Trading cryptocurrency is one of the hottest topics in modern investment. However, the general mainstream consensus remains polarised regarding digital assets. More traditional investors are upset by the emergence of an asset with no centralized overseeing body.
However, it only helps fuel the speculation, hysteria and mystery that clouds this emerging asset. Unfortunately, the global economy didn’t have its best year in 2022. Stocks suffered, the cost of living crisis squeezed many of our pockets, and the cryptocurrency market took a seismic hit.
Investing in crypto for beginners and finding out how to take advantage of this volatile asset is usually the number one goal. We aren’t going to sit here and say you are only in the cryptocurrency space to make money. Given that it is so new and the vast possibilities, there’s so much to learn, and with that knowledge will come opportunity. If you take the time to understand the market you are investing in, you can make better-informed decisions.
Today we will be breaking down ways to trade crypto, how to begin investing in cryptocurrency and specific essential trading tools, such as how you get cryptocurrency from one exchange to another. This is specifically relevant when discussing methods such as arbitrage trading, which is something else we will discuss in more detail for you today.
What Is Cryptocurrency?
Starting with the basics, it is surprising the number of people who invest in digital assets without understanding the basics of how it works. Knowing where to start with cryptocurrency will be the first hurdle you need to climb. As it stands today, in early 2023, there are over 20,000 cryptocurrencies. Many of these digital assets have a variety of different functions.
Simply put, cryptocurrency is a digital currency that is secured by cryptography. The underlying technology is called the blockchain. The blockchain registers, verifies, and authorizes any transactions that take place. One of the critical features of the blockchain is that it cannot be amended and can be viewed publicly at any time.
Therefore, it simultaneously removes the need for a central bank or third party to facilitate a secure transaction. In addition, it increases transparency and makes sending currencies more efficient.
As there is no need for a central authority to provide a platform for these types of transactions, this is where the term “decentralized” comes from. A decentralized system does not rely on any central authority or government.
It is an autonomous function that relies on the blockchain as the sole level of security. Up to now, this security method has been invaluable, and other industries are using blockchain technology outside of finance. The use will likely accelerate as time moves forward.
The Creation Of Bitcoin & The Origins Of Cryptocurrency
The first cryptocurrency devised was Bitcoin back in 2008. The whitepaper was written by an anonymous cryptographer who goes by the name of Satoshi Nakamoto. The designer of the innovative and original cryptocurrency is still unknown. Some believe it may be a group of designers or just one sole individual. Either way, the landscape of investing and finance has been changed forever thanks to the technology created all those years ago.
Bitcoin investing for beginners might be the ideal place to start if you are new to the space. The reason is that Bitcoin has plenty of visibility and is the most traded digital asset among large institutional investors, such as Tesla and Blackrock.
These multi-billion dollar companies that hold trillions of assets don’t just directly purchase Bitcoin. They also know how to invest in cryptocurrencies that operate successfully within the space. This is just one example of how to invest in cryptocurrency stock. Although many potential Bitcoin ETF ideas have been considered, the SEC in America is yet to approve one. Once an ETF is approved, tens of billions could quickly float into the digital asset space.
How to invest in Bitcoin for beginners revolves around learning how charts shape up, the analyses that professionals use and what sort of news can drive the market in either direction. So we will look at this in more detail in the section below.
Common Methods Of Trading
Starting cryptocurrency trading can be overwhelming at first. To learn how to trade crypto, understanding how the markets work is the first port of call. It doesn’t matter whether you are looking to trade crypto in general, how to trade crypto on a grander scale or how to invest in cryptocurrencies in a broader fashion (such as altcoins) – understanding analysis is vital.
Some experienced traders will use specific technical analyses such as the diamond chart pattern. However, investing in cryptocurrencies for beginners involves more basic methods. For example, swing trading is one of the most common methods that novice traders use to understand the market.
It doesn’t use higher-risk positions like leverage or more complex chart analysis. Instead, it is simply identifying the price of an asset that is low, purchasing it, and then selling it for a higher price. A swing trader can hold on to an asset for days, weeks, months or sometimes years.
Holding an asset for a while will give you the necessary experience you need to assess charts, find out how they operate over the course of a day and how to plan accordingly. So, if you have spent some time dwelling over questions such as “how do I invest in cryptocurrency?” hopefully, we can shine some light on this trading area for you today.
If you are learning the basics and how to start investing in cryptocurrency over any period, whether it be short, medium or long-term, risk management is critical. This applies across a whole host of markets. Even if you trade across a host of markets and assets and you have a diversified portfolio, which in itself is a risk management tool, it is a good idea to read up on how you can protect your portfolio in the event of a market downturn.
Cryptocurrency investing for beginners involves several strategies. It doesn’t just apply to knowing how to read a chart. Plenty of the preparation is before you even execute your trade. As well as diversifying, there are other effective strategies that investors use. This includes dollar cost averaging and setting up take profit and stop loss limits.
Sitting and watching your asset continue to print profit for you is not a good idea. It might sound like it doesn’t have negatives, but this mentality can cause you to lose money in the long run. One of the key reasons people trade crypto is the opportunity the volatility provides. This can work as an advantage and a disadvantage. Setting up a take profit limit is something all successful traders do once they are live in their position.
