How do you trade crypto? Comprehensive explanation for beginners

Anyone who wants to start trading crypto faces many different cryptocurrencies, rapidly changing prices and all kinds of ways to trade. It is therefore important to first understand how crypto trading works and what risks are involved.

In this article we explain step by step how you can start trading crypto, which choices you make and what you need to take into account.

What is crypto? A short explanation

Crypto is a collective term for digital coins and tokens that use blockchain technology. Well-known examples are Bitcoin and Ethereum, but there are thousands of different cryptocurrencies, each with their own characteristics and applications.

The value of crypto is determined, among other things, by supply and demand and can change significantly. This allows buying and selling crypto at different prices, but it also carries risks.

Everyone can buy, sell and own crypto. You can use it to pay for goods or services, invest and gain access to software, media and exclusive services. You can also choose from many types of cryptocurrencies, each designed with its own goals and technologies and fulfilling functions on their blockchain.

Crypto is still relatively new, and the market for digital currencies is very volatile. Because cryptocurrencies do not require banks or other third parties to regulate them, they are usually uninsured and difficult to convert into normal money such as US dollars or euros. However, cryptocurrencies are increasingly being used for online payments, and are gaining popularity worldwide as a means of payment and investment.

What is trading in crypto?

Trading crypto means buying and selling cryptocurrencies. Some traders try to take advantage of price changes: they buy, for example, a cryptocurrency and sell it later when the price has risen

That sounds simple, but you never know in advance which way a price will go. A cryptocurrency that rises today can also fall sharply in value tomorrow. Profit is therefore never guaranteed and you can lose (part of) your investment.

It is wise to first familiarize yourself with the crypto market, the coin you are interested in and the risks.

Investing or trading in crypto?

Investing and trading in crypto are two very different strategies and each requires a different mindset and tactic.

Investing is generally focused on the longer term. An investor, for example, buys crypto with the idea of holding it for a longer period and thus pays less attention to daily price movements.

Trading is usually focused on the short term. Traders try to capitalize on price movements by buying and selling crypto at different times. That can require more time, knowledge and attention to the market.

There are also various crypto strategies, such as HODLing, Dollar Cost Averaging (DCA), swing trading and day trading. Each approach works differently and carries its own risks.

How do you start trading crypto?

Do you want to buy and sell crypto yourself? Then you can use the steps below to prepare yourself.

Step 1: Familiarize yourself with crypto and the risks

Don’t just start with the question of which cryptocurrency you want to buy. First make sure you understand how crypto works and what risks are involved.

Cryptocurrency prices can, for example, rise and fall sharply in a short period of time. In addition, crypto projects vary greatly from one another. Therefore, look beyond just the current price or recent price increases.

For example, delve into:

• the purpose and operation of a crypto project;
• the risks associated with crypto;
• factors that can influence the price;
• the market in which a project is active.

The more you understand about what you are buying, the better you can make an informed decision.

Step 2: Choose a strategy that suits you

Before you start, you can decide how you want to handle your crypto. For example, do you want to hold crypto for a longer period or buy and sell more often?

There are several strategies. With HODLing you hold crypto for the long term, while a day trader tries to capitalize on price movements over short periods. With Dollar Cost Averaging, for example, you buy a fixed amount of crypto periodically regardless of the price at that time.

No strategy guarantees profit. Which approach suits you depends, among other things, on your goals, knowledge, risk tolerance and how much time you want to spend on it.

Read more about different crypto strategies.

Step 3: Determine how much you want to deposit

Decide in advance how much money you want to use for crypto and take into account the possibility that you may lose part or all of your investment.

Crypto is volatile and there is no guarantee that your investment will increase in value. Therefore, do not use money that you need in the short term and determine in advance how much risk you are willing to take.

Step 4: Choose which crypto you want to buy

There are many different cryptocurrencies. A high price increase or popularity on social media tells you little by itself about the quality or future of a project.

Therefore do your own research before buying a coin. For example, look at the goal of the project, how the technology works, who is behind it and what developments are taking place.

