Digital currencies have existed for over 10 years, and attitudes towards them have changed: from complete distrust to frenzy demand. And until the price of the main crypto reaches the “pre-crisis” level, you can safely analyze what cryptocurrency trading is and how to make money on it.
We will answer doubters right away: trading crypto assets follows general market laws, is conducted on standard exchange platforms, and does not require any special methods or technologies.
We assume that our reader has minimal experience trading on the traditional — currency or stock — markets, basic knowledge of technical analysis and trading psychology, and, most importantly, a habit of strict money management.
All the necessary tools for crypto trading can be found for free online, and we will help you apply them effectively. But first, a few words about the main event in cryptocurrency trading.
Trading in a Constant Stress Mode
The first signal of the real transition from mathematical theories to practice was the rise in Bitcoin’s value in December 2017. The reason is well known: the start of trading the corresponding futures contract on the Chicago CME. Investors perceived this as recognition of digital money as a real asset, and even skeptics began buying large volumes, constantly pushing the price up. When the “optimism” peak passed and the market entered a phase of secondary sales, owners experienced shock, watching this:
But for professional traders, it turned out well: those who managed to open long positions in advance and withstand intense volatility earned millions on the growth, and latecomers who entered short positions in anticipation of an inevitable price correction also ended up with decent profits. Instead of listening to and watching business channels where “analysts” discussed the price rising to $50,000 per BTC, traders simply used one of the main principles of Dow Theory: every market is cyclical, and after growth, there will always be a decline. To put it simply:
Unlike an investor, who is only interested in the asset’s price increase, a trader does not care what the current price is — it can be $10,000 or $10. The main requirement is that the asset is volatile, and the greater the range from max to min, the more profit. The speculator earns on price changes, not on its value!
A recent example of earning on the BTC/USD pair:
Let’s highlight two important points, the decisions on which a trader must make long before opening their first cryptocurrency trade. So…
Choosing a Trading Platform
We have established that there’s no reason to fear a “cryptocurrency crash,” and you can start trading, but let’s clarify where exactly this process takes place. Let’s start with three types of trading platforms:
- Crypto exchanges
These are the first platforms where you could buy, sell, or exchange digital currencies at the market rate. Each exchange set its own quotes (sometimes even artificially, without regard to actual demand/supply), and they could differ significantly, allowing for arbitrage opportunities between exchanges.
Attitudes towards crypto exchanges are mixed. On one hand, numerous cases of bankruptcies and account hacks followed by disappearance with client funds — think Mt.Gox and BTC-e — are far from ideal. On the other hand, only on exchanges can you find the widest selection of coins, including those outside the Top-10, offering opportunities to earn with smaller investments. It’s essential to check real reviews of any specific exchange.
If you decide to trade on such platforms, pay attention to the following:
- The initial deposit amount and in which currency it is stored. Often it can only be in cryptocurrencies, and if their rate changes, the profit/loss level and the value of open positions are recalculated. In the worst case, this could lead to full loss of funds.
- Quote accuracy. Understand that quotes cannot be perfectly identical. For example, the Forex market is also decentralized, where differences of 2-3 pips between brokers are normal. But if quotes differ from others by dozens of dollars — it’s worth reconsidering the platform.
- Withdrawal time. Usually only in cryptocurrencies. The market is highly volatile, and if withdrawals take 2-3 days, you might receive much less than expected.
- What reputation and licenses the exchange has. Most are registered offshore, which makes it difficult to defend your rights legally if issues arise (not forgetting about the confidentiality of the account owner). But there are exceptions, such as Kraken, operating fully within the US and Canada (this is not an advertisement!).
- Forex brokers
Crypto exchanges are not the only option. Increasingly, Forex brokers now allow trading Bitcoin, Ethereum, or Litecoin through popular terminals like MetaTrader. Additionally:
- You don’t need to open a separate account for cryptocurrencies; trading occurs from one account alongside other assets (currencies, stocks, futures, indices);
- Bitcoin quotes come directly from CME, so you can verify their accuracy;
- A reliable broker is licensed and undergoes regular external audits, providing additional guarantees of funds’ safety and earnings.
