How to buy and sell digital currencies?
The act of speculating on cryptocurrency price movements through a trading account, buying and selling the underlying currencies through an exchange is known as crypto trading. CFD trading is a type of derivative that allows you to bet on Bitcoin price changes (BTC) without owning the underlying currencies.
For example, you can go long if you think the value of a cryptocurrency will rise or short if you think the value will fall. However, because your profit or loss is still determined based on the total size of your investment, trading crypto leverage magnifies both profits and losses.
In addition, options in cryptocurrencies are used by investors to reduce risk or increase market exposure. Before you even think about getting involved in cryptocurrency trading, it is important to have a comprehensive understanding of the assets and technologies involved. Bitcoin is the beginning from which thousands of other cryptocurrencies have developed.
As with stocks and other financial markets, cryptocurrency trading can be complicated, involve a variety of elements, and require knowledge. Bitcoin was launched in 2009 as the first crypto asset and remains the largest cryptocurrency in terms of market capitalization and dominance.
Over the years, however, an entire industry of other digital assets has been created with the assets being tradable for profit. All other cryptocurrencies except BTC are known as altcoins, the largest of which is Ethereum (ETH).
This guide will explain crypto trading strategies and familiarize you with crypto trading platforms and apps, the details of a trade, trading styles, and the role of technical and fundamental analysis in creating a comprehensive trading strategy.
How to trade (in crypto) for beginners
There are many different approaches to how to trade cryptocurrencies. To start trading crypto, one first needs sufficient knowledge on the subject. It is also important to be aware of the associated risks and laws that may apply under the jurisdiction as well as the decisions to be made.
Sign up on a cryptocurrency exchange
You will need to open an account on a cryptocurrency exchange unless you already have one. The best crypto brokerage firms on the market include Coinbase, Kraken, and Gemini. All three of these providers have a simple one-user interface and a wide range of altcoins to choose from.
To open an account with a cryptocurrency brokerage firm, you will need to provide personal identification information as you would with a simple brokerage firm. When creating an account, you’ll need to submit your address, date of birth, social security number (in the United States), and email address, among other things known as Know Your Customer (KYC) requirements.
Fundraising your account
You will need to link your bank account after registering with a financial company. Most cryptocurrency exchanges accept bank deposits via debit cards and bank transfers. Bank transfers are usually the most cost-effective way to fund your account and can be accessed on Coinbase, Gemini and Kraken.
Choose a crypto to invest in
The majority of cryptocurrency traders put their money into Bitcoin and Ethereum. However, trading using technical indicators is easier because these cryptocurrencies move more predictably than other smaller altcoins.
Many cryptocurrency investors place a portion of their money in altcoins. Although they are more risky than large-cap cryptocurrencies, small mid-cap cryptos have more significant potential for growth.
Start trading
You can try auto-trading cryptocurrencies with software like Coinrule if you are looking for a cryptocurrency trading strategy. Trading bots implement a process designed to provide you with the most significant possible returns based on your investment goals.
You can make money quickly, hold your currencies, or diversify your portfolio with automated crypto trading, which can provide you with a conservative, neutral, or aggressive way. You can even actively explore cryptocurrency trading on some sites while automating trading on others.
Storing your cryptocurrencies
If you regularly trade BTC, you will need to keep your money on the exchange to access it. For example, you should buy a Bitcoin wallet if you buy cryptocurrency to hold it in the medium to long term.
Software wallets and Hardware wallets are two kinds of cryptocurrency wallets. Both are safe, but hardware wallets provide the most protection because they keep your cryptocurrencies on a physical device that isn’t connected to the internet.
The basics of cryptocurrency trading
The value of Bitcoin is determined from second to second and day after day by a market that never closes. As a standalone digital asset whose value is determined by an open market, Bitcoin presents unique volatility challenges that most currencies do not face.
Therefore, it is important for newcomers to know how the cryptocurrency markets work, so that they can safely navigate the markets, even from time to time, and get the most value from their participation in the cryptocurrency trading economy.
Trading Bitcoin can range in scale and complexity from a simple transaction, such as cashing in a fiat currency such as the US dollar, to using a variety of trading pairs (BTC/ADA, BTC/ETH) for profitable market driving in order to grow your investment portfolio. Of course, as well as A cryptocurrency transaction increases in size and complexity, as does a trader’s risk exposure.
