How to start trading crypto: A step-by-step guide

Key takeaways

• Crypto trading is similar to betting on the price changes of digital assets like Bitcoin (BTC) and Ether (ETH), hoping to buy low and sell high.
• Crypto trades most often take place on a cryptocurrency exchange.
• Understanding that cryptocurrencies are very volatile and knowing technical and fundamental analysis is important for success.
• Crypto trading is risky, and traders should only invest what they can afford to lose. 

What is cryptocurrency trading?

At its heart, cryptocurrency trading involves buying and selling cryptocurrencies, just like any other trading you might know of, such as stocks, commodities and forex. Traders aim to make money by guessing the price movements of volatile digital assets. They exchange fiat money or other digital assets for cryptocurrencies on a crypto exchange and typically buy when the cryptocurrency’s value is low and sell when it peaks.

Trading, as we understand it in the form of stock markets, has been around since the 1600s, but cryptocurrency trading started with Bitcoin in 2009, the first and still the most well-known cryptocurrency. Since then, many other cryptocurrencies with unique features have emerged and are traded. 

Before entering the crypto trading world, it is important to grasp the assets and technologies involved and be clear about the risks involved. The volatility and widely unregulated nature of the cryptocurrency markets make trading cryptocurrencies quite different from stock or commodities trading.

This guide will explain the basics of crypto trading and various crypto trading strategies. It will also introduce crypto trading platforms and applications, the components of a trade, trading styles and the role of technical and fundamental analysis in trading strategy.

Stock trading vs. crypto trading

Stock trading is like investing in established companies, much like putting your money into a well-known restaurant chain. You could expect consistent growth and reliable profits.

Crypto trading, on the other hand, is like investing in a new, trendy pop-up restaurant. It’s riskier and more volatile, but it’s also exciting and can pay off handsomely quickly. Cryptocurrency prices have the same potential to rise or fall quickly as pop-ups, which may become the next great thing or vanish overnight. 

Below is a table summarizing the differences between stocks and cryptocurrency trading:

Did you know? The first real-world purchase using Bitcoin was for two pizzas in 2010, costing 10,000 BTC (worth millions today).

How to trade crypto for beginners

There are several ways to trade and invest in cryptocurrencies. This crypto trading guide focuses on how to start trading crypto via a centralized cryptocurrency exchange. 

So, how do you get started with crypto trading? First, you need to keep in mind local regulations and tax laws, as they can vary greatly across the world. From there, you can follow these steps.

Here are the basic steps on how to start trading crypto. 

Basic steps in crypto trading

Step 1: Signing up for a crypto exchange account

It is essential to choose a crypto trading platform carefully. The most popular type of trading platform is a cryptocurrency exchange. Traders usually check reputation, compliance, security, features and listed cryptocurrencies on these exchanges.

Opening a crypto exchange account will require personal information and passing Know Your Customer (KYC) verification. KYC in crypto means verifying your identity by providing personal information to comply with regulations. Accounts should be set up with strong passwords, two-factor authentication (2FA) and other available measures. 

Step 2: Adding funds to an account

Funds can usually be added to a crypto exchange account via wire transfer, debit or credit card, or by transferring a cryptocurrency balance from an existing cryptocurrency wallet. Once you have funds, it is as easy as buying certain cryptocurrencies and holding them on the exchange until their price changes enough to sell them — hopefully for a profit.

Step 3: Selecting a crypto to trade 

Many experienced crypto traders carefully choose a cryptocurrency based on technical and fundamental analysis. Think of crypto trading as buying a car. Technical analysis is like checking the car’s speed, engine performance and mileage to predict how it will run in the future, whereas fundamental analysis is like looking at the car’s brand, reviews and safety features to determine its overall reliability and value. 

While both approaches help you determine if the purchase is worthwhile, they focus on different factors: performance data and the car’s intrinsic worth. Now, let’s understand these differences in the cryptocurrency context:

• Technical analysis: With technical analysis for cryptocurrencies, traders look at past price movements, trading volumes and other market data to identify patterns and trends. They use charts and technical indicators, such as moving averages and candlestick charts, to predict future price movements. They aim to make short-term trading decisions based on trends identified using charts and market sentiment.
• Fundamental analysis: When traders conduct fundamental analysis for cryptocurrencies, they evaluate the asset’s intrinsic value — i.e., the true worth of an asset based on its fundamentals — by looking at factors like the development team, practical uses, the technology behind it, market adoption, partnerships, compliance with regulations and the overall health of the blockchain. Their goal is to determine the cryptocurrency’s long-term potential and strength as an investment.

