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How To Trade Cardano - Step-by-Step Guide

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Cryptocurrency trading is a rewarding activity, particularly when the prices start going up, as they are these days. But, in order to trade successfully, you cannot simply buy and sell without a plan. Sure, trading is buying and selling, basically, but you need a sound strategy, price analysis, and it can also be time-consuming, as you must regularly monitor the market.

But, if you think you can do all of this, then it might just be enough to trade coins like Cardano. Today, we will tell you all about how to trade Cardano (ADA). 

Cardano Trading Summary

As mentioned, trading Cardano, or any other coin, for that matter requires work and preparation. While simply buying and selling is not a problem, jumping straight into doing that is a sure way to lose all of your money. In order to avoid this unfortunate outcome, you will need to create a trading strategy, and learn how to take advantage of price volatility.

Trading is risky, especially when it comes to the highly-volatile crypto industry. It can certainly be very rewarding, and you can even turn it into a source of regular income, but we would not suggest that you quit your job and start trading for a living. Only an expert can do that, by trading cryptos or crypto derivatives, like futures, options or CFDs. In the end, trading can help you achieve profits, but only if you know what you are doing.

Start Trading in 3 easy steps

1. Plan your trades

The first step is one of two most important things that you need to do, and that is to come up with a plan. Buying and selling randomly will not do, as mentioned before. There are many different trading strategies that fit different people and different circumstances, so your job will be to figure out which one suits both, you and the current state of the market, and use it.

2. Register on an Appropriate Platform

The next part is to find the best platform that suits you, and set up a trading account. Once again, the hard part will be the research, as you will have to look through a few platforms and decide which one has the best features, fees, and offerings. Traders must also check if the platform is regulated or not.

3. Start Trading

Lastly, with an account ready and a trading strategy selected, all you need to do is verify your account, deposit some funds and start trading. We will talk more about the details of your trading order and position later on. For now, you should know that these three steps are all it takes for you to start trading.

Cardano Trading Explained

The way trading works is simple, in concept. You decide on the coin you wish to trade, in this case, Cardano and find a platform that offers acceptable conditions. As mentioned, you need to figure out a good strategy that will take you through it, which is something that we will talk about more soon. You should also decide whether you wish to trade Cardano coins or Cardano derivatives.

Derivatives are contracts that do not have value of their own, but use Cardano as an underlying asset. Therefore, their price derives from Cardano, hence the name. A good thing about derivatives (CFDs, futures and options) is that you don’t have to own and store Cardano itself. Instead, you are simply betting on which way its price will go. As a result, you can also make a profit when ADA price starts to drop, provided that you made a correct prediction. 

Once you figure out what the price is likely to do, you can enter a trading position, and buy or sell Cardano. If you opt for derivatives, you can go long (bet that the price will rise) or go short (bet that the price will go down). You can also trade with leverage, which is essentially borrowing money from the platform. Note, however, that greater leverage also means greater risk.

A lot of traders make a mistake of trading complex instruments such as ETFs, CFDs, options, futures, or even Cardano coins themselves without properly understanding these and other concepts. If you don’t know what you are doing, you will lose money, especially if you trade with leverage. This is why it is recommended that novices in the crypto trading industry do not go for advanced trading initially. Learn the ropes first, and see if you can figure out how the market breathes. 

Trade Cardano: Establish a Proper Plan

When it comes to successfully trading Cardano, there are three things that you need. Those include:

  1. Fundamental analysis
  2. Technical analysis
  3. A trading strategy

We will explain each of these now, and help you understand why they matter for ADA trading.

Understand What Moves the Price of Cardano

Cardano is a cryptocurrency that is not pegged to any real-world asset. What this means is that it doesn’t have a fixed value. Its price can change and go up or down based on certain factors. Understanding what these factors can be and how and why they impact the coin’s price is what we call a fundamental analysis.

Essentially, this can be anything that can impact the market sentiment, or how the traders feel about the coin. If traders feel optimistic, they will start buying the coin, thus increasing demand for it. With growing demand, the price tends to go up. If the market sentiment is pessimistic, it means that people are looking to sell in expectation that the price will drop. This reduces the demand and increases available supply, thus causing an inflationary effect.

As for what can impact the market sentiment, it can be anything, news, regulation, adoption, technical outlook, network stability, hashrate, and more. When it comes to Cardano itself, the project has seen a lot of work done in late 2020 and early 2021, which caused its price to see quite a rally. The new developments, revolving mostly around upgrades to its network, gave it new use cases, such as the ability to create smart contracts, which increased the demand for the coin which is used to fuel these smart contracts, and as a result, the demand for the coin grew.

Technical analysis: Read the Charts

Next up, we have technical analysis, which mostly revolves around reading the charts and noticing important patterns. Charts carry crucial importance in predicting the price, particularly during periods when not much is going on in a fundamental sense.

