Cryptocurrency is a trader's playground.
Prices are substantially more volatile than traditional assets, which means the swings are ripe for traders who know what they're doing – and perilous for those who don't.
If you are ready to step up and take your crypto trading to the next level, there's a lot to learn, but it’s nothing you can’t handle.
Stay disciplined. Start small. Manage your risk effectively.
Remember: Most traders will lose money trading crypto. Position yourself ahead of the pack by learning how to trade like a pro.
If you are just jumping in for the first time, you should start small and scale your exposure over time.
Once you're in, you will naturally start to learn a lot – and fast.
Build your confidence.
Staying safe should be your top priority. This includes keeping your capital safe from risky trades.
We've got a lot to cover in this guide, including:
- How do I keep track of my portfolio?
- How do I know when to buy and sell crypto?
- What are support and resistance?
- What are mathematical indicators?
- How to use chart patterns to trade crypto
- Why is liquidity so important?
- Fundamentals are your friend
- What is margin trading?
- How to manage trading risk
- Other ways to earn with crypto: lending and token sales
- How to survive a bear market
- What is a stablecoin?
- How do I cash out?
- Do I have to pay tax on my crypto?
- Time to start trading
Let's get started.
How do I keep track of my portfolio?
If you're going to be buying, selling and trading (see also: day trading), you're going to want to keep an eye on your investments.
It doesn’t matter how much crypto you are holding or trading, you need to keep track of it.
There are lots of ways to monitor your portfolio.
Some are tailored for hodlers. Others more suited for active traders.
Hodler: Someone who "hodls" crypto, as in, they buy it and hold it, no matter what the price action.
Not only can you keep an eye on your portfolio on Liquid, but you can also make changes to your portfolio structure whenever you like.
Simple portfolio apps are another option where you can input your buy and sell data. These can be great for investors.
Meanwhile, traders may need something more high tech, like an API portfolio tracker.
These allow you to take an API off your exchange of choice and plug it into the tracker. The tracker will then update your holdings in real-time, keeping track of your trades.
Here are a few popular portfolio tools that might be right for you:
They are able to show you the real-time performance of your investments and can notify you of any big moves in coins you hold (or don’t hold) so you’re always up to date.
If you are a busy trader it may not make sense to be continuously entering trades into a portfolio tracker.
When you create an API token to connect to the tool you can control the permissions of the API.
This means that you can enable a portfolio tracker to monitor your balances, but not execute any trades, withdrawals or anything else that you wouldn’t want it to do.
After all, crypto is all about being safe.
You can even connect to more than one exchange account if you need to. A lot of traders appreciate the automated nature of operating like this.
Now you know how to track your portfolio, when should you be buying and selling cryptocurrency?
How do I know when to buy and sell crypto?
There's no simple answer here.
But don't worry.
While we can’t know for sure, there are a lot of trading techniques that you can learn that will help you generate buy and sell signals of your own.
Signal: An event that happens, usually on a chart, that traders recognize as a reason to buy or sell an asset.
Try not to fall into the trap of relying on other traders for your signals. Plenty of traders on social media will try and persuade you to buy their coin of choice, but always, DYOR.
DYOR: Do your own research.
Let's look at some indicators that can be useful when trading crypto.
What are support and resistance?
In cryptocurrency, support and resistance levels are fundamental trading indicators that you should pay attention to.
But what exactly do support and resistance mean?
Support is a price level, or area on a chart, where the buying pressure is strong enough to overcome the selling pressure. This results in price stability or a price increase.
Think of it as an imaginary floor. Support will generally prop the price up, but crypto is volatile, so breaking down through the floor is a common occurrence and an indication of a downtrend.
Let's say there's strong support for Bitcoin (BTC) at 3,000 USD. You may see the price bounce off this level a few times, but not necessarily break down below it.
That's because there are more people who are willing to buy Bitcoin at that price than sell.
Resistance is the opposite of support. It's more like a roof.
At resistance, the selling pressure is greater than the buying pressure, which causes the price to stall or even drop.
