How to Trade Cardano in 2024 - Complete Guide

What Is Cardano Trading and How Is It Different From a Standard Purchase?

Before you trade ADA tokens, you need to be aware of the fact that holding Cardano coins and trading them are two different strategies.

When you buy and hold Cardano, you are the owner of those ADA tokens, but when you trade Cardano, you are simply speculating on the price of ADA through financial instruments like contracts for difference (CFDs), options, and futures.

In this case, you don’t own Cardano, just the right to the dollar amount you invested plus any profit or loss on the trade.

When you start trading Cardano, you will notice that among the available derivatives, three are most popular:

• CFDs – Short for Contracts for Difference, CFDs are crypto derivatives that mirror the price of an underlying asset such as Cardano. They allow the trader to directly speculate on the price movements of the asset without actually having to own it.
• Futures – These are time-limited derivatives that a trader is obligated to close at a prespecified date. If the price of Cardano increases or decreases according to your prediction, you keep the gains upon settlement.
• Options – These are like futures, except traders aren’t obliged to close their position. Instead, they have the option to close the trade, or not, on settlement day. If the trade is not profitable, the trader pays only the premium for the contract itself.

The biggest advantage of trading cryptocurrencies through derivatives is that they allow traders to buy and sell almost immediately. Owning ADA tokens is a much more time-consuming and expensive process.

When you are selecting a broker for trading ADA coins, make sure that you choose one that’s regulated and registered. This way, you will be able to avoid any fraudulent activities or outright scams.

Leading trading platforms bring you a wide range of features to curate a better trading experience. Bear in mind that the derivatives available to you and their features are subject to your country of residence as well as the region the selected broker is registered in.

Copy-trading, offered by many social platforms, is often the go-to strategy for new traders, as it enables them to emulate the success of experienced traders.

However, it is not a sound strategy to follow big traders blindly because they have enough capital to provide them with a safety cushion, whereas new traders often don’t.

Moreover, their trading volume is high enough to have low trading fees and commissions, while small volume traders have to cough up a bigger chunk of their profits by way of transactional costs.

Our Step-by-Step Guide on Cardano Trading

We have developed an explanatory guide on how you can trade Cardano (ADA) that will develop your understanding of the cryptocurrency market and how it works.

1. Combine Fundamental and Technical Analysis

If you want to create your own investment strategies, you need to learn how to evaluate two types of different information streams. If you can do that, you will be able to make informed trading decisions.

The first type of information that you should be able to evaluate is qualitative, which includes the basics of market forces and the factors that affect them:

• News – Since Cardano is traded all around the world, there are multiple types of news that can have an impact on the price of ADA. This is why it is recommended that you keep up with the latest market developments, updates, news, and analyses by crypto opinion leaders so you’re better positioned to make profitable trades.
• Supply and Demand – One of the major drivers of Cardano’s price is supply and demand dynamics. The total supply of ADA is capped at a maximum of 45 billion tokens, of which more than 31 billion are in circulation. Any decrease or increase in the quantity can also drive the coin’s price.
• Follow the General Rules of Economics – Keep an eye on the factors that can have an impact on the coin’s market desirability and availability. In the event of an increase in demand or decrease in supply, the price of Cardano will go up, and vice versa.

The second type of information that you need to take into account is technical analysis, which involves evaluating hard numbers including statistics, charts, and graphs.

The quantitative approach allows you to develop a rational and evidence-based perspective towards your trading-related decision making. It also enables you to predict Cardano’s price with improved accuracy. Some of the most popular technical indicators include the following:

• Moving Averages – This particular indicator is derived from the prices of Cardano taken from previous data. Moving averages enable traders to learn how the price of Cardano has moved and where it’s headed depending on the available information.
• Relative Strength Index – If you want to learn whether Cardano has been oversold or overbought, then this is the indicator you should look at. Relative strength index enables you to find out the market sentiment so you can invest or divest accordingly. A price surge coupled with an overbought signal will usually mean that there’s a recession to come, while a price decline combined with an oversold signal means the price is about to increase.
• Moving Average Convergence Divergence – When you evaluate the difference between a 26- and 12-period exponential moving average (EMA), it is called Moving Average Convergence Divergence, or MACD. It is a highly valuable indicator that shows when traders are switching from buying Cardano to selling it and vice versa.

If you want to become a full-time trader, there are other advanced technical indicators as well, which you can rely on, including Golden Crosses, Fibonacci retracements, and diagrams.

