Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange.
You can go long (buy) if you think the value will rise, or short (sell) if you think it will fall. Leveraged trading means that a small deposit, called margin trading, provides exposure to the market, but also amplifies both profits and losses depending on the size of your investment.
Crypto options are also used by traders to reduce risk or increase market exposure. These are derivatives that derive value from the price of a cryptocurrency.
Before entering crypto trading, it’s crucial to have a solid understanding of the assets and technology involved, especially with Bitcoin as the largest cryptocurrency by market cap and prevalence.
The crypto industry has evolved, creating a range of digital assets that can be traded for profit. These cryptocurrencies, other than Bitcoin, are known as altcoins, with Ether (ETH) being the largest.
This guide covers crypto strategy ideas and introduces platforms, trade elements, trading styles, and the role of technical and fundamental analysis in creating a trading plan.
To be successful in cryptocurrency trading, a good understanding of the market and the risks involved is essential.
Before making any trades, familiarize yourself with the subject and be aware of any regulations and laws applicable in your jurisdiction. Making informed decisions will help ensure a successful trading experience.
If you don’t own any cryptocurrencies, opening an account with a crypto exchange is a must. Top-rated crypto brokerages like Coinbase, eToro, and Gemini offer easy-to-use platforms and a vast selection of altcoins.
As with opening a stock brokerage account, setting up an account with a crypto brokerage requires you to provide personal information such as your name, address, date of birth, Social Security number (in the US), and email. These data are necessary for Know Your Customer (KYC) compliance.
To trade cryptocurrencies with a brokerage, you first need to open an account.
Top options include Coinbase, eToro, and Gemini, all of which have user-friendly interfaces and a wide selection of altcoins.
During registration, you’ll be asked to provide personal information, such as your name, address, date of birth, and email, to meet the requirements of the Know Your Customer (KYC) program.
After completing the registration process, you can link your bank account to fund your crypto brokerage account. Bank deposits using debit cards and bank transfers are the most common funding options, with bank transfers being the most profitable on Coinbase and Gemini.
Most cryptocurrency traders choose Bitcoin and Ether because of their predictable price movements and the ease of using technical indicators. However, some investors also allocate a portion of their funds to smaller, mid-market cap altcoins, as they offer higher potential returns, although they involve higher risk.
With automated crypto trading software like Coinrule, you can learn a new crypto trading strategy. The bot implements a process to maximize returns based on your investment goals. You have the option to quickly grow your wealth, hold your coins, or diversify your portfolio with automated crypto trading, offering a conservative, neutral, or aggressive approach. It is also possible to combine manual and automated trading methods on different platforms.
If you’re engaged in active BTC trading, your funds must be held on the exchange for easy access. On the other hand, if you’re buying crypto for medium to long-term holding, a Bitcoin wallet is recommended. There are two types of crypto wallets – software and hardware. Both options provide security, but hardware wallets offer the most protection as they store your cryptocurrency on a physical device disconnected from the internet.
Basics of cryptocurrency trading
To successfully trade Bitcoin, it’s essential to understand the crypto-asset market. Because Bitcoin’s value changes from second to second and from day to day in a 24/7 market, its volatility is a challenge not seen in fiat currencies.
In order to successfully navigate the crypto trading economy and maximize the value of participation, knowledge of crypto is essential. This can range from a simple cash-out into fiat currency, such as the US dollar, to using different trading pairs to profit and grow your portfolio. However, as the scale and complexity increase, so does the trader’s risk exposure.
Here’s a brief overview of basic concepts for Bitcoin trading:
Crypto trading involves a buyer and a seller, with each side of a purchase or sale yielding a winner and a loser. Understanding how crypto markets work can help you limit your potential losses and maximize your profits.
When a buyer and a seller agree on a price, the trade takes place through an exchange, and the market value of the asset is established. Buyers tend to place orders at a lower price than sellers, creating two sides of an order book. If there are more buy orders than sell orders, the price tends to rise due to increased demand, while more sell orders than buy orders cause prices to fall. Many exchange interfaces show buys and sales in different colors for a quick assessment of the state of the market.