While many traders choose to speculate on Bitcoin (BTC) or Ether (ETH), others prefer altcoins or newer tokens. These coins with smaller market capitalization can be even riskier and more volatile, making technical analysis less reliable, but they can also offer bigger returns. 

Step 4: Making a trade 

Making a first trade or purchase involves selecting a trading pair — e.g., USD/BTC — which means you’re trading fiat United States dollars for Bitcoin. Traders must also choose their order type — either a market order or limit order — and the amount before confirming the order. 

Step 5: Storing cryptocurrency

Traders keep their cryptocurrency funds intended for immediate trades on the exchange. Crypto balances held for longer are more safely stored in a cryptocurrency wallet, with a hardware device being the safest option. 

Basics of cryptocurrency trading

Cryptocurrency prices are incredibly volatile and determined by market supply, demand, sentiment and other factors. There are no government or third-party controls that provide stability or consumer protection. 

Thus, newcomers must understand how crypto asset markets work to navigate crypto trading safely. Crypto trading can be as simple as cashing out a fiat currency like the US dollar or using various trading pairs to grow an investment portfolio. As trading volume increases and complexity rises, so does a trader’s risk exposure.

Let’s go over some basic concepts in cryptocurrency trading.

Cryptocurrency order book 

Exchanges are a marketplace for sellers who want to sell and buyers who wish to buy, creating two sides of an order book. Crypto prices usually increase when there are more buy orders than sell orders (more demand than supply). On the other hand, prices decrease when more people are selling than buying (more supply than demand).

In many interfaces, buys and sales are represented in different colors, giving traders a quick indication of the market’s state. For example, buy orders might be green, while sell orders are red. This provides an easy visual method for traders to understand market dynamics and see if there is more demand or supply.

Long or short 

To go long on an asset (longing) means entering into a contract to buy an asset with the expectation to profit from its rising price. 

In contrast, going short on an asset (shorting) means selling borrowed assets, which must be returned later, adding complexity to the process. This is a method of trading that allows people to make money even when the price of a cryptocurrency is going down.

Crypto trading strategies 

The three main crypto trading strategies are day trading, swing trading and position trading, but there are also more advanced ones. Traders choose and adapt strategies based on their knowledge and risk tolerance level.

Let’s understand how these strategies work with an example:

• Day trading: This means a trader is constantly watching the market and buying and selling within the same day to profit from short-term price changes. For example, a trader may buy Bitcoin at $30,000 in the morning and sell it for $30,500 by noon, making a $500 profit. Later, they may buy again at $30,200 and sell before the day ends for a small gain.
• Swing trading: Swing trading means holding onto cryptocurrencies for days or weeks to profit from medium-term price swings. For example, a trader may buy Bitcoin at $30,000, anticipating a rise to $35,000 over a few weeks. After two weeks, the price hits $35,000, and they sell it for a $5,000 profit.
• Position trading: This involves holding cryptocurrencies for more extended periods, like weeks, months or even years, based on long-term market trends and analysis. For example, a trader may buy Bitcoin at $30,000, believing it will reach $100,000 over the next few years. He holds it through ups and downs, eventually selling it for a substantial profit when it reaches $100,000.

Reading the markets

Reading the market means spotting patterns, or trends, over time, which a trader can choose to act upon. 

Two key market trends are bullish (rising prices) and bearish (falling prices).

• Bull market: A bull market means prices are rising; it’s like an upward trend when prices keep going up steadily. Some people even call these upward movements “pumps” because it feels like the market is being pumped up with excitement. Imagine Bitcoin’s price is $60,000, and then it starts climbing to $65,000, $70,000 and beyond in a quick fashion. That’s a bull market in action.
• Bear market: A bear market is when prices go down; it’s a downward trend where the prices keep dropping steadily. Some people might refer to these downward movements as “dumps” because it feels like everyone is dumping their investments, causing prices to fall. If Bitcoin is at $60,000 and then starts falling to $50,000, $40,000 and lower, that’s a bear market.

Did you know? You don’t have to buy a whole Bitcoin! You can purchase fractions, like 0.001 BTC or even smaller amounts.

Upward and downward price action

Bullish and bearish trends can also exist within larger, opposing trends, depending on the time horizon. Generally, an uptrend results in higher highs and higher lows, while a downtrend results in lower highs and lower lows.

