The Essential Skills For Crypto Traders to be Successful

Since their inception over a decade ago, cryptocurrencies have made traders millions of dollars and even sparked a global conversation. Many people are now aware of the possibility of earning significant returns on investments in digital currency. With the glaring potential to make a fortune or wipe out your entire funds in losses, starting can be scary. This piece serves as a primer to cryptocurrency trading. Read it to the end to discover the easiest path to investing in digital coins. All views expressed are purely from our experience and should not be treated as investment advice. Let’s get started.

trading skills
trading skills

An Introduction to the Types of Crypto Trading Available

The first step to learning crypto trading is understanding the different available methods. Traders have different preferences depending on their tastes, goals, risk tolerance, budget, technology, and personalities. There are many names and ways to describe the different investing approaches in the virtual money industry but we denote them as intra-day, swing, and position trading. These three categories indicate whether one’s system is short, medium, or long-term. Intra-day trading tactics, as the name suggests, entail purchasing and selling an asset for a profit within a 24-hour period. Swing traders typically keep onto their positions for one to two weeks on average. Finally, position investors are those with a long-term view. They grab an asset and keep it for an extended period, ranging from months to years. These three methods are supplemented by additional trading techniques, including scalping, range trading, high-frequency trading, bullish, bearish, and arbitrage trading.

The most common intraday methods include arbitrage, high-frequency trading, and scalping. A scalper frequently enters and exits trades within a few minutes or even seconds in an effort to benefit from minute price fluctuations. High frequency, usually referred to as HFT, is a technique that uses sophisticated computational tools to carry out large fractional orders. It is primarily used by institutions like hedge funds or people with significant cash and the necessary technology. The phrase “high frequency” describes the rate of execution. They may take place in seconds or even milliseconds. Finally, arbitrage refers to buying an asset in one market and simultaneously selling it in another at a higher price. It only happens when there is a market imbalance causing an abnormal difference in prices across different markets.

Range, bull, and bear trading could fall into any category based on how long one holds the trades. A range occurs when cryptocurrency prices stick within a specific area of supply and demand. A trader following this method sells when prices reach a place of resistance and buys whenever it goes back to a support level. Bull trading, on the other hand, simply means taking trades when you perceive a bull market. Prices are considered bullish when they are rising. The opposite is bear trading, where one takes advantage of a decline in price to take trades in the hope of selling at a higher level.

While it’s essential to learn at least one trading technique before investing your hard-earned cash in the digital coin market, one may still trade with zero knowledge. Technology has made this possible through the introduction of social trading. Also referred to as copy trading, this technique allows you to copy investment strategies from others. You may do it manually or automatically using a trade copier. With this, you only need to identify a successful investor and let the copier duplicate their trades in your portfolio. Bot trading is another technique you can use to invest without any knowledge of market analysis. Anyone can automate their trading method into a computer program that can analyze prices, execute trades and exit correctly. At this point, one may decide to sell, lease out, or share such a program with others. All you need to do is plug it into your trading account and let it run. A trade copier is also a type of bot, only that instead of market analysis, it replicates what the master account is doing.

The Fundamental Skills One Needs to Trade

Every trader must build some fundamental skills before investing in virtual money. Of course, there is no surefire way of success, but some steps will undoubtedly set you up for that. Let’s break them down one by one.