At BLOX you can view different cryptocurrencies and read more about how they work before you decide to buy a coin.

Step 5: Buy or sell your crypto

Have you decided which crypto you want to buy and how much you want to invest? Then you can place a buy order via a crypto platform like BLOX.

The value of your crypto then moves in line with the market price. If you decide to sell your crypto later, its value at that moment depends on the prevailing rate.

When can you buy or sell crypto?

Crypto prices have many ups and downs. Therefore people often think that they have to time their investments well - buying within specific time windows to get the best possible price. But because the crypto market is global and runs 24/7, perfectly timing a cryptocurrency purchase never really works out. So when is the best time to buy a cryptocurrency?

In short: when you’re ready to buy a cryptocurrency. Do thorough research yourself: get to know cryptocurrencies, analyze the prices and study the market.

Also important: never buy crypto based on emotion, or because you’re afraid of missing out. Keep a cool head and devise a strategy to stick to. Some people have earned a lot of money with a correct purchase at the right time, but more often it was just luck and not perfect market timing.

How do you analyze a crypto price?

Some traders use technical analysis to study historical price movements. In doing so, they look, for example, at price charts and technical indicators.

Technical analysis can help recognize patterns and developments in historical price data. However, it cannot predict with certainty what a crypto price will do in the future.

A number of terms you regularly come across:

Support and resistance

Support and resistance are the most important terms in technical crypto price analyses. They reflect supply and demand of cryptocurrencies and the overall psychology of the cryptocurrency market. Support and resistance are displayed as horizontal or diagonal lines.

Support is a price level at which a coin price bounces back up after a decline. Demand picks up and this prevents the price from falling further because buyers find the price attractive enough to buy and sellers are less willing to sell. If the support level does not hold and the price keeps falling, the bearish sentiment has increased.

Resistance is the opposite of support: when the price reaches resistance, crypto buyers are less inclined to buy at that price level. Buyers who hold the coin find the price attractive enough to sell.

Finding support and resistance levels can be challenging. We often see support areas around the level of prior lows, while resistances form around prior highs.

Candlesticks

Crypto traders often use candlestick charts to analyze and predict crypto prices. A candlestick shows the price activity of a cryptocurrency over a specific time span. A candlestick typically represents one, two, four or 24 hours.

A candlestick has four components: the open, the close, the high and the low. The open represents the price of a cryptocurrency when the trading period begins, while the close shows the price when the period has ended. The high and the low represent the highest and lowest price reached during this trading period.

A candlestick turns green when the current or closing price rises above the opening price. The candlestick turns red when the current or closing price falls below the opening price.

By looking at multiple candlesticks side by side, you can see how the price has moved over a longer period.

Relative Strength Index (RSI)

The Relative Strength Index, usually abbreviated to RSI, is a technical indicator used by some traders to analyze price movements.

The RSI compares recent upward and downward price movements and gives a value between 0 and 100.

In technical analysis, high RSI values are often referred to as overbought and low values as oversold. However, this does not automatically mean that a price will then fall or rise. The RSI is based on historical price data and provides no certainty about future price movements.

Conclusion: how do you trade crypto?

How do you trade crypto? In short, you first research the market and the crypto coins: immerse yourself in the terminology, prices and then choose a strategy. Prepare well, always keep a cool head and never make hasty decisions; patience is the key.

You trade crypto safely, quickly and easily at BLOX. How does this work? Very simple: sign up with BLOX, register and verify your details and start trading!

Want to know more about the world of crypto? Then check out our other articles, for example on how you can invest in crypto, everything about DeFi or which unknown cryptos you can invest in at BLOX. Everything you need to know about crypto can be found in our cryptopedia.

Invest only what you are willing to lose

It remains an extremely important piece of advice: always invest only an amount you are prepared to lose. Crypto prices sometimes seem promising, but trading crypto can also cause you to lose your initial investment. Always make sure you are well informed and don’t let emotions guide you. That way you’ll trade crypto worry-free soon.