What is Cryptocurrency Trading?
Crypto trading involves trading cryptocurrency prices through a CFD trading account or buying and selling coins on an exchange. CFD Trading allows traders to bet on Bitcoin price movements without owning its underlying Cryptocurrency (BTC).
Short (sell) strategies entail selling assets you believe the value will decline and long (buying) cryptocurrency strategies, respectively, when anticipating that their values will increase. Both cryptocurrency margin trading and its counterpart are leveraged instruments, meaning you need only make a minimal deposit to gain full exposure to both markets. Leveraged crypto trading magnifies profits and losses since total investments determine your returns or losses.
Investors also utilize cryptocurrency options to increase exposure or mitigate risk effectively. Trading cryptocurrency options is considered a "derivative financial instrument" whose value relies upon an underlying asset such as Cryptocurrency.
Before investing in crypto assets, one must have an in-depth knowledge of all involved technologies and assets. Bitcoin was the starting point from which other digital currencies have grown into their respective forms today.
Since Bitcoin was the pioneer cryptocurrency to launch, trading cryptocurrency requires knowledge and expertise like trading stocks or other financial markets. It remains, by far, its most precious cryptocurrency asset in market capitalization and popularity. Digital assets, which can be traded profitably, have opened a whole new industry of trading digital assets. Altcoins refer to cryptocurrencies other than BTC, Ether (ETH) being the biggest.
This guide is intended to assist traders with cryptocurrency trading strategies and introduce crypto trading applications and platforms. Furthermore, this publication details various trading styles and types of trades and technical/fundamental analysis, which may help create trading strategies.
Beginners Guide to Trading Cryptocurrency
Trading cryptocurrency involves various means. Before beginning to invest, one should gain a thorough knowledge of this topic, the risks involved, and any applicable laws in their region.
Join a Crypto Exchange
Unless you already own Cryptocurrency, creating an account at a cryptocurrency exchange will require creating an account at one. Coinbase, eToro and Gemini are three excellent brokerages with user-friendly platforms and extensive selections of alternative coins available for trade.
As is typical with stock brokers, cryptocurrency brokerage accounts require you to provide personal details - typically your name, address, social security number (if living in the U.S.), email address and any additional KYC requirements you might be subject to when opening one.
Fund your Account
Once you've signed up with a cryptocurrency brokerage, you should link your bank account. Most cryptocurrency exchanges accept deposits made through wire transfers and debit cards - for example, Coinbase and Gemini accept them only through wire transfer deposits.
Choose a Cryptocurrency to Invest in
Most cryptocurrency traders put their investments in either Bitcoin or Ether and employ technical indicators when trading larger altcoins that move more predictably. Altcoins are increasingly attractive options for cryptocurrency investors. Small mid-market crypts may be more volatile yet have greater upside potential than their larger counterparts.
Start Trading
Coin Rule may be your top pick if you want a convenient automated crypto trading software solution, as their crypto trading bots use an intelligent algorithm designed to deliver maximum returns based on your goals.
Automation trading of Cryptocurrency can help you quickly make quick money, retain coins for long-term value or economically diversify your portfolio. Furthermore, some sites allow active cryptocurrency trading while automating other trading sites.
Safely Store your Cryptocurrency
Your Bitcoin (BTC) must be stored on an exchange to use it, although if your plan is for long-term investment, it would likely benefit from having its wallet.
There are two primary cryptocurrency wallets - software wallets and physical wallets. Hardware wallets provide greater protection as they store Cryptocurrency offline rather than on an open network such as the Internet.
Cryptocurrency Trading Basics
Bitcoin prices are constantly set by an open market that never rests. However, being an autonomous digital currency that sets its price through this means presents unique challenges compared to most currencies.
Beginners need a basic knowledge of how crypto markets function to navigate them safely, even intermittently, for maximum returns when engaging in cryptocurrency trading. This will ensure they gain maximum value from their experience trading cryptocurrencies.
Bitcoin trading can be an intricate business. From cashing out directly into the U.S. Dollar to multiple trading pairs that enable traders to ride the market and increase their portfolio investments - trading crypto transactions presents many challenges that increase with complexity and size, increasing exposure and risk exposure as you go.