  • Technical Analysis: Technical analysis is a method used by investors to study the market and make potential predictions about future price movements. Technical analysts believe that history repeats itself and that price reflects all factors influencing market movement. For that matter, they spend time looking at historical movements to identify unique and rhyming patterns, then using them to forecast the next trends before investing. They may use different tools, including chart indicators like moving averages, the Fibonacci, and stochastic oscillators.
  • Risk Management: Crypto trading is a game of probability. Even the best investors are never sure that a trade will go as expected. Even after a thorough analysis, many factors could easily sway the price against you. With that knowledge in mind, taking reasonable risks is essential. Have a proper trading plan that defines your risk level, and stick to it. The rule of thumb is to only stake up to 2% of your portfolio at any time.
  • Emotional Intelligence: Emotional intelligence, in simple terms, is the ability to detect, understand and manage your feelings. Trading crypto can subject you to a roller coaster of emotions, especially when market volatility is highest. Allowing emotions into your trading instead of logic could easily distort your view of the market and lead to costly mistakes. One of the best ways to keep your feelings at bay is to have a proper risk management plan and only trade when per your plan. In addition, you need to understand that losses are part of trading. There are going to be seasons of profits and negative results. Prepare yourself for both positive results and a loss before investing. Lastly, take a day off whenever you feel stressed or too excited.
  • Fundamental Analysis: Unlike technical analysts that focus on historical price patterns, fundamental analysts try to find the actual value of an asset through a “big picture” approach. These traders are more interested in economic, legal, and social factors affecting an asset. In crypto, investors read through white papers to determine a project’s goals, use case and distribution, sustainability of technology used, the team’s vision and skills, and future plans. You also want to compare the performance versus the road map and look for red flags. A good investment follows its white paper and road map effectively, has an actual use case, a strong community behind it, and a fast-growing market cap. Additionally, it has no bad reputation or legal issues surrounding it.
  • Patience and Discipline: Patience and discipline are the building blocks of risk management and successful crypto trading. The market will present you with many opportunities that could trick you into jumping in, only to lose your investment. Don’t let ego, boredom, and greed overcome your analysis. Be patient to wait for the proper entry setup and disciplined to follow your plan strictly. Some common mistakes that show a lack of patience and discipline are, letting losing trades run too long, cutting winners too early, impulsive trading, and revenge trades after taking a loss.
  • Research Skills: Trading requires much research. Even if you choose to use bots and copy trading, you will still need to put in some effort to identify the most effective methods and tools. The best manual traders consistently consciously choose to stay current on market events. They keep an eye on various information, including price levels, impending changes in their target asset, and the overall atmosphere of the sector. Even if research may not be particularly complex, one must acquire a strong skill to carry out all of these tasks in the chaotic and quickly changing market environment. More often than not, you will find yourself in situations where you need to collect data and make quick decisions as price never stops waiting for anyone.
  • Knowledge of Cryptocurrency Markets: You might be an exemplary technical or fundamental analyst with stock trading experience. However, your skills may only yield positive results while trading crypto if you understand the market. Remember, crypto and stocks are moved by different factors. While price patterns may be similar, you need to understand the circumstances under which they occur, the difference in volatility, and aspects like how liquidity is created. There is a lot of free information on the internet where you can study digital coins from a beginner level to get the basics before you can start investing. We also have a free crypto academy here at dappGambl. Feel free to visit it and improve your knowledge.
  • Adaptability and Flexibility: Becoming adaptable and flexible is critical in the ever-changing crypto industry. Market catalysts can shift quickly from one day to another, requiring you to make prompt and accurate decisions. Being able to handle this pressure without succumbing is necessary if you are going to trade crypto successfully. For example, no one ever saw Covid 19 and the lockdowns coming. Traders had to react quickly and evolve through it even though the future looked highly uncertain. You can learn everything on the job if you are resilient and determined. Even the best Wall Street traders who spend each day preparing for the unforeseen future are sometimes caught off guard and forced to make prompt adjustments.
  • Money Management: Money management is a term used to describe position-sizing techniques. Every trader has rules for increasing or decreasing their risk per trade based on different circumstances. Some standard methods are fixed ratios, where one determines the percentage level of their portfolio they can risk per trade. Averaging up, also called scaling up, is also popular. It involves adding onto winning positions to maximize the gains. You may also employ martingale or cost averaging, according to your strategy. We prefer to trade with a fixed percentage of 1% to 2% and target at least 3x our risk. That means we also wait for positions that have the potential to move three times our risk or more. A single win sets us three steps ahead, meaning we will need four consecutive bad trades to get into a loss. Even with a win ratio of 50%, we still end up profitable.
  • Strategy Development: We have mentioned “Strategy” throughout this article, but what exactly is it? In the simplest language, this is the technique used to determine whether to buy or sell an asset while trading crypto. There are different components to an effective strategy. While building one, you want to decide which crypto markets you will trade, whether you will take intra-day, swing, or position trades, and your entry, risk, and exit. You need to know what tools you will use and the signals that must appear before you invest your money in the market. Lastly, back-test your approach using historical data and fine-tune it in a demo account before you can consider using it on real cash.
  • On-chain analysis: All the methods discussed above can also be applied to other assets, such as stocks and even forex trading. However, on-chain analysis is specific to digital coins. It’s an emerging field aimed at providing valuable insight into the psychology of participants of the public blockchain in question and capitalizing on findings to make price predictions. A crypto trader using on-chain analysis is interested in supply and demand trends, size and frequency of transactions, rates at which other investors buy, sell, or hold an asset, and any anomalies concerning price correction, rallies, technical data, and fundamental status. Since blockchain is not easily within reach of every individual, analysts use data providers such as CoinMetrics, Statista, and DuneAnalytics.

