Earning millions and buying “lambos”! That’s often the misconception about trading in the crypto space. A lot of traders get in with hopes of making life-changing gains but it’s never that easy. Trading actually involves significant risk so it's very important to do due diligence before one even makes their first trade. Here are some reminders for beginner trades to get started on their crypto trading career! 

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Understanding Trading vs. Investing

Should a trader just buy an asset and hold it forever until it goes up? Unfortunately, that’s not actually trading. The first thing a beginner trader needs to understand is the difference between trading and investing. 

Trading is focused on catching short-term price movements. It essentially takes advantage of market volatility to get in and out of an asset quickly. Traders set clear entry and exit rules and must have the discipline to follow it. They could buy an asset at $1 and sell it at $1.20 instead hoping of “what if it could go to $2”. Should a trade not go in their favor, a trader can also cut their losses quickly and move on to the next trade. Trading requires a more active management of one’s assets. 

On the other hand, investing has a longer time horizon. It typically involves buying and holding assets for years. As such, investors can take a much more passive role in managing their assets. Fundamental data about an asset such as earnings, use case, and adoption play a more relevant role in investing. Most investors will not sell even if they are at a loss because they believe in the project doing well in the long-term. In fact, investors will see down days as an opportunity to buy even more of an asset!

While neither is objectively “better” than the other, beginners need to understand which they lean more towards. One could be more of a trader, more of an investor, or even a mix of both. What matters is to clearly define each market position. Is it a trade or an investment? If it’s a trade, one should definitely not hold it -80% just because they believe in the project.

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Learning Technical Analysis

If investors base their positions on fundamental data, what do traders base theirs on? Traders tend to use technical analysis (TA). Technical analysis involves studying past price data to predict future movements. Its main tenet is that the market moves in patterns that repeat over time. Some key tools in technical analysis include support and resistance levels, candlestick patterns, chart patterns, and various indicators such as the RSI, MACD, and moving averages. Learning basic technical analysis would help beginners add more basis to their trades instead of just buying based on a gut feel. Read more about technical analysis here. 

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Developing a Trading Plan

Traders cannot just go into a trade blindly. They must set clear entry and exit rules. An entry rule is simple - if certain conditions occur, a trader can enter a trade hoping it goes in a certain direction. For example, a trader’s entry rule could be to buy an asset when price reaches a certain support level, drops to a moving average, confirms a chart pattern, or even a combination of these. Of course each trader can set their own entry rules depending on what works for them. 

However, setting an entry isn’t enough. Traders aren’t investors who just hold for years. They understand that markets move in waves. This means that assets that move up will eventually crash down and vice versa. Given this, traders need to set an exit point wherein they will get out of a trade. There are two types of exit points. A Take Profit (TP) point is the price point which traders hope the price will go to. Once this point is reached, traders will exit a trade to secure their gains. On the other hand, a Stop Loss (SL) point is the price point at which traders can admit that their trade idea was wrong. Traders exit their trade here to prevent holding a losing trade and accumulating even more losses. 

A well-defined trading plan involves setting up an entry point, take profit point, and a stop loss point before even entering a trade. Moreover, one must have a clear reason as to why each point is set at that price. By making a trading plan, beginning traders can set goals, develop discipline and control their risk. 

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Risk Management and Position-Sizing

One should never trade or invest what they can’t afford to lose. Trading will not provide consistent returns, especially if one is a beginner. The road to being successful with trading is paved with going through several losses. Given this it is important to mind one’s risk management. This involves setting a detailed trading plan with take profits and stop losses as mentioned earlier. More than that though, traders also shouldn’t be betting their full account on a single trade. One could risk a certain percentage of their account per position. Traders could also diversify the assets they trade to reduce risk. 

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Understanding Different Types of Orders

Traders also need to be able to execute their trade orders. Crypto exchanges offer a variety of order types but understanding the basic ones can lead to better trading success. 

• Market orders: These let a trader buy or sell an asset immediately at the current market price. This is useful if one needs to get in a trade right away to take advantage of current volatility. However, these tend to incur higher costs since it's possible to get a worse entry than initially intended. 

• Limit orders: These let a trader buy or sell an asset at a specified price or better. One can set the maximum or minimum price they’re willing to trade for. These give a trader much more control on their order. However, it’s possible one’s order might not be executed if the market price doesn't reach the limit price.

• Stop orders: A stop order sets a market or limit order when an asset reaches a specific price point. Traders may want to use this to exit a losing position or enter breakout trades (price breaching a support or resistance level and continuing to move). 

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Mastering Emotions

Lastly, what really holds most traders back isn’t faulty technical analysis, bad trading plans, or even a lack of experience. It’s really managing one’s emotions. 

Emotions can be a trader's worst enemy. Fear and greed can cloud judgment and lead to impulsive decisions. A trader can have a perfect trading plan but still sell too early or too late. For example, a trader can be in a winning position but not sell until it goes back to their breakeven price due to being too greedy. Another trader could exit their trades right away when the price drops just a few points below their entry due to being too fearful. Some may even hold on to huge losing positions because they feel a need to correct. Ultimately, trading is as much a psychological battle as it is a financial one. Those who can master their emotions are more likely to make rational decisions and make it as a trader. 

Trading is definitely not a walk in the park. Beginners will definitely take some time before becoming profitable but keeping these points in mind can save one from a lot of pain. 

It helps to remember that trading is a marathon, not a sprint. By being patient and maintaining discipline, new traders have a much better chance of reaching long-term success!

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