How to become a cryptocurrency trader

So, you’ve decided to dive into the cryptoverse and start your trading journey. You’re probably excited and eager to get moving, so in this list, we’ll give you 10 important tips on what to keep in mind for when you start trading crypto.

10. Understand the token

No two cryptocurrencies are the same, that’s pretty obvious, right? Well, this is important because you can’t judge the future performance of one token based on the past performances of others. Every crypto serves a different purpose and has certain “tokenomics” or simply, token economics attached to it.

For example, Bitcoin has a fixed supply of 21 million coins, whereas a currency like Polkadot has just under one billion. Does this mean that it’s impossible for Polkadot to reach Bitcoin’s current price? No, but it would require a much higher market cap (overall value) than what is currently present in Bitcoin.

9. Know your order types (try limits!)

Once you’re ready to buy or sell – how will you do it? There are a number of tools at your disposal when it comes to making a trade, the simplest being a market buy/sell, which will allow you to buy or sell your crypto at the current given price. Alternatively, you could set a limit order, which will execute your trade if a certain price is reached. There is no right or wrong way to do this, this generally falls upon your personal strategy.

8. Set targets

What’s your goal? Do you plan to trade in order to accumulate more fiat or crypto? Are these long-term or short-term holds? Or simply, how much profit are you looking to make?

Without a target, you will be blindly entering trades and most likely disappointing yourself as a result.

7. Say no to FOMO

So another dog coin has surged +10,000% in the past week and the success stories are flooding your news feed. You’re now itching to buy it “in case there’s still room to moon”. We’ve all been there at some stage.

Markets are psychological, let’s make no mistake of this. Half of the battle is trying not to jump into trades because everyone is telling us to. A good point to note: just as fast as something shoots up, it can come down just as quickly.

6. Trading volume

While the markets are hot, one way to check the pulse of a market is to see the daily volume for the pair you want to trade, eg. BTC/AUD. The higher the volume, the more active the market is likely to be. So why is an active market important? Simple, price is more likely to move in one direction or another if volume increases.

5. Fees and Spreads

This is a rather overlooked area but is extremely important to take note of. High fees and wide spreads can chew into your gains. Fees refer to the amount of brokerage paid to the exchange when executing a trade, usually expressed as a percentage. Spreads refer to the difference in the buy and sell price of a cryptocurrency. Compare these amongst various exchanges to get an idea of which platform offers the lowest fees and the tightest spreads.

4. Risk Management

There needs to be some level of managing risk when opening up a trade. Can things go wrong? Most definitely, so we need to mitigate our risk or better yet, ask ourselves how much risk we are willing to take on for a trade. For example, if you had $1,000 in your account, would you be comfortable risking the whole $1,000 (100%) for a trade or $50 (5%)?

3. Don’t be afraid of red days

What if you’re in the “red” or making losses? Don’t panic, this is normal! If your trade is taking on a loss and it’s not going the way you anticipated. It’s important to know that with green (gain) days come red. This, of course, only takes into account that you have done your due diligence and heavily researched the asset you’ve decided to trade. This brings us to the next point…

2. Well sourced Information

Don’t take news/research/data/opinions at face value. Cross-check everything! This is your hard earned money at the end of the day, why play around with it? You should have conviction when opening up a position.

1. You aren’t too late

The crypto space is still young and maturing. The total market cap still sits at just under US$3 Trillion, compared to markets such as Australian real estate (US$6.5 Trillion) or Gold (US$11.4 Trillion). There is still a lot of room to grow and plenty of opportunities for you to invest in.

Bonus Tip: Dollar Cost Average

Would you like to remove the guesswork out of trading? Dollar cost averaging (DCA) is a tried and tested strategy used by seasoned investors. It consists of investing a fixed amount of money at regular time intervals, so for example, if you buy $50 of Bitcoin every week – that would be dollar cost averaging.

Some of the benefits include:

No sizeable upfront investment
Your dollar buys you more when the price is low
Smaller purchases tend to limit exposure to volatility

Final thoughts

The crypto markets are tricky but can also present many opportunities – always tread with caution but remember to enjoy the process!

Main image source: Peshkova/Shutterstock.com

This article was reviewed by our Content Producer Marissa Hayden before it was updated, as part of our fact-checking process.

Candice Atwood

Cryptocurrency Contributor, Independent Reserve

Candice is a Marketing Assistant and Content Producer at Independent Reserve. She has over 7 years of experience in writing on a wide range of topics and holds a Bachelor of Communication and Media from the University of Wollongong.