Cryptocurrency trading basics
Successful trading of any asset has one formula: buy low, sell high. Cryptocurrencies are no exception.
Overview of cryptocurrency exchanges
Bitfinex. Major Hong Kong cryptocurrency exchange. For normal operation, the English interface will be enough, especially since the terms in English are used in traders’ turnover.
For beginners, a demo mode is offered, which will introduce you to the exchange. In demo mode, the system provides access to many functions.
In technical terms, this exchange is one of the best. The developers have equipped the service with TradingView software. This is a huge set of tools for working with price charts. Starting from the Fibonacci grid, ending with complex indicators. You can save your sketches and switch to a different currency.
Bittrex. As they say on the network – “the abode of altcoins.” Despite the average indicators of trading volumes, liquidity indicators are at an acceptable level. The exchange deserves attention.
We are interested in two sections: Bitcoin Markets and USD Markets. The most important thing is in the first tab. There are a lot of coins, just manage to spend bitcoins.
The exchange interface is in English, simple and concise. Buy and sell, nothing else. And more will not work. No professional tools and indicators for analysis.
The advantages include a wide variety of coins, a simple interface, and good liquidity (the currency moves quickly, the market is active). The disadvantages are a lack of tools. Therefore, the next review will be just about a set for a trader.
TradingView. A versatile tool and helper. It is convenient to work, although annoying news or announcements sometimes distract from the process.
TradingView is a trading platform, a terminal that provides the user with a huge number of tools for analyzing cryptocurrencies by communicating with the exchange via the API.
You are assigned secret keys that must be entered in the trading terminal settings and start trading on a single platform. This is a very convenient option for universal trading.
Understanding the charts
Correct trading starts with knowledge. Knowledge of how, where, and when to invest. In the cryptocurrency market, it is also worth taking this into account. We select the coin of interest, determine the position for the purchase, outline the approximate goals, upon reaching which it is possible to fix the profit, and start earning.
Levels. They are divided into support and resistance lines.
Trend. The fundamental task in the analysis is to correctly determine the price movement vector. Basically, the term “trend” is used. Divided into ascending and descending. There is also a “flat” – a sideways movement when the price fluctuates for some time without conquering tops or lows.
The trend is defined in a similar way to the levels. Ascending means a consistent rise in lows, and downtrend means a consistent decline in highs. Accordingly, the minimum is a visually detectable change in the trend from falling to growing (indicated by a red oval), and the maximum is from growing to falling (green oval). Thus, to visualize the trend movement, it is necessary to draw a line along with the minimums or maximums.
Channel. One of the projections of the human psyche is the price channel. In other words, the area of the trend movement. The price changes in one direction or another, observing invisible parallel lines. These are the channel lines.
Fibonacci grid. The instrument is named after the Italian mathematician Leonardo Pisano, known as Fibonacci. The scientist loved the game of mathematical numbers, so he tried to equate the laws of nature with mathematical orders.
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597 … If you add each successive value to the previous one, you get the result equal to the next number. This sequence is called Fibonacci numbers.
The deduced sequence has many interesting properties. If you divide the line into two segments so that the ratio between the larger and smaller segment is proportional to the ratio of the whole line to the larger segment, you will get a proportionality factor of approximately 1.618, which is known as the golden ratio. During the Renaissance, it was believed that architectural structures designed according to the golden ratio were visually perceived best.
Fibonacci levels are plotted at extremes. It is necessary to draw a grid from the beginning of the growth to the last high of this movement. A multi-colored grid with Fibonacci ratios appears on the chart. It is believed that “strong” levels start from 0.382 and below, but in an uptrend, they are unlikely to reach 0.786, so the likely entry point will be within 0.382-0.5. Many processes in nature obey rhythms and algorithms. Including the person. Therefore, market sentiment is a projection of the sentiment of buyers and sellers. To some extent, the market also obeys natural processes, and, therefore, obeys man. Therefore, predicting market movements using simple tools is not such a difficult task. Moreover, the trader has assistants in his arsenal.
What are the indicators?
As practice shows, finding an entry point to a position is easier than deciding when to sell, because a person tends to succumb to a destructive feeling – greed. As experienced traders say, there is no price too high to buy or too low to sell. Only the correct position and interest are taken into account, in which the profit is calculated.
There is a myriad of indicators on the exchange, there are also custom modifications that can be modified in the desired direction. But at the initial stage, it is better to use classic tools.
EMA (Moving Averages)… The indicator smoothes the price of the period and helps to determine the direction more precisely. It is better to use two indicators with 15 and 30 candlestick intervals.
The direction of the trend is determined by the direction of the EMAs themselves, respectively. If both moving averages are looking up, the trend is upward. Otherwise – descending. The intersection of the two EMAs confirms the trend direction.
