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How To Trade Ethereum - Step-by-Step Guide

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Trading Ethereum (ETH) is one of the most popular activities in the crypto industry today. The ETH price recently skyrocketed, immediately causing Ethereum trading to surge after it. Of course, ETH does not lack usage and it is used in countless dApps, smart contracts and more.

But, if you wish to start trading ETH successfully, you will need to do more than learn that traders should buy low and sell high. Entering trades with that being the extent of your knowledge is bound to bring only losses. With that said, let’s talk about what you need to know about how to trade Ethereum.

Ethereum Trading Summary

Ethereum trading involves a set of steps, such as carrying out price analysis to determine the current price trend, and selecting a trading strategy, so you have a plan of action depending on the price behaviour. Just entering the market with some extra money and buying and selling randomly is not going to be enough. 

It is time-consuming, that much cannot be denied. But, if you do the proper research and preparations, you can trade all kinds of instruments, including derivatives, like futures, options and CFDs. This can even lead to using trading Ethereum as a regular source of income. Yes, you can profit from ETH trades regularly, even during price drops, simply by going short on a trade.

Start Trading in 3 easy steps

1
Plan Your Trades

The first step in successful Ethereum trading is having a plan. You need to know what you are doing, and what you are striving towards. A good plan consists of a sound strategy and an accurate price analysis.

2
Set Up a Trading Account

Next, you will need an account which you will use for your trading. You can create an account on any exchange platform or with any broker, depending on whether you wish to trade directly at a source, or through an intermediary that offers some additional benefits. We will, of course, talk more about that too, in a bit.

3
Start Trading

The third and final step is to set up your order and start trading. This may sound simple enough, and for a practised trader, it is. But, if you are a total novice, there are quite a few details that you will have to carefully consider before entering a trade. It will become easier in time, as mentioned, but for the first few times, you will have to pay close attention to what you are doing.

Ethereum Trading Explained

In essence, Ethereum trading is simple. All you need to do is find a platform to trade on, analyse the price and make a forecast, come up with an appropriate strategy based on your forecast, and start buying and selling when the price moves in a favourable way for these activities.

Buying and selling is done by entering trading positions, which can be long or short. You enter a long position when you wish to buy, or a short position when you wish to sell. You can also trade with leverage, which is known as margin trading, and it is basically borrowing money from the exchange to buy a much larger amount of coins than what you can purchase with your own account balance. 

On top of regular trading, you can also go to derivatives exchanges and buy derivatives contracts, such as CFDs, options and futures. These are not cryptocurrencies, but derivatives that use cryptos as underlying assets. By trading them, you do not use actual coins but bet on the coin price movement.

All that matters is to have a good forecast here, and so even if the price goes down, you can still profit from trading derivatives contracts. The benefit of it all is that you don’t have to buy coins or store them in wallets. Plus, you can earn money when the prices are falling, as opposed to losing the value of your investment, which would happen if you purchased coins. 

The downside is that you don’t actually own coins, so you don’t get to use them in dApps, payments, smart contracts and alike. 

Trade Ethereum: Establish a Proper Plan

The first step to successful Ethereum trading, as we mentioned above, is to establish a proper plan. Making a plan consists of two parts—making a price forecast and picking a trading strategy.

Price forecast can come from two sources—charts and the market sentiment. Reading into the market sentiment is called the fundamental analysis, while reading the charts is known as technical analysis.

Understand What Moves the Price of Ethereum

On the surface, the Ethereum price seems to sometimes move on its own, going up and down without any apparent reason. However, the reason is always there, the only question is whether or not you know where to look.

Since ETH is a cryptocurrency, it is not tied to any asset of value. In other words, its price comes from market sentiment. If people think that Ethereum has value, then it will. If they think that ETH should be more valuable than it is, the value will grow, or it will drop if the market sentiment decides that ETH shouldn’t be as valuable as it is.

In order to predict what will happen, you need to get into the psychology of the traders and investors, as they are the ones who dictate how the price will behave. Of course, they don’t do it purposefully, by changing figures. No, they do it through their own actions.

When people think that the ETH price will rise, they start buying, and as a result, they increase demand for the coins. With the demand going up, the price of the asset goes up, as well. 

As for why would people think that ETH value should grow—it could be anything, such as positive news, positive price forecast, increased adoption, a new upgrade to the network, new use cases, and more. Basically, anything that could make investors want to buy or sell can be used as an indicator of how the price will move, and it will be your job to discover these indicators as quickly as possible, and make your move before the price is impacted.

Technical Analysis: Read the Charts!

The second type of strategy in trading, as mentioned, is technical analysis, which revolves around reading charts. Charts carry a lot of information about the past and current price performance, and you could use this information to predict what will happen in the near future.

When undisturbed by current events, coin prices tend to follow patterns, and these patterns can be recognised early by skilled traders, who then know what to expect, as they know how the patterns will end. You can even vaguely predict how long it will take for a pattern to complete its course, based on past experiences and performances.

