I’m almost certain there are better ways to do this, but below is the process I follow to make a trade. Use it as a guide, but feel free to improve your trading ability by learning more about the topic.
Reading the Charts (Technical Analysis)
Figuring out the direction of the price movement is the fundamental premise of making a “Futures Trade.” In order to understand the price movement, traders engage in what is known as technical analysis, which is essentially reading the price chart.
Technical Analysis or TA is an entire discipline of its own and there are experts who have devoted quite a bit of time and energy into the area. As you might expect, I am not one of those experts.TA is a really complex form of pattern recognition, and with some practice, reading the charts become less complicated than it seems at the outset.
The first step to reading the charts is accessing the charts, which can be done by clicking on the icon highlighted in the image below from the “Futures” trade screen.
Once the “Chart” button shown above is clicked on, the price chart will open up and will typically look something like the image below.
I highly recommend familiarizing yourself a little bit on the topic of Technical Analysis, but the bare minimum that must be done is to read the chart across different time frames.The time frame shown in the price chart can be changed by selecting any one of the options in the ribbon, as shown below.
As a general rule, start with the 1D (1 Day) chart, which will provide a pretty accurate representation of the price direction, and work your way towards smaller time frames such as 4H (4 Hour), 1H (1 Hour), and 15m (15 Minutes), which will show the immediate price movement.
The idea is to try and understand the price movement, and then confirm the conclusion you’ve drawn by checking different time frames. If all the time frames are showing the same price movement, there’s a good chance that you’re assumption is correct.
Paying Attention to the Macro Economy (Fundamentals Analysis)
I should ideally have mentioned Fundamental Analysis before Technical Analysis, but in the case of trading Futures, it sometimes feels like the TA is more important somehow. I might be wrong.
Fundamentals Analysis is basically just paying attention to what is going on in the global economy. For example, if there is a global black swan event and financial markets start bleeding, there’s a more than good chance that Crypto markets will price on the same sentiment.Fundamentals Analysis is my preferred form of analysis, but these macro events are generally drawn out over a period of time and it’s sometimes difficult to figure out the extent to which a macro event might influence the markets.
Sign up for a bunch of news sites and investment publications to get credible information, ideally ahead of time. As disgraceful as this is to say, I’ve found TikTok to be a great source of information, purely because of how current the platform is and how quickly information flows there. Pick your poison, the name of the game is accurate information on time.There are three major types of events that I’m looking at right now in the context of their influence on crypto markets. It may help to start there and expand to more.
World Events
The best example of a world event is the Russia-Ukraine war. The spread of the pandemic is another good example. These events don’t seem financially relevant at first glance, but their impact inevitably is felt in the markets.
Crypto Events
The Ethereum Merge is a good example of a crypto event. Bitcoin Halving Cycle is another good example. These events are specific to crypto and generally impact specific cryptocurrencies. A little understanding of the crypto space is necessary to understand the impact of these events, but they do have dramatic effects on the prices of crypto assets. Bans imposed on crypto and deregulation of crypto in states/countries are also crypto events with a great impact on prices.
Economic Events
Economic events are largely focused on the US as far as crypto goes. The inflation rate of the US and Non-Farm Payroll are examples of economic events. Generally, the crypto markets mirror the S&P 500 and the Dow Jones, but in time, there should be a decoupling of this trend. For now, these events impact crypto markets very similar to how they impact the stock markets.
How I Make Trades (How You Probably Shouldn’t)
Once you’ve set the trade configurations, read the charts, and paid a little attention to what’s going on in the global economy, it’s time to start trading.By this point, you will have a fair understanding of where prices are headed. You will also have a preference of the specific crypto assets you are hoping to trade.
Select Cryptocurrencies to Trade
If you aren’t familiar with the different cryptocurrencies that are traded on crypto exchanges, it’s best to do some research. If you really don’t want to do any more reading, you’re welcome to try out my recommendations, but don’t blame me if everything goes up in flames.
So, I trade Bitcoin, Ethereum and Binance Coin in that order. My reasoning is simple. Bitcoin has the largest market capitalization in the crypto world. The large market cap lends some stability to Bitcoin. Although it has happened many times, Bitcoin tends to move slower, and is less likely to crash by 30% in an hour. On the flip side, gains are also slower with Bitcoin for the same reason. Bitcoin is also the most receptive to fundamentals and world events. Bitcoin responds first and the crypto market usually follows.
Binance Coin, my third pick is the native token of the Binance platform. I’m obviously very confident about Binance and it feels to me like they are best positioned to take advantage of the growth in the crypto industry. Be warned, that the volatility of Binance Coin is much more pronounced than Bitcoin and Ethereum.
If you have no idea what you’re doing, try and stay away from trading Futures. If you can’t stay away, stick to Bitcoin. If that isn’t exciting enough for you, well, go with God.
Setting Investment Size
There are probably far better ways to decide on investment size, but I have a very simple approach. My investments are always $100 with 10X leverage.My reasoning is that I can’t lose more than $100 on any single trade. My upside is essentially infinite, but my downside is capped at $100. I’m comfortable with this risk exposure.It must also be said that I started with investments that were sized at $25 each. So, start really small, get used to it, and continue to maintain a healthy risk balance.
Setting Target Profits and Stop Losses
I can’t stress the importance of a stop loss enough. This is the best way to keep your trade positions safe and cut losses before they wipe you out.
To set a stop order, a position must already be opened. The idea is that you will be able to set an automated stop order to minimize the losses or take profits in the position.
By placing a stop order, you can let the trade be open without worrying about incurring large losses.As a general rule, I set a stop loss on every position I open to hedge the possibility that I was wrong about the position I’ve taken.
To set your stop orders, click on “Stop Profit & Loss” in the trade screen as shown in the image above.
You will then see a dialog box with the below layout.
If you’ve taken a long position, your stop loss will be below the price you entered the trade at. If you’ve taken a short position, the stop loss will be above the price the trade was entered at.For example, if you went long on Bitcoin at $22000, the stop loss should be set at $21500. If you went short on Ether at $1600, the stop loss should be set at $1700.Before setting the stop orders, it’s best to study the charts a bit and understand what prices might be key resistances and supports.
Take Profits!
One thing I can tell you with certainty is that on most occasions, prices always retrace and correct. What this means is that if the price is running up or down, there’s going to be a correction where it reverses. Charts never go up in a straight line, it’s always a launch and pull-back sequence.Taking profits becomes really critical because of this launch and pull-back sequence. Whenever your position reaches a 10% to 20% gain, consider taking profits and opening another position after letting the market cool off.What matters is now how much money you make, but how much money you get to keep.
This guide is really not meant to teach you how to be an expert trader. It’s just meant to help you get in and take a look around. Each of the areas I’ve outlined in this guide requires a full deep dive of its own. Once you’ve become familiar with how everything works, start doing research into all the different aspects of trading.
