How to get started trading Cryptocurrency
So you want to start trading in all of the wonderful cryptocoins you hear so much about? Maybe you just want to know how you get this STEEM into a fiat currency like USD. I'll write another short article about that. This one is for trading.
1. Buy some currency at Coinbase with real money. Or just deposit some into your Coinbase USD wallet
Sorry, not real money, since cryptocurrency is real money too. I mean fiat currency like USD, or EUR. Goverment currency if you will. From now on, I'll just say USD because I'm in the USA. You can replace it with EUR or GBP or whichever your local currency is.
Pick a currency you really like, or use the USD wallet. Bitcoin is usually a safe bet, but pick one of the three they have (BTC, ETH, LTC) that you want to start with. Now ask yourself, do you want to start with Easy Mode, or go straight to Normal Mode?
2. Easy Mode (GDAX)
You can skip this step if you want to go straight to Normal Mode. This step is designed to get you used to watching graphs, buying low, and selling high. First thing to do is sign up for GDAX, this is the easy mode exchange. It's Coinbase's exchange so it's super easy to transfer currency there. Once log in with your account, you'll notice a big scary dark screen with bars, numbers, and a left panel with BUY and SELL. If this is intimidating, read this: https://community.coinbase.com/t/coinbase-bitcoin-exchange-walkthrough-pt-1-trade-history-and-price-charts/8733 so you can understand how candles and moving averages work.
Now that you understand how everything works, it's time to decide on a strategy. Do you want to wait until a panic, and buy a currency then? Do you want to follow the Exponential Moving Average Crossover strategy? I'll explain the two of those really quick, but I may do an article later on other strategies I've discovered. One thing to keep in mind is to always check the news of your currency you are trading. News, whether good or bad, should trump your strategy.
Average Crossover
The idea for this strategy is that you buy when the orange line (short-EMA) crosses above the purple line (long-EMA). This usually means that, in the short term, you will see a gain. Then, you sell only when the orange short EMA line crosses below the purple long EMA line. Don't panic and sell when the current price goes way above and then down again, it may shoot up more. Be patient and only cut your losses if that orange line drops below the other line again. Now, this may sound like you have to keep checking, and that is somewhat true, so it might not be a good strategy if you can't keep checking every 30 mins or so. Here's a diagram:
Panic Sell? Time to Buy
The idea is that you don't hold currency for long. You wait in your USD reserves until you see a panic sell. Look at the history of the currency to see what that looks like. You'll see the current price drop sharply over 15-30 minutes or so. First, always check the news. If there is bad news about a currency, don't buy it. Remember that news trumps your strategy. If there is a panic sell with no bad news, buy in. Now, wait until the price recovers at least 50% of what the panic was, and sell. You can easily do this by simply placing a LIMIT sell order for 50% above how much it dropped. Here's a diagram:
You can even do this strategy without checking often. Do this:
- Place a LIMIT buy order at the bottom of the last panic sell
- Once that buy order triggers, place a LIMIT sell order right between the bottom and the top of the panic.
3. Normal Mode (Poloniex)
Now that you've gotten your feet wet, it's time to join the big league. Poloniex has many many pairs of cryptocoins to trade in, so you can diversify your portfolio. But they do not deal in USD, or any fiat currency. They use USDT, which is tethered to the dollar by Tether.io. They hold $1 for every USDT in existance, and that way, the cryptocurrency USDT is always worth $1.
- Create an account on Poloniex.
- Make sure you have some currency on GDAX or Coinbase, or wherever you want (NOT USD)
- Use Coinbase/GDAX to send the currency to your deposit address on Poloniex (there is a small button on the buy and sell windows on Poloniex that says "deposit XXX" where XXX is the currency you are on).
- Now once your currency is deposited, trade with BTC or USDT and start trading multiple currencies at once.
Beware the "Trollbox". The Trollbox is the chat box on Poloniex. It's called that because people sometimes try to hype up a coin they have bought into to hopefully cause a panic buy, driving the price up. Then once the price is way up, they sell, causing a panic sell, and driving it back down again. If you know how to spot things like this happening, you can use it to your advantage. Also remember this: during a panic, you only lose money if you sell. If you want out, place a sell order back where you bought in and be patient. Unless you missed some bad news about the coin, it's likely to recover.
Also be careful using STOP-LIMIT orders. These types of orders are basically "If the price is above/below this, place a buy/sell order at this price", and it will even tell you before you confirm. STOP-LIMITs can be useful if you want to limit your losses or automatically sell if this price spike ends and starts to drop. But keep this in mind: if the price dips below your STOP trigger, and you sell, and then shoots back up again, you'll be kicking yourself for missing the boat.
You'll want to buy some BTC so that you can trade in the many coins on the leftmost tab that only trade with BTC (including STEEM and SBD). This is how you would get your STEEM (or any coin) back into USD, simply follow these steps in reverse all the way back out to Coinbase, and deposit to your bank.
4. Hard Mode (Margin Trading)
WARNING: Margin trading is not for the feint of heart, and you can easily lose all of the coin you have from just a small panic. What you are basically doing is borrowing someone else's coin to amplify your gains and losses. But if your losses are so much that you aren't able to pay back that person, the system will automatically sell, and use the collateral you've deposited to help pay back the lender. And on a panic, this can easily happen if your margin [for error] is low, and you use your entire available trading balance.
You have to have steel nerve and a rapid logical decision making strategy to margin-trade. But if you know what you are doing, you can make a killing.
Now that you understand the risks, there are two types of margin trades.
Long
This is what you'd expect margin trading to be. You borrow BTC to buy a certain coin in hopes it will go up. And when it does, you sell and only pay back what you borrowed, keeping the profits.
Short
This is the opposite of a Long. What you are betting on is that the price will go down. You borrow someone's coin, like LTC (Litecoin) for instance, and then sell it for BTC. If Litecoin drops in price, then you buy back what you borrowed and return it to the lender, keeping the rest of the profit from the initial sell for yourself. But if the price goes up... then it will cost you more to pay back the lender's coin, so you will take a loss.
So if you know exactly how to play the trading game, you can Short a coin when you know it will go down, and trade a Long on a coin when you know it will go up. That's why this is called Hard Mode, because the risk is great, but so is the reward. And the stress is much higher too. I know from experience.
Thanks for reading
I know this is a lot to take in. But once you get started, cryptocoin trading is really engaging, and if you treat it like a game, it can be both fun and rewarding. Be careful to only use play-money to start out with, treat it like gambling at a casino. Only put money on the line you are prepared to lose. And once you're in comfortably, you can take your winnings and cash them out back at Coinbase. And then you can say to your wife/girlfriend "see, I can buy things like an HTC Vive, I made $1000 trading cryptocurrency".
This has been Alavan, please upvote if you enjoyed this, and follow me if you want to learn more about this.
Thanks for reading!
Good article babe. Although it's over my head. LOL
Bitcoin is always going to be one of the best performing cryptocurrencies in the future to trade. Check out my blog for a guide for the best Bitcoin trading strategies in terms of timing since there's a lot of volatility due to the hard fork.
https://wikicrypto.com/how-to-trade-bitcoin/
Thanks!