Once you have your USDT or whatever currency you purchased you can start trading, the first rule of trading in crypto is:
ONLY PLAY WITH WHAT YOU CAN AFFORD TO LOOSE
There are two strategies, you can buy bitcoin and hold long term 3+ years or you can play the market.
Buy & Hold
The fixed/capped supply of Bitcoin at 21M and the addiction pretty much all countries have with printing money when they need it inevitably means the local fiat (dollar) value decreases hence the value of Bitcoin has to increase. Bitcoin does go through price pullbacks/corrections which can last several years so you must be in it for 3 years + but simply buying and holding works, look at the historical chart below.
Playing the Market
The objective here is to BUY LOW & SELL HIGH, simple right…?
Its much easier said than done so take your time, learn, do mock trades before using real money.
Day Trading where you make a few trades a day to net 5-10% takes years to perfect, its not as easy as people make it out to be and I advise a beginner to not even think about doing this.
Casual Trading here and there is a lot of fun and quite addictive, especially when you actually make money!
Spend some time understanding how to use whatever exchange you decide to use, first of all DON’T USE MARKET ORDERS, the keys things you should learn are:
LIMIT BUY ORDER
You nominate the price you want to pay for an asset, when the asset reaches that price your order is executed automatically, this can sit as an open order for weeks. If you leave the BUY setting as MARKET you will purchase the asset at the going rate, this normally works but you can get caught by a market spike much higher than you expect, I have had nasty surprises doign this.
LIMIT SELL ORDER
Same as the Limit Buy Order, when your nominated sell price is reached your order is executed.
Just be aware that if you set a sell price lower than the market price its going to trigger straight away, always set your sell prices just above market price, you want the highest price possible.
Stop Losses are the same as a limit sell orders except its used to sell an asset on a dropping price, its where you set a price then if the market price falls below that your order is executed, its a safety net if you suspect your asset might be due to crash. If you used a limit sell order on a price lower than the current market price your order would execute straight away, I have done this by mistake, its not good!
With Stop Losses you set two limits, one is the price at which your order becomes active and another is the actual sell price.
THINGS I WISH SOMEONE HAD TOLD ME
- If you are trading alt coins (not bitcoin) don’t become attached to one particular coin, feel free to chop and change, there are thousands of coin options out there…
When I started POWR was my favorite, I put everything into it to see it drop by over 95%!
- Diversify, if you want to play the alt coins you should have roughly half your portfolio in bitcoin too, its the grand daddy, it moves before the ALT’s. Generally as bitcoin peaks people sell alts to fomo into bitcoin so alts become cheap, then when bitcoin peaks you can buy cheap alt coins, as alt’s increase bitcoin decreases until it swings back.
- Be aware every sale will incur a fee so make sure you are covering your exchange fee’s in your margins if doing lots of small trades.
- Be aware of your tax liabilities, generally any crypto sale is a taxable event but depends on your countries regulations.
- TAKE PROFITS
Its easy to keep re-investing and building up what your holding but you should force yourself to sell some when prices are high, crypto goes down faster than it goes up. I have ridden huge highs all the way to the gutter and regretted it.
Should I Sell or Hold?
This is a dilemma you will face repeatedly in crypto, a coin goes up and up and you think you should sell but then you think, what if it keeps going up, then I’m missing out? Its a horrible feeling watching that rocket going up after you have sold.
Its a tough one, I found the best way to handle this is to just sell half, that way you are having the best of both worlds, your keeping skin in the game and you can actually relax too as you have some profits secured.
Same goes for deciding when to buy in on a dropping coin, what if i buy in and it keeps going down?
THIS WILL HAPPEN, don’t beat yourself up over this, making a perfectly timed entry is not easy, actually damn near impossible, if you enter too early don’t stress just hold, prices usually come back up, don’t sell at a lower price and chase your tail.
Dollar Cost Averaging
Another technique is Dollar Cost Averaging, this is where you put in 10% or 20% of what you want to spend at steps down in price. The advantage of doing this is if the price bounces up and never reaches your low target you find yourself with a profitable investment, if it drops further then the price of your next purchase averages the cost of your overall coin price down a bit.
A good resource tool is www.tradingview.com, create a free account and select Chart. You can set RSI indicators and many other tools and easily play around. To monitor Bitcoin in this you would enter BTCUSDT in the Symbol Search Box (top left corner)
THE ART OF TECHNICAL ANALYSIS
Technical Analysis of charts is a method of predicting what is going to happen based on historical patterns forming, there are numerous pattern configurations some simple, some complex to spot. This is not an exact science as patterns change depending on what time scale you are viewing and are only a guide as to what might happen.
The following two techniques have worked for me and are a good place for beginners to start experimenting with.
A support level is a price on a chart that tends to act as a floor preventing the price of an asset from being pushed downward, if you see an asset bouncing at a level repeatedly this generally means this is the area where the market see’s value and might start to push prices higher again. If your watching a chart live this is a price to buy in.
If your looking backwards in time on a chart like the one below you can see price has bounced around $19k and $22k a few times, these levels can be considered support levels which means if the price starts falling you can expect there to be support, a bounce at these levels.
So if bitcoin suddenly starts crashing and you quickly sell this gives you an indication of where you could re-enter and buy back in, you could set a buy order at say $23k or $20k with some confidence it will bounce back up at this point.
Of course there are no guarantee’s, this is all theoretical and in the real world practice doesn’t always align with theory but it does tend to work more often than not. Its a good idea to watch the charts and do mock trades without actually transacting money to get confidence in doing this.
RSI over 70
RSI (Relative Strength Index) is a tool which identifies if an asset is overbought or oversold, traditionally an RSI with a value of 70 or above indicates that the asset is becoming overbought or overvalued and may be due for a pullback in price.
So looking at the chart below you can see the points where RSI peaked over 70 matches with drops in price, you can use this indicator as a guide when to sell.