Cryptocurrency is a digital currency that you can use to purchase goods. It uses blockchain technology to keep each transaction secure. Blockchain can also prevent malicious transactions, making cryptocurrency even more popular to prevent any form of fraudulent transactions.
Cryptocurrency trading is slowly growing, with more people investing in it each year. Starting with just Bitcoin in 2009, more than a decade later, the market has expanded to several other altcoins, including Ethereum and Ripple.
This article will help you understand how to begin trading cryptocurrency.
Starting With Cryptocurrency Trading
How do I start trading in cryptocurrency? When starting with cryptocurrency trading, it is important to first develop a strategy.
A lot of people get into cryptocurrency trading without a strategy in mind. These people see the cryptocurrency market as a way to get rich fast, and they tend to invest a lot in this market without strategizing or preparing for possible losses. As a result, they lose money, and they think of cryptocurrency as a scam.
Do not be one of these people! Do your own research. Learn what coins to buy and when to buy, know when to sell, and figure out which coins will work for your investment budget.
Once you’re ready, follow this easy, step-by-step guide on the basics of how to begin trading cryptocurrency, from selecting a coin up to following through on your purchases.
Market Valuation of a Coin
There are about 50 to 100 cryptocurrencies that are a great choice for you to invest in. When selecting a coin, take note that the higher the market valuation of a coin, the better the investment. Market valuation is based on the number of existing coins in the market, multiplied by the current price.
For example, Bitcoin is valuated at almost $40B, and rising. This is because Bitcoin was the first cryptocurrency to come out and has now been widely adopted around the world.
There are three main categories of coins in terms of market valuation: High, Mid, and Low.
Coins with a high market valuation are generally the top coins in the market today. This includes Bitcoin, Ethereum, and Litecoin, to name a few. These are more stable and have been more widely adopted.
Coins in the mid-range usually have a valuation of at least $200 million. These aren’t as stable as the top coins yet but have less risk when you choose to invest in these. These coins also have a great potential to be adopted. When starting out, you can choose to buy mid-range coins.
Low-range coins have a value of less than $200 million. These coins are just coming out in the market and are still unstable and highly volatile. For beginners, it isn’t recommended to invest in these.
However, some traders buy low-range coins early on, working on the assumption that these will eventually increase in value. If you do want to invest in low-range coins, you can choose coins that are valuated at $100 million, at the least.
Selecting a Coin
When selecting a coin to purchase, ask yourself this: Why do you want this coin? Consider these factors when choosing which coin to buy.
- Technology: Is the coin easily accessible and downloadable? Is it ready for large scale use?
- Development Team: Is there a solid dev team behind the technology?
- Adoption: Is there a high demand for the coin? How is the media coverage? Do people want to use it?
- Target Market: What is the best use of the coin?
Checking the Price and Pattern of the Coin
When purchasing a coin, price matters. Always check market prices and chart patterns, which will help you gain insights on when to invest. As a beginner, you can follow this cliché: “Buy low, sell high.”
Although this cliché isn’t always true, it is always a good opportunity to buy coins that are in the mid to high range of valuation when these have a lower price. If you have the funds to purchase one of the top coins, go for it!
Before making your first purchase, check chart patterns to see when the best time is to buy. If a coin has a consistent upward trend with just a few drops, it is a good investment that you should consider.
In cryptocurrency trading, you need to familiarize yourself with technical indicators that will help you make the right decisions. These basic indicators are very useful when starting out.
Simple Moving Averages (SMA)
On a daily chart, you will be able to see the movement of the price action for each hour. You can adjust the timeframe to show you price action in weeks, months, or years. If you choose a timeframe of one month, the SMA is an average of all the closing prices of the coin for the past month.
This indicator is helpful to see the trend of the coin’s market price.
Moving Average Convergence Divergence (MACD)
This indicator will tell you when to buy or sell a coin. First, you need to choose the timeframe of the price action that the MACD will analyze, weekly, monthly, or yearly. When selecting the MACD, a separate chart will appear with two lines: the MACD line and the signal line.
It is time to buy a coin when the MACD signal crosses upward the signal line. On the other hand, you may need to sell a coin when the MACD crosses below the signal line.
Forming Price Points
When you have a grasp of the different coins, prices, and indicators, the next thing to strategize is your price points. Answer these questions: What is your target price to sell? What will happen if the coin doesn’t reach this price?
You need to strategize for potential gains as well as potential losses, because things won’t always go your way when trading. You can use any of these orders to control your price points:
- Limit Order: This order sets a price point that you want to reach before selling.
- Stop Limit Order: This order sets a loss limit to protect your losses. For example, if you are only ready to lose a maximum of 10%, once the coin drops below this number, it will automatically sell.
This guide on how to begin trading cryptocurrency is for beginners who want to get started but don’t know how. Once you get the hang of trading, you will be able to develop your own strategies and see what works for you.
When trading cryptocurrency, you need to be disciplined to avoid big losses. Don’t chase the hype of a coin, and don’t trade without a strategy in place. Learn more about trading cryptocurrency here!