Cryptocurrency markets are known for their inherent volatility. Yet, there are ways for traders to benefit from these market swings, as we will explain. CoinSwitch, India’s largest crypto platform with over 2 crore users, offers a dedicated platform for crypto traders known as CoinSwitch Pro. This article will discuss various aspects of crypto trading and simplify it for you. Let’s dig in.
What is cryptocurrency trading?
At a basic level, cryptocurrency trading speculates crypto price movements on an exchange. A trader will buy or sell a cryptocurrency via a crypto exchange to benefit from price fluctuations of the underlying token. A crypto trader will buy the token (go long) if he thinks the price is set to rise and would sell the token (go short) if he feels the price is likely to fall.
Why is crypto trading gaining popularity?
A crypto trader is someone who buys and sells crypto assets. A crypto trader is different from a crypto investor. A crypto trader will be impacted by day-to-day fluctuations in the market, while an investor stays in the market for the long run.
Cryptocurrencies are virtual digital assets that are inherently volatile. This makes them attractive to traders. The higher the price fluctuations, the higher the chances of benefiting from volatile prices.
Thus, the crypto price volatility makes it a popular asset for trading.
Learn crypto trading
Crypto trading involves significant risks and financial commitment. Therefore, it is important to learn crypto trading before you start putting your hard-earned money into it. A good way to learn crypto trading is by creating a mock portfolio and devising a mock trading strategy. This will help you gain confidence when you start trading with actual money and also minimize your chances of making hasty decisions induced by fear or greed.
Here are some tried and tested crypto trading strategies. Beginners can use these strategies for cryptocurrency trading.
Popular crypto trading strategies
Since the crypto market is known for its volatility, understanding volatility is essential for beginners and seasoned traders alike. We will discuss trading strategies that will help traders benefit from volatility and also discuss risk management for crypto traders to minimize the impact of volatility while maximizing gains. Here are some of the popular trading strategies.
● Scalping
Scalping is a trading strategy that capitalizes on price fluctuations. A trader aims to make small to medium profits by executing multiple trades in a short time. Sometimes, the duration of the trade can be mere seconds or minutes. The idea is to accumulate small gains that will add up to large gains over time.
Scalping is one of the best crypto trading strategies to capitalize on crypto market volatility.
● Arbitrage
Multiple crypto exchanges in India provide crypto trading platforms. Price is a function of demand and supply. Hence, the same crypto asset might have marginally different prices on two different exchanges. An arbitrage trader is like a bargain hunter looking to capitalize on the crypto price differential between two crypto exchanges.
The arbitrage trader will buy the crypto asset from the exchange where it is priced lower and sell it on an exchange where the price is higher. Arbitrage traders exploit the market inefficiencies to their advantage.
● Range Trading
Range trading is when traders try to gain from the price oscillation of a crypto asset within a range. In layman's terms, range trading involves buying the cryptocurrency at the bottom of the price range and selling the crypto at the top of the range.
A range trader extensively uses crypto price charts for fixed periods to identify the trading range. Using the price movement charts, a range trader identifies the cryptocurrency's support and resistance levels. The trader then buys the crypto at its support level and sells it at its resistance level to make a profit.
● API Trading
API trading is when traders use an algorithm to make trades. The trades will be executed when certain predefined conditions are fulfilled. Professional crypto traders employ API trading to benefit from fluctuations in the crypto market.
CoinSwitch has a dedicated trading platform for experienced crypto traders, CoinSwitch Pro. The Pro trading platform makes API trading easy to understand by providing set scripts for trades.
How do you pick a crypto asset for trading?
The crypto market is flush with cryptocurrencies of all shapes and sizes. Find the best-suited cryptocurrency that matches your risk appetite and trading style. Here are some tools that you can use to identify the cryptocurrency for trading.
● Fundamental Analysis
Fundamental analysis will help a trader identify the underlying factors that determine the value of the crypto. It will help a trader determine if the token is overvalued, undervalued, or fairly valued. Here are several factors that you can consider when performing a fundamental analysis of crypto trading:
● Evaluating the crypto project’s whitepaper
● Understanding the utility and use cases of the project
● Reading about the broader crypto market trends
● Analyzing the global economy and keeping tabs on geopolitical developments
● Study the social media sentiment for the token and top crypto narratives on social media.
Technical Analysis
Technical analysis is numbers-centric and involves studying the volumes and price data to predict future price movements of the crypto asset. Technical analysis will include:
● Reading price charts such as candlestick charts
● Studying the charts to identify the support and resistance levels
● Determining the moving averages for different periods
● Interpreting the Relative Strength Index (RSI) for the crypto
A combination of fundamental and technical analysis will help a trader identify the appropriate crypto asset.
Risk management in crypto trading
Crypto markets are volatile and largely unregulated worldwide. Trading in crypto assets involves regular risks associated with trading in financial assets. Here are some steps a trader can adopt to manage crypto trading risks.
Set a Trade-Specific Risk/Reward Ratio
Fear and greed are two human emotions that are a trader’s biggest enemies. Setting a specific risk/reward ratio for a trade will help the trader avoid hasty decisions triggered by these emotions.
An example of a risk/reward ratio for a trade would be a crypto trader setting the ratio as 2:1. This means the trader is fine with twice as much profit as a loss. The trade will look like:
BTC entry price: $60,000
BTC take profit: $62,000
BTC stop-loss: $59,000
Here, the trader buys BTC at $60,000, hoping the price will rise to $62,000. However, the stop loss is set at $59,000. This makes the potential gains of $2,000 twice as much as the potential loss of $1,000.
● Configure Stop Losses On Your Trades
Stop-loss orders are a crypto trader’s best friend. They are highly recommended for risk management in trading as they limit the downside risk for a trade. A stop-loss order will look something like this:
BTC entry price: $60,000
BTC take profit: $62,000
BTC stop-loss: $59,000
The trader places an order hoping BTC will gain in price, but a stop-loss order with a trigger price of $59,000 safeguards the downside.
● Avoid Excessive Leverage
Leverage trading allows the trader to trade with borrowed money. The leverage can exceed your capital and this can get dangerous. This is because a 75% leverage trade will increase a trader’s gains by 75%, but if the trade falls flat, it can also wipe out 75% of the trader’s capital.
Conclusion
Crypto trading is gaining popularity in India. It is important to learn crypto trading before you start putting your hard-earned money into the crypto market. We hope this discussion will help you kickstart your crypto trading learning journey and educate you about risk management in trading.
Moneycontrol Journalists are not involved in creation of this article.
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