Cryptocurrency trading is an extremely volatile field that offers immense returns when executed wisely.
Cryptocurrency trading entails buying or selling coins via a cryptocurrency exchange or theorizing the trends of crypto prices by a contract for difference (CFD) trading account.
CFD trading involves betting on Bitcoin price changes without actually possessing this currency. With this type of trading, you can buy (go long) if you predict the value of a digital currency to increase or sell (short) if you think it will decrease.
To do this, a small deposit known as margin trading crypto is required for complete exposure to the market. The size of your crypto investment determines your loss of profit, so your leverage instruments intensify both your earnings and your losses.
Various cryptocurrency options are used to decrease the risk or, alternatively, further market exposure. Crypto options trading refers to a type of financial instrument whose value is derived from that of another asset. In this case, that would be a cryptocurrency.
It is essential to have comprehensive and accurate insight into the roles of assets and technologies in cryptocurrency trading.
Financial markets are all around complicated in nature, and trading crypto is no exception, as numerous components come into play and must be considered.
Bitcoin has remained the largest cryptocurrency by market cap since its inception in 2009. Following in its footsteps were countless other digital currencies known as altcoins. Ether is currently the largest altcoin in the cryptocurrency market.
This article explores the basics of crypto trading, its components, fundamental trading strategy, and available platforms and applications.
Before jumping into cryptocurrency trading, one must first investigate the associated risks and laws to make informed decisions further on.
If you don't already own cryptocurrency, you will be required to open an account with an upstanding crypto exchange. Some of the best crypto exchanges include Coinbase, Gemini, and eToro. As a beginner, you would benefit from signing up with an exchange with a user-friendly interface and accommodating client services. It is always advantageous to go with a platform that includes a wide range of altcoins for you to pick from.
When opening a new account, you will have to provide some personal information, such as your address, birth date, social security number, and identity verification. The sign-up process resembles what you would encounter with a stock brokerage.
After you have created an account that has since been activated, you have to connect it to your bank. Most crypto exchanges accept bank deposits by wire transfers and debit cards. Wire transfers are generally the most cost-effective option and can be done on Gemini and Coinbase.
Investors commonly invest in Bitcoin and Ethereum because of their predictable trends, making it easy to trade using technical indicators.
Although smaller market cap altcoins involve more risk than large-market cap currencies, many investors allocate a portion of their investment to small altcoins. These altcoins often grow substantially in value in short periods, so investors are naturally attracted to them.
There is a wide range of available trading indicators. If you are new to the world of crypto trading, consider reading up on the topic and maybe buying a cryptocurrency trading course. There are many factors to consider in your trading strategy, and any shortcomings on your part could lead to severe losses.
Helpful courses include The One Core Program and Asia Forex Mentor. These aids change your approach to trading entirely and contribute to your success.
You may already have experience in trading stocks, in which case you will be able to implement your strategies into crypto trading. The Elliot Wave Theory is a renowned favorite among traders. It focuses on the underlying psychology of market sentiment. This theory presents an appropriate approach to volatile assets like digital currencies.
In your search for crypto trading strategies, consider using an automated crypto trading platform like Coinrule. Trading bots are designed to deliver the best results based on your investment goals. It's up to you to decide on the method that will be used. Whether it is a neutral, conservative, or aggressive approach you prefer, trading bots can ensure the diversity of your portfolio.
If you decide to use automated trading platforms, it would be wise to continue actively trading on other platforms to get maximum returns.
If you are continuously trading your cryptocurrency, you can store your assets on the cryptocurrency exchange. However, if you plan to hold your digital assets mid to long-term, it would be better to store them in a cryptocurrency wallet. By doing this, you will benefit from the security measures of the relevant blockchain.
Crypto wallets include hardware and software wallets. Both are reasonable, but hardware wallets offer more features in terms of security. An example of an excellent hardware wallet brand is Ledger. In addition, Android, Google Chrome, and iOS will have many free software wallet options such as ZenGo.
There is an abundance of brokerage services to choose from. Coinbase is the best option for new investors. It includes a free conversion feature allowing users to trade their crypto for any other token on the platform.
Bitcoin presents distinctive challenges regarding volatility because of its autonomous nature. Its value is determined by an open market that never sleeps.
It is essential that beginners comprehend the fundamental aspects of crypto trading to get the best results from their investments by navigating the market.
Traders can engage in the most simple activities like exchanging bitcoins for fiat money or profit from riding the market by utilizing various trading pairs. The more complex the activity, the greater the risk exposure.
At its fundamental level, crypto trading requires a buyer and a seller to bring about a purchase and a sale. Having two opposing sides to the trade leads to one party gaining more than the other.