Consolidating price action

Consolidation occurs when a price trades sideways or within a range. Typically, consolidation phases are easier to spot on higher time frames (daily or weekly charts) and occur when an asset is cooling off after an upward or downward trend. Consolidation also appears ahead of trend reversals or when demand is low. 

What is technical analysis in crypto trading?

Technical analysis (TA) was touched on earlier in the article. It is a skill that traders work on to improve their trades. TA analyzes past market data, primarily price and volume, to forecast price action. Here are some basic tools.

Market structure and cycles

Traders analyze patterns in long-term data to understand how markets typically behave.

The market cycle can be divided into four main parts: accumulation, markup, distribution and decline. As the market moves between these phases, traders adapt by consolidating, retracing or correcting as necessary. Let’s understand each phase using Bitcoin as an example:

• Accumulation: This means investors start buying BTC at low prices after a significant price drop, expecting it to increase again.
• Markup: This cycle occurs when Bitcoin’s price increases significantly because more people feel positive about it. This makes the market very active and pushes prices higher.
• Distribution: This occurs when trading slows down because new buyers hesitate, as early Bitcoin investors start selling their coins to make a profit.
• Decline: Market decline happens when fewer people keep buying Bitcoin; its price starts dropping quickly, which could lead to a significant downturn in the market.

Chasing the whale 

Major price movements can be driven by “whales,” individuals or groups with significant amounts of crypto that can move markets. 

Some whales operate as “market makers” by placing buy and sell orders to keep the market active and make money. Traders often try to follow these experts by guessing what they’ll do next. Whales are much more common in cryptocurrency trading compared to stocks, as these markets are much smaller and easier to make an impact on with significant funds.

Did you know? “Hodl” is a popular term in the crypto community, originally a typo of “hold,” which now means holding onto your crypto assets for the long term.

Psychological cycles

Emotional behavior can significantly affect the market, as illustrated in the classic chart “Psychology of a market cycle,” which can provide a more detailed idea of sentiments than the bull/bear concept.

• Disbelief: Investors don’t trust the market’s recovery.
• Hope: The market improves, and investors start seeing opportunities to make money.
• Optimism: Investors become more confident and begin to invest more actively.
• Belief: Investors gain confidence and hold on to their investments longer.
• Thrill: Investors are excited by their gains and invest even more.
• Complacency: Investors assume the market will continue to rise without much effort on their part.
• Euphoria: Overconfidence leads to risky investments and extreme optimism.
• Anxiety: Investors start doubting their choices and become cautious.
• Denial: Optimistic investors ignore warning signs and keep their investments.
• Panic: Fear of losing money makes investors sell quickly.
• Anger: Investors are upset about losses and look for something to blame.
• Depression: Investors lose interest and motivation to trade.
• Disbelief: The market starts to improve, but investors remain doubtful.

Basic tools 

Support and resistance

Two widely used TA indicators, “support” and “resistance,” relate to price barriers that tend to form in the market, preventing price action from going too far in a particular direction. Let’s understand these using BTC as an example:

• Support: Think of it as a price level or floor price at which Bitcoin tends to stop falling because buyers come in and buy significantly, keeping the price from dropping further. For example, if Bitcoin’s price drops to $55,000 and then stops falling because many traders start buying at that price, $55,000 is the support level. It’s like the price hits a floor and bounces back up.
• Resistance: Think of it as a price level or ceiling where Bitcoin tends to stop rising because sellers come in and sell a lot, keeping the price from increasing. For example, if Bitcoin’s price rises to $60,000 and then stops climbing because many traders start selling at that price, $60,000 is the resistance level. It’s like the price hits a ceiling and bounces back down.

Cryptocurrency traders use support and resistance levels to bet on the direction of the price, adapting as the price level breaks through either its upper or lower bounds. Once traders identify the floor (support) and ceiling (resistance), this provides a zone of activity in which traders can enter or exit positions. 

If the price surpasses these barriers in either direction, it indicates the market’s overall sentiment. This is an ongoing process, as new support and resistance levels tend to form when a trend breaks through.

Did you know? The concept of support and resistance levels in financial markets dates back to the late 19th century, originating from the works of Charles Dow, a pioneer of technical analysis and co-founder of Dow Jones & Company.

Trendlines

A sequence of support and resistance levels, represented by a trendline, can indicate a more significant trend in the market.

Cryptocurrency traders pay close attention to the support levels of an ascending trendline, as they indicate an area that helps prevent the price from dropping substantially lower. Likewise, in a downward-trending market, traders will watch the sequence of declining peaks to connect them to a trendline.

