Trading digital currency can earn you handsome profits if you use the correct strategies. Read this article for practical tips you can apply to your crypto trading.
By 2021, the global cryptocurrency market was valued at USD$910.3 million. And these figures are expected to increase at a Compound Annual Growth Rate (CAGR) of 11.1%, hence the value in 2028 will be around USD$1,902.5 million. That tells you that there’s a lot of money doing rounds in the digital currency arena. You’d want to join crypto traders and likewise take home some handsome profits as some of them do. (1)
If you live in Australia and are interested in trading digital currencies, here are some practical tips you need to consider:
Choose a reliable crypto exchange
Although it’s extremely difficult to quantify global crypto exchanges, estimates reveal that they’re currently more than 500, and the number is rising rapidly. With such a wide range of options, you’d want to know how to choose one.
Thankfully, reputable websites, such as Best Crypto Exchange Australia, have in-depth analyses of the different crypto exchanges in Australia, so you’d want to check them out. But for a brief outline, here are some critical factors to consider when choosing a crypto exchange:
Investing with a non-regulated crypto exchange is risky. Such exchanges can defraud you of your investment, and you’ll have nowhere to report the matter since they’re not under any regulatory body. So, always confirm whether a given crypto exchange is licensed by reputable bodies, such as the Australian Transaction Reports and Analysis Center (AUSTRAC) before you decide to do business with them.
Trading digital currency comes with several fees, including deposit fees, buy/sell spreads, withdrawal fees, swaps, dormancy fees, and more. The higher these fees are, the fewer profits you take home. This is especially true with the spreads since they’re deducted with every trade you open, regardless of whether or not you’ll make a profit. So, make a point of analysing the different crypto exchanges to determine whose fees are most friendly.
- Payment options
In choosing a crypto exchange, it’d help if you settle for one that supports your favourite payment option. The most common payment options are credit cards and wire transfers. But if you’re a fan of mobile payment or e-payment, register with those exchanges that accept Paypal, Skrill, Neteller, Kash, or AfterPay.
- Customer support
If you notice that the customer support agents of any crypto exchange are abusive or don’t offer you the help you need, you better walk away as soon as possible to avoid more problems further down the road.
- Assets supported
According to Investing.com, the number of cryptocurrencies at the time of writing this article was 7,820. Though it’s impossible to trade all of them, you’d want to open an account with an exchange that supports as many of them as possible, so you can pick your best cryptos. This gives you room for diversification. When investing, it’s advisable not to keep all your eggs in one basket. (3)
Leveraged trading allows you to open trades that are much larger than your capital. In essence, the crypto exchange lends you some money to trade with to increase your profit potential. If you’re offered leverage of 1:50, it means you can control trades that are 50 times more than your capital. (4)
While it’s a great way to maximise your profits, it also means that you can make equally huge losses. So, don’t over-leverage when trading digital currencies. It’d be best to limit your leverage to about 1:5, even though your crypto exchange allows higher leverages.
Risk only a little
For you to survive in the trading game for a long time, make a point of risking only 1% of your account size per trade. There’s no denying that you can incur many losses in a row when trading crypto. If you risk just 1% on every trade, it means you’ll have to make 100 losses before wiping out your account.
But if you risk, say, 10% on every trade, you’ll only need to have ten losses to bring your account balance to zero. Thus, always risk a little for every trade you place. Of course, this approach means that your profits will trickle in slowly. But it guarantees that you’ll always have the capital to continue trading even after incurring several losses in a row.
Plan your trades, trade your plan
There are dozens of strategies and indicators you can use to trade crypto. These include:
- Moving averages
- Support and Resistance
- Channel breakout
- Trend reversal trading
- Candlestick patterns
- Relative Strength Index (RSI) Divergence
- Fundamental analysis or news trading
It’s advisable to stick to and master just one strategy until you become profitable. Then, you can try another strategy if you wish to expand your investment approach. Once you decide to use a certain strategy, don’t allow emotions to rule over you once you’re at the charts.
Have definite entry and exit rules, take profit targets, as well as stop-loss levels, and then follow them to the letter. This way, you can evaluate the past 100 trades and conclude whether the strategy you’re using has a profitable edge in the market. If it does, you can continue using it for the rest of your lifetime. But if it doesn’t, then it’s high time you learn another crypto trading strategy.
Pick a strategy depending on how much time you have
The general rule of thumb in crypto trading is that if you trade the 1-minute chart, you’ll have to check the charts after every minute. And that applies to all other chart timeframes. Thus, if you have the time to analyse the charts every other minute, then you can settle for scalping. This involves getting in and out of trades in a matter of minutes, which means you’ll end up opening dozens or hundreds of trades every day.
If you’re not wired for scalping, you can still choose higher time frames and have a more relaxed trading day. For instance, if you have a nine-to-five job, you can consider trading the one-hour or four-hour time frames.
Better still, you can use the one-day or one-week timeframe if you intend to buy and hold crypto for several months. The higher the time frame you use, the less hectic the trading is.
Trading digital currency can turn out to be a profitable venture as long as you approach it in the right way. Your first concern is to choose a trustworthy crypto exchange that’ll manage your invested cash properly. Then, have a trading plan that comprehensively details your entry and exit rules and acceptable risk levels. If your strategy has a competitive edge and if you follow it to the letter, you’ll eventually end up profitable.