An agreed-upon price sets the trade in motion. Buyers will generally set orders of lower prices where sellers would obviously set the prices higher, creating the two hemispheres of an order book.
A greater demand for an asset occurs when the number of buy orders exceeds the sell orders, causing the price to increase. Most crypto exchanges will display the buyers and sellers in different colors to easily evaluate the market's state.
The golden rule of trading is to buy low and sell high., but the relativity of what is considered high or low makes this principle more complicated to adhere to.
It goes without saying that sellers want to profit as much as possible, and buyers want to spend as little as possible. This concept becomes a bit more intricate when the options of longing or shorting an asset get involved.
Going long on an asset entails purchasing an asset and generating a profit based on the increase in its value. In contrast, going short on an asset means selling it but intending to buy it back as soon as the price drops to the value at which you sold it in the first place. These are elementary explanations of a much more complex topic.
The crypto trading market may seem too complicated to comprehend as a layman, but it quickly becomes a lot simpler just by understanding the basis of buying and selling, and you will soon trade crypto without reservations.
At any given time, buy and sell orders are the soil from which the market grows. Market reading is simply recognizing the patterns and trends in the market as time passes and acting accordingly.
Bullish and bearish are the two overall market trends.
A bull market arises when prices continuously increase. This increase is referred to as "pumps."
In contrast, a bearish market occurs when prices steadily follow a decreasing trend known as "dumps."
These trends may occur simultaneously, like when bearish trends occur within a long-term bullish trend. A broad bullish term will cause high points to be higher and low points to be higher as well. The same principle applies to downward trends.
When assets follow extreme downward or upward trends, a state known as consolidation typically occurs. This phase is easy to spot on daily or weekly charts. Consolidation involved prices trading sideways or staying within a range.
Consolidation phases are also prevalent when asset demand and trading volumes are low.
Technical analysis is a way of analyzing past market data by considering prices and volumes to better predict price action.
There are countless TA indicators ranging in their functionality that can be used to analyze the market. Following are some primary micro-and macro-level tools.
The market is known to follow a fundamental structure, with fluctuations being visible over days, months, and years. These patterns make the market susceptible to specific behaviors.
The cycles can be divided into four categories: increase, markup, distribution, and decline. Traders can employ these stages to alter their positions in the market by correcting and integrating appropriately.
Traders must know whether the bull or bear is dominating the market at a given time and under which role they ultimately fall.
TA includes positioning yourself suitably in the market and also determining the trends that will follow.
Individuals or groups who dominate large portions of the market are known as "whales." These whales are present in all markets, whether it is stocks or cryptocurrencies.
Your strategy as a trader has to include the consideration of which TA indicator tools these whales make use of. In basic terms, whales are the frontrunners in the market, and they know what they're doing. By following their activity and anticipating their next move, traders can generate a profit by adjusting their strategies accordingly.
In the world of numbers and statistics, we often forget that real people are behind all the activity in the market. People who experience emotional behaviors that influence the market.
It is always said that one should leave emotions behind when entering the market, but this is often easier said than done. Group mentality has a powerful influence, and people frequently act rapidly just to avoid missing out.
If you can learn to read and time your next move before a bear market arises, you can step out before people start panic selling. In doing this, traders must determine the momentum of the market by factoring in high-volume price action. Quite obviously, the best time to buy is when prices drop drastically following a depression.
Traders should be cautious not to let their emotions get involved in their strategy when various chat rooms and leaders speak out about their opinions of the market. Whales have the ability to manipulate the market with their comments. So be decisive and final in your trading strategy.
Traders can determine their position in the bigger picture by detecting patterns in the market. As a trader, you ultimately want to be one step ahead, knowing exactly when to commit and when to retract. However, having an insightful micro perspective is just as important in creating a viable strategy. We will only discuss the most basic TA indicators of the many.
These two terms are widely used TA indicators. Support and resistance refer to the price barriers in the market that keep prices from moving persistently in one direction.
Support is the level at which downward moving prices tend to pause because of demand influx. When the prices are low enough, traders start buying and hereby create support. In contrast, resistance refers to the upward moving prices, pausing at a certain point where sell-offs start to occur.
The resistance and support levels are what many traders use to predict the direction of price action in the cryptocurrency market. After a while, a floor and a ceiling become evident, providing traders with a safe zone to step in or out. It is usually a mindful strategy to buy when prices are on the floor and sell at the ceiling.
The resistance and support levels will form as trends break through these barriers.
Traders more often than not use the above tools, but price actions sometimes trend outside these barriers. A larger trend can be established by evaluating the support and resistance over time. This is known as a trendline.
