Cheat Codes for Cryptocurrency Noobs
Here are 5 tips for new cryptocurrency traders that will help avoid some pitfalls and traps beginners tend to fall into when they start investing in or trading cryptocurrency.
The goal will be to present 5 general bits of wisdom that will help you understand where to trade and some basic strategy behind trading.
TIP: I use some crypto jargon below, see a page on deciphering crypto lingo. With that in mind, don’t worry about understanding everything I say below right off the bat. These “5” [more like 50] points aren’t necessarily simple to wrap your head around, they are just smart to key into early (so glean what you can, bookmark this page, and mull it over until you soak it up).
1. Start with Coinbase, then move to GDAX to avoid fees.
Or, a new trader might jump right into a crypto-to-crypto exchange like Kraken (which has a wide selection of choices).
Those are valid choices.
Coinbase is a broker/custodial wallet service that makes buying/selling/storing cryptocurrency simple. As a bonus, it will also always work as an exit plan back to fiat (it lets you sell to dollars). Meanwhile, GDAX is a Coinbase run trading platform that allows users to avoid Coinbase’s fees.
Beginners and pros use Coinbase/GDAX; it is a platform you can start with and utilize for years to come. Once you master GDAX, then you ready for full nodes, TREZOR, Bittrex, Bitfinex, Binance, Kraken, etc.
In other words, take advantage of Coinbase’s beginner friendly one-stop-shop and get some money in the market, then branch out from there (it is worth the fees in my opinion).
TIP: Fund your USD wallet on Coinbase and trade on GDAX to avoid being charged the fees out of the gate. Coinbase has rather hefty fees for buying and selling (as you pay a premium for them doing the legwork for you). GDAX is how you get around these fees. GDAX uses your Coinbase login, so you have to sign up for Coinbase first.
Shameless promotion: If you sign up for Coinbase by clicking Coinbase links on our site that take you to Coinbase’s sign up screen (like this one for example), we both get $10 in Bitcoins when you buy/sell $100 worth of crypto. We are promoting Coinbase because it is a good first step, the $10 worth of Bitcoin is the icing on the cake. Feel free to not use that link.
TIP: If you decide to go right to an exchange that doesn’t deal with dollars, you can use Nubits or Tether (or another “stable coin”) in place of the dollar. These stable coins have risks, but they are very useful for mimicking the act of cashing out.
2. Rip the band-aid off and learn Technical Analysis (TA) as soon as you can.
Go to TradingView.com and go there daily from now until you close your crypto accounts.
If you don’t understand basic technical indicators and the basics of technical analysis, you are “flying blind.”
All the pros and trading bots use TA to trade (with the exception of those using very complex algorithms that process other types of data). If nothing else, figure out Moving Averages to get a sense of longer term trends. You don’t have to time trades perfectly or even well, but you do want to know when the market is extremely bearish (generally going down) or bullish (generally going up) so you can buy or sell at least some of your coins accordingly.
Crypto lacks some fundamentals common with other assets, has an excessive number of computer and finance “nerds” (many of whom use TA and trading bots), and sees a lot of emotional trading. When new investors are piling it uptrends are common, but when there is less interest the market can revert back to being filled with technical traders (and thus its good to have an idea of what is going on).
Given this, Exponential Moving Averages, Fibonacci retracement levels, and Elliot Waves aren’t just your friends, they are like cheat codes (as they are used to predict trends in markets and are the main thing bots and pros are trading based on).
In the stock market, fundamental analysis is very important and so is the news of the day. In crypto, those are important for picking coins based on fundamentals and knowing to “buy the rumor,” but TA is dominant… thus you should take the hours, days, and weeks it’ll take to wrap your head around it.
Example strategy for long term investing: If nothing else, a simple strategy for the major coins (this works on any coin with decent volume; it is tricker with low volume coins which may get suddenly pumped and/or dumped) might be something like this example: “Look at the 12-day and 26-day Exponential Moving Averages on a longer time frame. For example, look at these on daily candles on a 6 month chart. Buy when the short-term 12EMA crosses fully over the long term 26EMA. Sell when the short-term 12EMA crosses fully under the long term 26EMA.” See my example chart (it’ll help to have this open to follow along, I’ve also posted an image below). You’ll note that this strategy alone will save you from going down with the ship and will ensure you are in the coin before it fully takes off. No strategy is perfect, but even a simple strategy like this is much better than trading purely on emotion.