Upward movement is prevented or at least slowed when prices reach a resistance level, but if there's a strong move that breaks through resistance, it can be a great sign.
You can start to determine good times to enter and exit trades by using support and resistance levels.
It sounds easy in theory, but the tricky part is to determine key support and resistance levels and also how heavy they are.
Hint: The strength of a support or resistance level generally grows based on the number of times it has been tested in the past. The higher the number of attempts, the better.
A support or resistance level has been "tested" when the price reaches the level but fails to pass it.
How do you predict support and resistance levels? Look at:
- Previous highs and lows
- Round numbers (whole numbers, like 3900USD or 4000USD, are key psychological support and resistance levels)
- Fibonacci retracements
- Chart patterns
But how are support and resistance actually useful?
If you have successfully identified a level of resistance, you can set a buy order just above this level. It is often expected that if the resistance level is broken there will be a lot of upward momentum, which could take you into profit.
Similarly, if you have found a key support level, you could open a short just below the support level, because if it is broken there may be some downward momentum that carries the price lower.
When a support or resistance level is broken, it can be much like opening the flood gates.
When key support or resistance level is broken, market sentiment changes and price momentum is likely to carry the price past that level, and to the moon (maybe).
Support and resistance are worth adding to your playbook - there are a lot of other ways you can use support and resistance levels to your advantage.
What are mathematical indicators?
Trading indicators use statistics to show you analysis and trends based on historic price and volume data.
Don’t worry, you don’t have to do any maths in order to use them. It’s all done for you.
You can use mathematical indicators to help confirm or predict price action.
There are two main categories for indicators: leading and lagging.
- Lagging indicators follow and confirm trends, so they are often also referred to as trend indicators.
- Leading indicators show the amount of momentum behind price trends.
Which indicators should you use?
There are a lot of indicators to choose from. Naturally, some are more popular than others. You can use them in combos, but less is often more – you don't need to use them all at once.
Here are some of the most well-known trading indicators:
- Simple Moving Average (SMA),
- Exponential Moving Average (EMA)
- Moving Average Convergence Divergence (MACD)
- Relative Strength Index (RSI)
- Bollinger Bands
- Fibonacci Retracements
As you begin learning, start trying more trading indicators and see which ones work for you.
How to use chart patterns to trade crypto
You don’t always need indicators to show you what's going on.
A pattern is something that repeats in a predictable manner.
Chart patterns appear on a price chart and suggest something is coming next, based on previous patterns.
Chart patterns are an excellent tool to pair up with indicators to hypothesize what’s coming.
If you begin to recognize chart patterns, you will increase your chances of expecting future price movement.
Here are some chart patterns you can look for.
Rectangle chart patterns are consolidation zones or congestion areas. They occur during a pause in the ongoing trend.
A price channel trends up or down, and comprises two lines that are parallel or almost parallel.
Channels project price ranges and provide support and resistance levels for traders to utilize.
Double/triple tops and bottoms are signals for trend reversal.
If a price has reached a high two or three times, this is a bearish hint at reversal, signifying the price trend may be near exhaustion.
These are just three of many chart patterns you can learn. You may even be able to find a chart pattern of your own!
Why is liquidity so important?
What exactly is liquidity?
In a traditional sense, liquidity refers to the availability of liquid assets. In other words, this describes an individual's ability to quickly sell their assets for cash.
Liquidity in cryptocurrency markets is similar.
The liquidity of a market refers to the ability to allow traders to buy and sell a cryptocurrency quickly without having a major impact on the asset price.
A highly liquid market is able to facilitate large orders without impacting the trading price too much.
On the other hand, a market with low liquidity would be unable to handle large orders.
Big trades would cause the price to skew.
The deviance of the price can cover a huge range, from a percentage or two to hundreds of percent.
But why does liquidity matter?
Low liquidity markets are a playground for market manipulators.
Large volume traders can artificially change prices and potentially exploit these artificial price moves for personal gain.
This is bad for other traders and cryptocurrency as a whole.
Traders are apprehensive about illiquid markets because they run the risk of price slippage.