If there are no new developments and news, you can turn to the charts to see the price’s historic performance, and learn when and how the price rises. For example, it might drop during the holidays due to a decrease in activity, or it might grow immediately after the new year kicks off, as traders return to the market.

Next, the charts can reveal patterns that the price might be making, as it often moves in cycles, where it would follow the same behavior. If this happens, you will have an idea of what to expect and whether or not to invest.

Charts also show trading volumes, which can surge high, indicating that the demand has grown, and that the price is likely to follow very soon. 

Keep in mind, however, that the charts’ information is not absolute truth. Something can happen to change the way the price is moving at any time. For example, if a price is following a pattern where it surged, and you sold your coins expecting it to fall after that, and something positive happens that affects the market sentiment, the price could just keep surging. 

This is why it is important to keep an eye on the charts, as well as keep track of the new events in order to exploit every opportunity to its maximum.

Common Strategies to Trade ADA

Hedging strategy

One of the more popular crypto trading strategies that you can use for Cardano is the hedging strategy. This one involves strategically opening trades so that losses or gains in one position are offset by changes to the value of the other position.

Essentially, if you are concerned about your position, thinking that it is risky, it is safer to reduce its size, or close it completely. Alternatively, you can use hedging to create neutral exposure, but still keep your original ADA holding. There are a few popular methods to do this, such as hedging with derivatives, or short-selling, 

HODL Cardano

HODLing is another popular strategy, although this is less about trading and more of an investment strategy. Essentially, those who choose to HODL do not sell their cryptocurrencies under any circumstances. They buy as much as they can, or buy smaller portions over time, and just keep them locked up for years. 

The strategy is based on the belief that an investor's coin of choice will grow to a much larger price someday. Needless to say, this should only be done with coins that you are certain will survive for years and years to come. Whether or not Cardano is one such coin is up to you to decide.

Swing Trading

Then, there is Swing trading, which is a trading strategy that involves trying to capture price moves that happen on short-to-medium timeframes. Basically, it exploits price volatility over the course of time that can last anywhere from a few days to a few weeks. 

It is a strategy that has you waiting for rallies, and then exploiting them from the beginning until the end. So, you won’t sell your coins immediately as the price starts dropping, as you understand that minor corrections can still take place during price surges. The trick here is to understand how high the price will go before it starts correcting for real, and heading towards its (new) bottom.

Choose a platform that fits your trading strategy

As mentioned before, choosing a platform is of crucial importance, for many different reasons. The fees, the available trading pairs, payment gateways, ease of use, UI, and a lot of other things may impact your experience.

It also matters whether you choose a crypto exchange or a broker, with the difference being that an exchange is often cheaper to use, but it offers only its own prices. Brokerages require you to pay for their services, but they offer access to prices from multiple exchanges, and they are regulated and licensed by the authorities, for traders’ protection.

Brokerages are also where you can go for crypto derivatives, while most exchanges typically can only offer cryptocurrencies. Derivatives exchanges offer trading in crypto derivatives. If not for the additional cost of paying the brokers’ services, they would definitely be a superior option. As it were, you can go to the exchanges and enjoy cheaper service, but you will have to do most of the work yourself, plus expose yourself to the risk of being hacked by online criminals.

Set Up Your Trading Account

Once you find the right exchange and figure out your strategy, the next thing to do is to set up an account. On most exchanges or brokerages, all you need to do is register an account and verify your identity. The platform will tell you what documents to deliver, and they will do their best to review them and verify you as soon as possible. After that, you will be able to deposit money to your account and start trading. 

Open your First Cardano Trade

All exchanges are different in one way or another, and your experience will differ slightly or by quite a bit depending on which platform you decide to use. But, with that said, there are many aspects that are common to all of these platforms.

With that in mind, let’s talk about some of them, and get a few things cleared out, as these are all important matters for those who wish to enter their first trade.

Order Type

The first thing on the list is order type, which will depend on the market situation, as well as on what you wish to achieve. For example, there are market orders and limit orders, with many traders preferring the limit order over the market order. The reason is the fact that they can ensure better buy/sell price. 

Then, there are stop-loss and take profit orders, and you will use the one that fits the market behaviour. If you expect the price to surge and then drop, you should go for the take profit order. If you are not sure whether or not the price will crash or remain stationary, or even go up, a stop-loss order will help you keep your profits. There are other types, so make sure to explore them and become familiar with them.

Buy or Sell

Different platforms tend to use different terminology for the same things. For example, you might find an exchange that simply offers you to buy or sell, while others, often derivatives platforms, allow you to bid and ask. These are the same thing as buy or sell, only they draw the terminology from a different trading tradition, and so the words differ.

While we are at it, you should also take note of order books, which are lists of all active orders on the platform. This can be useful to determine what other traders are doing, and predict the price impact according to that. 

Amount

One thing that traders are constantly considering and reconsidering is the amount that they are going to trade. Most exchanges have some minimum or maximum amount that you get to deposit at once, or use in trading. Experienced traders can do whatever they want, but for novices, it is best to keep close to the minimum amount, at least until you get a firm grasp of how everything works. 