- Binary options
With a small deposit, it’s almost impossible to earn visible profit on digital currencies unless you open trades for the entire account amount, ignoring risks, which does not promote professional growth.
Binary options are a good alternative for beginners — the trade volume starts at $1, the profit/loss size is known in advance, and complex money management is unnecessary.
Choosing a Strategy
Now, let’s move to the most important question: what strategies and skills are applicable for trading digital coins and tokens?
Let’s start with “fundamental” reviews and forecasts for cryptocurrencies, which flood the online resources. Here, it’s simple: since these virtual assets do not have real economic backing, such “expert opinions” have little influence on the price. It doesn’t matter what they discuss — Bitcoin at $9500 or MONERO at $68.
If speeches by ECB and Fed officials relate to monetary policy of leading countries and influence dollar and euro rates logically, and unemployment data or consumer sentiment indices are based on real statistics, then for fundamental traders, this is the main way to earn. In our case, everything relies only on rumors and hearsay. Of course, financial and political decisions regarding cryptocurrencies, especially involving China with its mining monopoly, do influence the market, but exactly when and of what nature — no economic calendar or analyst can say.
So what should you use?
The answer is: technical analysis. Any book on technical analysis will give you basic knowledge — apply simple methods, avoiding cluttering your charts with unnecessary indicators.
A few examples:
- Fibonacci levels. It turns out the “golden ratio” can be effectively used; let’s see how it looks in practice.
Clear price reactions to pullbacks and breakouts from levels are visible, and there’s no magic here — traders have the same basic knowledge, habits, and stereotypes.
- Moving Averages (MA). They have been effectively working for nearly a century on all financial assets. Any trading education begins with them; you can immediately apply standard period combinations to your chart. Strategies remain the same: the crossing points of fast/slow MA, breakout/bounce from the line or MA “corridor” boundaries.
- Significant price levels. Similar to Fibonacci, profitable trades can be opened from weekly and daily highs/lows, “round” quotes ending with .00, .50, .80, and .20. These are important psychological marks, but false breakouts occur more often here. So, this is only a basis for more thorough analysis.
- Price Action Candle Technique. Patterns like “Bearish/Bullish Engulfing” and the “Pin Bar” figure work well. The signal becomes more reliable if there’s additional confirmation — Fibonacci, MA cross, strong historical level, etc.
Some Personal Experience
- Cryptocurrencies are highly volatile across all timeframes; price swings of 20-30% are normal during a day. This complicates scalping, and even trades lasting from 30 minutes to 1-2 hours carry high risk of loss. If you are a beginner — start trading on four-hour (H4) and daily (D1) timeframes!
- Despite periodic sharp price impulses, it’s difficult to identify classic market phases (accumulation, trend, distribution) on digital assets, so medium- and long-term strategies stop providing reliable forecasts. The reason is that, unlike stock and currency markets, where cycles are based on real economic sector events, here we deal with large coin owners — they can support a trend or sideways movement as long as it’s profitable for them, then quickly change the situation.
- On Bitcoin futures, most gaps in prices at the start of a new trading session are not closed, unlike other stock assets. The same situation exists on crypto exchanges, so traders experienced in “classic” trading should fight the habit of placing pending orders in anticipation of gap closures.
- Crypto volatility may require revising money management systems, even if they previously provided stable profits: start by reducing the average lot size by 1.5-2 times, then gradually increase — depending on results. If leverage is used, it should not exceed 1:3 to 1:10.
And the main argument why trading cryptocurrencies can be quite profitable: despite high-frequency trading algorithms (HFT) gradually taking over digital money, the main volumes of crypto trading are still under the control of real people. That means we also have a chance to earn using proven technical analysis methods and observing the behavior of the “crowd” in the market.