The structure of a crypto transaction
A cryptocurrency transaction consists of a buyer and a seller. Since there are two opposing sides to a deal, one buys and one sells respectively, one is sure to earn more than the other. Therefore, trading is a zero-sum game: There is a winner and there is a loser. A basic understanding of how the cryptocurrency markets work can help minimize potential loss and optimization for potential profits;
When a price is agreed between buyer and seller, the transaction is executed (via an exchange) and the market value for the asset is set. For the most part, buyers tend to place orders at a lower price than sellers. This creates the two sides of an order book.
When there are more buy orders for crypto than sell orders, the price usually rises as there is more demand for the asset. Conversely, when more sell than buy, the price drops. In many exchange interfaces, purchases and sales are presented in different colors. This is to give the trader a quick indication of the market situation in a particular moment.
Types of trading
- Day trading: Known as Intraday trading involves traders who open and close positions within a day.
Pros: Faster profits, better risk management and not affected by changes in the markets at night.
Cons: Resorting to short-term positions for profits can cause addictive behavior and torment you constantly. Traders may lose money faster. Strategies that can be followed in a day are difficult. Due to the nature of the market, it can cause a lot of stress and finally it can work on very specific short-term trends.
- Swing trading: Swing traders follow in the short term with medium-term trends in a range from 1 day to 30.
Pros: You earn easier from day trading, less risk more information about long-term decisions, it takes less time to manage than day trading and involves significantly less stress.
Cons: It takes more preparation and research to make decisions, if you keep a profitable position open for a long time you may be tied up emotionally (which in any case is bad) and finally you need more discipline in staying on a tactic.
- Position trading: Known as “trend trading” this tactic has to do with buying and holding an asset for longer periods of time.
Pros: Easier to learn, less stressful tactics than the rest, one can start having a small capital patiently waiting to build something bigger, market trends are more predictable and finally consume less time.
Cons: Keeping positions open for long periods of time involves a lot of risk as the market can change dramatically when a trader does not monitor it and profits are for long term as there are no perks at shorter intervals.
Reading the markets
To ordinary people, the “market” may seem like a complicated system that only an expert could ever hope to understand, but the truth is that it all depends on the people buying and selling. The way cryptos are traded may initially seem like a complicated idea. Once you start to figure it out, however, the idea becomes much simpler.
The set of active buy and sell orders is a snapshot of a buy at any given time. Reading the market is the continuous process of identifying patterns or trends, over time, which the trader may choose to act on. Overall, there are two market trends: bullish and bearish.
A “bullish” market, or bull market, occurs when price action seems to be steadily increasing. These upward price movements are also known as ‘pumps’, as the influx of buyers raises prices. A bear market, or bear market, occurs when price energy seems to be steadily declining. These downward price movements are also known as “doubles”, as mass sales result in a drop in price.
Upward and downward trends can also be present in other larger opposite trends, depending on the time horizon you are looking at. For example, a small downtrend may appear in a broader long-term uptrend. In general, an upward trend results in price action making higher highs and higher lows. A downward trend makes lower highs and lower lows.
Another market situation called “consolidation” occurs when price is traded sideways or within an area. Typically, accumulation phases are easier to detect on higher time frames (daily charts or weekly charts) and occur when an asset is “cooled” after a sharp upward or downward trend. Accumulation also takes place before trends are reversed or during periods when demand is reduced and trading volumes are low. Prices are essentially traded within a price range during this market situation.
Technical analysis
Technical analysis (TA) is a method of analyzing previous market data, mainly price and trading volume, in order to predict price action. While there is a wide variety of TA indicators, ranging in complexity, that a trader could use to analyze the market, here are some basic macro and micro-level tools.
Structure and market cycles
Just as traders can identify patterns within hours, days, and months, they can also find patterns for fluctuating prices. There is a fundamental structure in the market that makes it sensitive to certain behaviors.
Market structure
The cycle can be divided into four main parts: Accumulation, Markup, Distribution and Decline. As the market moves between these phases, traders will constantly adjust their positions by consolidating, repositioning, or correcting as they see fit.
The bull and the bear are very different creatures and have a certain behavior with each other within common environmental conditions. It is important that a trader knows not only which role he falls into, but also who currently dominates the market.
Technical analysis is necessary not only to position oneself in this ever-changing market, but also to move properly in trends as they occur.