TIP: In general it is more conservative to gradually enter and exit positions than it is to go all in or all out. Over exposure or under exposure can be stressful in the volatile crypto space. So it can help to use conservative longer term strategies that remove you from worrying about what is happening in the moment. This is covered more below.
Notes on the above strategy: You’ll generally want to wait for a trend to be confirmed before buying or selling. For 1 day candles, I’d suggest waiting at least a day (if not a few days) after the line has been breached to confirm the trend.
A more nuanced version of the example strategy: A more nuanced and useful version of the above strategy is to buy or sell when the short-term average starts trending toward the long-term. If the short term average has diverged enough from the long term (on a longer time frame like 1 day candles), it’ll take a good deal of time to cross back over fully, so you’ll probably want to buy if not sell sooner. In the example chart you can see the short term EMA starts trending toward the long term long before it finally crosses in instances where the two lines have diverged for a significant length of time. If the short term ema is trending up on a longer time frame, you are in a market where you might want to consider “buying the dips.”
Notes on the above strategies: For more, see Death Cross and Golden Cross as we are essentially buying golden crosses and selling death crosses. Also see Moving Average Convergence Divergence – MACD as we are, for the more nuanced version, essentially buying and selling based on the convergence and divergence of the short term and long term exponential moving averages. The above strategies won’t offer very many buy or sell signals when considered over longer time frames, and you will miss out on some great buying and selling opportunities. However, they will, at the very least, prevent you from suffering through a 80%+ correction and will ensure you are on the rocket before it takes off. Clearly, you’ll want to do more than just use these simple one-note strategies, but they are a good place to start. One last note, you can see 12 day and 26 day EMAs on GDAX by selecting “candles” and “1d” (very useful stuff).
3. Dollar Cost Average, Ladder, Use Stops, and Buy the Dips.
Meanwhile, buy the dips in a stagnant or bull market.
When a coin is on a run or stagnating, buying the dips (buying when the price pulls back) can be insanely profitable.
When the market is bearish (like when our short-term EMA has fully crossed under our long-term EMA and continued on that trajectory), aggressively buying the dips is a pretty poor move unless you can perfectly time a quick bounce or the bottom (which takes talent or luck).
If you can’t tell what cycle we are in, and you don’t know where to look for support levels, just dollar cost average and ladder your buys (using as little as 1% of your investable funds per buy).
In other words, don’t FOMO buy and don’t panic sell.
Buy gradually over time using some time-tested strategies. That will help you avoid the pitfalls of the volatile crypto market.
Also, consider taking incremental profits as you see them (i.e. the crypto market is volatile, so it can help to be conservative while learning the ropes).
TIP: Pros will do things like short a coin on margin when a key resistance level is hit and a retrace is confirmed, and then close their short position right before a support level is hit. If you are reading this page, then you probably aren’t a pro, and thus margin trading is a quick way for you to lose all your money. Stick to dollar cost, ladders, stops, and dips in a bull market (the worst you can do is mistime a buy or sell; you won’t get liquidated).
Know when to HODL: Those who know they aren’t good traders might “just HODL.” HODL (a purposeful misspelling of “hold”) is good if you bought low and don’t want to time the market and want to wait for gains. Likewise, HODL is good if you are seeking long-term capital gains (which are taxed at a lower rate than ordinary income and short term capital gains). HODL isn’t great if you bought the top recently and are on a sinking ship. As much as it is not fun, you have to be willing to take losses in crypto (not saying to sell everything, just be willing to take some money off the table early if things go south). Take your losses based on TA, and average and ladder out of positions. Then be ready to buy again (heck, you can even set a stop-buy to ensure you get your buy-in and the market doesn’t take off without you). So many people HODL after buying the top, if you can avoid it your first run through, you escaped a giant pitfall that almost everyone falls into! If you didn’t escape it, no worries. That is when you can revert to the HODL tactic; you’ll very like have another chance to get it right on the next cycle. We aren’t taking money off the table because we are giving up, we are taking it off to become a buyer at the next support level or when trends reverse. Speaking to the previous tip, if you know TA, you’ll have a good sense of when to HODL em’ and when to FODL em’…. :/ see a page on what it means to HODL. NOTE: Why don’t we want you to HODL all your coins at the top? Simple, from a selfish viewpoint we want you buying when trends reverse to help push the market back up later. 🙂
4. Start by mastering Bitcoin, and always have your Bitcoin chart open.
The entire market is anchored to Bitcoin like the stock market is anchored to the dollar (in this sense, Bitcoin is like a volatile dollar that changes values wildly).
