Cryptocurrencies have experienced huge, volatile price swings in recent years. Some crypto traders have thrived from this while others have not. So what exactly separates a successful crypto trader from the rest? More importantly, how can you set yourself up today to become the best crypto trader you can be? Find out in this ultimate guide on how to become a successful crypto trader.
What is a crypto trader?
Before we go through how to become a successful crypto trader it’s important to know the different types of crypto traders there are, as the concept of ‘success’ will differ between them.
Essentially, a crypto trader is an individual who speculates on the price direction of a cryptocurrency like Bitcoin. For example, let’s say a crypto trader believed the price of a cryptocurrency is likely to move higher and therefore wanted to buy it. They have two options:
A crypto trader’s first option:
Buy the cryptocurrency via a cryptocurrency exchange, which tend to be unregulated and prone to hacks, as we discuss in more detail further down the article. Using this option the trader will need to put up the full value of the position and then store the cryptocurrency tokens in a secure wallet until they are ready to sell them at a profit or loss.
This option is much like an investor buying a physical asset like shares of a publicly-traded company and trying to hold them for the long-term in the hope that they will appreciate in value. With cryptocurrencies, however, the volatility of price over the long-term is why many investors shun this type of style. For example, the chart below shows the trend of historical prices in Bitcoin vs the US dollar (BTC.USD):
From 2012 to most of 2019, it is clear to see the wild swings in the price of BTC.USD, both to the upside and to the downside. While some traders can be successful in buying physical cryptocurrency, it really does depend on when the trader gets in and gets out – something we will look at in more detail in a later section. Let’s now take a look at the second option available for crypto traders.
How to be a successful crypto trader
Success as a crypto trader will mean something different for each individual trader. For some, it could be making a profit on a live or demo trading account trading from the 30-minute chart. For others, it could be making a profit from shorting cryptocurrency CFDs. Ultimately though, success will most likely come down to making a profitable return on the capital you risk.
However, as with any business, the tools you use will have an impact on your overall success. After all, you don’t want to spend all your time researching and analysing a high probability trading opportunity only for your trading platform to break down on you!
Here are some of the tools you need to increase your chances of long-term success as a crypto trader:
Crypto trader success tool #1: The exchange
For those buying physical cryptocurrency, they have to do so via a cryptocurrency exchange. These are often unregulated entities that are prone to hacks. For example:
- In 2018 Japan’s Coincheck was hacked and more than $500 million worth of digital currency was stolen.
- In 2017, Youbit – a South Korean exchange – had to shut down and declare bankruptcy after being hacked twice.
- In 2014, MtGox – a Japanese exchange which handled almost 80% of all global Bitcoin transactions – shut down after 850,000 bitcoins disappeared from its virtual vaults (worth around half a billion dollars the time!).
Even when trading crypto CFDs, your broker will hold the capital that you have to trade or invest with. Therefore, it’s important to choose a broker which offers the highest regulatory oversight, security and safety as possible.
As an example, investment firms operating under the Admiral Markets trademark offer the highest regulatory oversight from the UK’s Financial Conduct Authority, the Australian Securities and Investments Commission, the Estonian Financial Supervisory Authority and the Cyprus Securities and Exchange Commission.
Not only that, but Admiral Markets clients also benefit from a negative balance protection policy which will protect you from adverse movements in the market, by preventing your account balance from falling below zero. This could be handy trading a volatile market such as cryptocurrency.
Crypto trader success tool #2: The trading strategy
Trading is all about making decisions on whether to buy, sell or stay flat on a particular market. The traders who are successful over a consistent period of time are much more likely to use a trading strategy, or methodology, to aid in their decision-making process. Trading strategies are used to help streamline the process of information which may include when and when not to trade, what timeframes to focus on, what technical indicators to use, how to enter and exit and so on.
Of course, the tools you use will depend on your chosen style of trading. This is the first thing to establish when learning how to be a crypto trader. After all, if your goal is to day trade cryptocurrency CFDs from the hourly chart, which involves buying and selling multiples throughout the day for short-term profits and closing out positions at the end of the day, then using the long-term weekly chart for analysis may not prove to be very useful.
Trading styles generally incorporate one or both of the following types of analysis:
- Technical analysis. This type of analysis involves analysing the movement of cryptocurrency prices to identify patterns of repeatable behaviour. Many traders will also use technical indicators on their chosen cryptocurrency to find clues on which price levels the market could turn. You can learn more about technical analysis in the ‘Introduction to Technical Analysis‘ article.
