Crypto Trading Guide For Dummies and Beginners
The Definitive Cryptocurrency Trading Guide For Dummies 2020
This is the ‘Crypto Trading Guide for Dummies’ where you’ll learn about crypto trading from someone who’s been trading cryptocurrency full time for 3 years.
We’ll be covering
- Where to trade and why
- Where to chart coins
- Types of trades
- Fundamental technical analysis
- Risk management
- Trading concepts that actually work
- Trading terms that you’ll see spoken about
- A FAQ.
Table of Contents
The first time I started learning about trading before I even knew what cryptocurrency was I was truly confused, it seemed so easy yet so hard!
(Don’t worry, I’m not going to try and sell you anything)
All these different terms like swing trading, scalping, arbitrage, shorting, funding, contango, leverage, fiat, cold and hot wallets, heiken ashi candles, ichimoku cloud, super guppy, ICO’s, wedges, triangles, supply zones, volume profile, backwardation, perpeutal swap contracts, futures, spot market… the list goes on and on.
This will be a resource to help crypto trading beginners and intermediates navigate the cryptocurrency trading environment with an end goal to help you either make a dollar or avoid losing as much as possible.
First off, you’re going to need an exchange to trade on.
The following exchanges are the ones that I recommend because I personally, and frequently, only ever use them.
This may change however because the exchanges I trade on now aren’t the same ones I traded on last year, and they weren’t the same ones I traded on 2 or 3 years ago. I’ll update these as they change.
There are a lot of shitty exchanges out there with zero liquidity and bad reputations.
None of these exchanges are perfect but they’re the best that are currently on the market.
Where I trade (in order of frequency)
Bybit has proven itself to be a big player in the crypto market. Offering the following derivatives markets:
The benefits of using Bybit:
- 24/7 multiligual live support! Almost the only exchange that does this
- Has some of the best liquidity
- No KYC – Only an email address is required to create an account
- The best trading engine
- Shows PNL in USD and BTC
- Withdrawal 3 times a day
Why do I trade on bybit?
After years of putting up with bitmex’s overload(which has gotten better recently) I made the switch to bybit because it actually works when you need it to. It’s the main derivatives exchange I use to trade bitcoin with leverage for shorter term positions.
Bitmex, the leading derivatives exchange by volume is also another easy choice if you’re looking to trade bitcoin on leverage.
- The most liquidity, easily trade $10,000,000 positions.
- Futures contracts which is good for hedging positions
- No KYC – Only an email address is required to create an account and no limits on withdrawals
- Has never had funds stolen from a hack
Why do I trade on bitmex?
I use bitmex to trade mostly longer term swing positions. I’m very familiar with the layout after using it for almost 3 years now. It’s never been hacked so I feel good about leaving bitcoin on there. It’s also a market leader in bitcoin price and has the most volume and liquidity.
FTX is a good upcoming exchange offering the most innovative products to trade. Their claim to fame was their CEO getting two leaderboard positions on the bitmex leaderboard.
They offer many different altcoin perpetual contracts to trade like LINK-PERP, ALGO-PERP, MATIC-PERP plus some other contracts like SHIT-PERP which is an index of 10 low cap altcoins. No one else is doing this. They also obviously offer BTCUSD swap contracts. Keep in mind these perpetual contracts are ALTCOIN/USD and not ALT/BTC.
- Instant withdrawals
- Free withdrawals
- 101x leverage on almost all products
- Perpetual swap contracts with lots of altcoins
Why do I trade on FTX?
It offers leverage on altcoins. I don’t have to have much of my capital tied up to have a normal size position on an altcoin. They also offer products that you can’t trade anywhere else like the MOVE contracts, which let you speculate on how volatile bitcoin will be. This is so underrated in the market right now. The altcoin pairs that they offer are however against USD. For example, the TRX-PERP is essentially TRX/USD and not TRX/BTC. Big difference!
Binance, one of the most well known exchanges in crypto which has the most liquidity for altcoins. If you’re going to be buying and trading an altcoin it’s likely going to be on binance. Binance offers leverage for altcoins up to 5x, but also non leveraged markets.
