Beginner’s Guide To Cryptocurrency Trading

Beginner’s Guide To Cryptocurrency Trading

Cyrptocurrencies  might be the biggest opportunity of the whole century in finance. Blockchain technology will revolutionize everyday life as we know it. Cryptocurrencies will clearly replace fiat currency at some point in the future. If you do not understand cryptocurrencies you will be left behind and miss out on a huge investment opportunities.   So how can you get started and capitalize on this once in a lifetime opportunity?

What Is a Cryptocurrency?

Cryptocurrencies in simplest terms are limited entries into a database which no one can change without fulfilling specific conditions. These digital currencies use cryptography and transaction ledgers to create a secure, anonymous, traceable, and secure monetary system. Bitcoin is the biggest and most well known cryptocurrency in the world right now.

What is the Blockchain?

A blockchain is a digitized, decentralized, ledger of all cryptocurrency trades. Consistently growing as finished cubes (the latest trades) are recorded and added to it in chronological order, it enables market participants to keep tabs on electronic money transactions without fundamental recordkeeping. Every node (a computer linked to the system) has got a copy of the blockchain, which can be downloaded automatically.

Cryptocurrency Wallets

To start trading cryptocurrencies you need to have a safe place to store them. There are two main types of cryptocurrency wallets: Hardware wallets and hot wallets. Hot wallets are wallets that store cryptocurrencies in a secure online database. Hardware wallets are used to store a user’s private keys on a hardware device.

Cryptocurrency itself is not actually “stored” in a wallet. Instead, a private key (secure digital code known only to you and your wallet) is stored that shows ownership of a public key (a public digital code connected to a certain amount of currency). So your wallet stores your private and public keys, allows you to send and receive coins, and also acts as a personal ledger of transactions.

For new and inexperienced crypto-traders, Coinbase is probably the best option for you. Coinbase is the most well known and secure hot wallet to store coins. You can store Bitcoin, Ethereum, Bitcoin Cash and Litecoin in the wallet. If you are looking for a hardware wallet, Trezor is one of the best out there. It is extremely secure and affordable (can get one for under $100 here).

Best Cryptocurrency Exchanges

Being a brand new industry, it is important to find reliable exchanges to trade cryptocurrencies. One must research all the exchanges they put money into thoroughly because pitfalls exist in a lot of the less known exchanges. A quick google search will reveal that there are hundreds of exchanges. A lot of them are small mom and pop shops, with little liquidity and difficulty in fund transfers. These are just a few inevitable pitfalls when dealing with a brand new industry. We use 3 exchanges primarily: Coinbase Pro, Binance, and Kraken. Here is a brief overview of each exchange: 

Coinbase Pro

Coinbase Pro is the most popular exchange and one of the easiest ones to use. This is our primary exchange that we use to trade the 4 biggest cryptocurrencies (in terms of market cap): BTC, ETH, LTC, and BCH. It is one of the most liquid exchanges and has great executions. GDAX is hooked up to Coinbase, which you need an account with in order to use. Coinbase is one of the most secure cryptocurrency hot wallets that you can use to store your cryptocurrencies. It is based in the US, and you’re able to deposit fiat currencies, including USD, EUR, and GBP. Learn more about Coinbase Pro here.

Binance

Coinbase Pro is considered by many to be the most reliable cryptocurrency exchange, but you only have access to 4 cryptocurrencies (BTC, LTC, ETH, BCH). Binance is the best exchange to trade altcoins. It has tons of great features: Huge selection of altcoins, great liquidity, fast executions, low fees, and a great desktop and mobile trading platform. Learn more about the Binance exchange here.

Kraken

Kraken has improved a ton in the past few months. It has gone from being one of the worst exchanges to one of the best in a very short period of time. It has great liquidity on more obscure altcoins, decent executions, and a decent selection of coins. It’s biggest attraction however is that it allows you to short sell cryptocurrencies, which means you can make money when cryptocurrencies depreciate in value.

Short Selling Cryptocurrencies

Cryptocurrency trading in the past few months has been tough for people who only know to buy cryptocurrencies. However most traders do not realize that you can make money when cryptocurrencies go down. As mentioned above, the best exchange to short cryptocurrencies is Kraken. Here is an example of a short trade we have taken on Ethereum:

cryptocurrency trading

“Covered” is the term used to close a short position. When you cover your short position at lower price, you make a profit. Knowing how to short sell cryptocurrencies allows you to profit in market environments like the one this year in 2018. Cryptocurrency trading is a game where you have to always be adapting. Knowing how to short sell will allow you to make money in almost all market conditions.

Best Cryptocurrencies To Day Trade

We mostly focus on day trading cryptocurrencies because of their large volatility. The 24/7 markets can make holding cryptocurrencies for long periods of time tough. The best cryptocurrencies to day trade have large intraday ranges, great liquidity, and a history of making big moves. Here are some of our favorite cryptocurrencies to day trade:

Ethereum (ETH)

Available to trade on all the major exchanges mentioned above. It is one of the best altcoins to day trade because it has such a huge range, and you can make money on it if it goes up because it is available to short on Kraken.

Binance Coin (BNB)

Available to trade on the Binance exchange. This is one of my favorite altcoins to day trade because of its intraday range. Out of all the altcoins out there, this is one of my favorite because it makes such big moves in a short period of time. It is not uncommon for this coin to move 10% on a daily basis.

Get Educated

A surgeon doesn’t perform surgery without years of preparation and practice. Trading cryptocurrencies is no different. While you don’t need years of study before making your first trade in cryptocurrencies, you should at least spend a few weeks studying and learning the basics. Trading is one of the hardest endevours you will ever attempt. 90% of traders fail to become consistently profitable. You can get started learning the basics of cryptocurrency trading with our free Introduction to Cryptocurrency Trading course. Type in “FREE” in the coupon code to get the discount. 

Learn System Development and Risk Management

Once you learn the basics, you have to develop a system that can make you money consistently. This requires you to track all setups and your performance on each setup to know where your trading edge lies. Every person has a different personality and risk tolerance, so a successful trading system that may work for one person may not work for another. You need to tailor your system to your strengths and weaknesses. 

A successful trading system cannot be successful without proper risk management. Poor risk management can result in 20 green days worth of gains being lost in 2 hours. Your win rate is less important than most people think. It is all about the risk versus reward you take on your trades relative to your win rate. You can have a 90% win rate, but if you are risking $1000 to make $100, you will not have a profitable trading system because every loss will cancel out 9 wins. However if your systems’ typical risk versus reward is 3:1, you can have a 40% win rate and still be a profitable trader. If you on average risk $300 to make $1000, over the course of a large enough sample size with a 40% win rate you will be a profitable trader.

Join an Established Trading Community

Instead of making all the mistakes yourself, joining a trading community can exponentially reduce your learning curve. Mentors that have years of experience trading can save you years of suffering and thousands of dollars worth of trading mistakes. You can learn from those that have already made these trading mistakes with out having to make all the mistakes yourself. In our community there are dozens of experienced traders that are just a PM away. In our cryptocurrency trading chatroom, we have hundreds of eyes and people calling out the biggest altcoin movers each day. If you want to stop missing out on the big movers, feel free to join our community!

Kunal Desai is an American day trader (stocks and cryptos) and founder of Bulls on Wall Street and Bulls on Crypto Street, two online trading academies and informational publications. He has been featured in many high profile publications like Inc, Forbes, Buzzfeed, and Fortune. He has spoke at trading and business events all across the World.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.