What is crypto trading?
How to trade cryptocurrencies: A beginner’s guide to buy and sell digital currencies. Speculating on the price movement of cryptocurrencies through a CFD (Contract for Difference) trading account or buying and selling local coins through an exchange is called cryptocurrencies or cryptocurrency trading. CFD trading is a derivative that allows you to bet on Bitcoin (BTC) price movements without owning the underlying currency.
For example, you can go long (buy) a cryptocurrency if you believe its value will rise and if you believe it will fall. Since both are leveraged products, you only need a small deposit to get full exposure to the underlying market (cryptocurrency trading on margin). However, with cryptocurrency trading, you can increase your profit and loss because your profit or loss still depends on the total amount of your investment.
Investors also use cryptocurrency options to reduce risk or increase market risk. Crypto options trading refers to “derivative” financial instruments that derive their value from the value of another asset, in this case, the underlying cryptocurrency.
Before considering trading cryptocurrencies, it is important to have a good understanding of the assets and technologies involved. Bitcoin is the soil from which thousands of other cryptocurrencies have grown.
However, trading cryptocurrencies, like stocks and other financial markets in the industry, can become complex over the years, involving many different components and requiring knowledge. Bitcoin was launched in 2009 as the first crypto asset and is the largest cryptocurrency in market cap and popularity. Other digital assets that can be traded for profit already exist. All cryptocurrencies other than BTC are called altcoins, the largest of which is Ether (ETH).
This guide explains crypto trading strategies and introduces you to crypto trading platforms and applications, trading components, trading styles, and the role of technical and fundamental analysis in developing a comprehensive trading strategy.
How to trade cryptocurrency for beginners
There are different ways to trade cryptocurrencies. Before trading cryptocurrencies, you need a solid understanding of the subject. It’s also important to be aware of the risks involved and the laws that may apply depending on your jurisdiction, so you should make your decisions accordingly.
Sign up for a cryptocurrency exchange.
If you don’t already hold cryptocurrency, you must create an account with a crypto exchange. Coinbase, eToro, and Gemini are some of the top cryptocurrency brokerages available today. Many alternative coins are available on all three of these services, and their user interfaces are simple to use.
You must provide personal identifying information to open an account with a cryptocurrency brokerage, just as you would with a stock brokerage. Your address, birth date, Social Security number (if you’re in the United States), and email address are among the Know Your Customer (KYC) requirements that must be provided when registering an account.
Fund your account
You must connect your bank account once registered with a cryptocurrency brokerage. Debit cards and wire transfers are generally accepted for bank deposits on Bitcoin exchanges. The most economical method of funding your account is a wire transfer, available on Coinbase and Gemini.
Pick crypto to invest in
Bitcoin and Ether are the two cryptocurrencies that most cryptocurrency traders invest in. However, trading using technical indicators is conceivable because major cryptocurrencies move more reliably than smaller altcoins.
A lot of cryptocurrency investors invest some of their capital in altcoins. Smaller and mid-market cap cryptos have a larger upside potential despite being riskier than large ones.
Start trading
If you’re looking for an automated cryptocurrency trading method, consider using a program like Coinrule. The procedure cryptocurrency trading bots use is intended to give you the most returns for your investment goals.
With the help of automatic trading for cryptocurrencies, you may quickly make money, keep your coins, or diversify your portfolio in a conservative, neutral, or aggressive manner. You might even consider actively trading cryptocurrencies on some websites while using trading automation on others.
Store your cryptocurrency
If you are actively trading BTC, you must have the funds to use them on the exchange. For example, if you are buying cryptocurrency to hold for the medium to long term, you should buy a Bitcoin wallet.
Software wallets and hardware wallets are two types of cryptocurrency wallets. Both are secure, but hardware wallets offer the most protection because you store your cryptocurrencies on a physical device not connected to the Internet.
Structure of a crypto trade
Cryptocurrency trading consists of buyers and sellers. Because there are two opposing parties to a transaction: the buyer and the seller, one must receive more than the other. So trading is a zero-sum game. There are winners and losers. A basic understanding of how cryptocurrency markets work can help you minimize your potential losses and optimize your potential gains.