You’ll find your typical altcoin investor here.
- Best liquidity for altcoins
- No KYC – Only an email address is required to create an account
- The most altcoin markets
Why do I trade on Binance?
It has the biggest market of altcoins and the most liquidity. I’ll be trading there if I want to buy an altcoin at spot price. Basically every altcoin worth trading or holding onto will be there. However it’s likely that the altcoins with the biggest return (gems) will be on a small exchange that i’m not recommending here for obvious reasons. They also offer leverage on the altcoins/bitcoin pairs up to 5x which is more than enough. While FTX does do this and more, their leverage is against ALT/USD pairs and not ALT/BTC pairs like binance does.
Secondly, now that you’ve found an exchange you’d like to trade on you’re going to need to see the data for that coins price action history on a chart. You don’t want to be blindly buying or selling a coin.
You’ve likely seen charts like this getting around.
Which platform do they use?
Tradingview is the gold standard in charting software, it offers all the charts from the major crypto exchanges like binance, bitmex, bybit and ftx for free.
The free version will likely be enough for you but there’s a paid plan as well for other features like bigger lists, volume profile, more charts per tab, custom time candles like the 3day candle or even a 12min candle, number of saved layouts etc. costs about $15 a month, but if you buy then immediately cancel they’ll automatically make it cheaper for you 😉
How to find a coins chart using tradingview
Go to tradingview.com and click on ‘Chart’.
Next to find a coins chart in tradingview, type in the coins name or ticker (the ticker is the abbreviated name like eth, trx, btc, eos etc. for your crypto) that you’d like to see in the ‘add symbol’ search bar.
For example we want to see the Ethereum chart;
You can either type in “ethereum” in the add symbol box in the picture above that i’ve pointed to, or, you can type in the coins ticker “eth”.
As you can see, a list of Ethereum charts will drop down.
On the left side in the green box is a list of different ETH pairs that Ethereum is trading against. Whether it’s ETH/USD, ETH/BTC, ETH/EUR etc.
On the right side in the yellow box is the chart from the exchange that Ethereum is trading on.
When you click on the Ethereum chart you’d like to see, it will automatically add into your list as you can see on mine at the bottom.
For this example i’ve used the ETHUSD Bitfinex chart.
From there you’ll click on it and the chart will come up! Done!
Note that in the top left of the chart you can also see the coin that’s laid on the chart and the exchange it’s being traded on.
A long trade means that you’re buying and expecting price to rise.
A short trade means that you’re selling and expecting price to fall.
You won’t have a ‘short’ position unless you’re trading with leverage. If you’re not trading with leverage, you don’t need to worry about this!
A leverage trade is a trade when you’re using the same amount of capital for a bigger position size.
An example is a trade with 10x leverage.
You put $1,000 capital upfront and can now trade with a $10,000 position size.
This is leverage.
However, your margin for error is much smaller.
For example, you go long on bitcoin with 10x leverage at the price of $7,000.
– You’re using your $1,000 for a $10,000 position.
– Your position is $10,000 long at $7,000
– If the price goes down roughly 10% to $6,300 you will get liquidated, or margin called, and lose your $1,000.
(Both Bybit and Bitmex have really nice calculators for this!)
However if bitcoin were to go up 10% you would make $1,000.
Leverage trading is risky and should be avoided by beginners.
Leverage trading does have its advantages, mostly counter-party risk. You don’t need to have all of your capital on the exchange to trade with your regular sizing.
A scalp trade is a trade with a very short time horizon with an expectancy for a small fluctuation in price or percentage move.
This is an example of a ‘scalp’ trade. The time frame for this trade is anywhere from a few seconds, minutes, to maybe a few hours.
The price fluctuation expected is a $50 move or 0.7%.
However, scalp trades can often turn into longer day trades or swing trades!
One size does not fit all.
If you’re ‘scalping’ you’re looking to get in and get out relatively quickly.
Crypto, unlike stocks who define this as ‘Intraday Trade’ because of the markets opening and closing daily, has what I call ‘Interday Trade’ as crypto is a 24/7 market.
This is a trade time horizon between a swing trade and a scalp trade.
