As cryptocurrencies gain more and more mainstream recognition, many people have started to join this space in order to make good profits. But since the majority of newcomers are completely unaware of how trading works and this is their first financial market venture, these people join the market unprepared. What this causes is that many lose their money and call it quits pretty quickly without a second glance.
Because of this, it is crucial to be prepared before you join the crypto market and start trading or investing. Looking at every successful person who managed to make good profits from crypto or any other financial market, almost every one of them had a plan and knew exactly what they were doing. This plan of action should be built by the individual doing the trading because if something worked for someone else it does not mean it will work for you as well. But still, there are some basics that everyone should know about. These are exactly what we will be going over today, and looking at what you need before you start trading crypto.
Learn about Blockchain
The first thing that anyone who wants to start trading crypto needs to do is to learn about blockchain, what it is, how it works, what is its goal, and so on. Cryptocurrencies, unlike other traditional financial assets, are digital assets and most of them are not backed by anything tangible. Because of this, it is important to know exactly what they are and what their purpose is.
When joining a crypto market for trading, you might have a goal of just trading crypto CFDs, and don’t want to touch real tokens at all. But this does not mean that there is no need to learn about technical stuff. Since cryptocurrencies are digital assets that are not backed by anything, it means that they are speculative assets, and their price movements can not be attributed to one specific thing. This is why learning about blockchain technology and how cryptocurrencies work is important. When you know how this system works, you will know small details that affect cryptocurrencies and their prices. For example, you might see that one blockchain is exploring something that can be utilized by different businesses, individuals, and projects, and in general, it has good usage. This might tell you that demand for the crypto associated with this blockchain or network might grow, resulting in the growth of the price.
By learning more about blockchain, you will be able to learn more about the benefits that are brought about by this technology and how you can use it to your advantage. You will be able to understand how this whole system fits together and see its weaknesses and strengths, which will undoubtedly help you in your trading journey.
Study financial charts and patterns
The crypto market is like any other traditional financial market when it comes to the way price behaves in parallel to charts and patterns. Before you start trading with cryptocurrencies it is important to understand how to read these charts and patterns, and to grasp what they indicate.
Every successful trader can look at the chart of any asset and be able to have a basic overview of what is happening in the market. Of course, there are times when charts and patterns might lie, but in most cases, the information displayed to us is somewhat correct. This is why the first thing that you should do here is to learn what types of charts there are and when the best time is to use each of them. There are line charts, candlestick charts, tick charts, and bar charts to consider. Each chart has its purpose and knowing how they work and when to use them is crucial to success.
Whenever these charts are moving as price changes, they are forming different chart patterns. These chart patterns are patterns that show themselves when the market behaves in certain ways. What this means is that, whenever you see that some pattern has formed and you know why this pattern forms, you will know what might happen next in the market and act accordingly. For example, there are patterns that might tell you that there is a bear run on the horizon, which will give you a reason to close open positions, and maybe even open short positions through CFDs to take advantage of the upcoming downtrend. We also need to mention that these patterns are not guaranteed, and if you see a pattern that tells you what is coming up, there is still the possibility that something else might happen negating what the pattern shows. The accuracy of these patterns depends on the patterns themselves, the condition of the market, and even the asset you are trading with. What we mean by this is that even if you know some chart patterns from trading with other assets, these patterns might behave differently in the crypto world.
Learn about trading indicators
Indicators are crucial when it comes to trading with any financial instrument including cryptocurrencies. Just like chart patterns, indicators are telling traders what is currently going on in the market, and what is expected to happen in the future. There is no successful trader who has managed to profit from trading without the help of indicators, that’s why it is important to learn about them before you start trading with cryptocurrencies.
There are many types of trading indicators that you should know about. There are indicators that might indicate the price range each asset is expected to move in, by providing support and resistance levels. There are indicators that might show you the points at which the price might change direction or they might even tell you if there are upcoming bull or bear runs. There are a lot of indicators that will help you analyze the market even further, and most of your trades should be based on the information provided by these.
Create a trading strategy
Now that you know about blockchain, charts, patterns, and indicators, it is time to combine this information and create a trading strategy. Even if you know about every pattern and indicator there is no use for them unless you combine them into one effective trading strategy.
You should learn how the crypto market behaves when each pattern shows up and which indicators are most reliable. After this, you should combine these tools into one big system, and for this, you should check which patterns and indicators work best together. But make sure that you don’t overload your strategy with too many different pieces of information. It might seem best to have a large number of tools involved in your strategy for better results, and while it might be true to some extent, overloading the strategy might also make your strategy too complicated to follow and it might work only in very specific market conditions. There is a saying that there is beauty in simplicity, and it can also be said about these strategies. If you were to create an effective strategy using only a few indicators and tools, managing this strategy becomes much easier, which in return, will generate more profits.