The strength of any support or resistance levels and their resulting trendlines increase as they reoccur over time; therefore, traders will record these barriers to inform an ongoing trading strategy.

Round numbers

Inexperienced and institutional investors often focus on round-number prices, which affect support and resistance levels. For example, when Bitcoin’s price approaches a round number like $60,000, it frequently becomes a resistance point.

Moving averages

Traders often smooth out support and resistance levels and trendlines to create a single visual line representation called the moving average (MA).

The moving average traces the bottom support levels of an upward trend along with the resistance peaks throughout a downward trend. It can provide a valuable indicator of short-term momentum. 

Moving averages can be calculated over various timeframes. Here’s how some common ones are used:

• 20-day MA: A short-term indicator often used to identify sudden price changes and possible short-term trends.
• 50-day MA: A medium-term indicator that helps spot intermediate trends and possible support or resistance levels.
• 100-day and 200-day MA: Longer-term indicators commonly used to identify the overall trend direction and identify major support or resistance levels.

Chart patterns

A common visual representation of market price action is called the “candlestick.” 

Candlestick charts show more information than simple line or bar charts. They feature four price points: open, close, high and low. Candlesticks also represent sections of time, be it an hour, four hours, a day, etc. The candlestick chart represents these price points as:

• The thick part of the candle shows the opening and closing prices. 
• The thin lines (wicks) show the highest and lowest prices during that time.

Did you know? Candlestick charts originated in Japan centuries ago. Rice traders used them to track price changes, and the patterns were named after everyday objects like “shooting stars” and “hammers.”

What is fundamental analysis in crypto trading?

Fundamental analysis looks at the basics of an asset’s industry and technology to see if it’s a good investment. This is important research that everyone should be doing before making an investment in a certain cryptocurrency.

• Developers: What is their track record? How active are they in developing the token’s underlying protocol? Since many projects are open-source, investors can see this information on platforms like GitHub.
• Community: A genuine, strong community can indicate a project’s potential and support future success. 
• Technical specifications: A network’s algorithm (how it ensures security, uptime and consensus) and issuance features like block times, token supply, distribution and tokenomics. 
• Liquidity (and whales): Are reputable exchanges supporting a particular crypto asset? What trading pairs exist? Is there a healthy trading volume? Are large stakeholders present, and what is the impact of their trading?
• Infrastructure: White papers and roadmaps are essential project considerations. What is the project’s real-world application? Who are the stakeholders, block validators, merchants/companies and users? 
• Onchain analysis: Analysts can examine supply and demand trends, transaction frequency and transaction costs. These insights can indicate the strength of a cryptocurrency’s blockchain and its price dynamics in various markets. 

Investor responses to market rallies, sell-offs, regulations and other events provide insights that can help forecast future price movements.

Did you know? Onchain analysis, a method for understanding cryptocurrency market trends by examining blockchain data, has roots dating back to 2011. The first onchain metric, Coin Days Destroyed (CDD), was introduced by a Bitcoin Talk forum user named ByteCoin. This metric tracked the age of BTC being transferred, providing insights into long-term holder behavior and potential market shifts.

Risk management in crypto trading 

Risk management is a significant aspect of how to trade cryptocurrencies effectively. Before entering a trade, traders must know how much they could lose.

It’s impossible to predict market activity with certainty, and the volatility of cryptocurrencies makes the risk much bigger. Risks can be lessened, not eliminated, with:

• Knowledge: Building a comprehensive understanding of how to trade cryptocurrencies and of cryptocurrencies and blockchain.
• Awareness: Understanding trends in the cryptocurrency markets and external influences on cryptocurrency volatility, such as public sentiment and regulatory changes. 
• Research: Looking into a cryptocurrency’s or token’s background to further understand how it might perform short-term and long-term.
• Risk tolerance: Setting limits and trading or investing only what can comfortably be lost should a strategy fail or the market change.

Crypto trading strategies will vastly differ from person to person based on expertise, preference, personality, available trading capital and risk tolerance. Plus, there are many advanced crypto trading techniques traders discover once they’ve mastered the basics of how to trade Bitcoin or other cryptocurrencies.

Automated crypto trading tools and crypto trading bots that use artificial intelligence are emerging technologies that can help crypto trading strategies. But like all trading tools and indicators, they are best used with other tools, methods and deep knowledge of how to trade cryptocurrencies to confirm trends and support trading decisions.

Written by Marcel Deer