Crypto markets differ from traditional markets because they are open 24/7 and are more volatile. Yet, they offer the same types of trading as the stock market.
Additionally, crypto trading allows beginner traders to employ different strategies when attempting to make profits, though they should not use a combination of types of trading.
Furthermore, they should learn about certain differences between crypto exchanges and stock markets. They also need to learn to spot bear and bull markets, different order types, and different types of trading.
Trading Cryptocurrencies
Whether you are a beginner trader or more experienced, knowing the differences between a traditional stock market and the crypto market is important for making profits.
First, prospective traders must set up a crypto wallet to store their cryptocurrencies (coins). They should choose a secure wallet that allows for cold storage of their coins and low transfer fees between exchanges.
Next, traders must set up an account on a reputable crypto exchange. There are many to choose from, depending on which cryptocurrency a person would like to trade. Traders can use Coinbase for Bitcoin, but for altcoins like Ethereum and Litecoin, they can use Binance.
Crypto exchanges offer to trade between different coins and between crypto and fiat (dollar or euro) currencies.
Crypto exchanges are also notoriously volatile. This means that crypto assets fluctuate in value over short periods. A coin might drop and increase in value daily, so traders should choose large market cap coins like Bitcoin and Ethereum to reduce the trading risk.
Finally, a trader should not begin trading altcoins. They should aim for coins with good liquidity. Bitcoin, for example, is accepted as payment on many platforms and can be exchanged for fiat currencies on many exchanges.
Scaling While Trading
Traders can use different types of trading when scaling. Traders use scaling to minimise losses and maximise profits even though they do not know future price movements. They can either scale in or scale out.
Scaling In
Traders scale into a trade by only entering a portion of their total position. They do this to monitor how their entry performs. They then gauge if the trade performs well. If it does, they add to their position at various points in the market. For example, their first entry into the market could be during a rally in the market.
The second entry could be after a slight correction in the market. Traders can continue adding to their position if the price of their position works in their favour.
Traders only risk a small number of their positions. If a trade goes against them, they only use the portion they initially traded. Another advantage of scaling is that traders can continue adding to their position without major risk.
In contrast, scaling out can increase a trader’s overall exposure in the market. That is why they need only to trade a small percentage of their positions to avoid losses across their assets.
Scaling Out
Scaling out is like scaling in, but traders sell off their positions instead of buying. Trader could monitor their positions and see which are due for a dip in the market, so they could sell off portions of their positions to gain profits while still being in the market with the positions they do not sell off.
For example, a trader could sell off a position that has been in a downward trend for a few days. They can then keep their up-trending positions open for future price runs.
Scaling out is more effective in a bullish market. Because traders do not sell off all their positions, their profits are less, and they could see drops in their open positions overnight. But scaling out does protect a trader’s profits because they exit the market.
Bull vs Bear Markets
Traders must identify when markets are in upward or downward trends and adjust their trades accordingly. They have to know the aspects of bull markets and bear markets.
A bull market increases in value over a longer period. In crypto, a bull market could be an exchange trending upward for months. In contrast, a bear market decreases in value over a similar period.
When in a bear market, where values decrease consistently, traders should short-sell their crypto and buy it back when the value of the crypto bottoms out.
In a bull market, traders should buy crypto during a correction in the market. This is when the value of a coin decreases by more than 12%. If they purchase crypto during this correction, they could hold onto their position while the market continues its upward trend.
It is also important for traders to identify the end of a bull or bear market. This would help a trader determine when to open or close out a position in the market. It is better to enter a position at the end of a bear market when the coins are cheaper. Inversely, it is better to close a position when coins have a higher value.
Trade Order Types
Traders can place orders to buy or sell crypto. Traders can place orders using each type of trading. The main order types are market and limit orders. Market orders execute as quickly as possible at the market price. A limit order is a limit at which a trader wants to sell or buy their crypto.
Market Orders
Traders in the stock market use market orders after trading has closed for the day. They do this to ensure that their stocks are either sold or bought in the quickest time. Because market orders are time-delayed, larger orders for stocks might decrease in value, meaning a trader might make a loss on a market order.
Traders can use market orders to exit or enter a market before a major event quickly. Crypto exchanges run 24/7, so most market orders are filled instantly. This means traders will not suffer from their crypto decreasing value.
Limit Orders
Traders can set a limit order on their trades. This means that they can buy or sell coins with a limit order when it reaches a certain price. For example, if a trader wants to buy $1,000 worth of crypto, the trade will only be filled when the crypto reaches that price in the market.
Traders can do the same when selling their coins. They can set a limit order for $700; the trade will only happen when the crypto reaches that value. But you cannot set a limit lower than a crypto’s market price because there are better options on the market.
There are various order types, like stop orders and stop-limit orders. These allow traders to set prices that are not yet on the market. They can then sell or buy crypto after it reaches its stop-order value.
Types Of Trading
There are different methods of trading crypto. A trader should know the different types to find the best trading strategy. Coupled with the knowledge of crypto exchanges, bear and bull markets, and order types, they can make more informed trading decisions.
Day Trading
The first type of trading is day trading. This is when a trader opens short positions each day and closes them at the end of the day. This is most common in stock markets because they close at a certain time. With 24/7 crypto exchanges, traders can determine what their day is. For example, they could open a position at 8 AM and close it at 8 PM.
Scalping
The next type of trading, scalping, is about making many small daily trades. This means opening and close positions, even if the profit is marginal. For example, a trader could buy $500 worth of Bitcoin and sell it off for $520 an hour later. The goal is to make as many trades as possible in a day.
Swing Trading
Swing trading is like holding a long position in the market, but traders focus on trends in the market. For example, a swing trader would enter a market just as it is exiting a bearish trend. Accordingly, they would exit the market when the bullish trend reaches the top. Swing traders need to use technical analysis to identify these trends.
Position Trading
Position trading is a scaled-out version of swing trading. A trader would open a position and stay with it until the crypto reaches the value they desire. This could take weeks, months, or even years. Due to the volatility of crypto exchanges, traders need to have faith and patience in their positions to profit in the long term.
Final Thoughts
Traders need to know the types of trading they can employ in the crypto market. They should know what crypto exchanges entail, how to identify bear or bull markets, and determine which order types to deploy when trading.
Crypto gives traders a 24/7 trading platform to gain quick profits by scalping or day trading. It also allows them to hold long positions by swing and position trading.