Once the buyer and seller agree on a price, the transaction (through an exchange) is made, and the market valuation of the asset is established. In most cases, buyers place orders at lower prices than sellers. This will create both sides of the order form.
When there are more buy orders than sell orders for a cryptocurrency, the price usually rises because there is more demand for the asset. Conversely, the price will fall if there are more sellers than buyers. In many exchange interfaces, buys and sells are displayed in different colors. Its purpose is to give traders a quick overview of the market situation at any given moment.
You may have heard the saying in trading, “Buy low, sell high.” This quote can be difficult to understand because high and low prices can be relative. Still, the proverb provides a basic indication of the motivations of buyers and sellers in the marketplace.
To buy something, you want to spend as little money as possible. If you want to sell something, you want to make as much money as possible on the trade. While this is generally a smart move, there is an additional dimension of going long vs. short for an asset.
Buying (desiring) an asset means buying and profiting from it when its price rises. In contrast, shorting an asset means selling an asset to buy it back at a price lower than the price at which it was sold to take advantage of the decline in value. However, short selling is a little more complicated than this simple explanation and involves selling the borrowed assets and then paying them off.
Reading the markets
To the uninitiated, the “market” may seem like a complex system that only experts understand, but it all comes down to the buyers and sellers. How to trade cryptocurrencies may seem like an esoteric concept at first. But once you start to understand it, the idea becomes very simple.
The total number of active buy and sell orders is a snapshot of the market at a specific point in time. Market interpretation is an ongoing process of discovering patterns or trends traders can follow. Overall, there are two market trends: bullish and bearish.
A “bull” market or bull market occurs when the price action appears to be continuously rising. This price movement is also called a “pump” because the influx of buyers causes the price to rise. A “bear” or bear market occurs when the price movement appears to be consistently down. This price drop is sometimes called a “sell-off” due to a price drop caused by a large sale.
Bullish and bearish trends can also exist within other major opposing trends, depending on the time frame you’re looking at. For example, a small bearish trend may occur within a broader long-term bullish trend. Generally, an uptrend creates higher highs and higher lows due to price action. A downtrend makes lower highs and lower lows.
Another market condition called a “split” occurs when price moves or trades within a range. Generally, consolidation phases are easier to spot on longer time frames (daily or weekly) and occur when an asset cools off after a sharp up or down trend. Stability occurs before a trend reversal or when demand and vo,lume are low. In this market condition, the price trades within a certain range.
Technical analysis
Technical analysis (TA) is a technique for forecasting price movement by examining historical market data. Especially price and volume. Here are some fundamental macro- and micro-level tools, though a trader might utilize a wide range of TA indicators varying in complexity.
Market structure and cycles
Just as traders can see patterns in hours, days, and months, they can see patterns in price movements over the years. Market infrastructure is vulnerable to certain practices.
This cycle can be divided into four main parts: accumulation, increase, division, and decrease. As the market moves between these phases, traders continue to adjust, consolidating, relocating, or correcting their positions as they see fit.
Bulls and bears are separate creatures that interact with each other under normal environmental conditions. Traders need to know their role and the role currently dominating the market.
Technical analysis is not only important for determining one’s position in an ever-changing market, but it is also important to stay dynamic with ebbs and flows.
Chasing the whale
Some whales act as “market makers,” taking advantage of the process to set bids and asks on both sides to create liquidity for an asset. Wheels exist in almost every market, from stocks and commodities to cryptocurrencies.
A cryptocurrency trading strategy must understand which trading tools whales prefer (such as their preferred TA indicators). In short, whales know what they’re doing. By anticipating the whale’s intentions, traders can leverage their strategies by working with these professional facilitators.
Psychological cycles
In a zoo full of tropes, it’s easy to forget that most real people are behind these trades and, therefore, subject to emotional actions that can greatly influence the market.
This market aspect is illustrated in the classic chart “The Psychology of Market Cycles.”
While the bull market/bear market framework is useful, the aforementioned psychological cycles provide more detailed coverage of market sentiment. One of the first rules of trading is to keep your emotions in check, but the forces of crowd psychology often prevail.