Slippage: The difference between the price you expect and the price you get when making a trade.
Traders rely on being able to buy a cryptocurrency for the right price, and in large volumes if desired.
Liquid markets allow this, while illiquid ones do not.
In markets with excellent liquidity, the spread will be exceptionally tight.
Spread: The price difference between the cheapest sell order and the most expensive buy order.
Tight spreads are a huge selling point for traders.
Fundamentals are your friend
Fundamental analysis plays a huge part in strategy for crypto traders.
You need to keep your finger on the pulse of all projects you are trading, so you know if anything is happening that is going to affect the price, be it positively or negatively.
There are a lot of things that can affect the price of a project.
If you time it right, you can use upcoming fundamental changes to make profitable trades.
Rebranding events are a good example of a fundamental change that can create price action.
In 2017 it was trendy for crypto projects to rebrand and change their token ticker. At the start, prices would almost always increase when a token rebranded.
Ticker: The short abbreviation a cryptocurrency uses to be identified on exchanges. For example, Bitcoin’s ticker is BTC.
As time went on, rebrand events didn’t have the same effect, and many actually caused the token to decline in price.
It is your job as a trader to understand the current climate and determine how you think fundamental changes are going to affect your trades.
Keep your eye on how fundamentals are changing in crypto, because it will affect your trades.
Crypto trading can go as deep as you want it to. At a base level, you can buy, sell and hold. But if you've really started mastering the charts, there's a whole other world out there...
What is margin trading?
Margin trading is an excellent way to increase your potential profits when trading. However, it can also be a quick way to increase your losses.
You need to know what you are doing.
Margin trading is borrowing additional funds to increase your trade amount. Since you are using extra capital to back your trade, if your trade is successful, you are able to net a larger profit.
In margin trading there are two options: long and short.
If you are going long, you are saying that the price of an asset is going to increase.
If you are going short, it’s the opposite. You are saying that the price of an asset is going to decrease.
When you are setting up a margin position there are a few things you have to enter.
Firstly, there's the price at which you want the position to start. For example, you might want to enter a Bitcoin long at 3,500 USD.
Next, you have to choose the amount you are going to be trading – and your leverage amount.
Leverage: The ratio of which you will be borrowing funds for your trade. Leverage start at 2x and on Liquid goes up to 25x.
The higher leverage you use, the higher your risk is.
If you are entering a position with 1 Bitcoin at 2x leverage you will borrow 0.5 Bitcoin. Alternatively, if you are entering a 1 Bitcoin position with 25x leverage, you will be borrowing 0.96 Bitcoin.
The higher the leverage, the more risky the trade.
How does margin trading work?
The funds you are borrowing come from the exchange you are trading on, one way or another.
In some cases the exchange is the lender, but in others the exchange allows users to lend their funds to margin traders so they can earn interest.
When you are trading on margin, you have to pay interest on the funds that you borrow.
If you are opening a long, you are hoping the price increases. You borrow funds to increase your buying power, hoping that you can buy an asset and sell it for more.
You would then be able to pay back the loan, along with interest and fees, and keep the profit.
A short works slightly different.
You borrow an asset from the exchange and instantly sell it.
If the price drops you are able to buy back the asset for less than you sold it for, so you can return it to the exchange and keep the profit.
How to manage trading risk
On your journey to becoming a crypto trader, risk management is a skill you will need to develop.
You may have heard this phrase before: 90% of traders lose money.
While this may be true, don’t let it put you off.
Traders lose money because they don’t stick to a risk management strategy.
Always. Manage. Your. Risk.
If you manage your risk, sure, there will still be losses.
But the idea of risk management isn’t to stop yourself from ever losing money. The point is to minimize your losses, so your profit margin is much larger.
Every loss takes away from your profit size. If you reduce your losses, you are increasing your profits.
Stop-loss orders are excellent for minimizing losses in case your trade goes wrong.
With a stop loss, you are able to open a position with confidence that if the price moves the wrong way you aren’t going to lose your entire position because the trade will be closed at your limit.
There are two kinds: stop market and trailing stop orders.