Next, charts also show the change in trading volume, which can be very useful to know. By noticing the change in volume, you can deduce whether or not people are engaging in trading more or less, which can be a good indicator of volatility.

Of course, all of this should be taken as only a hint of what might happen, and not exactly what will happen. Even if the pattern indicated by the chart is in the middle of its process, extremely impactful news can come out at any time and disrupt the pattern, and make your entire forecast useless.

This is why you should never rely on charts alone, and always keep an eye on new developments. The only situation where charts are more useful than the fundamental analysis is if you choose certain trading strategies, such as scalping.

Common Strategies to Trade ETH

Scalping

As mentioned, scalping is a trading strategy that doesn’t rely too much on the fundamental part of the analysis. This is because scalpers buy and sell very quickly, often within mere minutes, exploiting even the smallest price changes. Since Ethereum can move up and down at a speed of few dollars to a few tens of dollars at a time, this can be very profitable for scalpers. In the end, charts are their primary tool, and you cannot engage in successful scalping without them.

News Trading for ETH

Another strategy that is very popular these days is news trading. This is a type of trading that is pretty much the complete opposite of scalping, at least when it comes to relying on the fundamental analysis, and relying very little on the charts. News traders are constantly browsing online media outlets in search of news, reports and developments that could have a positive or negative impact on coins. When positive news for ETH emerges, they rush to buy as many coins as they can, expecting their price to grow. When negative news emerges, they immediately sell, and wait for the price to hit bottom so that they could buy again.

HODL Ethereum

Lastly, there is HODLing, which is not really a trading strategy, but rather an investment strategy. HODLers do not bother with either charts or news. Instead, they search for projects that seem to have the potential to survive in the harsh crypto industry, and thrive to become the industry giants someday, even if that day is years from now.

They focus on white papers and roadmaps of different projects, and if they decide that a project has a worthy cause, good use cases, or potential to become massive someday, they invest as much as possible, and then forget about those coins for years to come. Essentially, HODLing means holding your coins regardless of what happens, and it is based on the conviction that your project of choice will become great someday, and that its coins’ price will be, too. It requires patience, discipline and a good prediction of what the future of the crypto industry will value.

Choose a Platform that Fits your Trading Strategy

After you find the best strategy and come up with a price forecast, all that remains is to find a platform on which you can trade Ethereum. Now, as mentioned, there are three choices here. You can go for a traditional crypto exchange, where you can buy coins directly, but you will also be responsible for storing, managing, and securing your coins on your own.

Alternatively, you can go for a crypto derivatives exchange, where you won’t trade coins at all, but contracts that derive their prices from coins. Here, you don’t have to worry about having a secure crypto wallet, as you mostly work with smart contracts, rather than with cryptos.

Lastly, you can opt to use a broker. Brokers are services that support various platforms, and if you register with them, you will have access to crypto prices from multiple platforms at once. This lets you choose the best price, and helps you maximise your profits. They are also much safer because they are regulated and have to be licensed in order to legally work. Brokers can also let you trade coins or derivatives contracts, whichever you prefer.

The downside is that they also require payment for their services, which they achieve through their own fees. So, it is now your job to look into different types of platforms, different platforms of the type you prefer, and find the platform that you wish to use.

Set Up Your Trading Account

After picking a trading platform, you will need to set up an account. This is very simple, and it only requires you to register on the platform that you choose. After that, you will also have to verify your identity by providing certain documentation, such as a photo of your ID, passport, or something like that, that will serve as evidence of you being who you say you are.

And, of course, you will also need to deposit some money that you will use for buying coins. On some exchanges, you can simply purchase coins with fiat currencies, while others only support crypto-to-crypto trades. This will mean that you either have to buy your ETH elsewhere and bring it to your platform of choice, or buy USDT somewhere else and then trade it for Ethereum.

Open your First Ethereum Trade

Finally, it is time for your first Ethereum trade to go live. But before that, you will first have to prepare your order, and that is done by deciding on several factors. Note that the process and the experience overall might be slightly influenced depending on the platform you choose. But, for the most part, it will all be the same in its core, so you shouldn’t have too many difficulties finding your way around the exchange, no matter which platform you use.

Order type

First, you will have to choose an order type. An order is an instruction to buy or sell, and there are different types that work in different ways. For example, there is a market order that allows you to execute the trade immediately. Alternatively, you can also use a limit order, which allows you to buy or sell at a specific price, or at a better price. For this order, you also have to choose a time frame—a period during which the order will be valid. If the ETH price doesn’t reach that specific price during this time, your trade will be closed without being completed.

There are many other order types, and you should study them all in order to determine which one fits you best.

Buy or Sell?

When you trade, opening a buy position means that you are going long on an asset. This is done when you expect the asset’s price to rise. A sell position shorts the trade, meaning that you expect the price to drop in the near future.

