How to Trade Crypto & Make a Profit (Ultimate Guide 2024)

The basics of cryptocurrencies 

Cryptocurrencies are digital currencies that use blockchain technology to ensure that all transactions are secure. Cryptocurrencies allow users to make peer-to-peer transactions, without the need for central banks and intermediaries. 

Bitcoin was the first cryptocurrency — created in 2009 in the wake of the Great Financial Crisis. Since then, many new cryptocurrencies offering unique use cases have emerged. 

Today, the cryptocurrency market is worth more than $2 trillion. However, the market is still highly volatile — which makes it a great opportunity for traders to earn profits. 

What is cryptocurrency trading?  

Cryptocurrency trading involves buying and selling digital assets to make profits. Let’s walk through some of the factors that make cryptocurrency trading so appealing: 

Profit opportunity: Cryptocurrencies are highly volatile, which means that traders who can ‘time the market’ — in other words, buy low and sell high — have the opportunity to earn significant profits. 

24/7 trading: Unlike the stock market, cryptocurrencies are open to trade at any hour on any day of the week. 

Accessibility: Anyone can get started with crypto trading! Just sign up for an exchange, add a payment method, and start buying and selling cryptocurrencies! 

What are some different ways to earn income from cryptocurrency?

Let’s walk through some of the different strategies used to earn profits from cryptocurrency. 

Long-term investing: Most investors buy and hold cryptocurrency for the long-term. While this strategy has historically been successful for cryptocurrencies like BTC and ETH, it may take time to see a significant return. 

Day trading: Day traders aim to profit off of the short-term price swings of cryptocurrencies. It’s common for day traders to buy and sell the same cryptocurrency on the same day (hence the name). 

Automated trading: Some traders use crypto trading bots to identify opportunities and make profits. For a small fee, trading bots can help you make high-frequency trades based on signals and indicators. 

Margin trading: Margin trading involves borrowing funds from your exchange to make cryptocurrency trades. Margin trading can amplify your gains and losses — which means that it can potentially be highly risky! 

Is crypto trading profitable? 

Crypto trading can be profitable, but is also highly risky. Here are two things to keep in mind: 

High risk, high reward: The market's volatility means that while there are opportunities for substantial gains, there is also the potential for significant losses. 

Be cautious when trading: To mitigate potential risks, you should never invest more than you could afford to lose. 

7 tips to be a successful crypto trader

Let’s walk through a few tips that can help you become a successful trader. 

• Use technical analysis: Technical analysis can help you understand the recent price movements of cryptocurrencies and use this to make short-term price predictions (more on this later in the article!) 
• Stay up-to-date on crypto news: Follow trustworthy crypto news sites to find news that may impact prices — such as regulatory updates, project announcements, and changes in Federal Reserve policies. 
• Keep a trade journal: Remember, having a losing trade is inevitable. Be sure to learn from your mistakes to avoid them in the future. Keeping a trading journal to remember your reasons for making a specific trade can be a great way to avoid future errors. 
• Use stop losses: To limit your potential losses, consider using stop losses. Stop losses allow you to set the maximum amount that you are willing to lose in a trade before the position automatically is sold off. 
• Focus on the cryptocurrencies you know best: Focusing on a few cryptocurrencies you understand deeply can be a good strategy. Over time, you will likely get a better understanding of how certain events help drive the price of these assets. 
• Set a profit target: Many successful traders set realistic price targets that they aim to hit with each trade. This can prevent you from waiting too long to sell a certain position. For example, a goal of 20% profit for each trade is realistic — and can add up to significant profits over time. 
• Understand your risk tolerance: Keep in mind how much risk you are willing to take on when trading crypto. Only invest what you can afford to lose. 

What drives prices in crypto markets? 

The price of cryptocurrency is driven by supply and demand. Cryptocurrencies like Bitcoin have a limited supply — which means that a small change in demand can lead to a big change in price! 

Here are a few factors that can impact the price of crypto: 

Market sentiment: The crypto market can be ‘bullish’ or ‘bearish’ — depending on the general attitude of crypto investors! 

Regulatory updates: Government regulations can impact the price of cryptocurrencies. For example, China’s ban on cryptocurrency mining in 2021 led crypto prices to drop. 

Macroeconomic trends: Crypto prices are affected by general economic trends. Some analysts believe that in a recession, investors are likely to pull their money out of ‘risky’ investments like cryptocurrency. 

What drives the price of new projects and ‘memecoins’? 

It’s common for new cryptocurrencies to take the ecosystem by storm, see a dramatic increase in price in a short span of time, and then lose a significant amount of value. 

Recent years have seen the rise of memecoins like Pepecoin and Squid Game seen significant price increases followed by sudden crashes. 

While these types of cryptocurrencies can potentially provide a short-term profit, you should be cautious when trading these coins. Since their value is primarily driven by speculation, it can be difficult to tell when their price will crash. 

Should I invest in crypto or trade crypto? 

For some investors, buying and holding cryptocurrencies (often referred to as "HODLing") may be a better strategy than active trading. 

3 reasons to consider long-term investing instead of trading 

If you can’t decide whether you want to invest in cryptocurrency for the long-term, or try to earn profits through short-term trading, consider the following: 

Historical success: Historically, investors who’ve held cryptocurrencies like BTC and ETH for the long-term have seen strong returns. 

Monitoring market movements requires time: Short-term trading involves paying attention to changes in the market. If you don’t have the time to look at daily changes in prices, buying and holding might be a better strategy. 

Trading requires separating yourself from emotions: Trading often requires separating yourself from your emotions — as it’s easy to panic and sell your crypto at the first sign of the downturn. If you have trouble staying clear-headed in a volatile market, you should consider buying and holding for the long-term. 

Can technical analysis make me a better trader? 