If you are new, it is possible that you can make an easy mistake that will cost you your investment, and it would be a shame to lose more money than absolutely necessary just because you got overly optimistic. Be aware of the holes in your knowledge and your lack of experience, as ignoring that could be quite costly. You will learn in time, but until then, manage your funds wisely.

Leverage on Cardano

We mentioned trading with leverage earlier, explaining that it is a process of investing more than your account’s worth by borrowing money from the platform. Leverage allows you to borrow multiple times more, although each platform offers its own maximum. Some platforms let you borrow up to 20x more than what you have, while others can go up to 100x more, or even beyond that.

But we also stand firmly behind our statement that trading with leverage is risky. Trading cryptos with such high leverage is extremely risky, and your room for mistakes shrinks more and more, the bigger the leverage. Novices are bound to lose their money by trading like this, and we do not recommend doing it. It is something meant for professionals, and while you may grow enough as a trader to use them someday, you will need a lot of experience in the market to avoid the pitfalls of trading like this.

Stop-Loss and Trailing Stop-Loss

Stop-loss and trailing stop-loss are market orders that also function as risk management solutions. Stop-loss, for example, allows you to enter the market at a current ADA price, and select a level below it. If ADA prices were to drop and hit the level you have selected, your order will be closed automatically, thus protecting you from further losses.

Trailing stop-loss does the same thing, only it follows the price’s movement up by moving alongside it by the same percentage. That way, in case the price moves up, and then starts dropping, it won’t completely nullify all of its progress, thus robbing you of profits. Trailing Stop-Loss will move with it, and settle at a higher level, which makes it a superior choice when compared to a regular stop-loss order.

Take profit

Take profit is another order that works similarly to stop-loss, only in reverse. It is a tool used to secure profits if you expect the market price of the coin to rise. Once again, you would enter the market with the coin at a certain price, and select a level above that price. If the price were to surge suddenly and reach the selected level, your order would be automatically closed, thus ensuring that you will, as the name suggests, take profits.

Finishing touches

With that, you are almost ready to enter your first trade. All that remains are a few finishing touches, such as being aware of things like triggers and fees that are involved with the trading. Keep in mind that you need to pay a transaction fee to the Cardano network whenever you make a transaction, as well as a trading fee on an exchange. This will all likely be calculated by the exchange’s own calculator when you are entering a position and selecting the amount of money you will use.

Also, you should decide on the triggers that will tell you when to make your move, and when to ignore the price movement. Sometimes, price moves in a way that might be attractive to traders, but this can often be misleading, and cause traders to lose money. By setting up triggers, you will know not to move unless certain requirements are met, and that will tell you exactly when it is safe to make your move.

Open your Cardano Trade

Finally, you are ready to trade Cardano. One last thing that we recommend doing before entering a position is to check if you have entered all the information correctly. It is not uncommon for people to make an error and oversee it, even if they are experts in trading, and know exactly what to do. One slip of a finger on your keyboard or touchscreen is all it takes, so make sure that everything is as it should be.

Closing orders

One last thing to mention is closing orders. You can close your order at any time manually if you decide that you have traded enough for the day, or if you are uncertain about the market behaviour. Doing so is better than taking unnecessary risks, and it is very easy to do so, just look for the button that offers this option and click on it.

Alternatively, if you are using orders like take profit or stop-loss, the trade can also close automatically once its price reaches the pre-defined levels. Automated mode is a good option if you cannot monitor the trades frequently. 

Final Thoughts: Ready to Trade Cardano?

Cardano is popular among crypto traders but if you’re looking to trade ADA, remember to use risk management strategies and gain experience in order to become a successful trade. There are many aspects to consider for a trader which is why we decided to explain all details regarding Cardano trading. 

Remember that the most important parts are having a sound strategy and a reliable trading platform or broker. Other than that, you need to be able to make an accurate price forecast by exploring the market, understanding how it moves, what affects it, and why, and in what way. There is work to be done, but once you go through it, you will be able to trade successfully. It will all come easier and more natural in time, so be persistent, and you will learn it all.

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Frequently Asked Questions

  1. Most regulated platforms insist on identity verification because it makes the platform a secure space and reduces the risk of fraud.

  2. Yes, CFD trading is legal in many parts of the world. However, always check your local laws before signing up with any platform.

  3. Most countries treat gains from trading as a taxable event. Do check with your local laws before trading.

  4. This is unlikely, although not impossible. Ethereum’s network has its downsides, although the soon arrival of Ethereum 2.0 should treat many of them and make it a lot more capable. Cardano, however, is also growing and developing at a rapid speed, quickly becoming Ethereum’s top rival. Even so, Ethereum is currently still a bigger name and a much larger ecosystem, but that doesn’t mean that ADA won’t be able to outperform it someday.

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