- Fundamental analysis. This involves analysing news announcements related to cryptocurrencies such as new developments and uses in the technology that underpins cryptocurrencies called blockchain. There are also some unique fundamental events directly related to cryptocurrencies such as the ‘halving’ which you can read more about here. To learn more about fundamental analysis read the ‘Introduction to Fundamental Analysis‘ article.
Here are a few crypto trader styles to consider:
- Day Trading. This style involves buying and selling markets multiple times a day, often exiting by the end of the day. Traders using this style primarily rely on technical analysis tools such as trading indicators and chart patterns in their trading decisions. Using cryptocurrency CFDs is useful when using this type of trading style as day traders need to have the right tools to profit from different types of market conditions such as rising markets and falling markets.
- Swing Trading. This style involves buying and selling markets with the purpose of holding trades for several days and in some cases, several weeks. Traders using this style of trading often use a mixture of technical analysis and fundamental analysis, such as analysing new developments in cryptocurrency technology ‘blockchain’, to help with their trading decisions.
- Auto Trading. This style involves users trying to program a crypto trader bot to take trades automatically. The MetaTrader platform provided by Admiral Markets is the ‘go-to’ platform for algorithmic traders. Of course, being a crypto auto trader does require some skill set in programming. However, if the aim is to become a cryptocurrency automatic trader then consider reading the ‘Ultimate MQL5 Guide‘.
Now you know the three main tools you need to become a successful cryptocurrency trader, let’s have a look at what some of the best crypto traders have in common.
What do the best crypto traders have in common?
It’s important to remember that no matter what market you are trading, or what style you choose to adopt, trading is all about making a decision on whether to place a trade or not. Most people don’t like to make financial decisions on the spot. In fact, most people like to take their time before they make a big financial decision – analysing the facts, doing their research and so on.
Trading should be no different!
The best crypto traders know this and will optimise their trading environment in order to control and regulate the way they make decisions. Here are just some of the optimisation tools you may find the best crypto traders have in common:
1. They have a defined crypto trading style
As discussed in the previous section choosing a trading style is important as it will dictate how you make trading decisions and point you towards the information you need to analyse best suited to your goals.
2. They do their research and analysis
The best trading decisions are typically the ones which have involved a good level of research and analysis beforehand. The type of research and analysis you do will depend on how much weight you give towards technical analysis and fundamental analysis.
3. The best crypto traders live a happy life outside of the markets!
The decisions you make are only as good as the quality of your life. If you have negative, regretful feelings outside of the markets they will creep into the decisions you make when trading.
It’s important to keep your risk small, allow for the learning curve and most importantly – enjoy the journey of learning about the markets and yourself.
4. They are unemotional about crypto trading and focus on risk relative to reward
Trading is about probabilities as it involves both winning and losing. Risk management is a key principle in not only becoming a successful crypto trader but remaining there! For example, using a stop loss is one way to protect yourself against large losses.
To learn more about these different features and how they can potentially improve your trading visit the ‘ Volatility Protection‘ web page which explains how each of the key features work with instructional diagrams.
Of course, at this point it is important to note the risks that come with crypto trading.
The risks of trading cryptocurrency
The cryptocurrency market is a highly volatile market, making it a high-risk market to trade on. It is important to understand the risks involved before you start trading, such as:
1. Volatility. The cryptocurrency market is highly volatile which can lead to wild price moves in a short period of time. As there is no major real-world use for cryptocurrencies prices can move irrationally based on fear and emotion rather than underlying fundamentals or technical trading patterns
2. Crashes. The volatility of the cryptocurrency market has led to some huge crashes. For example, over $700 billion was wiped off the overall cryptocurrency market cap in 2018 with all sorts of negative issues affecting cryptocurrencies, such as:
- Money laundering
- Tax evasion
- Cyber thefts
- Exchange outages
- Loose to zero regulation
- Excessive speculation
- Illegal initial coin offerings (ICOs)
3. Hacks. There have been a long list of successful hack attempts on cryptocurrency exchanges. This includes Japan’s Coincheck hack in 2018 where more than $500 million worth of digital currency was stolen, as well as the 2014, shut down of Japanese exchange MtGox which handled almost 80% of all global Bitcoin transactions, with 850,000 bitcoins disappearing from its virtual vaults (worth around half a billion dollars!).
It’s also worth remembering that the individual trader also poses a risk when trading cryptos. Taking high risk large trading positions, expecting to win all the time is a sure-fire way to lose a lot of money. At the end of the day, it is the individual trader who decides where to enter and exit and how much to risk so it is important to have a sensible trading plan to allow for the risks of trading.
