In our article Top 10 Ways to Make Money with Cryptocurrency in 2023 we highlighted some key ways such as staking, running nodes and the like as some practical ways to make money in the crypto-verse, however in this article, we want to narrow down our focus on TRADING as a means of making consistent money in the world of crypto.
So cryptocurrency is a risky, novel and volatile asset, but with significant potential upside in both the short and long term. Your challenge in trading is to figure out how to tap into that potential, manage the risk and make money, by learning how to properly trade the cryptocurrency market.
To keep things simple at this point, let’s assume that what we mean by making money from cryptocurrency is selling it for more than you bought it for and using Bitcoin as an example.
Using Bitcoin ($BTC) as an example and thinking about the two broad approaches to profiting from cryptocurrency we’ve introduced, think about these two questions:
- Will Bitcoin’s price go up or down over the next 24hrs?
- Will Bitcoin’s price go up or down over the next 4 years?
Both questions require you to risk your money to project Bitcoin’s future price movement, which is uncertain. The crucial difference is the time frame, as this makes you think about that uncertainty, the risk to your investment, differently.
The factors that influence long-term change are different to those that influence short-term change.
When we talk about buying and selling over short periods of time (minutes, hours, days, weeks) we are talking about Trading i.e. making frequent predictions on short-term price movement (Trading is active investing)
In contrast, buying and then passively holding for an extended period of time (years) to then sell for a profit is considered Investing.
The world of Bitcoin has even come up with a term that describes the determination to hold the asset over the long term – Hodling.
So if your interest is in making money from cryptocurrency you need to understand the distinction and the different decision-making processes associated with each.
You don’t have to choose, you can be both a Trader and Investor, or neither, so long as you appreciate the difference and separate your activities.
Trading vs Hodling
Though both Trading and Hodling require you to manage risk, it plays out over different time frames – short term and long term – and the influences on risk – how it manifests as price movement, and the approaches to managing it – are different for each.
The umbrella term for analysing short-term asset price movement and volume of trading is Technical Analysis.
Taking a much broader look at the influences on the future success of the asset and measuring risk through factors that play out over a longer period of time is referred to as Fundamental Analysis.
Fundamental and Technical Analysis can overlap, but they provide a useful framework for separating trading from investing. But both approaches still come down to measuring risk.
So the basis of this section on learning how to trade cryptocurrency will start by looking at the decision-making process involved. These steps include
Technical Analysis – Understanding price and where it comes from; reading price data & price charts; interpreting historical trends; learning about volume & key price indicators
Fundamental Analysis – Understanding crypto’s key adoption/performance/health metrics; price correlation with the wider economy; available adoption/price models
Risk & Portfolio Management – how to measure risk; margin and trading size
Once you’ve understood the concepts around decision-making, we’ll move on to execution:
Making your first trade – Learning how to actually place a trade, based on your assessment, and the complexities around that.
Advanced Trading Topics: Once you have learned the basics, we can introduce more complex and riskier trading tools which can increase your exposure through leverage or by speeding up the execution process through automation.
Feet on the Ground
Whether TRADing or HODLing, you are essentially betting that you will be able to sell a cryptocurrency at a higher than the point at which you bought it.
The trick is reducing it to a skill-based decision – through a structured approach – and tilting the odds/risk in your favour.
If you simply open an account with an exchange and place trades based on nothing but instinct, or a random tweet you read, it becomes a luck-based process.
You can think of learning to trade like learning to play poker. You face a steep learning curve with the likelihood that experienced players will take advantage of the novices.
You need to have your eyes open and your feet on the ground to stand any chance of success, especially if you want to trade rather than invest. The majority of traders blow up in their first year, and that isn’t just because they fail to understand the basics of how to trade cryptocurrency, it is because they fail to understand themselves.
Trading requires knowledge and mathematical discipline – crunching numbers and trying to find an edge against the market – but just as important is having clear objectives and psychological discipline.
If you were learning to drive a car would you just follow a few online tutorials and then hit the motorway? Trading, like learning to drive a car, is a risky activity that requires the right kind of preparation.
If you feel uncomfortable making losing trades and are overcome by a desire to try and immediately regain losses, you aren’t cut out for trading.
If you have read till this point and still are unfazed by the challenges trading will present and you are determined to make money in the crypto sphere by trading, then Join our DISCORD community now as on the 11th June 2023 we will be hosting a FREE BEGINNERS GUIDE on the blockchain and digital currencies and the possibilities it presents to make money