The cryptocurrency world has become so vast. You can get lost and confused while trying to navigate and start trading without proper guidance. There is so much to know about trading cryptocurrency. And we can guarantee crypto trading is worth your time. You can become very rich and successful.
Generally, trading cryptocurrency is about interacting with different technologies that power cryptocurrency-based financial assets. Let’s start with an overview of the basics, and that is about the popular cryptocurrencies you will use for trading.
The most popular crypto in the market is Bitcoin (BTC) and Ethereum (ETH).
Bitcoin and Ethereum have been the inspiration behind the creation of many other cryptocurrencies you find in the market today. Bitcoin remains the most popular crypto, while Ethereum comes next in terms of popularity. But, both coins are in high demand and often used for transactions worth billions of USD every day. For many new investors, trading cryptocurrency will seem like an unfamiliar experience at first. But in no time, they are caught up in the excitement and income-generating actions. To become successful, you should understand trading strategies and how technical analysis can help you overcome fundamental challenges to become better at trading crypto.
To get a clear picture, you should know that crypto trading is similar to trading activities on the stock market. But in this case, it is more versatile because you can buy crypto and sell to make a profit, use your crypto for purchases, or pay subscriptions. As a crypto trader, you should focus on the best ways to accumulate digital assets, which can be BTC or other Altcoins.
Please note that you can use different approaches to trade cryptocurrency. So, you should study the methods and choose the strategy most suitable for you. The regulations for trading cryptocurrency vary in other countries. After learning how it is done, you should find out the rules for trading crypto in your country.
And most importantly, you should know that trading crypto does not guarantee immediate profits. It takes time and diligence to accumulate digital assets. There are also risks because the crypto market is volatile.
Crypto Trading 101
The cryptocurrency market is decentralized, which means everyone can participate in it. The market demand influences the value of BTC, ETH, and other coins used for trading. BTC market value can change multiple times during the day and at night, which makes it volatile. To make the best decisions, you should know how to study price trends and act quickly when the rates are favorable.
The majority of crypto trading activity involves peer-to-peer exchanges, trading crypto for fiat currencies such as USD, holding and prospecting, or building a crypto portfolio with valuable assets. It would be best if you started small, with minimum capital. Over time, your trading volume will increase, subsequently increasing exposure to market risks.
How crypto trading is done
It starts with two parties, the buyer and seller. Depending on negotiation skill, market awareness, and demand, one of these parties will earn a profit from the transaction.
Both parties agree on the transaction terms, and the transaction is processed through an exchange platform. Demand drives the prices of services up, which is why there are usually more buyers than sellers. The cost of digital finance assets falls when there is low demand.
Below, you will find a graph that indicates different colors to show the buyers and sellers. The graph can also be used to confirm the prevailing market conditions.
Each crypto has its unique value based on several factors. In the market many traders struggle to buy low and sell high, but over time, it has been observed that there is no particular price index for high or low prices. This means that crypto worth ten times its previous value may not yield the expected returns after being sold.
The battle during a transaction is between the seller who wants to maximize profit and the buyer who tries to pay the least amount for the digital asset they want.
Crypto trading methods
There are three methods you can use to trade cryptocurrencies. These methods are;
Day Trading
You will find this method helpful if you plan to enter and exit trading positions within a 24-hour period. This is a proven method that guarantees faster profits, lower risks, and you won’t need to worry about market changes that occur at night. However, it is a fast-paced trading method and you can lose money if you make mistakes.
Swing Trading
This trading approach involves making investment decisions based on a thirty-day projection of the market trends. Depending on your experience, you can strategize after thirty days. It is a low-risk and less stressful trading method. But you must be prepared to hold your assets for a long time, which can cause anxiety.
Position trading
In this method, you take long-term positions holding your assets in hope that the price will appreciate and then you can sell to make a profit. Position trading is a good idea for new crypto investors. You can gradually increase your portfolio. And you won’t need to sit in front of a computer for long hours every day. However, you must be ready to release the capital investment for such a long time.
Longing and shorting trading strategy
The longing and shorting strategies are easy to understand. These strategies are approaches you can use to earn more money from trading crypto. The longing strategy is when you buy a digital asset and hold it until the value increases, and then you sell the asset to make a profit. Shorting strategy is another smart move. In this case, you sell the asset with the expectation that its value will reduce so you can buy it again at a lower price to earn a profit. Crypto investors leverage borrowing options to do the shorting strategy, and they can return the borrowed assets after buying them back at a lower price.
Market analysis – Understanding market trends
The crypto market can be intimidating to first-time traders, but you will soon understand how it works. To make it easier, you should see the crypto marketplace as a platform to buy and sell digital currency. Market analysis is all about understanding the trends to look out for when you plan to buy or sell coins. The two market trends for cryptocurrency are bullish and bearish, just like we have in the stock market.
Bullish and bearish market trends
The market is termed “Bullish” when there is a consistent increase in the prices of crypto. A bullish market situation is caused by a sudden increase in demand which pushes prices up.
On the other hand, a “Bearish” market features a steady decline in prices. Bearish market condition is caused by massive dumping of crypto. Many investors take advantage of bearish market conditions to accumulate more digital assets in the hope that the price will rise again.
