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The Complete Guide To Crypto Trading

Read 7 min
Coins spiraling in a circle
— Crypto trading involves buying and selling digital currencies on CEX or DEXs to make a profit by taking advantage of price movements in the market. 

— A trading plan is essential to build structure and discipline to your trading approach and increase the likelihood of success in the crypto market.

— Ledger’s Ecosystem offers the tools and the protection you need to trade crypto simply and securely.

Want to learn how to trade crypto? Look no further than this comprehensive guide. Whether you’re a beginner or an experienced trader, let’s get into it and understand the exciting world of crypto trading!

What is Crypto Trading 

Crypto trading is all about buying and selling digital currencies, such as Bitcoin (BTC) or Ethereum (ETH), to make a profit. Unlike traditional finance markets, the crypto market is open 24 hours. To get started, you need a wallet and an exchange to trade on. 

If you want to trade crypto, you will have to speculate on the price of a digital currency to make a profit. The goal is to buy low and sell high, or vice versa, by taking advantage of price movements in the cryptocurrency market. Understanding the market’s dynamics can help minimize losses and maximize profits. 

How Does Crypto Trading Work? 

Put simply,  buyers and sellers agree on the price of a specific cryptocurrency via an exchange. This exchange determines the asset’s market valuation. Typically, buyers set lower prices than sellers, creating two sides of an order book. When there are more buyers than sellers, prices increase, and prices decrease when there are more sellers than buyers. 

Now to trade cryptocurrencies, you need a crypto exchange. These come in two main types: centralized exchanges (CEXs) and decentralized exchanges (DEX).

How do crypto exchanges let us trade crypto?

CEXs are run by a single company, hence the name “centralized exchange”.  They allow users to trade with other individuals using an order book system.  This displays buy and sell orders from traders, allowing users to place limit or market orders to buy or sell a particular crypto. However, CEXs usually require users to deposit funds into custodial wallets. This means the exchange retains the ultimate power over that wallet, including the assets at that address.

DEXs, on the other hand, are non-custodial platforms. That means you can use them with non-custodial wallets, which allow users true ownership of their assets. Instead of an order book system, DEXs use liquidity pools maintained by the smart contract.  To determine the price of a cryptocurrency in a decentralized way, DEXs calculates it from the ratio of tokens in the pool using an automated market maker (AMM) system. Users here buy or sell a cryptocurrency by simply trading with the pool.

Whether using a CEX or DEX, traders must identify opportunities to profit from price movements in the crypto market. This can involve a combination of strategies, including using technical analysis tools, developing a solid trading plan, and managing risk carefully. 

Making a Crypto Trading Plan 

A trading plan is essential when trading cryptocurrencies, as it helps define your objectives, risk tolerance, and overall approach to trading. 

But remember, different trading styles and strategies come with different kinds of risks and rewards.

For instance, using dollar-cost averaging, you can buy a fixed dollar amount of crypto at regular intervals, regardless of its price. The idea is to reduce the impact of market volatility. However, it involves opportunity cost and market timing risk.

Let’s take a look at some popularly used crypto trading styles:

Different Styles of Crypto Trading 

Traders can adopt different trading styles when trading cryptocurrencies, depending on their goals, risk tolerance, and time horizon. Here are three major approaches to trading crypto:

Day Trading: 

Also known as intraday trading, this approach involves buying and selling cryptocurrencies within a single trading day to profit from short-term price movements. Day traders use technical analysis tools to identify short-term trends and patterns in the market and typically make multiple trades throughout the day. 

Day trading requires a high level of focus, as well as a sound risk management strategy. as the high frequency of trades can result in significant losses if not managed properly.

Although day trading offers the potential for faster profits acting on short-term trends can be stressful and extremely risky.

Swing Trading: 

In this approach, the trader holds a cryptocurrency position for a few days to several weeks to profit from medium-term price movements. Swing traders use technical analysis tools to identify trends in the market. Basically, analyse a coin or token’s upwards and downward trends,  aiming to capture a portion of a larger price move. 

While swing trading requires a more relaxed approach than day trading, it still demands more preparation, research, discipline, and careful risk management to execute effectively and avoid significant losses.

Position Trading: 

Also known as trend trading, this approach involves holding a cryptocurrency position for several weeks to several months to profit from long-term price movements. 

Position traders use fundamental analysis tools to assess a cryptocurrency’s underlying value and potential growth prospects and typically make fewer trades than a day or swing trader. Position trading requires a longer-term view of the market and may require greater patience and discipline to see the desired results.

Although position trading is less time-consuming and easier to learn, enabling traders to predict market trends more effectively, it is a long-term strategy that involves locking funds and maintaining positions for extended periods.

As we saw, each trading style has its own unique set of risks and rewards and requires different skills and strategies to succeed. 

If You Want to Trade Crypto: DYOR  

DYOR, or “Do Your Own Research,” is a common term used in the cryptocurrency community to emphasize the importance of conducting thorough research before making trading decisions.

When trading cryptocurrencies, it’s crucial to understand the market, the underlying technology, and the potential risks and rewards. This requires taking the time to research and analyze various data points, including market trends, historical price movements, and news and events.

