Cryptocurrency trading is a short-term trading of assets on the stock exchange, when their holder makes a purchase at a low cost, and sells at an increased one. The main difference between trading operations and investments is that investors acquire assets for a long time, expecting their significant growth.
Trading is not for everyone, as it requires learning the many nuances of the market, as well as having sufficient emotional stability. And today we will consider the main features of crypto trading. Learn more about liquidity token.
How to start trading cryptocurrency?
It is impossible to demand much from newcomers to cryptocurrency trading. If you do not know how to trade cryptocurrencies on the exchange, you should not immediately place orders for large amounts. Learn all the tools, watch experienced players. You can use a free way to test your intuition and understanding of market laws, namely “paper trading”.
For example, if there is a desire to form an order, write it down on paper and see what happens in reality. Keep writing down your positions and see how much money you can make on paper. It will take quite a bit of time, and you will have an understanding of which strategy is ideal at the moment, and which is better not to use.
Let's start by listing the basics of cryptocurrency trading that a trader who wants to trade for crypto on the exchange needs to know:
to understand the price dynamics of the selected asset, it must understand fundamental and technical analysis;
learn how to use technical indicators and stock charts;
understand the operation of orders, understand the strategy for finding entry / exit points;
learn how to perform transactions and other necessary actions on the exchange.
Important nuances of trading on the exchange
Trading (cryptocurrency trading) takes place on special exchanges using various tools. Each operation occurs through the formation of an application. To do this, fill out a special form. There are several types of orders that are executed under certain conditions. These include:
Limit. This is the simplest order used by a trader on the exchange. To form it, you must specify the number of sold/purchased coins and their value. When a counter offer appears, the order will be filled.
Stop loss order. With it, you can make a profit on intra-exchange manipulations. The order is triggered only when the cryptocurrency reaches a certain price. This reduces losses.
Market order. It is indispensable when you need an instant sale of coins, for example, when they fall sharply. To do this, you need to specify only the amount of the transaction.
In addition, there are orders that professionals use. For example, one cancels other h0151 is placing counter orders that are triggered when the rate falls or rises. Accordingly, there is a sale (if the value of the coins grows) or a purchase (if the price falls).
In order to understand how to trade on a cryptocurrency exchange, a trader must have an understanding of what an exchange glass (order book) is. It includes the entire list of open orders for a specific asset, which are located in the direction of decreasing / increasing prices. This means that all created but not executed orders can be seen in the order book. There is a concept of depth of the glass - this is the amount of liquidity, which visually shows orders for buying and selling in a graphical mode.
Interestingly, the formation of large orders can influence the price of a certain currency. This means that when creating an order to buy a certain amount of an asset at the best price, it may not be enough. In this case, slippage occurs, i.e., the difference between the expected price and the actual one. For example, if the value of an asset is falling right now, and all orders are executed, then the order of a particular trader is likely to work at different prices. And the differences can be significant.
If we talk about the formation of a glass of orders, two concepts are used on the exchange:
maker - places an order that is added to the order book, i.e. forms liquidity;
taker - places an order that is executed immediately, i.e. takes liquidity.
In addition to the glass, there is a pricing chart. On it you can see candles, i.e. columns indicating a decrease or increase in the value of a currency over a certain period of time. Some traders in the cryptocurrency market use candlestick patterns (patterns) for analysis, which allows you to determine the trend of a particular cryptocurrency at the moment or in the near future.
Crypto trading often uses such a thing as trading volume to identify a trend. With it, you can see the number of assets that are traded at a particular point in time. Thus, with a large trading volume and high volatility, we can talk about the movement of the underlying trend. In the absence of trading volume, the trend is weak.
If you need to get additional information about a particular cryptocurrency, you should pay attention to the moving average convergence / divergence chart. With two lines, it shows market momentum based on the value of orders that have already been filled.
What types of analysis are used in trading?
As in the financial market, two types of analysis are used in cryptocurrency trading: fundamental and technical.
Fundamental analysis evaluates the value of an asset. It is necessary to carefully study all financial and economic factors - this will help to understand how the value of the asset is true. The assessment uses macroeconomic circumstances, such as the level of economic development in the country or industry chosen for investment. All such positions can be tracked using lagging and leading indicators.
Fundamental analysis allows you to understand at what stage the asset is now: is it overvalued or undervalued. Based on this information, the trader decides whether to invest in it or not.
No less effective is a new area of research — on-chain metrics. It is data science that studies all available information about the blockchain. These can be the largest crypto holders, information about the network computing power at the time of analysis, the number of fixed addresses, etc. Combining all the known information, you can create quite complex technical indicators that can predict the overall state of the network.
Unfortunately, today there are no accurate tools that allow you to accurately determine the market value. However, experts hope that after a certain time the market will become more mature, and this will allow the creation of accurate tools for valuing crypto assets. Then cryptocurrency trading will become more profitable and predictable.
Technical analysis uses cyclicality in pricing. An attempt is made on its basis to determine the dependence in the formation of value. Analysts are confident that the analysis of historical price behavior will help predict the future. To do this, use tools such as volume and chart patterns, price action, technical indicators. Their careful study allows you to understand how weak or strong the chosen market is.
In addition, technical analysis makes it possible to manage risks, which is very important for the cryptocurrency market. Technical analysis allows you to increase the degree of measurability and certainty of managing transactions. It is its indicators that are most often used in cryptocurrency trading.