It is possible to witness features of one market trend when another is predominant. For example, if the market is predominantly bullish, you can witness bearish market movement at some point before the bullish market regains its pace.
Before you start trading, it is essential to identify the current market condition, whether it is Bullish or Bearish. This information will guide your investment decisions.
Consolidation market trend
In some cases, there may be a consolidation, which is a market trend that features trading prices that fall in a particular range. You can witness a consolidation after a predominantly bearish or bullish market situation. At this time, the asset’s price hovers around a particular price range. Consolidation happens when there is a low demand for the digital asset after a prevailing bearish or bullish situation.
The illustration below shows the consolidation range.
Analyzing crypto market via technical analysis
To confidently predict potential price trends for digital assets, you need to perform a technical analysis. This is done by using different indicators to examine current market conditions. The indicators reveal information that is analyzed using special analytics tools.
While developing your crypto trading skills, you should master how to leverage technical analysis tools as a guide while you navigate the different layers in the crypto market.
Repetitive Market cycles
It is possible to predict market trends because price trends are mostly repetitive. This is the fundamental market structure formed over the years. Experienced traders have discovered tools to understand consistent market cycles.
Market cycles have four phases which are as follows; Accumulation, Markup, Distribution, and Decline. Your goal here is to quickly notice when the cycle enters different phases and assume the best positions.
Tips to study “whales.”
Who are the whales? We are not referring to the sea mammals. In the financial world, “whales” are major stakeholders and individuals who influence market trends with their wealth. The whales participate in financial activities such as determining bid rates, price markups, and decisions to increase asset liquidity. The “whales” only target financial activities that can yield more profit. You should identify the “whales” in the crypto market.
The “whales” are always intentional about their activities. This is why you should study how they make investment decisions. Here are some helpful tips for studying these wealthy investors;
First, you should identify the tools big corporate investors or individuals use to study the crypto market. Next, please find out the Technical Analysis indicators they monitor. If you can accurately predict the next decision they make, you will earn massive profits by investing in their interests.
Human psychology and the cryptocurrency market
Human emotions also influence the crypto market; it is easy to forget that people make trading decisions because of the intense market situations at different times. The chart below is a representation of the “Psychology of a Market Cycle.”
Generally, crypto traders are advised to avoid making trading decisions based on sentiments. However, this is not the case; many traders are compelled to continue trading because they do not want to miss out on gains if the market trends change suddenly.
Bearish and Bullish market trends trigger different emotional reactions. In some cases, traders sell off their assets in panic, while others hold assets, depending on the market trends and predictions. Traders willing to take big risks can earn impressive rewards, but it comes at a price, emotional wars in their minds. The emotional ups and downs can take a toll on the average crypto trader who is caught up in the “buy low” or “panic selling” frenzy.
The volatile nature of the crypto market has been established. So it is best if you do all you can to avoid making decisions based on sentiments. Source for genuine information about the market instead of relying on novice analysis debated on online platforms and social media. Also, it would be best if you focused on the “whales” to copy their investment strategies and earn big returns from your crypto trading activities.
Crypto trading features you should know
Navigating the world of crypto trading is easy when you know certain things that affect your experience positively or negatively. We have written about some essential features that can help you progress as a crypto trading. The good news is that something big is always about to happen in the crypto market. And you always want to be a part of it.
Here are the features you should know as a crypto trader;
Moving averages
Moving averages refer to a distinct line/trend that clearly reflects support and resistance barriers and the trendlines. Crypto traders rely on moving averages to understand all that data created from the support and resistance levels.
You can leverage moving averages to understand how the lower support levels during an upward price trend are related to the resistance peaks on a downward trend. Comparing this data with trading volume reveals a crucial indicator that the market will proceed in a particular direction in the short term.
Technical analysis indicators
We have explained the technical indicators above. Here, we will discuss two significant indicators you will often use while trading cryptocurrency. These technical indicators are support and resistance. These indicators help you understand why prices are consolidated within a range. The support indicator highlights the price at which a bearish trend stops due to an increase in demand. The pause is caused by traders who start buying low, thereby supporting the market. On the other hand, the resistance indicator marks the point at which a bullish price trend stops due to the massive dumping of digital assets.
You can study and leverage support and resistance barrier indicators to predict the price direction and make better investment decisions. Your goal is to identify the upper and lower price range to know the activity range for pricing and how the trend may end. With this information, you can target low-price assets to buy and hold until the value increases.
After a while, the price will go in a particular direction, bullish or bearish, and new support and resistance barrier are formed. The cycle is repeated in the crypto market.
Candlestick patterns
Chart patterns within the market can be created in different ways. Chart patterns are visually represented with the ‘candlesticks’ to show the patterns you can study. Candlesticks reveal the potential market trends.
The origin of candlesticks has been traced back to Japan, in the 1700s. The visual illustrations were used to reflect how a trader’s emotion can influence the direction of prices, outside demand, and supply trends. The crypto traders have been using charts with candlesticks ever since because it reveals more data when compared to the bar charts.
