What is crypto trading?
Speculation on the change in the price of cryptocurrencies using a contract for difference (CFD) or the purchase and sale of base coins on an exchange is known as cryptocurrency trading or cryptocurrency trading. CFD trading is a type of derivatives that allows you to bet on Bitcoin without owning the base currencies.
For example, you can make a long (buy) if you think that the value of the cryptocurrency will grow, or a short (sell) if you think that the value will fall.
Both of these instruments are leveraged instruments, meaning you only need a small deposit, called margin trading in cryptocurrencies, to fully impact the underlying market.
However, since your profit or loss is still determined based on the total size of your investments, trading cryptocurrencies using leverage increases both income and losses.
In addition, cryptocurrency options are used by investors to reduce risk or increase market exposure. Trading in crypto options refers to a “derivative” financial instrument, the value of which depends on the price of another asset – in this case, the underlying cryptocurrency.
Before you start trading cryptocurrencies, you need to get a full understanding of the relevant assets and technologies. Bitcoin is the soil on which thousands of other cryptocurrencies have grown.
Like trading stocks and other financial markets, cryptocurrency trading can be complex, involve many components and require knowledge.
Bitcoin appeared in 2009 as the first crypto asset and remains the largest cryptocurrency by market capitalization and prevalence.
In this guide, we will talk about cryptocurrency trading strategies and introduce you to cryptocurrency trading platforms and applications, transaction components, trading styles, and the role of technical and fundamental analysis in creating a comprehensive trading strategy.
Registration on the cryptocurrency exchange
You will need to open an account on a cryptocurrency exchange if you do not already own a cryptocurrency. The best cryptocurrency brokers on the market are Coinbase, eToro and Gemini. All three of these services have a clear user interface and a wide selection of altcoins.
To open an account with a cryptocurrency brokerage company, you must provide personal data, as well as with a stock brokerage company. When creating an account, you must specify the address, date of birth, social security number (in the USA) and email address, as well as other requirements known as “Know Your Customer” (KYC).
Top up your account
After registering with a cryptocurrency broker, you need to connect a bank account. Most cryptocurrency exchanges accept bank deposits using debit cards and electronic transfers. Bank transfers are usually the most economical way to top up your account, and they are available on Coinbase and Gemini.
Choose a cryptocurrency to invest in
Most cryptocurrency traders invest their funds in Bitcoin and Ether. However, trading using technical indicators is possible because these cryptocurrencies move more predictably than smaller altcoins.
Many cryptocurrency investors invest part of their funds in altcoins. Although they are riskier than cryptocurrencies with large market capitalization, small cryptocurrencies with medium market capitalization have more significant growth potential.
If you are looking for a cryptocurrency trading strategy, you can try automatic cryptocurrency trading using software such as Coinrule. Bots for trading cryptocurrencies implement a process aimed at obtaining the maximum possible profit, depending on your investment goals.
You can make money fast, save your coins, or diversify your portfolio with automated cryptocurrency trading, which can provide you with a conservative, neutral, or aggressive path.
You can even explore the possibility of active cryptocurrency trading on some sites and automate trading on others.
Fundamentals of Cryptocurrency Trading
The value of bitcoin is determined every second and every day by a market that never sleeps. Being an autonomous digital asset whose value is determined on the open market, bitcoin creates unique volatility-related problems that most currencies do not face.
Therefore, it is important for beginners to have an idea of how the crypto asset markets work in order to safely navigate them, even with interruptions, and get the most out of their participation in crypto trading.
Bitcoin trading can be different in scale and complexity – from a simple transaction, for example, cashing out funds in a fiat currency such as the US dollar, to using various trading pairs for profitable movement in the market in order to increase your investment portfolio.
Of course, with the increase in the scale and complexity of the cryptocurrency transaction, the degree of risk of the trader also increases.
Reading the markets
For a layman, the “market” may seem like a complex system that only a specialist can understand, but in fact it all comes down to what people buy and sell. At first, trading cryptocurrencies may seem like an esoteric concept. However, once you start to figure it out, the idea becomes much simpler.
The set of active buy and sell orders is a snapshot of the market at any given time. Reading the market is a constant process of identifying patterns, or trends, over time that a trader can navigate. In general, there are two trends in the market: “bullish” and “bearish”.
A bull market, or bull market, occurs when price dynamics seem to be steadily growing. Such upward price movements are also known as “pumps” because the influx of buyers leads to higher prices. A bear market, or a bear market, occurs when price dynamics are steadily declining. Such downward price movements are also known as “resets”, since mass sales lead to lower prices.
The ability to identify patterns and cycles in the market is very important in order to have a clear idea of the macroeconomic perspective. Knowing where you are in relation to the whole is of paramount importance. You want to be an experienced surfer who knows when the perfect wave is about to come, and not paddling through the water in the hope that something grand will happen.
However, a micro perspective is also crucial to determining your actual strategy. Although there are a huge number of TA indicators, we will consider only the most basic ones.
Support and resistance
Perhaps the two most widely used TA indicators under the terms “support” and “resistance” refer to price barriers that are usually formed in the market, not allowing the price movement to go too far in a certain direction.
Support is the price level at which the downtrend tends to stop due to the influx of demand. When prices decline, traders tend to buy at low prices, creating a support line. Conversely, resistance is the price level at which the upward trend is suspended due to a sell-off.
Many cryptocurrency traders use support and resistance levels to place bets on the direction of price movement, adapting to them on the fly when the price level breaks through the upper or lower limit.
As soon as traders determine the “floor” and “ceiling”, they create an activity zone in which they can enter or exit positions. Buying at floor level and selling at ceiling level is a common standard procedure.
If the price overcomes these barriers in any direction, it gives an idea of the general mood of the market. This is an ongoing process, as new support and resistance levels are usually formed when a trend breaks.
Cryptotrading versus Stock Trading
Stocks and cryptocurrencies are two completely different types of investment instruments. Although both are liquid assets included in a speculative portfolio, their similarity ends there.
These are two completely different types of securities that should be held in separate parts of the portfolio.
Shares are equity interests in a publicly traded corporation. Each purchased share gives you a percentage share in the company. This share is proportional to the number of shares issued by the corporation.
An investor can make a profit by selling his shares to other investors. The difference between what you spent on acquiring an asset and what you received when you sold it is called capital gain.
In addition, the benefits of owning shares depend entirely on the specific company. Shares can increase their value by paying dividends to their shareholders and using voting rights.
Cryptocurrency is a digital asset that exists exclusively on the Internet. This means that it has no physical component and exists only in the form of records in an online accounting department that tracks ownership.
Unlike the US dollar, which has both a physical (you can withdraw and hold a dollar bill in your hands) and a digital component (you can own a dollar no more than a record on your bank account recording this possession).
A separate unit of cryptocurrency is called a token, just as a separate unit of a stock is called a stock.
Trading Cryptocurrencies is Risky
Risk management is also an important aspect of trading. Before starting trading, it is important to know how much you are willing to lose on this cryptocurrency transaction if it does not go in your favor.
This can be based on a number of factors, such as your trading capital. For example, a person may be willing to lose only 1% of his total trading capital as a whole or for one transaction.
Trading itself is a risky activity. It is almost impossible to predict future market activity with certainty. In the end, it is important to make decisions on your own, based on the available information and your own judgments, as well as to make sure that you have received the appropriate education.
In addition, trading strategies can vary significantly from person to person depending on their preferences, personal qualities, trading capital, acceptable risk, etc.
Trading involves a lot of responsibility. Everyone who is going to engage in trading should evaluate their personal situation before making a decision about trading.