Ways to trade crypto assets
There is the simplest interpretation of the concept of "financial instruments" - these are assets that can be traded. In traditional markets, this could be precious metals or securities. Instruments can be derivative or cash, fractional or debt-based.
Cryptocurrencies can also be classified as financial instruments, as they can act as a trading instrument. However, it is still not known for certain how to classify them correctly. This is due to the relatively low development of the ecosystem. It is likely that in the future there will be many additional definitions that will be associated with new sectors in the vast cryptocurrency market.
Financial instruments are traded in the markets in different ways, and they differ significantly from each other. Let's list them:
in the spot market. Here, financial instruments are traded by instant exchange for cash. In the case of cryptocurrencies, this means that in the spot market, the exchange of one coin for another occurs instantly. To do this, you should create an application and wait for its execution.
in the derivatives market. Such trading uses assets whose value is based on other valuable assets. In some way, it is about the conclusion of contracts between the parties.
With the help of margin trading. In this case, borrowed funds (leverage) are used for trading, but there are significant risks of losing margin (equity pledged). Most often, this way of trading in the cryptocurrency market is offered by crypto brokers.
Trading types
Existing types of cryptocurrency trading are based on the strategies used when concluding a trade transaction. Each trader chooses his own way. It is very important to know the rules that will not allow you to make mistakes or lose part of the money due to emotions. That is why it is necessary to be able to assess potential risks. These include:
Liquidity risk. If there are illiquid assets in the portfolio, funds may be lost due to difficulties in finding potential buyers.
operational risk. This category includes risks that depend on technical failures due to human error, software and hardware failures, and intentional fraud.
Market risk. It includes losses caused by a fall in the value of an asset.
systemic risk. In this case, the trader incurs losses due to the problems (bankruptcy) of other players that have a strong influence on the market.
The choice in favor of a certain strategy (or a combination of several) can only be made after portfolio evaluation. It's time to discuss the options for trading strategies available to the trader.
Day trading Day trading
strategy is about opening and closing positions on the same day. This way of trading came from the financial market, where there are clear hours for the start and end of the market.
But this is not the case in the cryptocurrency market, and a trader can trade at any time. That is why in day trading active trading takes place within a day, and the owner of the crypt never leaves his positions open unattended.
This trading option often relies on technical analysis to help select the best assets to work with. Based on it, some traders select several types of cryptocurrencies for trading, others - only one or two. In any case, day trading is considered difficult due to the high risks of losing investments. That is why it is suitable only for traders with experience - people who understand and accept full responsibility.
Swing trading
Cryptocurrency trading using the swing trading strategy implies the calculation of earnings on a longer position holding - from a couple of days to a couple of months. Both beginners and experienced traders can use this method. The latter most often analyze the market and choose an asset that has real chances to grow in the near future.
It is better for beginners to give preference to proven cryptocurrencies, as there is a high risk of burning out on unexplored assets. Swing trading, with the right choice, is ideal for those who are just starting out in the market. The absence of stress from fast-paced transactions and the need to make quick decisions ensures its maximum efficiency.
Technical analysis is also most often used to analyze the market. However, in some cases, it is logical to add fundamental analysis as well, since it is useful in choosing strategies that are implemented over long periods of time.
Trend trading (positional trading)
Trend trading is understood as the acquisition of assets in the long term, that is, for at least several months. The goal of a trader's strategy is to buy a cryptocurrency at a low cost and sell it on growth in the near future. To do this, players collect all the information about the general direction of the market, analyze and select the most promising coins, and then make a purchase.
It is because of long-term investments that position traders choose fundamental analysis to study the dynamics and currents of the market. And at short distances, they can also use technical analysis to find out in advance about the fall of the trend. In this case, you will have to decide whether to sell the asset due to an irrevocable collapse or buy a couple more dozen coins on the fall in the hope of a reversal in the future.
Scalping Cryptocurrency
trading on super-short time frames is called scalping. Traders using this strategy can open and close orders in just a couple of seconds. To make such transactions, technical analysis is used, since it can be used to predict price changes in a short period of time. The profit from such transactions is small, but if you receive it daily, the income grows very noticeably. Today, traders in this direction often use bots.
It should be understood that scalping cannot be used by novice players. Cryptocurrency trading using this strategy is possible only on the basis of a deep understanding of the market, as well as the exchange on which operations take place. It is very important to know exactly how to use technical analysis tools to improve trading results. If a trader has already deeply delved into the essence of scalping, with a “third eye” notices the correct patterns and opportunities for playing on short-term price fluctuations, this means that he has fully matured to use the scalping strategy.
Diversification
This is another trading strategy that allows you not to lose all your investments. The principle is simple - when choosing assets, you should not stop at just one, but select several at once. Due to this, when the value of one asset falls, it is possible to offset the damage caused by another asset.
Therefore, before buying a crypt - especially in the long term - evaluate the risks and select a few of the strongest coins. Additionally, it is recommended to trade several cryptocurrencies on different exchanges, since there have already been precedents in history when users lost assets (for example, on the Japanese exchange MtGox).
Conclusion
As you can see, for successful cryptocurrency trading, you need to know a lot of tools that allow you not only to make a profit, but also not to lose your savings.
If you are a beginner and do not know how to trade cryptocurrency correctly, the right decision is to learn the basic terms and strategies. It may be worth contacting a specialist who will help you take the first steps. In any case, you should not choose risky ways to make money with cryptocurrencies - at least until you have a clear understanding of the principles of the market.