Psychology cycles
While the importance of the bull and bear is quite useful, the psychological cycle provides a more detailed spectrum of market sentiment. While one of the first trading rules is to put emotion aside, the power of team mindset tends to dominate. The path from hope to euphoria is driven by FOMO, the fear of loss, by those who have yet to open market positions in the market.
Navigating the field between euphoria and complacency is crucial for the timing of an exit before bears take control and people panic and sell. Here, it is important to take into account the action of high trading volumes, which may indicate the general dynamics of the market. The “low market” philosophy is quite obvious, Since the best time for accumulation within the market cycle is during the “depression” after a drastic drop in price. The greater the risk, the greater the reward.
The challenge facing the serious trader is not to let emotion dictate his trading strategy from analysis by the media, chat rooms or so-called thought leaders. These markets are largely subject to manipulation by whales and those that can affect the pulse of the market. Do your homework and become decisive in trading your cryptocurrencies.
Basic tools
The ability to identify patterns and cycles in the market is crucial for the long-term view of the market. Knowing where you are in relation to the whole is of great importance. You want to be the experienced surfer who knows when the perfect wave is about to arrive instead of desperately searching the waters hoping something great happens.
But a small perspective is also critical to determining your actual strategy. While there are a huge number of TA indicators, we will consider only the most basic ones.
Support and Resistance
Perhaps two of the most widely used TA indicators under the terms “support” and “resistance” relate to price barriers that tend to form in the market, preventing price action from going too far in a particular direction.
Support is the price level where the downward trend tends to stop due to demand inflow. When prices go down, merchants tend to buy low, creating a support line. In contrast, resistance is the price level where the uptrend tends to stop due to selling.
Trendlines
While static support and resistance points are common tools used by traders, price action tends to raise or lower with barriers shifting over time. A sequence of support and resistance levels may indicate a larger trend in the market represented by a trend line.
When the market has an uptrend, resistance levels begin to form, the price action slows down, and the price is dragged back to the trend line. Cryptocurrency traders pay close attention to the support levels of an ascending trendline, as they indicate an area that helps prevent the price from falling significantly lower. Similarly, in a market with a downtrend, traders will monitor the order of similar peaks to link them together on a trendline).
The key element is the history of the market. The strength of any support or resistance levels and the resulting trendlines increase as they repeat over time. Therefore, traders will record these points to constantly update their trading strategy.
The moving average
With a history of buying-in levels of support/resistance and the corresponding bearish/upward trendlines, traders often smooth out this data to create a single visual line representation called the “average movement”.
The average movement beautifully detects the support levels of the bottom of an upward trend along with the peaks of resistance in a downtrend. When analyzed in relation to trading volume, the moving average provides a useful indicator of short-term momentum.
Chart patterns
There are several ways to explore the market and find patterns within it. One of the most common visual representations of market prices is candlesticks. These “candle” patterns present a kind of visual language for traders to predict potential trends.
Candlestick Chart
Candlestick charts emerged in Japan in the 1700s as a method of assessing how traders’ emotions act as a powerful influence on price action, beyond the simple economy of supply and demand. This market visualization is one of the most favored by traders, as it can incorporate more information than the simplest line or bar charts. A candlestick chart It has four price points: open, close, high and low.
How does this relate to cryptocurrency trading? They are called candles because of their rectangular shape, and the lines above and / or below resembling a wick. The wide part of the candle is where the price either opened or closed, depending on its color. Wicks represent the price range in which an asset is traded during this specified period of the candle. Candles They can enclose different time intervals, from a minute to a day and more, and display different patterns depending on the timing chosen.
Fundamental analysis
So, how do we determine the capabilities of a particular crypto asset beyond its market behavior?
While technical analysis involves studying market data in order to determine one’s trading strategy, fundamental analysis is the study of the underlying industry, technology, or assets that make up a particular market. In the case of cryptocurrencies, a trading portfolio will most likely consist of Bitcoin and altcoins.
How can one determine whether an asset is based on sound fundamentals rather than hype, finite technology, or anything at all? For fundamental analysis of new assets, several factors should be considered such as:
Developers
Before investing in a cryptocurrency asset, it is necessary to assess the integrity and competence of the manufacturers behind it. What is their background? What software companies have brought to market in the past? How active are they in developing the token’s underlying protocol? Since many projects are open source, it is possible to directly view this activity through collaborative code storage platforms like GitHub.