Analyzing Market 

One important tool for conducting research is candlestick charts, which visually represent price movements over a specific period. By analyzing candlestick charts, traders can identify trends and patterns in the market, such as support and resistance levels, bullish and bearish trends, and price volatility.

Identifying Trends

The market is simply people buying and selling, and reading it involves spotting trends over time. There are two trends: bullish (steady increase) and bearish (steady decrease). Bullish movements are called “pumps,” and bearish movements are called “dumps.”

Bullish and bearish trends can also exist within larger opposing trends, resulting in higher or lower highs and lows. Consolidation is when prices trade sideways within a range, typically occurring after a sharp trend, before a trend reversal, or during low demand and trading volumes.

Whale Movements

Price movements are mainly influenced by “whales”,  individuals or groups with significant funds for trading. Monitoring the movements of large sums of crypto on the blockchain and analyzing these influential participants’ buying and selling patterns can provide valuable insights into market sentiment. 

Understanding the tools and indicators whales favor is crucial to developing a successful cryptocurrency trading strategy. By anticipating whale behavior, traders can work with them to achieve their profit objectives.

Create your crypto portfolio 

Creating a crypto portfolio involves selecting a mix of different cryptocurrencies with varying risk profiles and market dynamics, known as diversification. This is done to spread risk and reduce exposure to any single asset or market sector. 

Different types of coins and tokens include:

  • Coins and tokens for payment like BTC and ETH are usable for transactions wherever they are accepted in the cryptocurrency world.
  • Tokens representing ownership of an underlying security, such as stocks or real estate, are called security tokens.
  • Utility tokens like BNB and BAT have specific use cases within a blockchain or crypto ecosystem.
  • Governance tokens like COMP allow users to participate in blockchain governance.
  • In-game tokens like the play-to-earn game Axie Infinity uses, represent currency, items, or other virtual assets. AXS is earned by players and traded on third-party exchanges.

But remember, there is a difference between trading traditional cryptocurrencies like BTC and newer types of assets such as NFTs and gaming tokens, which have unique use cases, market dynamics, and price drivers.

How to Start Crypto Trading

Crypto trading can be an exciting and potentially profitable venture, but it’s important to understand that it can also be risky. Before getting started with crypto trading, it is important to have adequate knowledge and understanding of the associated risks to make better decisions. Below, we discuss how to buy crypto, choose an exchange, and sell crypto.

Buy Crypto 

To start trading crypto, you must first buy the crypto asset you want to trade.

If you’re a first-time crypto trader looking to buy cryptocurrency with fiat currency, several options exist. 

One of the most common options is to use a centralized exchange, such as Coinbase, Binance, or Kraken. Another option is to use a ledger API so that your crypto goes directly to your non-custodial wallet for maximum protection. 

Choose an Exchange 

When selecting a crypto trading platform, it’s important to consider several factors. For example, you might want to check out the types of orders permitted and whether it provides derivatives or leverage. Maybe you’re looking for integration with trading bots or fees that benefit traders. Choosing an exchange might be overwhelming but there are some key points to remember.

As mentioned, different exchanges allow you different custody over your assets. Decentralized exchanges allow you custody over your own assets, whereas centralized exchanges do not. 

But also, their fee structures differ too. Trading fees, deposit, and withdrawal fees aren’t standardized. Typically though, decentralized exchanges are much cheaper than their centralized counterparts.

Sell Crypto 

Now comes the selling part, which is an essential aspect of trading. Taking profits means off-ramping or selling some or all of your crypto for fiat (i.e., government-issued currency like USD, EUR, etc.).

When the value of your crypto appreciates, you can sell it to lock in profits and reduce your exposure to market volatility. This strategy is essential for traders who want to maintain a consistent return.

You can sell crypto in a few ways:

  • Through a cryptocurrency exchange.
  • Via a direct trade. For example, exchanging crypto for fiat currency via peer-to-peer (P2P) platforms.
  • OTC (Over-the-counter) trading is another way to trade with a broker or dealer who buys your crypto at a negotiated price. It is typically used for large transactions and is often used by institutions.
  • Via a  physical crypto ATM in a real-life location that you must visit in person.

Trading Crypto Effectively Requires Tools and Education

So now you’re ready with the knowledge to choose the right platforms and find the best crypto trading method for you. But how to choose between them? Why can’t one platform do it all?

Well, actually it can. The Ledger Live app offers you options to buy sell and trade crypto through Ledger partners, such as Binance, Cryptonovae, and more.

The Ledger Ecosystem is vast and Ledger Live is not the end of your crypto trading journey.  Trading assets of potentially large value is a risky business. As such, it’s important to keep them safe.

Before You Trade, Secure your Crypto Assets 

To keep your assets safe, you must keep your private keys offline. The easiest way is with a hardware wallet, such as the devices Ledger offers. 

When you use a hardware wallet, you will typically need to connect it to a computer or mobile device to manage your crypto. However, your private keys never leave the device. Ledger Devices have a PIN feature to make securing your keys easy. Plus, their screens are unhackable. This means you can sign transactions in peace.

This is essential for crypto traders, who must keep their assets safe. Furthermore, ledger devices can do so whilst connecting to everything the blockchain has to offer via Ledger Live. Ledger Live boasts countless trading apps to make sure your crypto trading experience is as easy and as secure as it can be. 

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