Let's start with some basics.
Crypto Trade Structure
Cryptocurrency transactions involve two parties -- buyers and sellers alike. Trading involves two sides competing against one another to win more, making trading a zero-sum game; there will always be winners and losers in any given trade. Investors can minimize losses by understanding how cryptocurrency markets function while increasing potential gains.
Once a price is agreed upon between the buyer and seller, their trade will occur through an exchange. Buyers often place orders at lower prices than sellers, which creates two sides to every trade transaction.
Prices of crypto typically increase when there is more demand than supply of buy orders; conversely, prices typically decline when more people sell than buy; many exchange interfaces depict purchases and sales with different colors, making it easy for traders to see how markets function quickly.
"Buy Low, Sell High" can be an ambiguous trading maxim; prices can fluctuate and define "low" differently between markets, yet this phrase accurately represents buyer and seller incentives in the marketplace.
When buying something, the goal should be to pay as little as possible, and when selling items, to make as much as possible in profits. Although this advice applies in both instances, there's another consideration: long or short positioning on an asset.
Longing an asset means purchasing it to earn profits through price appreciation; shorting one involves selling it and anticipating when its price has dropped below what was originally sold - in other words profiting from price decline! But shorting can often involve borrowing assets with repayment due later.
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Read the Markets
At first, crypto trading may seem complex to an outsider; only experts would fully grasp its intricacies. Yet, in reality, people buy and sell. Even though trading crypto may initially appear complex, once you gain some familiarity, it quickly becomes much simpler.
Total buy and sell orders are an immediate snapshot of any given market. Understanding it requires identifying trends or patterns over time and then choosing how best to respond; there are typically two main market trends - bearish and bullish.
It is known as a bull market when prices appear "bullish" or increasing steadily. With buyers flooding into markets that appear "bullish," buyers also often surge upward with rising price movements known as pumps or "pumps and dumps." Conversely, when prices appear steadily decreasing, it's known as a "bearish market," with massive sell-offs leading prices down and downward price movements known as dumps due to sell-offs driving the prices down significantly.
Based on your time frame and trend analysis, bullish and bearish tendencies may exist within larger, opposing trends. A small bearish trend could even exist within an overall long-term bullish movement; higher highs with lower lows can define an uptrend, while in down-trending, the highs are lower, while so too are their respective lows.
Consolidation occurs in markets when prices move sideways within an established range. Consolidation phases can often be identified more readily when assets have settled from sudden upward or downward movement, reduced trading volume, demand weakened, or when a trend change approaches and trading volume drops. Consolidation states typically feature sideways pricing activity within narrow boundaries - similar to trading a range.
Analysis of Technical Issues
Technical analysis (T.A.) refers to analyzing past market data, such as price and volume, to predict future price movements. Various indicators are available, from simple to more advanced versions; here are a few basic macro and micro analysis tools that you may find helpful.
Structure and Cycles of the Market
Traders can identify patterns in price fluctuations over a long time span as easily as within hours, months and days. Market structures allow certain behaviors to emerge within them. Cycles can be divided into four major parts, to which traders will adjust their positions. When transitioning between phases, traders consolidate, retrace or correct as necessary in their position holdings.
Bulls and bears are two very distinct animals who exhibit various behavioral differences when present together, requiring traders to know which category their client fits into and who dominates the current market. Technical analysis can be an important way of positioning yourself strategically within an ever-shifting market and actively managing its ebbs & flows.
The Whale Chase
Whales - large traders or individuals with substantial funds available for investments - are the driving forces behind price movements, setting bids and asking on both sides to create liquidity while making profits in any market, from commodities to stocks or Cryptocurrency. Whales have their roots everywhere, from commodities trading floors and stock exchanges to cryptocurrency trading platforms.
Cryptocurrency strategies must note what tools whales prefer, like their T.A. indicator. Whales tend to know exactly what they're doing; therefore, a trader anticipating the whale's intentions could use their strategy successfully and make money.
Mental Cycles
As easy as it may be to forget, these traders are real, and their emotions can create significant market effects. The "Psychology of a Market Cycle" chart symbolically captures this aspect of markets.