If you don’t know what is going on with Bitcoin, you are again “flying blind.”
It doesn’t matter what you think about Bitcoin or other coins, in practice, thus far in the history of crypto, all other coins react to Bitcoin. Thus Bitcoin must be on your radar.
Is Bitcoin my favorite coin? Nope. Is Bitcoin the coin I spend the most time studying? Yes indeed, because it is the center of the crypto-verse.
Learn more about the historic relationship of Bitcoin, altcoins, and the crypto market.
5. Crypto is all cycles and waves.
To say that crypto is pattern-based, wave-based, and cycle-based is an understatement (one reason TA works so well by the way).
Which coins or types of coins are doing well tends to rotate. Bitcoin dominance and altcoin dominance tend to ebb in flow in wave-like cycles.
Bitcoin tends to grow and then retract in waves, so do other coins.
This trend seems to hold in any market.
It is a dangerous mistake to zoom-in too much on a chart and think “wow ETH was just .11 BTC, I should go all-in on the dip at .1 BTC.”
Instead, zoom out on the chart, look a the price over the year, and consider keeping enough cash/BTC on hand to buy the very lowest price on the chart… because there is almost just as much chance to see that price again or lower as there is to see an all-time high.
TIP: If you think, “this time it will be different,” if you think, “this is when Ether becomes the dominant coin, or altcoins overtake Bitcoin,” this is a sign that you have gone insane and are wearing rose-colored glasses ( 😀 ). Check TradingView, it is very likely we are nearing the end of a cycle, and a correction is coming! If history is any indicator, it is not different this time and you should not go all-in at the high, avoid taking profits, and HODL based on a gut feeling (that isn’t your intuition speaking, that is GREED!)
BOTTOMLINE: Coinbase/GDAX is a good starting point, BTC is king/queen, learn TA, and practice a strategy that will help you trade in any market (bullish, bearish, or stagnant). Don’t do the meme version of crypto trading, pay attention and have your dollars on hand to buy when bearish trends reverse.
Moving Beyond our “5” Tips for New Crypto Traders
Above are just some basic tips that I wish I would have understood before making my first trade.
If you can internalize these points you will, I hope, skip over the part where you FOMO buy the top, ride a coin down to the bottom (losing 80% of your crypto net-worth on paper), and sell low based on emotion rather than careful analysis… and go straight to the part where you take calculated losses on your way to a successful future as a cryptocurrency trader / investor.
BONUS TIP: You can’t make money on crypto if you aren’t willing to re-enter the market. Getting out when the trend is working against you is how you preserve capital (which is vital for staying in the game), getting back in when trends reverse is how you make profits (which is the goal).
BONUS TIP: People tend to think the crypto market is manipulated more heavily than it is. Whales and bots aren’t “manipulating” the market as much as they are all buying and selling based on key indicators. This can cause the market to go up or down quickly. Everyone’s bots place orders at the same time when key events take place, and this can give the impression of big players practicing purposeful manipulation. A lot of what happens is earnest price action in a thin market… not all of it, just a lot.
BONUS TIP: As a rule of thumb, you should not take investment advice from random people on crypto groups on social media. Instead, listen to pros on the top sites and consider their opinions together with your own insights. Normal people on social media will often be shilling a coin or spreading FUD; these types tend not to be helpful. Instead, always remove your emotion and entertain both a bearish and bullish view of the market. Then, when the data speaks, listen. Avoid being a bull in a bear market or a bear in a bull market, that is a recipe for losing money.
BONUS TIP: You have to be prepared to lose your shirt in crypto. It is hard to lose your shirt if you sell based on the basic indicators. Emotions are strange things, and price action can happen fast. If you put your shirt on the table, you might lose it.
BONUS TIP: Be prepared to pay taxes on cryptocurrency. Crypto taxes are a logistical nightmare for traders (it isn’t the money you’ll pay that hurts, it is the spreadsheets and calculations that will kill you). There is no way around it, so learn about crypto taxes early and prepare before your taxes are due!