How to use a stop market order
A stop market order, also known as a stop loss, is a limit you can set on open positions that will automatically close your position if the price reaches the limit.
An open margin trade is called a position.
Let’s take a look at an example.
You open a long for 1 Bitcoin at 3,000 USD and set your stop loss 1% below your entry price at 2,970 USD.
If the price goes up, your position will be in profit. If the price drops more than 30 USD below your start price, your position will be market sold to close, minimizing your losses.
If you had not entered a stop loss for this position and the price fell to 2,850 USD, you would have lost 150 USD instead of 30 USD.
You can move to stop losses whenever you want.
For example, if the price had raised to 3,100 USD, you could raise your stop loss to 3,050 USD, so if the price drops the trade will still close with you in profit.
It’s common knowledge that cryptocurrency is volatile.
Don’t set yourself up for failure. If there is a flash price crash and you don’t have a stop loss in place, you could lose a lot of your capital.
Prepare for the worst and your trading will be much more successful.
Take profits work in the same way as stop losses, but they are limits you can set in the other direction to take profits if the price reaches a certain amount.
Trailing stop orders follow the price of an asset while it is going the way you want.
However, if the price turns, the trailing stop order remains stationary, and if the price retraces enough to reach the stop, your order will be executed.
Check out this quick video explaining them.
If you have bought a cryptocurrency with the expectation of a price move, trailing stops are a great option.
Where do I put my stop loss?
Your stop loss should be based on your personal risk tolerance and your position size.
Develop a risk management strategy for trading and you’ll be well on your way to becoming an advanced cryptocurrency trader.
Other ways to earn with crypto
Trading is tough work. But it's not the only way to earn.
What is lending?
Your assets are lent to margin traders, who borrow the funds to increase their trade potential.
In return, the trader will pay you interest based on the amount of time they borrow your funds for.
The funds are returned to one when the trade is completed.
Why would you lend?
Even if you are a trader, you will probably hold some cryptocurrency for the long term.
With lending, you can increase your stack while you hodl. It’s a great way to boost your crypto without putting in any extra work.
What are token sales?
A token sale is a fundraising method cryptocurrency projects use to fund their future development.
How does it work?
When a new project is starting out in crypto and they believe they need to raise funds to achieve their goals, one option they have is to host a token sale.
If a token issuer opts to host a token sale, they are choosing to sell off a portion of their native token to raise funds.
During a token sale, also known as an IEO, the token issuer is selling their token to investors at a set price.
Token issuer: A project that has created a token and is hosting a token sale. They are "issuing" the token.
Let’s put it simply.
Participants in a token sale are interested because they believe the token will have more value in the future.
Many token sale investors view the process as similar to investing in startups.
If the project is successful, you hold a part of their tokens supply, which may be worth more than when initially bought.
How to survive a bear market
A bear market is a prolonged period of time in which a market declines in price or value.
Cryptocurrency has been in a bear market since the start of 2018.
Bear markets can be crushing for investors and traders alike.
With prices only consistently decreasing, surviving a bear market can appear impossible.
Fortunately, we have a few tips up our sleeve that you can use to ride out any bear market in style.
Don’t let the bears win.
If prices are constantly decreasing, and you can only see them going lower, why not open a short position?
Shorting allows you to profit if an asset decreases in price. Therefore, if you short Bitcoin and the price falls, you stand to make a profit.
Crypto investors are unwavering and quite often impressively stubborn.
If you are sure you want to hang on for the ride, give lending ago.
You will be able to increase your stack of crypto while you ride out the bear market. If the bulls return, you would have a larger amount of crypto, putting you in a great position.
Trade the rallies
Shorting isn’t the only way to profit when trading in a bear market.
Prices may be only going down over the long term, but in the short term, there is still price fluctuation.
After a big sell-off, there are often positive rallies that you could take advantage of.
Learn how the markets move and trade the rallies to profit from the market volatility. Positive market movement is not uncommon in a bear market, it’s just not consistent or reliable.