trading skills

Other Skills to Master

  • Managing FOMO: No matter how good you get at analyzing and predicting the trend, learning to deal with the fear of missing out will be crucial to your success. In today’s world that’s controlled by social media, you are likely to be bombarded with success stories of other traders, rumors, and analyses made by different individuals. Without proper judgment, it’s easy to feel left out. Eventually, you may make a rush and irrational decision to try and catch up, but instead, make huge losses. There is no “off-button” for FOMO. The best way to handle it is first to accept that it exists, then list the warning signs in your trading plan to always stay cautious. Afterward, work on developing strong psychology, mastering your emotions, and proper risk management.
  • Discerning scams: The cryptocurrency industry’s unregulated yet potentially profitable nature makes it a top target for scammers. In 2021 alone, the Federal Trade Commission reported that over 46,000 investors lost at least $1 billion to scammers. There are many new projects sprawling out of the blues with unrealistically high promises of making users overnight millionaires. Always think twice when the deal is too good. Be careful who you trust, and remember to secure your crypto wallet at all times.
  • Knowledge & understanding of trading platforms: A trading platform is software investors use to analyze the market, and open, manage, and close trades. They include features such as real-time price quotes, charts, analysis tools, news feeds, and trade manipulation functions. The nature of the platform may vary from one financial institution to the other. Some companies, like Interactive Brokers, have highly advanced custom systems that may be difficult for beginners, while others use common and easy technologies like the Meta Trader and C-Trader. Whichever platform you use, ensure you have adequately mastered it before investing real money.
  • Reading & understanding white papers: Reading white papers forms part of asset analysis. It helps you separate viable projects worthy of your investment from the debris. While reading white papers, seek to establish the reasoning behind the project, the use case, the road map, and the team pushing it. This may save you the headache of putting your funds into scams or schemes with no future. For example, staking your funds in a project with no real-world use case or one whose team is inexperienced may not be a good idea.
  • Knowledge of Tokenomics: Another way to separate good apples from bad ones is to understand how tokens of a particular crypto project are allocated. You want to find out the vesting, and basic investment pointers like the total supply, circulating amount, consensus mechanism, and how inflation is capped. With such info, you can determine a project’s current and future value, hence potential return on investment, before committing your hard-earned money.

Conclusion

Anyone who has read this article from the start will agree that trading crypto isn’t cryptic. It simply requires understanding the basic ideas covered, such as the techniques for analysis, risk management, managing FOMO, and formulating a sound strategy. Though these principles will make it simple for you to get started, keep in mind that success becomes more probable as you gain more information. Set aside a few hours to read similar articles and spend time on charts each week. Practice makes perfect! The more you learn, the more proficient you become. Find firms that provide virtual trading accounts, then begin practicing. Also, seek an experienced mentor to help you learn faster.

Eugene Abungana
Written by Eugene Abungana verified symbol Investment Analyst, Financial Analyst, and Institutional Trader
167 Articles

Eugene is a crypto and iGaming writer, with a passion for sharing the latest trends and developments in the industry. His fascination with cryptocurrency started in 2014 when he first discovered Bitcoin. He has since expanded his knowledge and experience through education, trading, gaming, and working with different experts. My goal is to offer unbiased and accurate information while promoting ethical and responsible gambling practices.

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Reviewed and Fact Checked by Nakul Shah , DLT Expert and Project Manager