How to start trading cryptocurrencies

15.02.2021 |

For an article on how to start trading cryptocurrencies

Digital decentralized money is becoming increasingly popular. More and more countries, in one way or another, are taking steps to legally regulate cryptocurrencies. Not least this is due to the increasing popularity of digital assets among private investors. While major companies have a staff of professional economists and lawyers capable of executing competent bitcoin investing deals, it is difficult for an ordinary person to understand how to start trading cryptocurrencies.


Before starting any operations on the cryptocurrency market, as well as on any other financial market, it is necessary to determine a suitable strategy for yourself. There are quite a few of them, but for bitcoin, we can name the following three:

  • long-term investing,

  • medium-term investing,

  • active trading.

The first strategy involves buying cryptocurrency for the long term. In this approach, the current price is not so important. Particular attention should be paid to the reliability of the cryptocurrency, how long it has been on the market, estimate its market behavior. Bitcoin, Ethereum, Monero, Litecoin are suitable in this case, you can choose a range of other assets, but in either way, it is necessary to approach the choice carefully. With long-term investments, you can consider cryptocurrencies as the gold of the virtual world.

For medium-term investments, with an investment horizon of one to three years, it is already possible to use a larger number of instruments. In this case, newcomers to the world of cryptocurrency investing should be cautious when buying, but as a share of capital from the total amount of investment. The rule works as on a usual financial market here. With an investment horizon of less than three years, cryptocurrencies are a high-risk asset. And the general rule states - in a high-risk asset, you can invest the amount of percentage of total capital that is obtained from the difference of a hundred and the investor’s age. For example, for 35 years old, that would be 65%. Only it is important to consider that the remaining funds should be invested in low-risk assets.

And finally, trading. This is short-term speculation on the cryptocurrency market. This type of activity requires rather deep knowledge not only in the world of finance, but also in the industry of crypto. Trading is not very suitable for novice crypto-investors, at least for significant amounts.

Cryptocurrency storage with a different approach to investment

The storage method will depend on the chosen strategy. For long-term investments, cold wallets are the best option. Also a good solution will be the purchase of a hardware wallet, its price will pay off the increase in crypto prices. Both methods have one indisputable advantage — security. No one has access to the investor’s coins, which means no one can steal them without gaining physical access to the device.

For medium-term investors, it is worth dividing storage into two types: one part on a cold wallet, the other on an exchange account. This way you can avoid the disadvantage of cryptocurrencies — low liquidity. In case of a sharp drop in quotes on online exchanges, some of the coins can always be quickly sold, which will save a larger amount of money. When investing up to a year and a half, it is worth dividing assets in the 60/40 proportion, the first part to keep on the exchange, the second part to withdraw into cold storage. With a longer investment horizon, the shares need to be swapped. And six months before the planned date of sale, all assets should be transferred to the online exchange.

What mistakes to avoid

Mistakes in cryptocurrency trading, as in all types of investing, are expensive. The use of leverage and misinterpretation of what is happening on online exchanges has led to huge losses for many traders. Only for the month of January 2021, experts have counted losses exceeding $6 000 000 000 in total. And the maximum loss of one trader, which became known, was $2 500 000. And all of this happened in one month.

Unfortunately, especially at the beginning of a crypto investor’s journey, losses cannot be avoided. But you can minimize them by learning the basics and common mistakes.

Do not make trades based on the news background. If a novice trader has learned about a certain event affecting the cryptocurrency market, it is likely that the wave has already passed and prices have shifted to a correction;

In short-term and medium-term trading, actively use stop-loss orders. If the general financial market rule applies in short-term speculation, then in the medium-term you should move the closing order to a breakeven area, for example, having bought bitcoin at $46 000, when the price rises to $46 500, you should place a stop order at the buy price;

Take profit on time. Don’t be greedy, it’s better to sell some coins at a predetermined profit level, and leave the remaining coins with a close order at the current price, so if the prices turn around, you can save what you have earned;

Do not use borrowed funds in your operations, also do not invest your last money in an online cryptocurrency exchange, hoping to get rich. The psychological pressure caused by this will not allow you to make the right decisions, and this will provoke losses;

Learning to fix losses is probably the most important rule for a beginner. Those who bought bitcoin at $20 000 in 2018 waited almost three years to break even, but very few were able to buy at $4 000.

In lieu of a summary

Don’t get your hopes too high for cryptocurrency. This world is even more complicated than the classical financial market. To be successful, you have to study a lot of material and learn how to analyze vast amounts of incoming information. Few people manage to achieve significant success in the first year. Most people close the period of beginnings in the loss or a small profit.

You should not rely on technical analysis. The cryptocurrency market is still too young. Investors at all levels do not yet have a full understanding of the technology. Therefore, despite technical signals, the market may overreact emotionally to the news. This is clearly seen at the beginning of 2021, when statements and actions by Elon Musk, essentially one person, caused the price of bitcoin to rise against the dollar by more than 1/4.

These articles are for informational purposes only and are not investment guidelines or guarantees.