypto Scanner.
To become a crypto trader, the first thing you need to do is sign up on an exchange. You’ve got hundreds of options at your disposal, but we suggest you should choose the most popular ones such as Binance and Coinbase. These exchanges are secure, supports a huge variety of coins, and charge a reasonable fee.
In order to sign-up, you’ll need to go through KYC and AML process. This is compulsory for the majority of the popular exchanges. You’ll have to provide information such as name, identify card number, email address, living address, etc.
In case you don’t want to provide personal information, don’t worry, you still got some good options. BaseFEX and AAX are two credible crypto exchanges that doesn’t ask any personal information.
The next step you’ve got to take to become a crypto trader is to create a wallet. You’ve got two options at your disposal. A custodian wallet and a non-custodian wallet. Let’s define both.
Custodian: The private key of a custodian wallet is held by the wallet provider, usually an exchange. They can transfer assets from your wallet without your consent. However, there haven’t been one case where one of the major exchange stole their user’s funds.
Here is a list of good custodian wallets.
Non-custodian: Only you get the private key for a non-custodial wallet. Therefore, only you can access the funds inside your wallet. If you’re interested in purchasing a non-custodian wallet, then have a look at this list.
The next step on this guide on how to become a crypto trader is obvious, you must fund your wallet. You can transfer funds from your bank account to your wallet, using two methods. Wire transfer and a debit card. We recommend using wire transfer because it’s cheaper than paying debit card fee.
The next thing we’re going to cover on this guide on how to become a crypto trader is order types. Crypto exchanges have created plenty of tools to help you make better investments. These tools help you increase profits and mitigate risk.
Let’s look at the two most common order types that you must be familiar with in order to become a crypto trader:
Stop-loss: As the name suggest, the goal of this order is to stop the loss. You set a stop-price and when the order reaches the stop price, the order will be automatically executed.
For instance, you enter the positions at $1,000 and you want the price to go up, the higher it goes the more profit you make. But, you also want to mitigate the risk as much as possible. So, you place a stop-loss order at $950.
Let’s say the market moves downwards, and it goes below $600. Your order will be executed at $950, so you’ll only incur a loss of $50 not $400 plus. This is how a stop-loss order saves you from experiencing a huge loss.
Take-Profit: It serves the completely opposite purpose than stop-loss. The take-profit order doesn’t help prevent a loss, instead it helps you keep your profits. To put it in even simpler words. A loss is when you lose a part of your initial investment and losing profit means you lose a part of the profits you made.
Here is an example of a take-profit order. You have opened a long position on Bitcoin. The current price of BTC is $40,000, and you’re ok with earning $1,000. Therefore, you place a take-profit order at $41,000. Now, BTC crosses $41,000 for a brief period, but then it goes back down to $40,000. Since you have placed the take-profit order, your position was executed at $41,000 and you have earned a profit of $1,000. If it wasn’t for take-profit order, you wouldn’t have earned a penny.
Staying upto date with the news and the community sentiment are other beneficial traits a crypto traders must hone. News can have a huge impact on the price of the cryptocurrency, therefore, if you hear a news that seems like it packs the potential to shake the crypto market, then making your investment based on that news is a wise choice.
To gauge the impact of the news, you should analyze how the market is reacting to it. Are the people in the crypto community panicked? Or are they thrilled and excited? You can find it out by seeing whether people are selling or purchasing crypto, and what are they talking about in online communities.
The guide on how to become a crypto trader can’t be completed without mentioning technical analysis. Learning how to perform technical analysis is a must for all crypto traders. Let’s define what it is and then we’ll tell you about some of the most popular technical indicators.
Technical analysis is based on the idea that the history is supposed to repeat itself. Therefore, you read the past price data to find the price patterns and then you make investment based on those patterns.
Alright, now let’s look at some of the most popular TA indicators.
Moving Averages: Moving averages involves finding the average trading price of an asset within a specific timeframe. The timeframe can be 1 hour, 10 days, 200 days, etc. If the value of the moving average is positive, it means the price is going to go up, and in case it’s negative, it means the price is going to decline.
Longer moving averages produce stronger signals and shorter ones helps you identify a trend faster. There is no single formula for moving average, because there are multiple types of moving averages and each have thier own formulae.
Here are the 3 most popular moving averages:
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Weighted Moving Average (WMA)
Relative Strength Index: RSI is used for defining whether an asset is overbought or oversold. If an asset is overbought, it means its trading at a price higher than it should be, so people are going to stop buying it, and its price will come down.
In contrast, oversold means that the asset is trading at a price lower than it should be, which means more traders are going to start buying it and the price will increase.
The formula for calculating RSI is quite simple. (100 -(100/1+RS)). RS is the average of highest and lowest prices within the 14 periods (14 period/candles is the standard timeframe for measuring RSI).
Convergence And Divergence: Convergence And Divergence signals help you identify a breakout and a fakeout. Convergence is the sign of a breakout, and divergence is the sign of a fakeout. Convergence and divergence signals measures price of the asset against RSI value.