Psychological cycles offer a more thorough assessment of market sentiment. Although one of the key principles in trading is not to let emotions control your decisions, group mentality often prevails, and Fear of Missing Out (FOMO) drives people from optimism into exuberant joyousness.
Navigating between euphoria and complacency is crucial before panic selling, and bears seize control. Price movement volumes provide a valuable indication of market momentum; investing during market downturns when prices decline sharply can result in greater rewards; this "buy low philosophy" applies best.
Sensible traders must avoid letting emotions dictate their trading strategies in response to a constant barrage of opinions from media, chatrooms, or so-called thought leaders such as whales influencing markets through whale trading and market manipulation by whales/thought leaders/whalers etc. Before trading cryptocurrency, conduct thorough research before making decisions based on this research and the decision you have come to when trading Cryptocurrency.
Basic Tools
Proactively identifying market patterns and cycles is key for maintaining clarity from a macro perspective. Being aware of where you stand within the entirety of the market helps immensely; experience is like that of an accomplished surfer who knows when waves will arrive rather than aimlessly paddling back and forth, hoping that some luck comes your way!
Micro perspective analysis can also be instrumental in formulating your strategy, so we won't cover every indicator traders use to analyze technical analysis (T.A.).
Read More: Everything You Need to Know Regarding Cryptocurrency and Blockchain Technology
Support and Resistance
Two of the more frequently employed technical analysis (T.A.) indicators include "support" (also referred to as "resistance") and price barriers. Price barriers appear in markets and prevent prices from moving too drastically in one direction or the other.
Support refers to a level in price where downward movement tends to halt due to increased demand; when prices decline, traders tend to purchase low and form support networks. By contrast, resistance marks the point at which an upward trend usually stops due to selling activity.
Cryptocurrency traders widely utilize support and Resistance levels as a method to anticipate where price will head next, quickly adapting as soon as price moves beyond upper or lower bounds, providing them with an ideal trading zone where they can enter or leave positions quickly - usually buying at the floor and selling at ceiling respectively.
Market sentiment can be revealed through price moving beyond these barriers in either direction, as new levels of support and resistance often emerge when an old trend breaks.
Trendlines
Traders rely heavily on static barriers of support and resistance as a guide. Yet, prices tend to move between these boundaries over time, prompting traders to use trendlines as indicators for larger market trends or multiple levels of resistance and support as indicators for longer-term trends.
As the trend advances upwards, resistance levels begin to appear; as soon as prices hit them, they slow and return to their original trendline. Support levels on an ascending line are especially valuable to cryptocurrency traders since they help prevent prices from falling significantly lower; similarly, when markets trend down, traders look out for a series of peaks that they connect into one line.
History is at the core of any market analysis. With every new event, support and resistance levels grow stronger - and as traders record them, they help shape their trading strategies more effectively.
Round Numbers
Inexperienced investors or institutions can have an outsized effect on support/resistance levels by fixing prices containing round numbers, such as Bitcoin's approx $10k mark. When this occurs, traders tend to hold back and delay reaching this mark, creating resistance.
Human nature makes us susceptible to being persuaded and taking shortcuts; the Bitcoin market provides an example of such excitement at reaching certain price thresholds.
Chart Patterns
Charting the market can help uncover patterns. Candlestick charts provide traders with an effective visual means for tracking market action and anticipating possible trends.
In the early 1700s, Japanese traders developed candlestick charts to measure emotional influences on price movement beyond supply and demand economics. Candlestick charts remain popular market visualization tools because of the additional information contained within their four points:
- Open price point (open).
- Close price (close).
- The high point (high point).
- The lowest point.
What does this have to do with cryptocurrency trading? Candlesticks are so-called because of their rectangular form adorned with lines known as wicks that extend outward from their wide base, denoting whether a price opened or closed; their wide part determines this; their wicks show the range of prices at which assets traded during its set time; these candles can come with one-minute intervals.
Basic Analysis
Fundamental analysis examines underlying assets, technologies and industries which form markets; cryptocurrency trading portfolios likely involve Bitcoin and various altcoins.