These trades typically last from a day to a week.
A swing trade has a bigger time horizon from anywhere from a few days to a few weeks or even months. You’re looking to trade from level to level on a higher time frame, basing decisions on daily and weekly candles.
A swing trade is primarily looking to get the meat of the move and not worry about lower time frame price fluctuations.
Position trading in crypto translates to ‘hodl’. You’re basically invested for a long time period, whether that be months to years. This is not something I personally recommend in crypto but it is extremely common.
4. Fundamentals of Technical Analysis for Crypto Trading
The first thing you should learn when it comes to technical analysis (I will call it ‘TA’ from here) is…
- Horizontal Support
- Horizontal Resistance
Support is where the coins price has gone to its lowest and not gone down any further. This is where it has support for its price to stop going down. More people are buying here than selling. Demand outweighs supply. This is also known as a demand zone.
Resistance is where the coins price has gone to its highest and not gone up any further. This where it has resistance for its price to stop going up. More people are selling here than buying. Supply outweighs demand. This is also known as a supply zone.
Horizontal support and resistance is the most powerful form of TA. Nothing else is more important. You can probably skip over every other indicator and trading concept once you understand support and resistance. It’s at the core of my trading now. Horizontals are KING!
How to Identify Horizontal Support and Resistance
Now that we know where to trade and where to chart coins, lets say you know of a coin that you want to buy for whatever reason. Instead of blindly FOMO’ing in like a dummy, you want to know where the best place is to set your bids. Lets say that coin is EOS.
First, like above, you type into the search bar on tradingview EOS.
When the chart comes up, you want to go to the monthly time frame as shown in the picture below. This means that every candle represents 1 month of trading.
When charting horizontal support and resistance, we want to start from the higher times frames first. The higher the time frame, the more powerful the level.
1 month -> 1 week -> 1 day
From here you’ll see the monthly time frame chart of EOS.
Now that you’ve got the monthly chart, where do we see that price has found support and not gone down any further? Let’s draw some horizontal lines.
First, lets get the tools on tradingview to do this.
On the left hand side of tradingview there’s a vertical bar of different charting tools.
On the second box down, next to the arrow, click the smaller arrow to get the drop down menu for the other charting tools, then click ‘horizontal line’.
From here you’ll have the horizontal line tool ready to click anywhere on the chart. Try it!
Now that the horizontal line is selected, we look on the chart on the monthly time frame to see where has price stopped going down and started going back up again? Lets draw some support lines where this has happened on our EOS chart.
We’ve now found our high time frame support!
Obviously, trading is risky and nothing is certain. Ever. Trading is about probabilities and stacking them in your favour. Buying support doesn’t mean it has to go up, however, it does stack the probabilities in your favour that if you buy at support, and not at resistance, you’re more likely to make money.
Now let’s find where resistance will be!
We take the same steps that we’ve already taken, except this time we find where price has failed to go further up and started coming back down again.
We’ve now found our high time frame resistance levels!
In general, the first time a support or resistance level is touched, the more powerful it is.
In essence, it’s a fresh support level, the buyers have not yet been exhausted, and the same goes for resistance. The more times a level is tested either way, the weaker it gets (This isn’t always true but a general rule of thumb for horizontal support and resistance levels).
5. Risk Management - The keys to Success in Crypto Trading
Risk management is the most important aspect to successful trading. There is nothing more important. I can not stress this enough. It is the key to success!
Let’s look at why.
Read and re-read this cheat sheet from edgewonk.com and you soon start to realise just how important risk management is.
Lets also look at this in another light and we can build from there.
Given what we now know from these stats, lets paint a situation;
Someone see’s a lifestyle video on youtube with fancy cars and a guy travelling all over the world. A guy who looks to be really ‘living the life’ from trading.
They decide they want to give trading a go and deposit $10,000 in their account.
This person with little knowledge and experience in trading decides to play it smart and ‘only’ risk 5% per trade.
They lose their first 5 trades in a row. The first two trades go in their favour but they get greedy and hold on, only to watch it move back past their initial entry and then continue to hold on in hopes they can at least get back to breakeven. It doesn’t. The next three trades are then emotional losers. They are now down 22%, or, $2,200.