Community
The community is very important for cryptocurrency projects. The combination of users, token holders, and supporters creates much of the driving force of these assets and their underlying technologies. After all, there is always a social element to every new technology. However, since a lot of money is at stake, and with the frequent presence of non-professional retail investors, the site is often subject to toxicity and warring groups. Therefore, a healthy, transparent discourse within the community is always welcome.
Specifications
Not to be confused with technical market analysis, the basic technical specifications for a crypto asset include the choice of algorithm (how it maintains security, uptime, and consensus) and issue/broadcast features such as block times, maximum token supply, and distribution plan. Diligently evaluating the protocol stack of a cryptocurrency network along with the monetary policy imposed by the protocol, a trader can determine if such features support a potential investment.
Innovation
While Bitcoin’s intended use case at launch was e-money, developers and entrepreneurs have not only discovered new use cases for the Bitcoin blockchain, but have also designed completely new protocols to accommodate a wider range of applications.
Liquidity (and whales)
Liquidity is critical to a healthy market. Are there any reputable exchanges that support a particular crypto asset? If so, what trading pairs are there? Is there a healthy trading volume? Are there large stakeholders in the market and, if so, what is the impact of their trading patterns?
However, creating liquidity takes time, as a new innovative protocol may be active but may not have direct access to liquidity. Such investments are risky. If the volumes are low and there are little to no trading pairs available, you are essentially betting that eventually a healthy market will form around the project.
Branding and marketing
Most cryptocurrency networks do not have a central figure or company that facilitates branding and marketing around their technology, so branding does not have a specific design or direction .
This doesn’t mean discounting the branding and marketing resulting from a protocol over time. In fact, an analysis of the marketing efforts of key developers, companies, foundations, and community members can provide a detailed overview of how some players convey value propositions to the masses.
On-chain analysis
Since all cryptocurrencies operate with blockchain technology at a basic level, a new type of analysis based on data from blockchains, chain-based analysis, has emerged.
By examining supply and demand trends, trading frequency, transaction costs, and the rate at which investors own and sell a cryptocurrency, analysts are able to make accurate qualitative and quantitative observations about the strength of a cryptocurrency’s blockchain network and its price dynamics in a variety of markets.
On-chain data also provides valuable insights into investor psychology because analysts are able to align various macroeconomic and microeconomic events with investor actions recorded unchanged on the blockchain.
Analysts look for cryptocurrency trading signals, patterns, and anomalies in buy, sell, and hold behavior in association with market rallies, sales, regulatory events, and other network-oriented events. This is to make predictions about possible future price movements and investors’ reactions to upcoming events such as network upgrades, reduction of halving of currencies and operations taking place on traditional financial markets.
Crypto trading vs Stock trading
Stocks and cryptocurrencies are two very different types of investment “vehicles”. While both are liquid assets that belong to your speculative portfolio, that’s where the similarities end. These are two completely different types of securities that should be held in separate sections of your portfolio.
Shares are the ownership shares of a listed company. Each share of stock you buy gives you a percentage stake in the company. This ownership is proportional to the number of shares issued by a corporation.
An investor can earn by selling their shares to other investors. The difference between what you spend on the asset and what you get when you sell it is known as capital gains. In addition to this, the advantages of holding shares are completely dependent on the business in question. Shares can also gain value by providing dividends to their shareholders and exercising voting rights.
A cryptocurrency is a digital asset that exists exclusively online. This means that it has no physical element and exists only as records in an online ledger that tracks the property. This contrasts with the United States dollar, which has both a physical (you can withdraw and hold a dollar account) and a digital asset (you can hold a dollar as nothing more than a listing in your bank account that registers that property). The single unit of a cryptocurrency is referred to as a token, just as the individual unit of a stock is referred to as a stock.
Cryptocurrency trading
Risk management is also an important aspect of trading. Before entering a trade, it is important to know how much you are willing to lose in trading if the market moves against you. This can be based on several factors, such as your trading capital. For example, a person may want to risk losing only 1% of their total trading capital either in total or per transaction.
Trading is just a risky endeavor. It is almost impossible to predict with certainty any future market activity. At the end of the day, it is important to make your own decisions, using the available information and your own judgment, as well as to make sure that you are trained enough.
In addition, trading strategies can vary greatly from person to person, based on preferences, personalities, trading capital, risk resistance, etc. Trading carries an important responsibility. Anyone interested in trading should assess their personal situation before deciding to trade.