Introduction to the world of crypto trading - analysis of strategies, tips, and recommendations for beginners.
The rapid growth of cryptocurrencies tempts people to make impulsive and ill-considered aggressive moves when entering the market. The illusion of easy profits blinds newcomers who end up losing their funds due to a lack of necessary knowledge. Today, we will discuss and provide you with an objective overview of the situation, giving you the opportunity to independently decide whether to engage in trading or perhaps explore alternative methods of earning with cryptocurrencies.
What does trading activity involve?
The main aspect of trading is the buying and selling of cryptocurrencies with the aim of making a profit from the price difference. Success depends on a positive margin between the buying and selling prices, but it's also important to consider platform fees to avoid losses. Beginners are advised to focus on learning the theory and gaining practical experience with small amounts to reduce the risk of losses due to lack of experience.
How is the trading process carried out?
There is no universal strategy, indicator, or method that would guarantee a consistent profit, as otherwise everyone would use it and profit would be widespread. At the moment of making a trade, both participants believe they are making the right decisions: one sells, thinking it's the right time to sell, and the other buys, believing it's the right time to buy. Even with the use of identical data and charts, the interpretation of events, circumstances, and personal qualities can vary. Trading is not a team game; it's more like a mix between chess, where strategy, tactics, and planning are required, and poker, where the psychology of participants can determine the outcome of a trading session.
The stages of the market cycle that lead a novice to the status of a trader
Everyone who starts trading cryptocurrencies goes through several stages, typically involving phases of inspiration, euphoria, shock, hope, panic, disappointment, and acceptance. These stages, a kind of emotional cycle, are an integral part of the process of becoming a trader.
After completing the full market cycle, a novice gains valuable experience, extracting lessons from both the emotional and financial aspects of trading. This experience provides a deeper understanding of market dynamics and enables the avoidance of past mistakes.
Thus, a key moment in becoming a successful trader is not only the ability to analyze the market but also the emotional resilience that can be developed by going through various stages of the market cycle.
Does the size of the deposit matter?
Skillful management of a $100 million deposit does not necessarily guarantee success, just as having only a few hundred dollars does not become a barrier to effective trading. The key roles are played by the approach to capital management and the trading strategies employed.
One can decide to invest in cryptocurrency with the entire deposit, hoping for its growth, but it's also possible to develop a strategy by dividing the deposit into parts and gradually acquiring different assets.
Traders with million-dollar deposits face limitations in choosing cryptocurrencies due to a lack of liquidity in the young market. With more modest sums, it is advisable to select less liquid instruments, carefully assessing liquidity in the order book to minimize the impact on market quotes.
Conditional deposit splitting
Regardless of how significant your financial contribution is, split it cautiously. It is recommended to reserve 30% to 70% of the funds to be prepared for unexpected scenarios. Some money can be invested in long-term projects, but only those thoroughly researched. If you decide to try trading, allocate a small portion for margin operations.
In addition to dividing the deposit, split the funds allocated for purchasing cryptocurrencies into several parts. This creates an opportunity for phased entry, reducing the average cost in case of price decreases. If prices do not decrease, sell at a pre-determined target.
Avoid trying to predict the market's lowest and highest points. This is an activity for "geniuses" who are confident in their ability to accurately predict price movements. Pay more attention to maintaining the average price when opening and closing positions.
Basics of risk management - recommendations
- Never invest all your funds in one instrument.
- Avoid entering a coin or token with your entire available sum at once.
- Do not keep your funds in a single location and steer clear of trading restrictions on only one exchange.
- Avoid making purchases after a sharp price increase (pump).
- If your position yields significant profit, use protective order types such as stop-loss, OCO, trailing stop to ensure profit protection.
- Do not return to an asset at the price you sold it, with rare exceptions when you are absolutely certain of your decision.
- Futures and margin trading are not intended for beginners; they are tools exclusively for experienced traders.
- Do not use funds for speculation and investment whose loss would impact the quality of your life.
Assessment of fundamental aspects of the instrument: key aspects and approaches
Fundamental analysis is an integral part of a trading strategy aimed at providing traders with guidance on the "fair" price of an asset. This type of analysis helps identify optimal levels for buying and selling.
Fundamental analysis encompasses various factors such as:
- The role of key participants in the company's structure,
- Their professional experience,
- Project tokenomics,
- Listings on exchanges,
- Real value of the product or service,
- Practical application,
- Size and activity of the community on social media,
- Presence of affiliated individuals and companies, etc.
An effective start to project analysis involves using cryptocurrency aggregators such as CoinGecko, CoinMarketCap, Messari, and CryptoRank. The absence of a project on these platforms can serve as a significant criterion for making investment decisions. When conducting analysis, it is preferable to refer to English-language sources, as they typically provide more comprehensive and reliable information.
Technical analysis of the instrument
Analyzing the instrument from a technical standpoint requires a basic mastery of charting skills, including creating horizontal levels, trend lines, and recognizing patterns of technical analysis. Various approaches involve wave analysis, fractals, the use of Fibonacci lines, indicators, and other methods. Over time, an individual trading strategy and necessary toolkit are developed.
It should be noted that in technical analysis, it is essential to consider the chart from the moment trading began on the first exchange. After listing on a major exchange, there is often an observed price increase, followed by a correction. A naive trader might mistakenly consider this as a bottom, but examining the history on other exchanges where the instrument was previously traded can reveal that the cryptocurrency is currently trading at a higher value.
The more extensive the project's history, the better one can assess the dynamics of quotes and anticipate possible price trends. Peaks, the start of a global trend, and other factors are analyzed.