Candlesticks have a rectangular shape with lines at the top that resemble candle wicks, which is the reason for the name. The candlestick charts reveal four features which are open, close, high, and low price points.
The wide base of the candlestick features different colors to indicate an open or closed price. A blue candlestick means it is closed, while a red candlestick means it is open. You can determine the price range used for trading while the candlestick was active from the wick. Depending on the timeline you are viewing, candlesticks reveal different data, such as timespans and trading patterns.
Trendlines
The trendline is the significant indicator formed when multiple support and resistance levels occur in the crypto market. A trendline shows the recurrent prices during different support and resistance levels.
Trendlines can be ascending or descending, depending on the market situation. You can leverage trendlines to determine the support level when the price is ascending and the resistance barrier when the price dips. Trendlines help traders predict the range at which the price stabilizes.
Also, you can develop your trading strategy by noting the recurring support and resistance barriers and the trendlines. Your trading decisions will be more profitable when you make moves based on consistent trendlines.
Rounded-up numbers
New crypto traders tend to make attempts at following a shortcut while trading. They perform trades in round numbers. For example, a large number of trades done with $20,000 will cause resistance because the price will be stagnated. We understand why traders prefer to use round numbers. It is more appealing and easier to choose randomly.
The round number trend is another example of how human emotions can influence trading activities. With Bitcoin, following the rounded-up number approach can cause a quick price-shift, and the market either becomes bullish or bearish.
Evaluating asset value through fundamental analysis
It will help if you can determine the potential value of a crypto asset before investing. This information is revealed after a fundamental analysis. Before investing in a crypto asset, learn more about its trading portfolio.
There is so much hype out there to boost the image of crypto assets. It is easy to make wrong investments based on exaggerated data online. With fundamental analysis reports, you can avoid bogus claims.
Fundamental analysis reveals more information about the following;
The Community
It is a good idea to invest in crypto assets backed by a growing and active community. The community plays a significant role in promoting the asset and its technology. You should interact with notable members of the community to know about plans and transparent details of the asset.
Identity of Developers who created the crypto asset
You can easily evaluate the quality of the asset by finding out more information about its developers. You should focus on their past projects, success rate, and software they have developed previously. It is also best to consider assets made by developers who create open-source projects which are transparent.
Future possibilities for Innovation
You will be making the right choice by investing in an asset with the potential for more innovations in the future. For example, the early investors in Bitcoin became so rich because the coin’s value appreciated due to its versatility for use in so many applications. And we expect so much more because the innovative potentials are unlimited.
The crypto asset’s technical specifications
There are technical specifications you should know about before investing in a crypto asset. These specifications include the consensus protocols, security management, uptime, block times, a maximum value of tokens available, distribution plan, and issuance protocols. This is not an exhaustive list because there are many digital assets with different requirements. Knowing these technical specifications will help you decide if it is the right asset for you.
Liquidity assessment
The best crypto-assets can be easily liquidated when necessary. You can evaluate an asset’s liquidity by finding out if it is linked to reputable exchange platforms, the “whales” who are major stakeholders and influencers in the market, and know the type of trading pairs available.
Avoid investments that cannot be quickly liquidated. You will observe that these assets have a low trading volume and few trading pairs.
The infrastructure supporting its functions
The quality of a digital asset’s infrastructure is a direct reflection of its technical specifications. It is best to ascertain the effectiveness of its operating protocol through fundamental analysis. The stakeholders, developers, miners, and users all contribute to the development of an excellent infrastructure for the asset.
Through fundamental analysis, you will discover the stakeholders who are most influential in the community, the process for mining and validating blocks, and all others who play a role in sustaining the infrastructure.
Branding strategy
It is common to find cryptocurrency networks with poorly managed branding or marketing strategy. These are not the best investment choices for you.
Branding should be part of the company’s strategy to promote its digital asset. The public should be aware of the potential benefits to be gained when they invest in the asset. More investment means more profit for the community.
On-chain analysis
The on-chain analysis was introduced to help investors and analysts evaluate the quality of a cryptocurrency’s Blockchain network.
The on-chain analysis reveals information about supply and demand patterns, transaction volume, fees, and the percentage of investors holding their coins in wallets. Analysts rely on this information to make quantitative and qualitative assessments about the cryptocurrency’s Blockchain network.
Before investing in an asset, you can gauge the investor’s behavior and psychology from their trading patterns recorded on the Blockchain. Your goal is to detect absurd trading or holding practices that contradict regular crypto events and market activities. It is also possible to predict the reaction existing investors will have during future events in the traditional finance industry, which may influence digital currencies.
Crypto trading risks
Before you start trading cryptocurrency, you should understand the risks. People lose money when the market trends are not in their favor. Negative market trends happen for different reasons. You should determine the percentage loss you can accommodate while trading so you know when to stop.
The crypto market trends are generally unpredictable, even with the indicators available to crypto traders. This is why you should find and use accurate information instead of relying on what people post online. You have more chances of trading crypto successfully when you are well educated about the process.
Finally, please note that we all have different trading strategies. What works for someone may not work for you. Make your crypto trading decisions based on your capital set aside for trading, risk assessment, and market awareness.