Convergence occurs when both these units are moving in the same direction. For instance, the price is showing an uptrend and RSI is showing oversold. Since both of these indicators are showing that the price is going to increase, the chances are pretty good that the price is going to increase.
However, if both units are moving in an opposite direction, it’s called divergence. For example, when the price is moving upward, but the RSI is showing oversold. It means the price charts are showing that the price is moving upwards, but the RSI is saying that the demand of the asset is decreasing so the price will fall. The chances are good that this upward movement is a fakeout, therefore, you shouldn’t invest in it.
You can read this amazing post to get a thorough understanding about technical analysis.
The next thing that we’re going to discuss on this guide on how to become a crypto trader is fundamental analysis. While becoming familiar with technical analysis is a must for all crypto traders, it’s good to know how to perform fundamental analysis as well.
Unlike technical analysis, fundamental analysis doesn’t focus on price data. The goal of fundamental analysis is to understand whether the fundamental structure of a cryptocurrency is solid.
Here are some of the things that you have to consider when performing fundamental analysis.
Developers: You should measure the capability and integrity of the developers of the cryptocurrency. If they are scoring low in the integrity area, meaning they are known for abandoning their project, or doing rug-pulls, then it’s definitely a minus sign.
As for capability, they must have worked on some big crypto projects and they must be willing to work non-stop to run a successful crypto project.
Community: Community is the backbone for any project. The project should have a loyal and passionate community. They should have multiple social media accounts and each account should have thousands of users. Plus, the users should be active on a daily basis.
If a project doesn’t have a big community, then that project is definitively not worth investing into.
Innovation: If the project is innovating new blockchain based products, it’s also a plus sign.
Token Distribution: Token distribution is quite important as well. If a handful of investors holds a massive percentage of tokens, then they can easily manipulate the market price. How is that possible? They can simply sell their assets for a profit, and if they sell such a huge amount so fast, it’s going to skyrocket the inflation rate, and the value of the cryptocurrency will decline by many times. Therefore, the fewer tokens the whales have, the better the currency is doing in token distribution area.
The last thing we’re going to talk about in this guide on how to become a crypto trader is choosing a strategy. All crypto trading strategies falls in 3 categories. Long-term strategies, medium-term strategies, and short-term strategies.
Generally speaking, the longer the timeframe of a strategy, the higher the risk and reward. We’re going to share with you 2 strategies for each category, and let’s start with long-term strategies.
Long-term strategies are longer than 3 months. The 2 long-term strategies that we’re going to discuss are HODLing and Crypto Saving Account.
HODL: First, let’s talk about the meaning of the term HODL. Hold On For Dear Life. As you can see, this strategy involves holding on to your crypto for a long time.
When you HODL, you ignore all the trends and you focus on holding onto the currency until the price reaches new heights. If you decide to HODL, do it with a currency that seems super promising and has a lot of room for growth. If you’re HODLing an already established cryptocurrency, such as ETH, then make sure that the project is launching a mind-boggingly cool feature, otherwise, it’s very rare for already established currencies to experience massive growth.
Crypto Saving Account:
You can give your assets to a lending pool. The pool will lend the assets to the borrower and charge a fee for it. You’ll get a portion of fee for providing your assets.
This is a great way to earn passive income. However, some pools comes with a long lock-up period. You can’t take your coins out within this period, so make sure either the lock-up period is small or even better that it doesn’t even exist in the first place.
The timeframe for medium-term strategies is from a few weeks to a few months. The two strategies that we recommend for traders who falls in this area are Dollar Cost Averaging (DCA), and Lump Sum Investing (LSI).
DCA: This strategy involves dividing your overall investment into ten or more pieces, and then invest each piece per week. You don’t have to worry about whether the market is moving up or down (unless the movement is extremely massive). Since you’re investing a small portion at a time, the pressure is quite low, therefore, this strategy is a good option for you, if you’re not good at controlling your emotions.
LSI: This one offers a higher reward than DCA, but it comes with a catch. You have to go all in at once, and you have to do it during a trend. The thing about trends is you don’t know when they will reverse, and if you invest near the reversal, then you can incur a huge loss. Therefore, this one is risky, and since you’re investing a big amount, it provokes anxiety and fear, which means this strategy isn’t for people who doesn’t have good emotional control.
The timeframe for short-term strategies is from mins to days.
Day Trading: As the name suggest, day trading means getting in and out of the position within 24 hours. The goal of the day traders is to make small profits and take small risk. Therefore, day trading is a good idea when the market is moving sideways.
Because during a trend, the prices can change significantly within a single day, and if the price moves in the opposite direction than what the day traders want, they’ll experience a huge loss.
Scalping: The profit in scalping is extremely and so is the risk. If you want to make even a decent profit by doing scalping, then you’ll need to put in a lot of work. This is because scalpers opens and close a position within mins, to an hour per most. Plus, since the market only covers a tiny distance during such small timeframe, therefore, scalpers have to open a lot of positions and make a profit in most of them to earn even small profits. You should do scalping if you’re on a super-low budget or you want to take an extremely low risk.