Navigating the line between happiness and complacency is key to timing the exit before the bears settle in and people panic. Here it is important to consider large price movements that can indicate general momentum in the market. The “buy less” philosophy is pretty clear. The best time to accumulate during a market cycle is during a recession after a sharp price decline. The greater the risk, the greater the reward.
The challenge for serious traders is not to let emotions influence their trading strategies amid the plethora of headlines and analyses in the media, chat rooms, or so-called thought leaders. These markets are very vulnerable to whales and manipulations that can affect the market’s pulse. Do your homework and be decisive in your crypto trading moves.
Basic tools
From a macro perspective, one must recognize market cycles and patterns. It is crucial to understand your place concerning the whole. Instead of paddling aimlessly in the water and hoping for the best, you want to be the seasoned surfer who can spot when the ideal wave is about to come.
But the micro perspective is also essential to decide on your actual plan. Although many TA indications exist, we will only discuss the most fundamental.
Support and resistance
Perhaps the two most commonly used TA indicators, called “support” and “resistance,” relate to price barriers that form in the market, preventing price action from moving too far in a particular direction. are
Support is the price level at which the downtrend stops due to an influx of demand. When the price falls, traders buy low, forming support. Conversely, a resistance level is a price level at which an uptrend stops due to selling.
Many cryptocurrency traders use support and resistance levels to bet on price direction and adjust when price levels cross their upper or lower bounds. Once the trader identifies the lower and upper limits, it provides an activity area for traders to enter or exit. Buying from the floor and selling from the ceiling is a common standard operating procedure. When the price crosses these barriers in either direction, it indicates overall market sentiment.
Trendlines
The static support and resistance barriers shown above are common tools for traders, but price action rises or falls as the barrier rises over time.
When the market is in an uptrend, a resistance level begins to form; price action slows down, and the price returns to the trendline. Cryptocurrency traders keep a close eye on rising trendline support levels as they identify areas that will help prevent a sharp price decline. Similarly, traders will pay close attention to the sequence of descending peaks associated with the trendline in a bearish market.
An important factor is market history. Over time, the strength of the support or resistance level and the resulting trend line will increase. Therefore, traders take note of these constraints to inform their ongoing trading strategies.
Round numbers
One of the effects on support/resistance levels is that inexperienced or institutional investors get locked into integer price levels. As with Bitcoin, many trades center around the appropriate rounding numbers, usually when the price reaches a number divisible by 10,000.
These recurring incidents prove that human traders are easily swayed by emotion and take shortcuts. Of course, in the case of Bitcoin, reaching certain price levels creates unique market dynamics and excitement.
Moving averages
Armed with a market history of support/resistance levels and resulting down/up trend lines, traders will typically smooth this data to create a single visual representation of a line known as a “moving average.”.
Moving averages do a good job of tracking uptrends’ lower support levels and the resistance peaks during downtrends. When analyzing trading volume, moving averages provide a useful short-term momentum indicator.
Chart patterns
There are many ways to chart the market and find patterns. One of the most common visual representations of market price action is the “candlestick.” These candlestick patterns provide traders with a visual language to predict potential trends.
Candlestick charts originated in Japan in the 1700s to gauge how trader sentiment significantly affects price action, going beyond the simple economics of supply and demand. A candlestick chart has four price ranges: open, close, high, and low. What does this have to do with cryptocurrency trading? They are called candles because they are rectangular with a line above or below them like a candle. The width of the candle is where the price starts or closes, depending on the color. A wick candlestick represents the price range of an asset traded during a specified period. Candlesticks can cover different time frames, from a minute to a day or more, and can show different patterns depending on the timeline selected.
Fundamental analysis
How do we assess a specific crypto asset’s potential, independent of or before its trading market performance?
Fundamental analysis is the study of the underlying industry, technology, or assets that compose a certain market, as opposed to technical analysis, which involves analyzing market data to develop one’s trading strategy. A trading portfolio for cryptocurrencies is likely to include Bitcoin and alternative cryptocurrencies.