Those who opt to buy are nicknamed bulls, while those who sell are bears. If the bulls outperform the bears, the market is considered bullish, and if the opposite is true, then it is bearish. You can see all currently active orders in an order book, where buy and sell orders—also known as bids and asks are displayed.

Amount

Each platform has its own limits in place, which allow you to enter a trade with a certain amount, and not do it if you plan to use less money than this minimum. If you are new, it might be best to stick to this minimum for the time being, until you learn how the market moves and works. Otherwise, you might enter a bad trade and lose more money. Bad trades will happen and they are a part of trading. But, you can at least make sure that you won’t lose too much, and certainly not all of it. Risk management is an important part of trading and something that new traders must learn. 

Leverage on Ethereum

We briefly mentioned trading with leverage, or margin trading, earlier. This is a process of investing more money into coins than what you can afford to pay with your account balance alone. It is done through borrowing funds from your trading platform, to maximise your profits. However, it also increases the risk of losing all of your money if you make a wrong step.

What’s more, greater leverage brings greater risk, and a smaller room for mistakes. This is why trading with leverage is usually not recommended for beginners. Instead, it should be left to professionals who know what they are doing.

Stop-Loss and Trailing Stop-Loss

A stop-loss order is basically a limit order that functions also as a risk management tool. Basically, it allows traders to limit their losses by choosing a price level relatively close to the market price. All you need to do is select a price level below the market price, and if the price starts dropping, it will trigger this level and your order will be closed before you suffer too great a loss.

Trailing stop loss works in a similar way, but it works even better. It moves with the market price in your favour, and reduces your losses when the market turns bearish, but at an even greater price than the one you originally selected, provided that the ETH price surged before reversing. These limits can serve as great strategies to manage risk properly while trading. 

Take Profit

Take profit is another setting that allows you to maximise your gains by exiting trade at the right time. Like stop-loss order, it also lets you pick a specific price level, only this one will be above the coin’s market price at the time you enter a trade. Then, if the price suddenly surges and triggers the take profit level, your trade gets closed automatically, allowing you to walk away with the profit.

Finishing touches

There are a few more things to keep in mind, such as pips, which are a measure of the price movement against a trading unit. For example, let’s say that 1 pip is $0.1. In this situation, when BTC price moves from $50,001 to $50,101, it means that it moved by 1,000 pips.

There are also triggers, which are signals that tell you when to enter a trade and when to hold back. Triggers are warning signs that, if set correctly, can confirm that the coin’s price is truly rallying, and not only pretending to rally. This is why it is important to set triggers properly, and wait for them to be activated. Reacting before that moment can lead to losses, while in most cases, reacting after their activation is bound to bring profits.

Also, keep in mind that both exchanges and brokers have their own trading fees that you need to pay to have your transaction on their platform. These should not be confused with transaction fees that are paid for having your transaction processed within the blockchain—those are separate, and they need to be paid in and out of trading platforms.

Open your Ethereum Trade

At this point, you know pretty much everything that you need to know to open your first ETH trade. The only thing left to do is check if you filled out your order adequately. This check is important, as a lot of people often rush to the market to make use of an incoming opportunity. But, in that rush, you can easily make a mistake and not only waste the opportunity, but also lose your funds. Do not allow yourself to be robbed of the profits due to a technicality and make these final checks before executing the trade. 

Closing orders

Closing orders is done either manually or automatically. Manual closing of orders is done by clicking on the Close Order button, or whatever your platform of choice opted to name it. A trade can also be closed automatically if you use stop loss or take profit, and the selected price gets triggered.

Whos behind

Final Thoughts: Ready to Trade Ethereum?

Ethereum trading is huge these days, as the project remains the biggest and most developed platform in the crypto industry. This is why you must learn how to trade it properly. Trading can be done with the coin itself or through derivatives. It can be traded on individual exchanges or through brokers. But, no matter where you choose to trade it, always remember the three things that you cannot afford to forget—a sound strategy, a well-researched platform and a carefully prepared order can help a lot.

So, keep in mind everything that you learned in this guide, especially how to decide when to move and when to pass on potential opportunities. Traps are common in the crypto industry, and you need to be clever, patient and disciplined to avoid them. Once you feel you are ready to try it out, start trading by hitting the button below.

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Frequently Asked Questions

  1. Yes, you can exchange your ETH for US dollars on all exchanges that offer support for fiat currencies.

  2. No, you can simply sign up with a platform and start trading as soon as you are verified and fund your account.

  3. There is no way to tell with certainty how high the price of any cryptocurrency will go. There are many forecasts, but until their predictions come to pass, they remain only speculation. Traders must learn to follow news and forecasts carefully to read market trends.

  4. A user can manage risk by using regulated trading platforms. Additional security measures such as 2FA can also be used to ensure the account is secured.