How can one tell whether a newly introduced asset possesses solid fundamentals or just hype? When looking at these investments from an analytical point of view, several key considerations must be considered. These factors include:
Developers
Before investing in any cryptocurrency, it is vitally important to investigate its builder and their capabilities carefully. Examine their track record; how many software projects have they launched before with what results? What role have they had in creating the protocol that underlies the token? You can observe the activity of many open-source projects via collaborative code repositories like GitHub.
The Community
Community is essential to the success of cryptocurrency trading projects. Users, stakeholders and enthusiasts form its backbone; social interactions always play a part in new technologies' emergence; with large sums involved and multiple non-professional investors often participating, the environment can quickly become toxic; therefore, fostering open conversations is highly valued in any community setting.
Specifications
Core technical specs of cryptocurrency assets should be understood as market analysis. Instead, they focus on features such as choosing an algorithm used by networks (which ensures security, uptime and consensus), block times, maximum token supplies and distribution plans - essential considerations when investing. A trader who closely examines both the protocol stack and financial policies of an investment cryptocurrency network will quickly be able to assess whether it makes for good investing prospects.
Innovation
Bitcoin was initially developed for use as electronic money; however, developers and entrepreneurs quickly discovered other uses for it while creating protocols capable of supporting additional applications.
Read More: A Comprehensive Guide to Build a Cryptocurrency Exchange Software
The Liquidity of Whales
An effective market requires liquidity. Reputable exchanges must support this cryptocurrency asset. Trading pairs should exist, and volume transactions seem healthy. Also, consider whether major stakeholders are present; how their trade patterns could alter market dynamics.
Through life, liquidity for new protocols often takes some time to build. Investment in such protocols may prove risky since you're wagering that an eventual market will emerge even with limited volumes and trading pairs.
Branding and Marketing
Most cryptocurrency networks need an authoritative figure or company to manage branding and marketing, leading them down an uncertain path with little direction or plan. This may leave their branding needing more consistency across platforms or their technology.
Branding and marketing strategies develop over time from established protocols. Comparative analyses of the marketing efforts of corporations, community members, or core developers can give a clear view of which value propositions certain players can communicate to potential consumers.
Technical details can be seen through its quality. What are the physical manifestations of protocols written on whitepapers or presented at conferences?
Map all participants: developers, validators of blocks, companies and users. Also, identify who the stewards are for network security (mining/validation roles) as well as power distribution among stakeholders.
Analysis of the On-Chain Chain
The on-chain analysis is an emerging technique that utilizes data retrieved from the blockchain as its starting point for analysis. Analysts can make quantitative and qualitative observations by studying supply and demand dynamics, frequency of transactions, transaction costs and how investors hold or dispose of specific crypto assets.
Blockchain data also offers valuable insight into investor psychology. Analysts can compare macroeconomic and microeconomic variables against investor actions recorded unalterably on blockchain networks.
Analysts use crypto signals and behaviors relating to buying, selling and holding behaviors related to market rallies or sell offs and regulatory events, regulatory upgrades or coin supply halvings, and traditional financial market events as indicators to predict price changes or reactions from investors in response to such events. They aim to predict future price movements as investors adjust for events like network upgrades, coin supply halvings or similar market activities such as coin supply reduction.
How to Manage the Inherent Risk of Cryptocurrency
These methods combine to prove Cryptocurrency is the money of the 21st Century.
1. Regulation Approval
Ironically, regulatory approval may reduce many of the inherent risks of Cryptocurrency due to its decentralized nature and absence of a governance structure or oversight framework. If regulatory approval can be achieved, it could significantly increase Cryptocurrency's credibility amongst members of society; U.S. Dollar is considered ideal as a starting point, though five different regulatory systems need to be navigated for growth within U.S. borders.
- Regulations relating to financial crimes, such as the Bank Secrecy Act BSA), USA PATRIOT Act and Office of Foreign Assets Control OFAC
- State banking departments.
- SEC.
- Commodity Futures Trading Commission.
- Internal Revenue Service, IRS (FBAR and FATCA reporting).