Hunt for gems
If you think the bear market isn’t going to last forever, and that bulls are right around the corner, keep your eyes open.
You can scour the markets for up and coming cryptocurrencies with a promising future.
If you find projects that have strong fundamentals and a small market cap, in a bull market you could stand to make a killing. It’s like finding a gem.
Be patient and learn
Bear markets have come and gone in crypto and in traditional asset classes. Although past market performance does not dictate future performance, it’s something to keep in mind.
While you are patiently waiting for the bears to leave, take some time to reflect and learn more about crypto, trading, and fundamental analysis.
With more knowledge, you will be in better standing if the bulls decide to show up again.
See also: What is a bear trap and a bull trap.
What is a stablecoin?
Some traders like to make use of stablecoins. These are coins that are stable in price.
Cryptocurrency is highly volatile, so stable coins were created to cut through the volatility and offer traders a quick escape route.
They have turned out to be a valuable trading tool.
Stablecoins remain stable by pegging their price to another real asset. For example, this could be:
- US dollars
- British pounds
- A barrel of oil
- A kilogram of gold
What makes stable coins desirable?
Traders need to be able to enter and exit markets quickly, as well as move fund around easily.
Stablecoins in crypto is basically like tokenized fiat. Send anywhere, any time, in an instant.
How do stablecoins remain stable?
Well, the majority of stablecoins are asset-backed, which means that for every coin that is issued, the issuer is holding one of the assets that the coin’s price is pegged to.
For a stablecoin pegged to the USD, for every coin that exists, there has to be a dollar in the bank backing the coin.
Asset-backed stablecoins can also be backed by cryptocurrency. These stable coins are typically decentralized and utilize smart contracts for their operations.
Other stable coins remain stable using algorithms.
How do I cash out?
Cashing out your crypto is when you sell your crypto for fiat and withdraw it to your bank account.
To cash out, you simply have to use a fiat on-ramp like Liquid, just like you do when you are getting started in cryptocurrency and buying in.
With fiat on-ramps, you simply convert your crypto into fiat and withdraw it to your bank account.
If you withdraw on an exchange like Liquid that offers fiat, the process is simple.
Do I have to pay tax on my crypto?
Yes, you likely need to pay tax on your cryptocurrency.
Where you are from dictates your tax rules, but it’s important for you to ensure you are aware of your country’s cryptocurrencies tax regulations.
It would be impossible to say definitively what taxes you need to pay. The best thing you can do is be aware that you likely need to pay tax – and look into your local laws.
The smartest thing you can do is keep records.
Maintain records of any buys, sells, and trades that you do. Depending on where you are, these may all be taxable events.
If you need to pay tax in the future you will thank yourself for keeping good records.
What records do I need?
You need to know the buy price and sell price for your cryptocurrency investments because you may have to pay tax on the gains in the future.
Or, if the prices go down, you may be able to offset the losses on your taxes and pay a reduced tax rate.
Keep in mind that not all exchanges last forever, so don’t depend on exchanges being there years down the line when you need transactional data.
Log it in your own records often.
Even if you are gifted cryptocurrency, you need to keep a record of the price when you were given it. Any increase in price may be liable for capital gains tax.
You may also have to pay tax on cryptocurrencies obtained through mining, airdrops or faucets.
If you are from the UK, the HMRC has released an extremely thorough guide covering the crypto tax for UK residents.
Time to start trading
That’s it for this lesson on the exciting world of cryptocurrency trading. We hope it has been useful and that you're ready to trade like a pro.
As you can tell, there is a lot to learn - but there is no need to feel daunted.
Remember, start small and learn as you go. Develop techniques, learn how to read charts and use indicators, and stick to a risk management strategy.
All guest authors’ opinions are their own. Liquid does not endorse or adopt any such opinions, and we cannot guarantee any claims made in content written by guest authors.
This content is not financial advice and it is not a recommendation to buy or sell any cryptocurrency or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with cryptocurrency involves significant risks. We strongly advise our readers to conduct their own independent research before engaging in any such activities.
Liquid does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in his or her own country.
Providing liquidity for the crypto economy.