The saying, “Buy low, sell high” is a common saying in trading, but it can be difficult to identify high and low prices. In general, when buying, try to spend as little as possible, and when selling, try to earn as much as possible. There’s also the aspect of going long or short on an asset.
Going long on an asset means buying with the expectation of profiting from an increase in price while going short on an asset is selling with the intention of buying it back at a lower price for profit. Going short, however, is more complicated and involves the sale of borrowed assets for later repayment.
For those new to trading, the market can seem like a daunting system that’s difficult to understand. But, at its core, the market is simply made up of people buying and selling. Understanding how to trade crypto may seem difficult at first, but with a little knowledge, it can become a lot easier.
The combination of active buy and sell orders at any given time represents the current state of the market. Monitoring the market is about observing patterns and trends over time and making decisions based on those observations. There are two main market trends: bullish and bearish.
A bull market, also known as a bullish market, occurs when prices appear to be steadily rising. This upward movement, or “pump,” is due to the increase in the number of buyers. On the other hand, a bear market, or bearish market, is when prices appear to consistently fall. This downward movement, or “dump,” is caused by mass sell-offs.
Bullish and bearish trends can also exist within larger opposing trends, depending on the time frame being analyzed. For example, a small bearish trend may occur within a larger bullish trend over a long period. In general, an uptrend is characterized by higher highs and higher lows, while a downtrend is marked by lower highs and lower lows.
Another market condition, known as consolidation, occurs when prices trade sideways or within a range. This is often easier to spot on higher time frames, such as daily or weekly charts, and can happen after a sharp upward or downward trend, or during times when demand is low and trading volumes are low. During consolidation, prices trade within a defined range.
Technical analysis (TA) is a technique that uses historical market data such as price and volume to predict future market behavior. It includes many indicators, each of which has a different degree of complexity. Here’s a look at some of the basic macro- and micro-level tools used in TA.
Technical Analysis (TA) is a powerful tool for traders, used to analyze past market data, including price and volume, to predict future price movements. With a wide range of TA indicators available, both simple and complex, traders can choose the right approach to market analysis.
Trading cycles can be divided into 4 key phases: accumulation, markup, distribution, and decline.
As the market moves through these phases, traders must adjust their positions accordingly, consolidating, retracing, or correcting as necessary.
Bull and bear markets are very different, with opposing behavior under the same market conditions. It’s essential for traders to understand which market phase is dominant, and what role they play in the market.
TA is a key aspect of successful trading, helping traders stay ahead of market changes and deal with the fluctuations as they occur.
Chasing the whale
Price action is heavily influenced by “whales” – significant players with sufficient funds to trade. Whales can serve as “market makers,” placing both buy and sell orders to generate market liquidity and profit. They are common in all markets, including stocks, commodities, and cryptocurrencies.
To succeed in cryptocurrency trading, keep in mind the tools favored by whales, such as their go-to TA indicators. Whales tend to be knowledgeable, so anticipating their actions can help traders adjust their strategies and profit from the market’s movements.
Real people, with emotions, drive price movements in the market. This is illustrated in the chart “Psychology of a Market Cycle,” which provides a detailed look at the market sentiment. The bull/bear framework is helpful, but the psychological cycle gives a more in-depth analysis.
Trading requires discipline and a lack of emotion, but group mentality can be hard to resist. The market can see a shift from hope to euphoria driven by FOMO (fear of missing out). A key aspect of successful trading is navigating the valley between euphoria and complacency. Look out for high-volume price action to gauge market momentum. Buying low, during the depression following a price drop, can be more rewarding for those willing to take risks.
The media, chat rooms, and other sources can bring a lot of opinions and analysis, making it hard for traders to stick to their strategy. To avoid getting swayed by emotions, do your research and be confident in your cryptocurrency trading decisions. Also, be aware of market manipulation by whales and those who can control market sentiment.
To have a clear understanding of the market, it’s essential to identify patterns and cycles from a macro perspective. It’s very important to be aware of your market position in relation to the bigger picture. That way, you’ll be like a skilled surfer who knows when the perfect wave is coming, instead of aimlessly floating in the water and hoping for a good outcome.
However, a micro perspective is also crucial in developing your trading strategy. While there are many TA indicators, we will only cover the basic ones.