The ideal of all regulatory organizations listed above would be for them all to approve your work; however, due to possible conflicted interests of regulators themselves, at least two seals should suffice in establishing the credibility and legitimacy of your plan.
2. Allies and Acceptance or Adoption of a major Trusted Global Organization
What better way to stand out among other institutions that embrace technology than by supporting an emerging cryptocurrency or even providing support services related to Cryptocurrency as part of your services portfolio? Becoming the pioneering institution that embraces this emerging trend will bolster your reputation and build up a tech-driven culture within your institution.
Responsibility will encompass a range of services for consumers to access through digital technology that is both simple and cost-effective, such as better information gathering, expanding cash exchange availability and providing adequate protection. Consumer acceptance will increase when innovative services or offerings through this channel can be readily accessed using innovative digital services that would appeal to them directly.
Coinbase and BitPay have developed solutions and partnerships that enable merchants to accept cryptocurrency payments without holding onto coins on their books - this enables cryptocurrency acceptance while building trust among potential new adopters of Cryptocurrency. To drive acceptance of crypto assets and build partnerships is critical.
3. Structural Mitigants
Requirements of Reserves for Exchanges
Ecosystem enhancement can be accomplished through more robust CryptoCurrency Exchanges. These organizations assist individuals who want to trade traditional currencies, such as USD, for crypto coins like Bitcoin. Exchanges provide exchange services and can act not just as exchangers but also as dealers, custodians, and brokers or even add extra layers of protection by holding reserves against volatile and uncertain markets by holding reserve accounts with them.
Insurance Products
An investment fund offering investor protection, such as FDIC Deposit Insurance, may help mitigate default risk and be included as part of account packages, potentially supplemented with personal policies.
4. Mature Ecosystem
Cryptocurrency use and consumer access have seen significant expansion. Consumers can leverage technology via mobile phones in developing markets; knowledge transferability increases dramatically through these phones; the rise of Internet banking; availability of alternative payments such as Amazon Gift Cards, Apple Pay and Google Wallet for consumers to use; advancements in mobile payment technologies have all resulted in an explosion of mobile payment solutions leading to an exponentially increasing mobile payments industry.
Liquidity may increase as the cryptocurrency market matures and grows, leading to lower exchange fees and tightened bid/ask margins, reduced volatility of prices and lessened exchange rate risk, and less pressure from risk-averse consumers and merchants seeking fiat money conversion. With two of the U.S.' largest futures markets (Chicago Board of Exchange and Chicago Mercantile Exchange) providing derivatives such as cash-settled Bitcoin Future Products, this could allow Cryptocurrency to take on characteristics more similar to widely accepted fiat money such as these properties of accepted fiat currencies.
5. Risk Management Framework
All stakeholders within an industry must agree upon risk management standards, guidelines and procedures which allow them to align their practices with best practices.
Standard risk management practices would encompass policies, procedures, and standards related to cyber security, fraud, operations credit, physical assets security, data protection and I.T.; third-party vendors; and anti-money laundering measures. Business Continuity & Disaster Recovery programs cover these risks effectively; all are intertwined, so the framework must encompass an enterprise-wide framework; to be actionable and effective, it should include real-time data collection as well as scenario planning capabilities; due to technological changes and developments being so integral, software upgrades deserve special consideration; to reduce risks while building confidence among participants of an ecosystem, risk evaluation needs to take place across every participant within it.
To promote trust among users of cryptocurrency wallets and information systems, all should support standards like the Cryptocurrency Standard. CCSS serves as guidance on securing cryptocurrencies - it has since become the go-to standard in information systems that manage crypto wallets.
6. Educational Institutions
The three main concerns listed below can be addressed by training and education.
- Spoofing payment information/phishing/user address.
- Hacking the payment gateway.
- Crypto-jacking.
An education program incorporating modern security techniques like backups, cold storage, strong password protection and regular software updates can reduce cyber fraud and mitigate risks.
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Conclusion
Although not exhaustive, this list offers material risk mitigation techniques dependent on resources available and operating conditions - digital coin will remain part of our lives; one must, however, remain aware of potential dangers while taking appropriate actions against potential risks.
