Chapter 6. Tips on cryptocurrency trading

How to start trading cryptocurrency?
If you decide to start trading, then here's what you should take note of.

First, of course, you need capital. If you don't have any savings and you start trading using money that you can't afford to lose, then it can have a very bad effect on your life. Trading is not easy: the vast majority of beginners lose money. You should be prepared for the fact that the money you have set aside for trading may quickly disappear and you will not be able to return it. Therefore, it is recommended to start with smaller amounts to test the ground.

You should also think about your overall trading strategy. If we talk about earning money in the financial markets, then there are many different approaches possible. To achieve your financial goals, you can choose from a variety of strategies, depending on how much time and effort you are willing to devote to this.

Finally, it is worth emphasizing one more thing. Many traders achieve the best results when trading is not their main source of income. It's easier to deal with emotions this way than when your survival depends on it. The exclusion of emotions is the main feature of successful traders, and this is much more difficult to achieve when your livelihood is at stake. Therefore, especially if you are just starting out, it is worth considering trading and investing as just a side job. And, again, start with small amounts to learn and practice. It is also worth asking about the options for passive income on cryptocurrency.

How to trade cryptocurrency on the stock exchange?
So, you have decided to join the world of cryptocurrency trading. What should I do?

First of all, you need to convert your fiat currency into cryptocurrency. This can be done using a debit or credit card or a bank account both directly on the exchange and on a third-party exchanger (after which you will need to transfer cryptocurrency from your wallet to the exchange). By doing this, you will join a completely new financial system.

When you have a cryptocurrency, a lot of options open up in front of you. You can immediately start trading coins on the spot exchange. If you already have experience with trading, you can consider margin trading and cryptocurrency futures. There are also passive income opportunities, such as staking, lending your assets through an exchange or joining a mining pool.

All this is available on centralized exchanges, where your financial activity takes place in the internal system of the exchange. But thanks to blockchain technology, there is also another option – decentralized exchanges. At such sites, the funds are in your own cryptocurrency wallet, so you have full control over them. You can also connect your hardware wallet and trade directly from it.

The cryptocurrency space is dominated by centralized exchanges. But many traders and blockchain enthusiasts believe that in the future, a significant part of the cryptocurrency trading volume will fall on decentralized exchanges.

What is a trade magazine, and do I need it?
The trading journal documents your trading activity. Do you need it? Perhaps! You can use a regular spreadsheet in Excel or subscribe to some special service.

Especially when it comes to more active trading, some traders consider keeping a trading journal essential for sustained success. After all, if you don't document your trading activity, how do you identify your strengths and weaknesses? Without a trade journal, you will not have a clear idea of your performance.

Keep in mind that biases can play an important role in your trading decisions, and a trade journal will help mitigate them. How? You can't argue with the data! Trading efficiency comes down to numbers, and if you do something badly, it will be reflected in your indicators. By carefully keeping a trading journal, you can also observe which strategies give the best results.

How to calculate the position size?
One of the key aspects of trading is risk management. Some traders generally claim that this is the most important thing. Therefore, when choosing the size of positions, it is worth using standard formulas. That's how the calculation happens.

First you need to decide which part of your account you are willing to risk in individual transactions. Let's say it's 1%. Does this mean that you need to open positions for 1% of your account? No, it means that when a stop loss is triggered, you will not lose more than 1% of your account.

It may seem that this is too little, but you need to make sure that a few unavoidable bad trades do not ruin your account. So, when this is decided, you need to decide where to set a stop loss. In each individual transaction, it will depend on the specifics of the trading idea. Let's say you decide to set a stop loss at 5% of the entry point. This means that when the stop loss is triggered and you exit at 5% of the entry point, you should lose 1% of your account.

Let's say the size of your account is $1000. In each trade, you risk 1%. Your stop loss is 5% of the entry point. What should be the position size?

1000*0,01/0,05=200
If you want to lose only $10, that is, 1% of your account, then the position size should be $200.

At first glance, this process may seem too long, but it is important for proper risk management.

What online trading programs should I use?
Chart analysis is a key component of any technical analyst's trading tools. But what is the best way to do this? You can register on TradingView and follow the markets on this platform. Alternatively, charts with TradingView can be integrated into the web interface or mobile applications of exchanges, so that you can analyze them directly there.

There are also many other charting programs, each with its own advantages. But usually they have a monthly subscription fee. Examples of programs focusing on cryptocurrency trading: Coinigy, TradingLite, ExoCharts and TensorCharts.

Is it worth joining paid groups and public posts about trading?
Probably not. There is a huge amount of excellent free trading information available, so why not use it? In addition, trading on your own is a useful practice, because you can learn from your own mistakes and find what best suits you and your trading style.

Joining a paid group can be a valuable educational tool, but beware of scammers and fake ads. After all, it's easy enough to fake trading results to attract subscribers to a paid service.

It is also worth thinking about why a successful trader should create a paid group at all. Of course, additional income will never hurt, but why set a high fee for it if you are doing so well?

But still, some successful traders do run high-quality paid groups with additional services, such as special market data. You just need to be very careful with who you give your money to, since most paid trading groups exist in order to cash in on newcomers.

What is a pump and dump?

Pump and dump is a scheme where the price of an asset is "pumped up" (pump) using false information. When the price reaches a significant level, the organizers of the scheme "dump" the assets bought cheaply at a much higher price.

Pump and dump schemes are very common in the cryptocurrency sphere, especially during bull markets. During such periods, many inexperienced investors come to the market, which is easy to cash in on. This kind of fraud is typical for cryptocurrencies with a small market capitalization, since their prices are usually easier to "pump up" due to the low liquidity of their markets.

Pump and dump are often organized by private groups that promise easy income to those who join (usually for a commission). However, participants are usually just cashing in on a small group of organizers who have taken their positions in advance.

In traditional markets, accomplices of such schemes are punished with huge fines.