The width of the channel between two EMAs indicates the strength of the price movement (volatility). The stronger the price swing, the wider the channel, which means there is a possibility of early completion of growth. The channel cannot expand infinitely, so you need to confirm price movements with other indicators.
Awesome Oscillator. Translated into Russian “wonderful oscillator”.
It has been empirically revealed that it is most profitable to exit a position only when using several indicators together with candlestick analysis.
Awesome Oscillator helps to find a good entry point, but it is not always profitable to exit a position profitably.
RSI. Relative Strength Index. A useful indicator in the arsenal of traders. The instrument shows overbought and oversold conditions in the market. It is better to combine it with the Awesome Oscillator and EMA, which will allow you to confirm the readings of each and take the most profitable position.
There is an area, upon crossing which at the bottom or at the top, it is considered that the market is oversold or overbought. Using this indicator, you can try to identify the selling point (areas marked in red) and buy (green areas). It is important to know that in an uptrend, the RSI indicator is more often in the range from the lower border to breaking beyond the upper border. It rarely drops below the green area, but it is certainly a great buy signal. In a downtrend, the situation is viewed in a mirror image. Comparing the price chart and the RSI, mentally draw a line at the value 50 – this is an “unspoken” level, near which the price chart is likely to consolidate. Upon reaching this level, the price may “bounce” in the direction of the trend.
RSI Stochastic… The stochastic indicator that averages the RSI movement, or shows the strength of its movement.
You need to use it carefully, as it often “sticks” to the upper and lower boundaries, preventing the trader from making the right decision. Therefore, it is worth understanding the features of its work in practice.
Sweeping movements sometimes make it difficult to perceive the trend. But the situation becomes clearer if you use it together with RSI. Then there is a clear signal to sell and buy. If Stoch sticks to the top and the RSI is approaching high values outside the green area, it’s time to take a position.
To avoid a huge number of indicator errors, it is better to use higher timeframes (4-6 hours). This practice applies to all indicators. However, you shouldn’t get hung up on one interval. At intervals of 15-30 minutes, you can more accurately track the breakout of levels, and on the daily charts, it is easiest to determine the global trend.
And finally, a few more tips for novice traders. Despite the seeming simplicity, it is very easy to get lost and lose self-control in the market. Do not give in to panic and greed! Only a sober calculation and a care plan. The rest is roulette.
- You shouldn’t sell apartments, cars, houses in order to have time to buy bitcoins. Also, be sure to remember that you need to work in an amount not exceeding 30% of the deposit. Then you will live in peace and be able to experience market ups and downs, having the opportunity to buy more if possible.
- Exchanges allow you to trade “on credit”. This is called Margin trading. Beginners are strictly prohibited from using this tricky tool. A short explanation – the exchange has its own “credit” department (the lenders are the users of the exchange), where you can take the necessary currency at low-interest rates.
Let’s say there is $ 500 on the margin balance, but we are already late with the purchase since the currency is at the peak of growth and should soon go into a correctional movement. The principle of operation of margin trading is as follows: borrowed bitcoins are sold at the highest price, then bought off at a low price and returned to the owner. The remaining percentage is taken by the trader. This is a dangerous tool because the system allows you to take such an amount of credit currency, which will be equal to the value of the deposit multiplied by 3.3 (Bitfinex). This is leverage. A sane person understands that the exchange must hedge itself. She counts $ 500 as collateral, which will inexorably decrease if the price goes against plans.
In the hands of a professional, this tool becomes a versatile weapon that makes it invincible at any time in the market. He carefully identifies possible risks for himself and thinks through a thousand possible situations in order to play both sides in the market. And long. And short, if the exchange allows it (Bitfinex, for example).
The terminology of crypto trading
- Long and Short. The usual trading “mode” and the short play. In the first case, we buy cheaper and sell more expensive. Why Long? Long position. It is believed that the growth of assets in the market is a long process, therefore work in this direction is called long. The second option was described above – means a short position. The market also believes that the fall in asset values occurs quickly, that is, in a short time. Therefore short.
- Crypto portfolio. All the coins that you have at your disposal. It is best to form it in three stages: part of the currency for long-term storage (from 1 year or longer), part – a medium-term deposit (up to six months), and a deposit for trading for several days or a week.
- Bulls and bears. In the securities market, players call buyers and sellers this way. There is an analogy here with the nature of animals. Buyers are always pushing the price up, creating demand for something. It turns out that the price is kind of pushing the horns. Bears are clumsy animals, they love to sleep, lie down, in a word, everything that needs to be done while lying down. Sellers usually try to sell faster, often by lowering the price of the asset. Likewise, bears always throw prey to the ground.
- Futures. This is a contract that obliges you to buy or sell an asset in the future at a fixed price and at a specified time. To put it simply, coins sometimes appear on exchanges, the network of which has not yet been launched, there is no exchange between wallets, but within the exchange, it is already possible to trade this asset.
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