Most crypto enthusiasts are not taking advantage of all the tools available to help them become better traders. Their approach is often non-systematic, relying on news, previous trading experiences with other instruments or recommendations of friends and influencers. Often they just buy and hold, looking to just profit from the promise of long-term appreciation, without any real goals.
If you want to be above the average crypto trader, you need a different approach. You need a specific set of tools, processes and strategies that make your trading more profitable, reliable and effective. The risks of the sector are many, but if you can manage them, your trading can be profitable from the beginning and for the long-term.
So what are the first steps to take to start trading crypto like a pro?
How To Choose A Crypto Wallet – The Main Steps
A crypto wallet is where you will keep your crypto holdings. You can then buy/sell cryptocurrencies on an exchange. Most exchanges offer wallets including Coinbase, the world’s largest with over 15 million wallets. Other major ones include Kraken, Poloniex and Blockchain.info. Wallets offer a variety of different capabilities and features. The main things you have to take into account when choosing one are:
Wallet & Exchange Integration – Having a wallet integrated with an exchange, like Coinbase, is the best option as it makes the account opening process simpler.
Backed Exchange Status – Exchanges like Gemini are regulated by financial oversight agencies. This ensures enough capitalization to protect and potentially compensate for any losses of your digital assets.
Crypto Availability – Coinbase currently only allows you to buy 4 crypto currencies: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Poloniex allows you to buy and exchange more than 20. Only a handful of exchanges, including Coinbase, will allow you to directly exchange fiat currency for crypto. In most other cases you will have to already have Bitcoin or Ethereum, which you can exchange for other coins. Wallet dashboards allow to instantly see your different crypto holdings and transactions:
Hardware vs. Software Wallets – Having a software wallet (also known as “hot wallet”) means your crypto holdings are store on the internet. This is the common choice, but less safe against cybersecurity threats. Hardware wallets (also known as “cold wallets”) are instead completely offline, in the form of a USB key. Hardware wallets do not support every crypto, so you need to verify that the ones you want to buy are supported. Reliable hardware wallets include the Ledger Nano S and the Trezor. You should consider getting a hardware wallet as an extra security measure. Another good option is having a paper wallet, namely a print out of your wallet’s public and private keys, along with a scannable QR code.
Mobile App – Your wallet should be accessible anywhere, at any time. Your provider should have a mobile app for your to monitor your account of the go.
Web Interface – Your wallet should be accessible from a desktop or laptop, for ease of use and accessibility.
Sign Up – Find a wallet provider and complete the sign up process, including your personal and banking information.
Link Your Account – Connect your wallet with your bank account or debit/credit card so that you can exchange fiat currency for crypto.
Set Up 2FA – Set up 2-Factor Authentication (2FA) as soon as you have opened your wallet. 2FA allows to log into your wallet though your password and a time-sensitive code sent to your mobile phone, for extra security. This means your account cannot be hacked even if your password has been compromised.
Start Trading – You can now receive Bitcoin or Altcoins in your wallet or buy them.
Crypto Trading Strategies – Choosing The One For You
Your account is set up. Now it’s time for you to decide what your objectives are in trading cryptos. There are 2 main options:
- Buy and hold, waiting for long-term appreciation
- Opportunistic trading based on trends, going long or short depending on the occasion
In the first case, you have to take into account the following factors:
Capital Allocation – This means deciding how much of your overall investment portfolio to allocate to crypto currencies. This will depend on your age and existing portfolio composition. If you are younger and working, you can afford a larger percentage of your holdings in cryptos. If you are older and/or retired, you will have a smaller allocation. In any instance, your allocation to crypto should not exceed 25% of your total investments.
Risk Tolerance -This is your capacity and willingness to tolerate large price fluctuations, the hallmark of crypto currencies. It varies from individual to individual, but should play a major role in determining your allocation levels.
Diversification – Diversification benefits all buy and hold portfolios. You should spread you holdings over various coins, to limit the risk of each one while keeping a strong upside potential. To choose what cointo hold, you need to research the background of each to assess its long-term profit potential. What are its main technological features and advantages? Does it have a skilled development team? What are its real-life uses and potential market size? You are essentially looking at the fundamentals as most crucial factors determining your choice of whether to purchase a crypto asset. We compiled a Fundemental Analysis Guide for your reference HERE.
If you prefer to trade crypto actively for larger profits, then you need to define, refine and test a strategy that incorporates Technical Analysis. Crypto is almost impossible to value based on fundamentals, as they do not produce income, dividends or sales like an equity share does. The notion of an undervalued or overvalued crypto is therefore not applicable. On the other hand, they possess powerful trends that depend on economic news, political events and investor sentiment. The best instrument to identify and profit from these trends is technical analysis. Technical analysis studies price behaviour, volume patterns and chart patterns to identify future price movements. We have a full guide technical analysis guide HERE and It includes element such as:
- Support/Resistance levels
- Relative Strength
- Price Targets
- Trendline Channels
- Overbought/Oversold Indicators
- Volume Profiles
A trading strategy also needs to fit your personality. You may want to trade based on short-term trends, or even intra-day. On the other hand, you may want to trade based on monthly or yearly chart patterns. This will determine your:
- Position sizing
- Trade timing
- Profit targets
- Risk tolerance
Another element that separates beginner traders from the pros is shorting. When you short crypto or any asset for that matter, you are essentially borrowing it and then selling it, with the aim of buying it back at a lower price. You profit will be the difference between your initial entry (sale) price and the price at which you buy it back.
Although considered to be risky (the price can theoretically always increase), when used tactically, shorting can greatly enhance portfolio performance. Crypto has had many periods of significant and very quick declines. In January, we saw Ripple fall 60% in price and Bitcoin 50% in a matter of days:
With shorting, use of technical analysis and its indicators is even more important, as it allows you to time your entries and exits down to the second if necessary.
However, one of the most important factors influencing your decisions is “emotions”. Despite the trivial connotation that this term carries, emotions play a big part in any investors’ trading decision. The greater control a trader possesses over their emotions, the more like they are to have long term success and discipline over their trades. We compiled a guide on How To Apply Emotional Intelligence To Trading Here.
Conclusion – Trading Crypto To Win
Crypto offers many trading opportunities, all entirely depending on your objectives. Your first concern is make sure that your holdings are with a reliable and renowned wallet provider/exchange. After that, it is up to you to decide what your trading objectives are and how to best accomplish them. You may want to take a more passive approach, or you may want to trade continuously. In either case, if you make a plan and employ key principles outline in this post, your chances of success will increase significantly.