How to Trade Cryptocurrencies

9.4 How to Trade Cryptocurrencies?

Additional Reading - Bitcoin / Ethereum Trading Strategy

Bitcoin / Ethereum Trading Strategy

Time Frame: 4 Hour chart

Indicators: RSI (10), SMA (18), SMA (60), ATR (30)

Conditions for Long Trades:

Price is higher than it was 1 month, 3 months and 6 months ago.
At candlestick close, RSI (10) is 50 or higher, SMA (18) is above SMA (60), total range of candlestick is greater than 1.25 X ATR (30).
The high of the candlestick is above the high of the previous candlestick, and the candlestick closes up.
Entry if price reaches $10 beyond candlestick high during the next candlestick. Place stop loss $10 under the candlestick low.
Exit Strategy 1: Use fixed profit target of at least 3 X the risk. For example, if your stop is $200 in price away from your entry, the profit target should be at least $600.
Alternative Exit Strategy: Exit the trade as soon as two consecutive H4 candlesticks have closed down.

Conditions for Short Trades:

Price is lower than it was 1 month, 3 months and 6 months ago.
At candlestick close, RSI (10) is 50 or lower, SMA (18) is below SMA (60), total range of candlestick is greater than 1.25 X ATR (30)
The low of the candlestick is below the low of the previous candlestick, and the candlestick closes down.
Entry if price reaches $10 beyond candlestick low during the next candlestick. Place stop loss $10 above the candlestick high.
Use fixed profit target of at least 3 X the risk. For example, if your stop is $200 in price away from your entry, the profit target should be at least $600.
Alternative Exit Strategy: Exit the trade as soon as two consecutive H4 candlesticks have closed up.

How to Trade Cryptocurrencies

In this lesson, we are going to talk about how to trade cryptocurrencies. The first step is to open an account and make a deposit at a broker offering trading in cryptocurrencies. At the time of writing, there are more than 40 brokerages worldwide offering trading in cryptocurrencies. All of them offer Bitcoin, about half of them offer Ethereum and Litecoin, and about one-quarter offer either Ripple or Dash. This means that if you want to trade more than Bitcoin, your choice will probably be limited.

Cryptocurrencies are extremely risky, and could fall in value by around 90% at any given time. For this reason, how much leverage you use is very important. Many brokers offer no leverage on Cryptocurrencies. About 40% offer leverage under 10 to 1, with just a few going as high as 20 or even 30 to 1. Understand that if you trade cryptocurrencies with leverage, unless your broker offers guaranteed negative balance protection or guaranteed stop losses, you could end up being liable for much more than you deposit, and face legal proceedings for any debt.

The cost of trading cryptocurrencies is usually high, in the form of spreads and commissions. This means that short-term trading can be too expensive, if too many trades are taken. Also, some brokers impose minimum trade sizes as high as 10 Bitcoin. At a typical maximum leverage of 10 to 1, you would need to deposit $4,000 to place a single minimum-sized trade. However, there are brokers offering minimums as low as one-tenth of a Bitcoin, which is much more affordable.

Now onto methodology. While correct fundamental analysis can be a useful tool in profitable trading, it is much less important for cryptocurrency trading than technical analysis. When it comes to cryptocurrencies, fundamental analysis can be easy – it is only a call on whether the currency is likely to have a successful long-term future or not. If you have the capability to make such a judgement, then that is great, but if you don’t, it is not necessarily a big disadvantage.

The good news for technical traders is that cryptocurrencies in general, and Bitcoin in particular, behave very technically, usually respecting obvious support and resistance levels and major trend lines. This respect for technical levels makes sense, as unlike major currencies which have real and disruptive order flows from the real economy, trading in cryptocurrencies is almost completely speculative and will remain so until they become a widely used means of exchange.

In technical terms, Bitcoin and Ethereum are usually the easiest cryptocurrencies to trade. In trading, it is typically best to trade only the most liquid instruments, and these two are by far the most liquid cryptocurrencies. Bitcoin can be traded successfully using support and resistance to determine the probable line of future movement, and candlestick price action to time the reversals. The typically very high volatility can be a problem, because it requires large stops, but the eventual movements are usually large enough to be profitable. That’s the end of this video, but check out the instructor’s notes section below for full details of a Bitcoin trading strategy!