Many traders use technical analysis to spot patterns, analyze the market, and identify opportunities for profit. 

If you’re thinking about getting started with trading, you should take some time to understand the basics of technical analysis. 

The basics of technical analysis 

Understand candlestick charts: If you want to get started with technical analysis, you should learn to read candlestick charts. These charts display the high, low, open, and close prices of different cryptocurrencies, making it easier to see volatility from day to day. 

Understand moving averages/ crosses: Technical analysts often look at moving averages to understand short-term price trends. These moving averages form certain chart patterns, which can then be used to make short-term price predictions. 

If the 50-day moving average goes below the 200-day moving average, the chart forms a pattern known as a death cross. This is often a sign that a market downturn is on the horizon. 

However, if the 50-day moving average surpasses the 200-day moving average, the chart forms a pattern known as a golden cross. A golden cross is often a sign that a bull market is on the horizon. 

What are the limitations of technical analysis? 

It’s important to remember that while technical analysis can be a great tool, it does come with limitations. Let’s walk through a few: 

Externalities: External factors — like the state of the economy and regulatory updates — can impact the price of cryptocurrencies, but technical analysis only accounts for past price patterns. 

Subjectivity: Some critics claim that technical analysis is often subjective and that the same price pattern can be interpreted different ways by different traders. 

Fundamentals: Technical analysis does not account for the fundamentals of cryptocurrency projects that could impact price — such as tokenomics, partnerships, and use cases for the cryptocurrency.

How to trade cryptocurrency (step-by-step) 

Let’s walk through a step-by-step guide on how to trade cryptocurrencies. 

Step 1: Find an exchange

The first step to trading cryptocurrencies is finding a reliable exchange. Look for platforms with good reputations, strong security measures, a wide range of available currencies, user-friendly interfaces, and quality customer support. 

If you’re planning to trade cryptocurrencies on a frequent basis, you should choose an exchange with low fees. This will significantly reduce your trading costs. 

Popular exchanges for trading include Kraken and Coinbase Advanced. 

Step 2: Consider using trading tools

Once you’ve found an exchange that supports your trading needs, you should consider using tools that can help you become a more successful trader. Here are some popular tools: 

• TradingView: TradingView is a charting tool that’s designed for technical analysis. The platform allows you to analyze the performance of individual crypto-assets. With a user base of more than 50 million, TradingView is a popular choice for day traders and swing traders!

• LuxAlgo: LuxAlgo is a subscription-based trading tool that can integrate with TradingView and give you advanced toolkits and indicators designed to help you understand when it’s time to buy and sell. The platform also comes with BackTesting — allowing you to optimize your trading strategies based on previous performance. 
• CoinLedger: CoinLedger is a tax reporting software and crypto portfolio tracker used by more than 500,000 investors! CoinLedger is a great tool for keeping track of your tax obligations from trading and keeping an eye on your positions across all of your wallets and exchanges. 

Step 3: Find a cryptocurrency

Select the cryptocurrencies you want to trade. Here are some popular options:

• Bitcoin (BTC)
• Ethereum (ETH)
• Binance Coin (BNB)
• Solana (SOL) 
• Ripple (XRP)
• Cardano (ADA)
• Avalanche (AVAX) 

You can potentially find trending cryptocurrencies on platforms like Twitter and Reddit, as well as news outlets like Coindesk. 

Many cryptocurrency traders also choose to trade “memecoins” — cryptocurrencies based on popular memes that rise and fall in price rapidly. While these memecoins are rarely successful in the long-term, they do present an opportunity for short-term profits. 

Step 4: Buy your cryptocurrency

You can buy cryptocurrency on most exchanges by following these steps:

1. Create your account. This process usually takes a few minutes — though it might take 1-2 days to verify your identity. 
2. Link a payment method so that you can get started buying cryptocurrencies. 
3. Select the cryptocurrency you wish to purchase. Then, ‘Click Buy’. 
4. Review details like the price and relevant fees. Then, confirm the purchase. 

Step 5: Monitor your position

Once you’ve bought your cryptocurrency, you should monitor your positions using tools like TradingView. 

You can use indicators and signals from technical analysis to decide whether it is time to make a trade. 

Remember, being a successful crypto trader does require a time commitment. If you don’t think you’ll have the time to monitor your positions on a regular basis, short-term crypto trading may not be right for you. 

Step 6: Close your position

To sell cryptocurrency on your exchange, follow these steps:

1. Go to the "Buy/Sell" page.
2. Select the cryptocurrency and the amount you wish to sell.
3. Confirm the transaction. 

How do I manage my taxes as a crypto trader? 

Remember, selling your cryptocurrency or trading it for another cryptocurrency is subject to capital gains tax. You will be required to report all of these taxable events on Form 8949. 

Let’s walk through a few tips for traders to stay compliant with the IRS: 

Keep records of all of your cryptocurrency transactions: It’s important to keep detailed records of your crypto transactions for tax purposes. This should include the following information: 

• The type of crypto involved in the transaction 
• The price of your crypto at acquisition (in USD) 
• The day you acquired your crypto 
• The price of your crypto at disposal (in USD) 
• The day you disposed of your crypto 
• The cost of relevant fees

Keep money aside for tax purposes: It’s important to set a portion of your profits aside for tax purposes. This means that in the case of a sudden market crash, you’ll still have the money you need to pay your tax bill. 

Use crypto tax software: Crypto tax software like CoinLedger can make it easy to track your crypto taxes! Just connect your wallets and exchanges, sync your transactions, and let the platform generate your crypto tax forms with the click of a button! 

Conclusion

If you’re interested in getting started with crypto trading, you should keep in mind potential risks. While trading does present the opportunity for great profits, it does take significant time, effort, and concentration to be successful.