How to trade crypto: A step-by-step guide

Crypto trading involves buying and selling a digital asset on crypto trading platforms to make a profit. While trading involves risks, there are ways to take advantage of volatility if you adopt a methodical approach to trading. Thankfully, India is home to several leading crypto platforms, such as CoinSwitch, India’s largest cryptocurrency exchange with over 2 crore registered users. Let’s understand more about crypto trading.

What is cryptocurrency trading?

Trading is speculation. Crypto trading is speculating crypto price movements on an exchange. A crypto trader will buy or sell a token to benefit from its price volatility. There can be two types of trades: long or short. A crypto trader who expects the crypto market to be bullish in the near term will go long: that is, buy. On the other hand, a crypto trader with a bearish view for the near term will go short, i.e., sell the token.

In simple terms, crypto trading is the buying or selling of crypto assets for a short term, sometimes even less than a day. The duration of investment is what distinguishes crypto trading from crypto investment.

Why is crypto trading gaining popularity?

The crypto market is known for its inherent volatility. It is this aspect of the crypto market that makes it attractive to traders as traders thrive in uncertainty.

Additionally, crypto markets are global. While volatile, crypto trading is also a great way to diversify systematic risk as it is not impacted by domestic factors such as election results, Indian monetary policy, etc. Diversification is one reason why crypto trading is gaining popularity in India.

Thus, crypto market volatility and its insulation from Indian policies and news developments make digital assets attractive for Indian traders.

Learn crypto trading.

Trading is a high-risk, high-return game. This is especially true for crypto trading, as it is a relatively new market. Therefore, all aspiring crypto traders should learn crypto trading before pumping their hard-earned money into it.

A good way to learn cryptocurrency trading is by creating a mock portfolio and devising mock trading strategies. This will give traders a chance to get a feel for the market. Crypto trading has a fairly steep learning curve, and creating mock trading strategies will help you gain confidence in trading in crypto.

Once you start cryptocurrency trading with real money, starting small and building positions gradually is advisable. This will help you make the most of your money.

Here are some tried and tested, beginner-friendly crypto trading strategies.

Popular crypto trading strategies

As discussed above, the crypto market is volatile, and understanding volatility is what differentiates a crypto trader from the herd. We will discuss crypto trading strategies that help crypto traders make the most of volatility. We will also suggest some risk management techniques that will reduce downside risks while maximizing the profit potential for each trade.

Here are some popular crypto trading strategies.

Intraday trading

This trading strategy involves capitalizing on crypto price movements by entering and exiting the trade on the same day. It is also known as day trading, as positions are typically squared off at the end of the day. You can start your crypto trading journey by entering into small trades and moving to larger positions once you get a feel for the market.

Swing trading

Swing trading is a crypto trading strategy that capitalizes on market swings or volatility. Swing crypto traders buy at lows and sell at market highs in a time frame ranging from a few days to weeks.

This is a hybrid trading strategy between intraday trading and narrative trading. Swing trading has its roots in technical analysis and the study of charts. It involves buying a crypto asset at its support levels and selling it at its crest.

Algo trading

Algo trading, the lighter version of API trading, is a special offering from CoinSwitch PRO, CoinSwitch’s tool for advanced traders. While API trading requires constant attention and basic coding knowledge, Algo trading makes API trading accessible for all by allowing traders to put their money in a seasoned crypto trader's strategy for a preset percentage of profits. Here, as an aspiring Algo trader,, you will put in a fixed amount, say Rs. 50,000, in the trading strategy of an experienced API trader on the CoinSwitch PRO platform. Now, all you have to do is sit back and relax. The trading will happen per the trader’s strategy, and you will get your share of profits.

Head to CoinSwitch PRO right now to explore the Algo trading offering.

Arbitrage

The Indian crypto trading scenario is competitive, with multiple exchanges offering crypto trading. The price of the same crypto asset might differ marginally from exchange to exchange as price is a function of demand and supply. An arbitrage trader is like a bargain hunter looking to capitalize on the crypto price differential between two crypto exchanges.

An arbitrage trader will buy the token from the exchange where it is cheaper and would sell it on the exchange that is quoting a higher price for the same. The margin between the buy and sell price is the profit for the trader.

Risk management in crypto trading

It is tough to make a living from trading, especially crypto trading, as crypto markets are volatile. Trading in crypto assets involves risks similar to trading in other financial instruments. Here are some methods that crypto traders can use to manage crypto trading risks:

Set a trade-specific risk/reward ratio

The human emotions of fear and greed are a trader's biggest enemies. Setting a trade-specific risk/reward ratio will help traders stick to the plan by avoiding hasty decisions triggered by these emotions.

Let’s understand this with an example. As a trader, you have set 2:1 as your risk/return ratio. The 2:1 ratio means you are setting the trade for twice as much profit as loss. This ratio aligns with your risk appetite. The trade will look like:

BTC entry price: $70,000

BTC take profit: $72,000

BTC stop-loss: $69,000

Here, you will buy BTC at $70,000 with the expectation that the price will rise to $72,000. However, the stop-loss will be set at $ 69,000. This strategy will set the potential profit at $2,000 and the potential loss at $1,000.

Configure stop losses on your trades

Stop-loss orders limit the downside risk for a trade. This makes them a crypto trader’s best friend as they limit the loss potential of a trade. A stop-loss order will look like this:

BTC entry price: $70,000

BTC take profit: $72,000

BTC stop-loss: $69,000

For this trade, the loss is capped at a maximum of $1,000.

Avoid excessive leverage

Leverage trading allows traders to trade with borrowed capital. There is no upper limit on leverage, and it can exceed capital. However, leverage trading is dangerous when traders start taking excessive leverage positions. A 75% leverage position can increase your profits by 75%, but it can also magnify your losses and wipe out 75% of your capital.

Conclusion

Crypto trading is becoming increasingly popular in India, but it is important to learn the basics of trading before you dip your toes into it. We hope this article serves as a springboard to help you begin your crypto trading journey