Education
7 min

How to Generate Profits through Crypto Trading?

In this article you will learn how to start your trading experience, avoid the most common mistakes and earn profit.

The reality for traders is often harsh, with statistics indicating that 90% of individuals lose their deposits. Another 5% experience inconsistent earnings, while only 5% consistently profit. Best crypto traders can amass a fortune over several years, providing substantial motivation to master this complex profession. In today's article, we will delve into a precise plan on how to become one of the top crypto traders and avoid substantial financial losses. Let's delve into it!

Step 1. Money Management

When consulting any guide on cryptocurrency trading for beginners, the importance of money management is emphasized. This holds true, as it is the primary concept to grasp. Contrary to the common belief that a cryptocurrency trading strategy is the key to success, entries and exits in trades should be of lower priority.

Implementing money management involves determining the portion of your overall wealth for trading on exchanges. Considering the potential risks of exchange scams and stable coin uncertainties, it is advisable not to allocate more than 50% of your total funds to crypto trading.

The next crucial aspect is the percentage of your deposit at risk in each trade. Calculate that in the event of a stop-loss hit, you will not lose more than this percentage of your deposit. This risk percentage can vary based on your experience:

  • 0.3% of the deposit if you're a new trader
  • 0.5% if you're not new to crypto but not entirely confident in your long-term strategy
  • 1% if you're experienced

These are two fundamental concepts in trading. If applied, they significantly reduce the probability of losing money to 99.5%.

Step 2. Choosing an App for Cryptocurrency Trading

Given the risks associated with holding funds on cryptocurrency exchanges, opting for the best app to buy and sell cryptocurrency is crucial. Binance, Bybit, and OKX are considered some of the best options due to their liquidity and avoidance of obvious scam coins.

From our experience, Binance boasts the best mobile application for spot and futures trading. It is also the largest exchange, ensuring liquidity. While recent FUD surrounds the top crypto exchange, using other exchanges might be preferable if you're overly nervous.

Bybit, ranking second, offers excellent futures trading volume and the best futures trading application. It is particularly suitable for day trading with both long and short positions. Despite rumors about liquidity issues, concrete confirmation is lacking.

Presently, OKX is considered the most reliable exchange with no FUD surrounding it. However, it's essential to remember that new information doesn't help determine the most reliable exchange. In our opinion, all three exchanges have an equal probability of collapse, albeit lower when using smaller exchanges.

Small exchanges have an advantage in listing low-cap tokens before Binance, Bybit, or OKX. While this provides an opportunity to discover hidden gems before the crowd, there is a higher probability of losing money due to potential scams. Additionally, trading futures on small exchanges may lead to liquidity issues and squeezes on both sides, impacting your stop-loss, unlike on larger exchanges.

Step 3. Risk Management

Having determined how much money to use in trading and securing these funds on the exchange, you are ready to engage in trading. Before delving into learning cryptocurrency trading, understanding risk management is crucial. For new traders, the maximum risk per trade is recommended at 0.3%. Regardless of the cryptocurrency trading strategy employed, you should not lose more in case of failure than you earn in case of success.

In the beginning, a 3:1 reward-to-risk ratio can be used. In this scenario, in the event of a price hitting the stop loss, you lose 0.3% of the total deposit and earn 0.9%. This approach provides a positive mathematical expectation, ensuring long-term profitability with a 90% probability, even without a well-defined strategy.

Common mistakes novice traders often make include recognizing a pattern signaling a trade entry but failing to set a tight stop loss. In such cases, the take profit may be too high, with a low probability of the market reaching that target quickly due to a substantial stop loss. Traders might end up in a position for an extended period, limiting new trade opportunities and resulting in missed opportunities. It is advisable to use trades with tight stop losses for quick results. For long-term positions, opt for trades with substantial reward-to-risk ratios (7:1 and higher).

Another common mistake is trading against the major trend, leading to unfavorable risk-to-reward ratios. For instance, in a market downtrend, frequent local bounces may occur. While many strategies may suggest a buy setup during such bounces, the downtrend prevents the price from reaching the appropriate take profit level. Therefore, it is recommended to trade only in the direction of the trend for less experienced traders.

Now that you are acquainted with three basic rules, you are ready to explore different trading strategies.

Step 4. Mastering Different Trading Concepts

Numerous crypto trading strategies prove effective with mastery. Classical technical analysis, including support and resistance, different indicators, and trend lines, is essential to learn. Familiarize yourself with the Wyckoff approach, smart money, and other concepts to better understand the market structure.

  • Classical technical analysis encompasses basic trading concepts, understanding how most traders analyze prices. Learn about support and resistance, trend lines, and chart patterns like double bottoms and head and shoulders. Various technical indicators, such as RSI, MACD, moving averages, and others, should be explored. While numerous indicators exist, you don't need to master all of them, but reading brief descriptions is essential. Practice drawing trend lines and identifying chart patterns on historical price charts to comprehend their functionality. Note that many patterns lack appropriate risk management, so prioritize learning this aspect.
  • Elliott waves analysis is a challenging and controversial concept in trading. While knowledge of current Elliott waves provides an understanding of the market phase, the multitude of correction types can be confusing. Reading Tom Joseph's book on Elliott waves is recommended for clear and easy explanations with specific examples on how to trade in various situations. Proficiency in trading using waves is achievable with experience, significantly boosting profits.
  • The Wyckoff concept aids in understanding why and how market prices move. Describing concepts of accumulation and distribution, it explains how strong hands absorb the liquidity of weak hands, influencing market prices against crowd expectations.
  • Smart money is a new concept promising trades with large capital on the market, governed by clear rules. While trading using smart money is straightforward, there is an opinion that this concept was created to manipulate the market crowd. Combining it with other concepts can enhance its utility, particularly in identifying large liquidity pools.
  • Trading chaos, developed by Bill Williams, is considered the pinnacle of the trading food chain. His methodology integrates Elliott waves, Awesome Oscillator, Alligator indicator, Fibonacci, and other indicators. Although trading chaos may seem too complex initially, understanding it can lead to genius trades with reward-to-risk ratios of 5-10:1 or even higher, with a win rate of about 70%. Practicing the ideas learned from Bill Williams' books is challenging but ultimately rewarding.

Choose the most comfortable trading strategy or combine different strategies before venturing into real money trading. Thoroughly backtest your strategy on historical price charts for various assets, including traditional markets, gold, or indices. Manual backtesting can be conducted on cryptocurrency trading platform like TradingView or through scripts on Pine or Python.

Step 5. Combine Manual Trading with Algorithmic Trading Bots

While automated crypto bot were once considered risky, some cryptocurrency trading platforms now offer low-risk crypto trading bot. Platforms prioritizing their reputation and risk mitigation make these options suitable for both new and experienced traders. Platforms like stoic ai, 3Commas, or crypto hopper are available, with Skyrex.io emerging as the best automated crypto trading platform. Skyrex.io only profits from your gains and does not require upfront payments. Allocating 50% of your deposit to trading bots, alongside manual trading, can help diversify risks. If you find trading unsuitable, using Skyrex is a viable alternative.

Conclusion

Crypto trading is inherently high-risk but holds the potential to build a fortune and fulfill dreams. Mastering trading is a gradual process, requiring perseverance even when doubts arise. With dedication, substantial profits can be attained, providing a level of freedom often unavailable to ordinary individuals. Manage risks sensibly, acknowledging that occasional losses are part of the game. Losing $100 today could translate to earning at least $300 tomorrow if you adhere to your trading system. Best of luck!

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