When the market follows an upward trend, price action will start slowing down and be drawn back to the trendline. Traders in the crypto market watch the support levels of an increasing trendline closely, helping them indicate an area to prevent prices from dropping too low. Similarly, traders will pay close attention to the movements of descending peaks to connect them to form a trendline.
Traders make records of barriers that form over time and create strategies accordingly. History is the best indicator of which trends are to come.
Inexperienced traders and investors often fixate on round numbers. When the majority of trades hover around a round number, they conclude that prices will unlikely surpass these figures. This consequently creates resistance.
This behavior indicates how humans are driven by their emotions and want to find the shortest way to the top. As a result, the market frequently bursts with action and excitement when prices get to a certain point.
The moving average visualizes market trends based on the history of downward and upward trendlines.
This average neatly indicates the ceilings and floors of the market, and an accurate prediction of short-term momentum can be formed when the trading volume is evaluated.
Chart patterns are used to chart the market trends and identify the patterns it contains. The candlestick pattern is the most commonly used visual representation of market prices that helps traders predict certain potential trends.
Traders prefer a candlestick chart because it visualizes more than a bar or line chart can. It includes four main points: open, close, low, and high price points.
Candlestick charts include various timespans and clearly demonstrate the different patterns based on the chosen timeframe.
Whereas technical analysis is the study of market data to create a trading strategy, fundamental analysis involves the study of the industry as a whole. This includes the technology and assets associated with a specific market.
Fundamental analysis allows traders to predict the potential of a given cryptocurrency beyond its behavior in the market. A trading portfolio of cryptocurrencies will most likely include Bitcoin and altcoins.
The potential of digital assets is usually associated with the hype that surrounds them. However, to determine their fundamental sustainability and usefulness, the following factors need to be taken into account:
Traders will benefit from assessing the integrity of a crypto asset by considering who developed it. Some valuable questions about the builders of the asset need to be asked:
As there are always social elements to new technologies, the combination of tokenholders, enthusiasts, and users must be considered as the driving forces of crypto trading projects.
It is also important to remember that the crypto space often includes many non-professional investors. Because there is a lot at stake, a healthy discourse with the community will go a long way in lessening the presence of warring fractions and market toxicity.
Technical specifications are the details surrounding the algorithms that crypto networks use. This includes how they implement security, consensus, and uptime on the network. Other core technical specifications include issuance features like distribution plan, maximum token supply, and block times.
If traders investigate these aspects, they will have diligent information to base their decision on. Traders can determine if a specific network is worth their investment.
Since its inception, Bitcoin has implemented various new protocols that allow for a wide range of applications apart from electronic money, which was initially its intended use.
Liquidity is a crucial requirement for a market to be healthy and sustainable. Some things to consider before investing in a cryptocurrency are whether it has reputable supporting exchanges, and what trading pairs are present. Moreover, consider if it has a healthy trading volume and if the asset has large stakeholders.
Liquidity generation takes a long time, and new protocols may not initially have access to liquidity. If trading volumes are still low and there are no available trading pairs, you are putting your trust in the asset's potential to become reputable and successful eventually.
Infrastructure is essentially the embodiment of the technical specifications of a project. Disregarding any information written in white papers or brought forth at conferences, evaluate the physical manifestation of the project protocol.
Consider the block validators, stakeholders, users, and involved companies in your evaluation. This will provide you with a thorough insight into the security and distribution power of the network.
On-chain analysis is the analysis of blockchain data. Because all cryptocurrencies function on a blockchain, this is a valuable aspect to examine.
The strength of a blockchain network is determined by the transaction frequency, supply and demand trends, transaction fees, and the holding and selling rate of crypto investors. Using this information, analysts can determine the validity of blockchain networks as well as their price dynamics in various markets.
Investor psychology is revealed in on-chain data because analysts can evaluate the micro and macroeconomic actions and events which are recorded on the blockchain.
Analysts can make accurate predictions on the price actions and investor responses to upcoming upgrades in the networks and coin supply halvings that may occur. They do this by identifying patterns in the holding and selling behavior, sell-offs, and anomalies in buying and selling.
Before participating in a trade, it is crucial to know exactly how much you can afford to lose if the market takes a turn for the worst. Traders can base their acceptable loss on how much of their trading capital they risk.
Trading has also been a risky activity, and the best thing to do is utilize all available knowledge and conduct diligent research to form a credible strategy and make decisions accordingly.
Strategies vary widely between traders and depend on each individual's personality, preferences, risk tolerance, and trading capital. Before becoming a trader, one must first reflect on one's unique situation and weigh up the pros and cons.