Investing in and trading cryptocurrencies can bring both profit and loss. High volatility of cryptocurrencies allows you to get a large income, but at the same time there is a high risk of losing all your funds. Such strong price fluctuations can cause traders to feel euphoric, which makes it difficult to control their emotions and avoid making mistakes. Even the most experienced traders make mistakes in trading on financial markets, and it is even more difficult for beginners to withstand significant psychological pressure.
In this article, you will learn how to make money on trading and investing in cryptocurrencies and not lose all your money.
What is the difference between trading and investment
The main task of investing and trading is to buy an asset low and sell it high. This is their key common property. But there are many differences between these approaches, which is why there are different approaches to these types of income generation. Let’s look at them in more detail.
The main difference lies in the time period for which a deal is opened to buy or sell an asset. Trading involves making quick trades – opened for a day or for a few days. Investors also buy cryptocurrency for a longer period, which can range from a few weeks to several years.
Method of analysis
There are two main types of analysis: fundamental and technical. Fundamental analysis involves the analysis of internal and external factors that affect the behavior of the price of crypto assets, such as the political, economic and social situation in the market.
Technical analysis is based on technical trading indicators: figures or patterns on the chart, indicators, and other tools. In other words, this approach analyzes price charts without taking into account fundamental indicators. Both methods can be used separately or combined together. Often, technical analysis serves as a supplement to fundamental analysis. But in intraday trading, traders almost completely ignore the fundamental factors, basing their assumptions only on the technical indicators of the market.
Traders regularly make transactions, so it is not profitable for them to constantly transfer cryptocurrency to the wallet, and they store it on the balance of the crypto exchange. It is important for them that the cryptocurrency can be bought or sold as quickly as possible, so they should be available for trading at any time. But this method of storage is not safe: hackers can hack a trader’s account or a crypto-exchange server to appropriate coins for themselves.
Investors do not need to constantly exchange cryptocurrency, so they often store it in a secure wallet. The fastest and easiest way to buy cryptocurrency and get it directly to your wallet, avoiding the complicated procedure of depositing and withdrawing funds from the trading platform – cryptocurrency exchanges.
When using exchanges, the crypto investor simply creates a request, specifying the desired purchase amount, and pays for it. After that, the coins are sent immediately to the wallet. But it is important to choose a reliable exchanger with a favorable purchase rate. You don’t have to search for them and spend a lot of time comparing them. This can be done with the help of special services for monitoring of heat exchangers.
One of such services is Changevisor (https://changevisor.com). This is a well-known monitor of cryptocurrency exchanges on the Internet. The service provides a large list of exchangers and allows you to filter them by a variety of payment methods: PayPal USD, Advanced Cash, Payeer, Western Union, and many others.
Changevisor (https://changevisor.com) sorts exchangers starting with the best offer. Without leaving the site, users can read reviews from other users to ensure the quality of customer service.
Now you know about the main differences between trading and investing, and you can move on.
How to start trading cryptocurrencies
Many people may find crypto trading and investing difficult, but in fact it is not. This is especially true for those who have already tried to trade and made many mistakes, losing most or all of the money. In fact, the whole secret lies in discipline and constant practice.
Regardless of whether you choose trading or investing, you need to master the theoretical basis and study the fundamental analysis of cryptocurrencies. This will require a lot of time and perseverance, reading a lot of books and training materials, communicating on forums, studying analytics, practicing on training and real accounts, and so on. In this article, we will only briefly run through the main recommendations that will allow you to save your money and get a stable income.
Develop a strategy
Of course, the market sometimes provides trading opportunities that allow you to quickly make a profit, if you can detect them in time. But a well-developed plan is particularly important. You need to develop a trading or investment strategy and strictly adhere to it. If you do not exercise persistence, it is possible to miss profitable trades.
But keep in mind that there are no strategies that work 100%. There is always a risk of failure, even when the market indicates the success of the transaction. You don’t need to change your strategy every time a new deal makes a loss. Statistics are important here. If more than half of the trades make a profit that covers the losses, it means that the strategy is effective. You need to constantly analyze transactions and correct errors to improve the efficiency of trading.