Detecting market patterns and cycles through technical analysis (TA) indicators such as “support” and “resistance” can provide clarity to both the micro and macro levels of market analysis. Support and resistance levels indicate price barriers that usually form in the market, indicating key entry and exit points for traders.
Support levels are price points where demand is high, causing a downward trend to temporarily pause, while resistance levels represent a ceiling where the upward trend may pause due to a sell-off. These levels, once identified, provide traders with a range of activities to make informed decisions about entering or exiting positions.
However, the market’s overall sentiment can change rapidly, and new support and resistance levels can form as the trend breaks through these barriers. This is why it’s so important for traders to constantly monitor the market and adapt their strategies as needed. If you are looking for a blockchain development company AlphaCorpConsulting is the best choice.
As blockchain and AI continue to shape the world of finance, traders must stay ahead of the competition and make informed decisions based on the latest market insights and trends.
The price action in the market tends to fluctuate, with support and resistance levels shifting. Traders usually use the static support and resistance levels as guides, but a series of these levels can indicate a larger trend in the market, indicated by a trendline.
For an upward-trending market, traders closely monitor the support levels along an ascending trendline, signaling an area that prevents the price from falling too low. Conversely, in a downward trend, traders observe a sequence of downtrend highs to form a trendline.
The power of support and resistance levels and the resulting trendlines increases as they repeat over time, as they are based on the market’s history. Therefore, traders keep a record of these barriers to refine their trading strategy.
The phenomenon of support and resistance levels being, influenced by the focus on round-number prices by novice or institutional traders, is common in the cryptocurrency market. This is especially evident with Bitcoin, where its price often sees a concentration of trading activity around even-numbered figures that are divisible by $10,000, leading to a resistance level.
This phenomenon highlights the significant impact that human emotional behavior can have on the market and the tendency of traders to rely on mental shortcuts. For example, when Bitcoin hits a certain price point, it often causes an increase in market activity and excitement.
With an extensive market history, traders use advanced tools such as the “moving average” to visualize the fluctuations of support levels and resistance peaks in a single, smooth-line representation. This technique is crucial in determining short-term momentum when analyzed in conjunction with trading volume data. The integration of AI and blockchain has made it easier for traders to make informed decisions by providing a clearer picture of market trends and patterns. We offer blockchain development services for any web3 project.
Candlestick charts are a popular way for traders to visualize market trends. Originating in Japan in the 1700s, they show traders’ emotional impact on price action, beyond simple supply and demand. With the ability to present more information than simple line or bar charts, candlestick charts are widely used in cryptocurrency trading. The rectangular shape represents the price range, with the wide portion showing the opening or closing price, and the wicks indicating the price movement during a fixed period. These charts can display different patterns based on the selected time frame, from 1 minute to 1 day and more.
The potential of a cryptocurrency asset can be evaluated using both technical and fundamental analysis. While technical analysis focuses on analyzing market data to inform trading strategies, fundamental analysis delves into the underlying technology, industry, and assets of a particular market.
When it comes to the fundamental analysis of cryptocurrencies, traders need to consider various factors to determine if an asset is based on solid fundamentals and not just hype. This includes evaluating the technology behind the crypto asset, examining the industry trends, and considering the underlying assets that make up the market.
To make informed investment decisions, it is important to conduct a thorough fundamental analysis of crypto assets in a trading portfolio, which typically includes Bitcoin and altcoins.
Prioritizing due diligence before investing in a crypto asset is critical, including evaluating the background and experience of the team behind it. Check their history and previous software development projects to assess their skills. In addition, gauging the level of their involvement in the development of the underlying token protocol can also be done by examining open-source activity on platforms such as GitHub.
The role of the community in cryptocurrency trading projects cannot be overestimated. The community of users, token holders, and enthusiasts often drives the growth and success of these assets and their underlying technologies. It should be noted that there’s a social aspect to any new technology, and the crypto space is no exception. With a lot of money at stake and a high proportion of non-professional retail investors, the industry can sometimes be marred by negativity and division. Therefore, a clear and positive dialogue within the community is essential.