2. Choosing a Trading Strategy

There are a number of trading strategies that you can deploy to earn profits. However, you will need to evaluate your situation to identify which Cardano trading plan suits you the best.

• HODL – The word ‘Hodl’ caught on after a frustrated bitcoin trader misspelt ‘hold’. The strategy is exactly what it sounds like. You buy Cardano through an exchange and hold it for months and years until the price has reached a point where you can multiply your profits.
• Day Trading – Just like any other cryptocurrency, Cardano can also be quite volatile, making it a perfect choice for traders who want to capitalise on the volatility. Price fluctuations provide an ideal opportunity for traders to open and close positions and pocket the difference.
• Swing Trading – This type of trading is just like day trading but for a longer period which can last for a few days to a few weeks. In order to execute the strategy, you need to carry out accurate technical analysis and open positions just as market sentiment changes.
• Hedging – More than trading, hedging is a risk management strategy where you secure your original trades by opening a new position in the opposite direction. This ensures that you will still receive some profits even if the price of ADA falls below a specific point.
• Scalping – This is another strategy that works like day trading but the trades are comparatively short-lived and don’t last more than a few minutes. You don’t earn a lot of money on each trade but you have time to carry out multiple trades.

3. Select an Appropriate Platform for your Needs

If you want to become a good trader with a high rate of successful trades, one of the decisions you need to make is about your platform.

You can either go for a broker or a derivative exchange, where the former delivers a trading-oriented user interface, and the latter brings the ability to take bigger risks. However, whichever way you go, ensure that your trading platform is registered and regulated, so your personal data and financial assets remain safe and secure.

Trading platforms that aren’t registered or don’t follow regulations don’t only pose an excessive risk but can be shut down by a regulatory body at any time.

4. Setting Up Your Account

Once you have selected your trading platform, you need to make your account by signing up. For this process, you will need to enter your email address, and subsequently, a verification email would be sent to you.

After you’ve verified your account, you will also need to verify your identity for compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. You can submit any type of valid identification, including a driver’s license and passport.

After identity verification, you will be able to deposit your seed capital which can be as little as $10 on some platforms. You can do so using both conventional and digital currencies.

5. Prepare Your Trading Position

The next step is to go to the ‘Trade’ tab, where you’ll see the trading interface. The designs and user interface employed by exchanges and brokers vary from platform to platform, but you’ll always be able to see some common features like the order book, buy and sell functions, and so on.

If you are just starting to get into Cardano trading, you may feel a bit confused by some of the trading terminologies. We have clarified the basic technical jargon below for your clarification:

Short or Long Positions?

As a trader, you will open a long position when you believe Cardano’s price is going to go up. Opening a long position involves buying low and selling high.

On the other hand, if you think that the price of Cardano is going to fall, you open a short position. Shorting gives you the opportunity to earn money in a downward trending market, but it can be quite risky, as you stand to lose a lot if the price shoots up.

Limit or Market Order

A trade order that’s executed at Cardano’s market price is a market order. You don’t need to specify the price, and you’ll only see buy and sell features when using market orders. However, if you want to buy at a specific price, you can initiate a limit order that enables you to mention the price of Cardano you’re looking to buy or sell at.

Trade Position Amount and Leverage

This is the total capital that you’ve used to initiate an order. If you want to maximise your profit, you can rely on leveraged trading, which is marketed on trading platforms in terms of ratios.

For instance, a 50:1 (or 50x) leveraged order means that if you have invested $100, your profit/loss will be calculated as if you’ve invested $5,000. Ensure that you are minimising your risk before you engage in leveraged trading.

Risk Management: How to Decide the Right Stop-Loss and Take Profit values for Your Cardano Trade

If the market doesn’t respond according to your expectations, you can use stop-loss orders to minimise your losses.

For this to work, you’ll need to put in two values – one is the stop value at which the position opens, and the second is the limit that defines the minimum price at which the order should be closed.

Always set your limit price slightly below the stop price to ensure the order executes in a rapidly depreciating market.

Review and Execute Your Cardano Order

Before you execute any order, make it a habit to ensure that you’ve entered all the values correctly and chosen the right options that you intended to. Human error can be very costly.

Close Your Trade for Profits or Limit Your Losses

If you assess your strategies comprehensively and execute them well, you are more than likely to make a profit. That being said, you can cut down your risk by using the take profit option, which allows you to close the position when Cardano reaches a certain price, and you’ve made enough profits.