It is important to note that technical analysis cannot be the sole basis for making trading decisions. While an instrument may appear promising from a technical perspective, fundamental analysis may indicate risks associated with the trade.
Spot and margin trading
Trading on the market without prospects often forgives the mistakes of beginners, while margin trading can lead to the complete loss of invested capital. If you lack experience, it would be rational to start your trading journey with the market without prospects. This will allow you to understand the internal mechanics of the market and familiarize yourself with all the relevant processes.
In the market without prospects, you engage in trading cryptocurrencies or tokens that can easily be transferred to another exchange or your personal wallets. In the case of futures trading, you manage contracts for cryptocurrency, and fund withdrawal becomes available only after closing the deal. In some situations, exchanges have the right to forcibly close your positions or encourage you to do so yourself, often with negative consequences.
Margin trading is the riskiest form of trading for beginners. Experienced traders can use leverage to earn significant amounts in short periods, for example, during chart targets, breakouts, and other impulsive movements.
What assets can be traded?
The top cryptocurrencies by market capitalization consistently change, with the exception of BTC and ETH. Many coins that were previously in the top ten drop out of the rankings.
Many cryptocurrencies are created for the enrichment of their creators. Investing in them is a risk and folly.
Recommendation: It is advisable to invest in long-term projects only in strong, fundamental projects with a history, while acknowledging the possibility of the price dropping to 0. An axiom in the world of cryptocurrencies is that the market owes nothing to anyone.
Who is a broker? Is it possible to trade without a broker?
Brokers in the cryptocurrency space do not receive as much demand as in traditional markets, as cryptocurrency trading is available without their intermediation. It's sufficient to simply register on a cryptocurrency exchange. Exchange interfaces are similar, and knowledge gained on one can easily be transferred to others. Exchanges actively compete, attracting customers with various marketing promotions and improvements in the services provided.
Is trading profitable? What is the potential income for a trader?
No more than 20% of market participants achieve long-term success in trading. The question of how much one can earn is highly individual and depends on various factors such as the deposit size, level of knowledge, and experience.
During a bullish market, many individuals profit, but this phase is temporarily limited. Afterward, a flat phase occurs, followed by a decline, often aggressive and prolonged, resulting in most traders experiencing losses. In a growing market, one can earn between 5% to 50% of the deposit per month. However, these figures are approximate and depend on various variables, such as the deposit size.
On a declining market, drawdowns can be comparable to earnings in a growing market. The question of what deposit size is needed for trading to become the primary source of income depends on your needs. To aspire to the role of a trader, a deposit should be, for example, no less than $10,000, taking into account a reserve fund of 50%. The operational part will be approximately $5,000, which should be distributed among portfolios and instruments.
Set realistic goals, manage risks, develop your trading strategy, and perhaps your deposit will grow, opening up new opportunities.
Is trading risky? Can I lose money?
Certainly, trading carries significant risks! And, of course, a complete loss of invested funds is possible, which often occurs with the majority of market participants who join during periods of rapid growth.
The trading cycle has its continuous dynamics: many participants leave the market, but only a few continue their journey, analyzing their own experiences and extracting lessons. During crises and despair, assets change hands, moving from weak hands to strong ones, and this cycle repeats. Euphoria, accompanied by the mass influx of new participants with their small deposits, is always followed by an outflow. Major market players unload assets at various prices, transferring them from strong hands to weak ones, which are already at the top of the chart.
It's important to realize that cryptocurrency trading is not so much about making a profit as it is about the risk of losing small deposits. This risk confronts many beginners. Those who survive in a bear market become more experienced and successful, while others understand their losses and permanently leave the market. The losers often blame the system for fraud, accusing everyone except their own greed and inattentiveness. Avoid joining their ranks.
Practical recommendations for novice traders
- Regardless of the amount of your deposit, start with symbolic investments: $10/50/100. Over time, increase your deposit, but be prepared for potential losses. This approach will also help you better understand how market participants behave.
- Invest only those funds in trading whose loss will not affect your quality of life – only what you are willing to lose.
- Don't rush to quit your main job; give trading a chance to be your hobby, and perhaps over time, it will turn into a more significant occupation.
- Avoid trying to increase the number of trades in the hope of increasing profits. Sometimes even a few operations per month can bring more income than active trading with dozens of transactions per day. Sometimes the best solution may be a temporary break from the market, but this is quite challenging without the corresponding experience.
- Eliminate the need to rush. Master the art of patience and develop the skill of waiting.
- Market ups and downs are not endless, as markets follow cycles, and reversals happen at unexpected moments.
- Don't ask others where to buy or sell; they don't know.
- During the rise of an instrument by several hundred percent from the bottom, it is essential to enter into a deal using stops to ensure protection. In case the potential profit from the minimum is several thousand percent, it is recommended to approach entering the deal on the rise carefully, expecting a significant corrective pullback.
- Always pay attention to even unlikely scenarios, despite the stability of the current trend; consider a 1% chance of an opposite development, as it can prevent significant losses. Always maintain control over risks.
- If you manage to earn, periodically withdraw at least part of the profit. It is essential to understand what exactly you are spending your time on. Ideally, as opportunities arise, withdraw all your invested money to manage your deposit more easily from a psychological perspective.
There is no universal strategy. Your trading strategy should be balanced but flexible to effectively respond to the current market conditions. What may be successful in an uptrend may prove ineffective in a downtrend, and vice versa. Your success depends on the ability to adapt quickly to circumstances and skillful risk management.