Developers
Before investing in a cryptocurrency asset, it is critical to evaluate the reliability and competence of the developers. What is their history? What software projects have they previously launched? How far along are they in creating the token’s underlying protocol? Since many projects are open-source, tools for collaborative code repositories like GitHub make it possible to observe this activity immediately.
Community
For projects involving cryptocurrency trading, the community is essential. Most of the power behind these assets and the technology that underpin them comes from the combination of users, token holders, and enthusiasts. After all, any new technology always has a social component. However, due to the high stakes involved and the frequent presence of amateur retail investors, the environment is frequently poisonous and riven with rivalries.
Technical specifications
The fundamental technical requirements for a crypto asset. A trader can ascertain whether such aspects support a potential investment by carefully examining the protocol stack of a cryptocurrency network and the monetary policy enforced by the protocol.
Innovation
While electronic money was initially meant for use with Bitcoin, developers and business owners, have found other uses for the blockchain and created entirely new protocols to support a wider range of applications.
Liquidity (and whales)
A healthy market requires liquidity. Exist trustworthy exchanges that support a specific cryptocurrency asset? What trading pairs are there, if any? Is the volume of trade and transactions healthy? Are there significant market participants, and if so, how do their trading habits affect the market?
A new, creative protocol might already be in use, but it might not have immediate access to liquidity. As a result, establishing liquidity takes time. These investments are dangerous. You are effectively gambling that a strong market will someday develop around the project if volumes are low and there are few to no trading pairs available.
Branding and marketing
Because most cryptocurrency networks lack a central person or organization promoting branding and marketing around their technology, there may not be a clear strategy or direction for branding.
This is not meant to minimize the branding and marketing resulting from a process. A complete picture of how specific actors convey value propositions to the general public may be obtained by comparing the marketing initiatives of core developers, businesses, foundations, and community members.
On-chain analysis
Given that all cryptocurrencies operate on blockchain technology at the core, a new type of analytics that relies on blockchain data has emerged: on-chain analytics.
Analysts accurately measure cryptocurrency blockchain networks’ strength and price dynamics by looking at supply and demand trends, transaction frequency, transaction costs, and the pace at which investors hold and sell cryptocurrencies. And can make quantitative observations. Different markets.
On-chain data also provides valuable insight into investor sentiment, as analysts can link various macroeconomic and microeconomic events to investor behavior permanently recorded on the blockchain.
Analysts look for cryptocurrency trading signals, patterns, buying, selling, and holding behavior associated with market rallies, sell-offs, regulatory events, and other web-facing events. Its purpose is to predict future price movements and investor reactions to upcoming events such as network upgrades, token supply reductions, and actions in traditional financial markets.
Crypto trading vs. Stock trading
Stocks and cryptocurrencies are two completely different investment vehicles. Both are liquid assets in hypothetical portfolios, but the similarities end there.
Stock is an ownership interest in a public company. Each share of stock you buy gives you a percentage of the company. This ownership is directly proportional to the number of shares issued by the company.
Investors can earn profits by selling their shares to other investors. Your capital gain is the difference between the amount you spend on an asset and the amount you get when you sell it. Also, the benefits of owning a stock depend entirely on the company. Stocks also gain value by paying dividends to shareholders and exercising voting rights.
Cryptocurrency is a digital asset that exists only on the Internet. In other words, it has no physical component and exists only as a record in an online ledger that tracks ownership. This contrasts with the US dollar, which has a physical part (you can buy and hold dollar bills) and a digital part (you can own a dollar, a bank account entry recording its ownership. It is nothing more than).
Trading crypto is risky.
Risk management is also an important aspect of trading. Before you start trading, knowing how much you can lose if a crypto trade goes against you is important. This can be based on many factors, such as your trading capital. For example, a person can only lose 1% of their total trading capital per amount or trade.
Trading itself is a risky business. It is almost impossible to predict future market activity with any certainty. Finally, it’s important to make decisions based on available information and judgment and get the proper training.
Also, trading strategies vary from person to person based on preferences, personality, trading capital, risk tolerance, and more. Trading comes with great responsibility. All trading individuals should evaluate their circumstances before deciding to trade.