It is a disadvantage because people can get drawn into the emotions of trading and think the profits will continue to rise. However, many experienced traders will tell you things can turn around very quickly in cryptocurrency.
Just one piece of bad news can send the market tumbling, or it can send it to new highs. Knowing what type of news to look out for can help your risk management and overall trading psychology.
How To Trade Crypto Effectively
As we have established, crypto investing for beginners can be a difficult market to navigate. Therefore, risk management is critical to imprint into your overall philosophy. However, once you have implemented this and know how to start with cryptocurrency basics, you can then use this as a springboard to trade crypto.
Much like any market, you must know what you are investing in, whether you are trading gold or other commodities such as silver. We don’t know every professional commodity trader personally. However, we could say with a fair degree of certainty that they do not blindly buy and sell their commodity without performing due diligence. This includes research, chart analysis and understanding of the product itself.
Allowing yourself time to understand cryptocurrency is critical. This is a bad idea if you enter the cryptocurrency market without knowing what Bitcoin is. You also need to know the answers to essential questions, such as
- What are altcoins?
- What is a smart contract?
- How does the blockchain work?
- What is a market cap?
If you can’t answer these four questions, you are essentially gambling.
This may sound harsh, but if you do not understand what you are investing in, you will eventually lose all of your money. Knowledge is vital. When your money is on the line, you want to be sure that you’re treating the cryptocurrency market with the respect it deserves.
Other Chart Analyses To Trade Crypto Efficiently
There are dozens of chart analyses that traders use. You do not need to imprint them all into your memory. Using these tools alongside other tools to complement your trading knowledge gives you the best chance of success. Ultimately, turning your venture into a passive income stream is the goal. However, there are many things to consider if you trade outside your full-time job.
Due to the rise of the internet and mobile phone accessibility, there are now plenty more retail traders than ever before. Platforms such as MetaTrader have exploded in popularity following the widespread accessibility of the internet and smartphones.
You can use the internet to your advantage by sourcing news specific to the digital asset you are invested in, and you can also use it to study detailed chart analyses. You can also check out our guides on some of the other chart patterns you can find, such as
Other Avenues To Consider
You can find more information on each of these patterns in our guides. However, there’s plenty of literature you can access online. In addition, you can find books on other markets, such as forex, from traders who are successful in their field.
As cryptocurrency is such a new area of investing and trading, learning how to trade crypto is something you can predominantly do online. However, you must be aware of the sources you are using. Ensuring they are verified to provide you with the advice you need to increase your knowledge.
For example, many traders and investors will offer advice on social media. Still, it is easy to get overwhelmed by this advice and know which investors to listen to and ignore.
Many traders will have online communities where they will learn and build each other’s knowledge. In addition, more experienced traders will have strategies that work for them. Taking in experience and knowledge from all sources is usually good practice so you can get a good idea of how to trade crypto as a beginner.
The Future Of Crypto Trading
When it comes to knowing how to trade crypto, a large part of that knowledge stems from how to weigh up what sort of changes are on the horizon. There have been sensationalist headlines about major countries banning cryptocurrencies. In addition, black swan events, like the collapse of FTX wiping billions off the value of many cryptocurrencies, have also brought digital assets into the public spotlight for the wrong reasons.
The collapse of FTX and the fallout that has ensued has pressured some of the world’s biggest economies to begin to regulate cryptocurrency properly. Some people believe this may signal the beginning of the end. However, many analysts think it could be the catalyst that invites big institutions to stake large amounts of capital in digital assets.
With the number of exchanges and avenues you can use to trade crypto, it would be difficult to imagine a scenario where cryptocurrency is heavily banned or crippled by regulation.
In addition, some institutions have hundreds of millions in cryptocurrency. This includes financial institutions and private companies we discussed earlier, such as Tesla.
If the global economy continues to stagnate, this will also impact retail investors’ ability to trade crypto. Balancing the positives and negatives before you begin trading is essential in any field. Cryptocurrency is no different.
Depending on the overall economic conditions, cryptocurrency could stabilize again and regain some ground it has lost over the last twelve months.
Cryptocurrency has started off the year strong. After such a sharp retracement in 2023, many analysts and experts expected some bounce. Instead, however, just a month into the year, plenty of cryptocurrencies have bounced back to levels above what we saw before the FTX collapse.
To recap what we have discussed today. You must ensure that you understand cryptocurrencies before you invest in them. You must also understand what drives the market and know how to perform effective risk management.
Looking at the internet and social media, it’s easy to find people who invested in assets they needed help understanding. Unfortunately, some of these people invested money they couldn’t afford to lose and ended up in financial turmoil. Learn from other people’s mistakes. Otherwise, you could make them yourself. To trade crypto with no research isn’t wise.
Quite a few traders have also retired under 30 due to their gains from trading. Knowing how to trade crypto includes all of this prior due diligence. However, it would help if you also implemented practical analysis when your position is live. In addition, you should know when to close it and the indicators to look out for on the horizon that could signal good buying and selling opportunities.
Like anything in life, success doesn’t come overnight. It takes years of learning and practice. It usually involves losing money before you begin to make a profit. Any professional will tell you this is all part of the learning curve.
Once you accept that these factors are in play, you will understand that a journey to trade crypto doesn’t involve shortcuts. On the contrary, if you can stomach the volatility and understand the assets, you are immediately in a better position than other novices.