Make trades deliberately
Do not trade on emotions and analyze each trade, trying to determine what motivates you to open it. Exclude any manifestations of emotion and rely only on mathematical calculations.
Follow risk management
This is where you need to start the path of an investor or trader. You shouldn’t invest all the available money at once. It is better to evenly allocate a small amount each month for the purchase of cryptocurrencies, for example, 10% – 20% of the salary. This will open up space for averaging positions and additional purchases. And invest in several cryptocurrencies, not just Bitcoin. Bitcoin is more stable than most altcoins, but its investment potential is lower, so it should be considered more as a conservative crypto asset. Some traders trade mainly in the BTC pair, increasing their balance in cryptocurrency, rather than in fiat or in stablecoins.
What strategies are there
The task of trading / investing is the same, but there are different approaches to it. Let’s briefly analyze the most common strategies that beginners use in their trading.
“Buy and hold” strategy
This is probably the most common strategy among beginners due to its simplicity. Just buy cryptocurrency using services such as Changevisor (https://changevisor.com), and store it in a crypto wallet until it increases in price. For storage, you can use any hardware, desktop, or mobile non-custodial wallet that supports the selected cryptocurrency. Non-custodial wallets do not store users ‘ private keys, so they are the safest to use.
This strategy is popular among those who prefer trading to investments. The strategy consists of making a large number of short trades during one trading day fixing a small profit of up to a few percent. The strategy is most effective during high trading activity in the market, when there is a large spread – the difference between the price of supply and demand.
This is one of the simplest strategies, since the trader does not need to analyze price dynamics, but the method is quite risky. There are two main types of cryptocurrency arbitrage: intra-exchange and inter-exchange. In the first case, the trader uses cross rates to make a profit due to the difference in rates between different trading pairs.
Here is a simple example: a trader buys 1 ETH for $200. Then it exchanges it for Bitcoin at the rate of 0.028 BTC and sells it for $252. For one round, the trader receives $52 of profit without taking into account fees for transactions. Such “windows of opportunity” on crypto exchanges are not uncommon.
The second type of arbitrage is the interexchange one. It works as follows: a trader buys a cryptocurrency at a lower price, transfers it to another trading platform and then sells it at a higher cost. The difference in the exchange rate minus transaction and withdrawal fees will be the trader’s profit.
For arbitrage, you must take into account the costs of fees for transactions and for withdrawal of cryptocurrency from the platform. The main risk that arises during arbitration is that during the transfer of cryptocurrency from one platform to another, the exchange rate may change quickly, and the trader will not make a profit or suffer losses.
Trading on news
This method is most often used by medium and long-term investors. They analyze news directly or indirectly related to a particular cryptocurrency, cryptocurrency group, or blockchain project. After that, investors decide whether to open a long or short position, or wait for more suitable market news.
Trading on indicators
Traders add one or more indicators to the chart and, based on their readings, try to anticipate further price movement or determine the direction of the trend in order to open transactions in the right direction. There are many different indicators, such as Volume, various types of Moving Average, MACD, Bollinger Bands, bill Williams fractals, Fibonacci levels, and many others. It is best to use a group of indicators to get more accurate data.
Trading on signals
If traders do not want to understand the nuances of trading and investing on their own, they can buy a subscription and get insights from experienced analysts, which they will use to make deals. The trader will not have to perform an independent analysis – they will only need to copy the trades of another trader.
But we warn you that there is a lot of fraud in this area. Often these signals are of poor quality, because they are given at random, and the trader can suffer losses. Some signals are published in open access in social networks or messengers, so you can check their effectiveness. If in doubt, ask the trader or their manager for trading statistics. Every professional trader keeps a log of transactions and records of profitable / unprofitable positions for analysis.
We told you how you can make money on trading and investing in cryptocurrency. Trading allows you to get more income than investing, but this approach is riskier and requires more time. Everyone chooses an approach for themselves, based on their personal preferences and goals. Setting a goal is the first thing that novice investors and traders need to do. This will determine the choice of method and the level of acceptable risks.