We would also suggest that you look for different strategies that other traders are using, but never copy and paste them into your system unless you are 100% certain that they will work. As we mentioned before, if something is working for someone, it does not mean it will work for you as well. If simply copying someone else’s strategy can be effective, everyone would look at successful traders, copy their strategy, and achieve success themselves. But since this is not the case, it shows that copying a strategy is not the solution. This should not be confused with copy trading where your trading account automatically follows a certain trader and performs the same trades. Copy trading can be a good tool, but trying to imitate a strategy yourself can be tricky. The reason we suggest looking at others’ strategies is to learn new information, understand how and why these strategies work, and then tinker with them in order for these strategies to fit in with your trading style.
Create a risk management system
Now, this probably is one of the most important parts of preparation before trading. Even if you know everything there is to know about blockchain, can spot any chart pattern in just one glance, and know how to utilize any indicators, there will still be times when the market will simply behave differently from what these tools tell us. Because of this, it is important to have a risk management system in place, as even one unfortunately timed trade might wipe out profits we have accumulated over a long period of time.
A risk management system means that you have some safety nets in place if something were to go wrong, as well as preparing a plan of action if this were to happen. For example, correctly implementing take-profit and stop-loss orders in every trade is one of the best ways to manage your risks. Whenever you open a trade, you should determine the amount of cash that you are willing to lose without damaging your trading power too much, then put a stop-loss order in place to automatically close the order if that amount is reached. Take-profit orders are another good risk management tool, and it guarantees that if an asset hits a desired price, you can take out profits automatically, without the need to always keep an eye on the market. Most of the newcomers to trading have regular jobs or are occupied with different stuff taking up their time. This means that keeping track of the market at any given moment is hard and these take-profit and stop-loss orders are there to help. There are other risk management tools and strategies that you can implement, and the ones you choose should depend on your trading style and the risks you are willing to take.
Choose where you plan on trading
There are many different crypto exchanges and financial brokers from which you can choose. If we look at these exchanges from the surface level, most of them are pretty much identical to each other. But you should always take a deeper look and choose these platforms really carefully. There are exchanges that have good spot trading markets, while other exchanges might have better margin trading terms and conditions. Each exchange will have different regulations and because of that, you might be limited in some ways. There are also deposit and withdrawal options and fees to consider, with some exchanges having better terms and options available than others. Some might be accepting PayPal, while others not, some might accept bank transfers while others don’t, and so on. There are also fees for deposits and withdrawals to keep in mind. Along with all this, there are trading fees called maker and taker fees, and each exchange will have different charges for these.
As you can see, each exchange or broker will offer different tools and opportunities and it comes down to you to choose the one you like the most. You should also check if there are any limits on the exchange that will interfere with your trading strategy in any way. Simply put, learn everything there is to know about these exchanges by reading detailed reviews on them, and only after this make a final decision.
Test out everything
Now that you have done all the aforementioned, you might think that you are ready to join the market, but we would suggest you test your trading system before you start. One of the best ways to do so is to join a demo trading market. Demo trading is when you are trading with fake funds on live simulated markets.
When you are demo trading, the risk of you losing your money is non-existent as you are trading with virtual funds. Because of this, you can see how effective your trading system is before implementing them in the real market. Whenever you see that something does not work, you have the ability to fix it, and this way you can improve your trading strategy and adjust it to the real market without any risks. Most brokers and crypto exchanges offer demo trading on their platforms for free, so there is no reason not to take this step before you start trading with real money.
Other helpful things to do before trading crypto
There is still some other stuff that will definitely help you in your trading journey. For example, creating your personal crypto wallet before you start trading with crypto is a good step to take. Even if you are trading with crypto CFDs, it’s good to have a personal wallet, and if you were to decide to keep these tokens as a long-term investment, having a personal wallet is a must.
Another good thing to do before you start trading is to join different crypto trading groups across different social media platforms. People who are involved in trading and investing in crypto form communities, meaning that if you join these groups you can easily find experienced people who will be happy to help you if you have any questions. Members of these groups also tend to share some market trends, patterns, and other useful information that they have noticed, which you can use to your advantage. But be on guard, as these groups are also filled with scammers, so don’t share your sensitive information with anyone you met online.
FAQs on everything you need before trading crypto
How much money should beginner crypto traders start with?
It all depends on the strategy you are using. If you were to use a brokerage that does not have minimal order limits, you can simply start trading with $20 – $30 to test things out. You can even start trading on a demo account without making any preparations to see how things work before creating your trading strategy.
What is the best indicator for crypto trading?
Moving averages are known to be the best indicators for crypto trading. There are many different types of moving averages, with each of them taking different information into account. The reason moving averages are so useful is that they usually tend to be more accurate than other indicators and they are also easy to understand and use. But know that there can never be one definitive best indicator, and it comes down to how you use these indicators. If some indicator is good for someone it does not mean that it will automatically be good for you as well.
What is the most important thing to learn about cryptocurrencies?
The most important thing that you should learn about cryptocurrencies is exactly what makes their prices move. Since cryptocurrencies are not backed by hard assets, their prices are speculative. Because of this, you should learn common patterns in the market that cause both big and small price movements, which you can then implement in your trading strategy and the system as a whole. This will make your trading more profitable and will increase your chances of success. But know that since crypto is really volatile, there is a good chance that prices might not behave according to these patterns, so it’s best to also have other tools in place.