They now need to make just over 25% just to break even again.
The slippery slope begins.
Risk management is key
Being 22% in the red is hard enough for any trader to get back let alone someone brand new to the game. If you have a win rate of 30%, there’s a 70% chance you’ll lose your first trade and a 34% chance you’ll lose 3 in a row. What would losing 3 trades in a row do to your confidence?
Lets say after losing $2,200 (22%) on this persons first 3 days of trading he is now tilted like crazy. Feeling sick from the money they just lost they want to revenge trade to get it back. They start looking to the sky and promising god if they can just get back to even they will never trade again! So they risk $3,900 (50%) of their now $7,800 capital in one trade.
They of course lose this trade as well. Not thinking clearly, making bad decisions. A further $3,900 with an emotional trade trying to get back their losses, gone.
Now down $6,100 ,or 61% of their initial capital, for them just to break even they need to make 150%. The best hedge funds in the world averaged a return of 5.4% annually in 2019.
Risk management is dynamic
This builds consistency and confidence when learning until you have proven to yourself that you can trade profitably over a period of time. You’re going through the motions with extremely little cost but still trading with real money.
Risk management is dynamic. What do I mean by this? As you gain experience trading, you will gain experience with risk management and knowing how much or little to risk each trade. When to add on size(risk) and when to take off size(de-risk) – if this isn’t you then risk as little capital as possible.
To put it simply,
Trading is a marathon, not a sprint!
This is my list of trading concepts that i’ve found to actually work. I’ve used every indicator under the sun, in fact there was a time when I simply could not trade without the StochRSI. From the superguppy, ichimoku cloud, rsi, fishnets, moving averages, fibs, alligators, wedges, trend lines, bear/bull flags, volume profiles, bollinger bands, elliot waves, MACD, EMA’s, stochastic RSI, ascending triangles, VWAP’s, volume osscilators to fucking compound fulcrums.. Now I don’t use any indicators, not even volume.
What is…? Trading terms explained for the everyday trader. You’ll hear different terms thrown around like “futures are in contango”, “CME Gap filled”, “Funding is negative”, “4% cash and carry opportunity”.
Here I’ll explain what they all mean.
Frequently Asked Questions
What is volume in crypto?
Volume refers to the amount of coins or contracts that has been traded.
For example if you head to https://coinmarketcap.com/ you’ll see ‘volume’.
This is showing that bitcoin has traded $27 billion dollars worth of bitcoin in the past 24 hours, or, its volume.
What are crypto trading hours?
Cryptocurrency trades 24 hours a day, 7 days a week, 365 days a year. It never stops!
Which crypto exchanges allow margin trading?
The crypto exchanges that allow margin trading that I personally use and recommend are Bybit, Bitmex and Binance.
What is OTC crypto trading?
First, what does OTC stand for?
OTC stands for “Over The Counter“.
OTC crypto trading is when it’s done directly between two paries and not on an exchange.
An example of OTC trading taking place would be from a large player looking to buy a large quantity of one specific coin.
A reason a large player might do this is because an exchange may not have enough of that coin available on the market, or, buying a large quantity of that coin on the market would significantly drive the price up of that coin causing slippage.
What is slippage?
Slippage is when the price of a coin changes while placing a market order causing your entry or exit to be either higher or lower then you intended. This is common with large buying or selling.
- You market buy $1000 worth of bitcoin at $7,000.
- You get filled on your order for an average price of $7,002.
- You’ve incurred $2 slippage.
Slippage is bad.
What's crypto trading?
Crypto trading or cryptocurrency trading is the exchange of cryptocurrencies on exchanges.
Will the crypto market recover?
Crypto is not going anywhere. As John McAfee once said “Pandoras box has been opened” in regards to cryptocurrencies.
What he means by this is that there is no going back and crypto is here to stay.
The crypto market has nothing to recover from, it’s only getting started!
Can you make money trading crypto?
Short answer, YES!
The long answer, you will very likely lose money first before you make money.
Trading is hard ,takes practise and requires proper risk management to succeed!