Avoid mixing with technical market analysis, the key technical features for a crypto asset include the selected network algorithm (to maintain security, reliability, and agreement) and issuance/emission details such as block intervals, the maximum token supply, and the distribution strategy. By carefully examining the cryptocurrency network’s protocol stack and the monetary policy implemented by the protocol, a trader can evaluate whether these characteristics favor a potential investment.
The introduction of Bitcoin was primarily for the purpose of being used as a digital currency. However, with the passage of time and innovation, developers and entrepreneurs have discovered new and unique uses of the Bitcoin blockchain, leading to the creation of entirely new protocols that support a wider range of uses.
Liquidity (and whales)
The presence of liquidity is a key factor in determining a thriving market. Investors should evaluate the availability of reputable exchanges supporting a specific cryptocurrency, the trading pairs offered, and the level of trading/transaction volume. The involvement of large market participants and the impact of their trading behavior should also be considered.
However, it’s important to note that establishing liquidity is a gradual process, as new crypto protocol may work, but there is no immediate access to adequate liquidity. These types of investments involve a high degree of risk, as low volumes and limited trading options signal that a strong market has not yet developed around the project.
Cryptocurrency networks usually do not have a central figure or company to manage their branding and marketing activities, which can result in an inconsistent image of the technology. Still, it’s possible to analyze the branding and marketing efforts from a variety of sources, such as core developers, corporations, foundations, and community members, to understand how they present the value proposition of the network to the public. AlphaCorp is offering web 3 marketing for your project.
The actual execution of a cryptocurrency project’s technical specifications is a key aspect in evaluating a potential trade. While a project’s goals may be outlined in white papers and presentations, it’s important to evaluate the practicality and actual implementation of the protocol.
It’s important to understand the key players involved in the network, including developers, block validators, merchants/companies, and users. Assessing the distribution of power and responsibilities of network stewards, such as those responsible for mining and validation, also provides valuable insight into the network’s stability and security.
The advent of blockchain technology has led to a new form of analysis in cryptocurrency trading: on-chain analysis. This involves analyzing data from blockchains to make observations about the strength of a cryptocurrency’s network and its price dynamics.
By analyzing supply and demand trends, transaction volume, transaction fees, and investor behavior, analysts can make informed decisions about a cryptocurrency’s future price movements. On-chain data also provides valuable insight into investor psychology, as analysts can see how investors react to market trends, regulatory events, and other network-oriented events that are recorded on the blockchain.
Analysts use on-chain analysis to find crypto trading signals and patterns, as well as anomalies in buying, selling, and holding behavior to predict future price movements. They take into account factors such as network upgrades, coin supply halvings, and events in traditional financial markets to predict investor reactions.
Crypto trading vs Stock trading
Investors often compare stocks and cryptocurrencies, but these are fundamentally different investment vehicles. It is important to understand that stocks and crypto belong in separate parts of your portfolio.
Stocks represent ownership in a publicly traded company. Each share of stock you own gives you a proportional ownership of the company based on the number of shares issued. You can profit by selling your stocks to other investors, and the difference between the purchase and sale price is called capital gains. The benefits of stock ownership vary from company to company, and they can also appreciate through dividends and voting rights.
Cryptocurrency, on the other hand, is a digital asset that exists exclusively on the internet. Unlike the US dollar, which comes in both physical and digital form, cryptocurrency exists solely as records in an online ledger that tracks ownership. Each unit of a cryptocurrency is referred to as a token, similar to a stock’s unit known as a share.
It is crucial for investors to understand the key differences between stocks and cryptocurrencies, and to allocate their investments accordingly.
Trading crypto is risky
Risk management is a key aspect of crypto trading. Before making a trade, it’s vital to determine the amount of loss you can tolerate in case the trade doesn’t go as planned. This decision should be based on factors such as your trading capital. For instance, you might decide to risk no more than 1% of your total capital per trade.
Trading itself is inherently risky, and accurately predicting market trends is difficult. Therefore, it’s important to make informed decisions using all available information, personal judgment, and proper education.
Different traders may have diverse strategies, based on factors such as personal preference, personality, trading capital, risk tolerance, etc.
Trading requires considerable responsibility and requires traders to carefully evaluate their personal circumstances before committing to any trade.