Crypto trading is a popular way for many people to earn extra income. Essentially, it involves buying and selling digital currencies via platforms or exchanges. With the right preparation, many people can make substantial profits.
This guide will explain what crypto trading is all about, covering the basics and methods used. By learning this, you can smoothly trade in the crypto market.
What is crypto trading?
Crypto trading is the buying and selling of cryptocurrencies on the spot market or through contracts for difference (CFD). CFD trading allows you to trade crypto price change contracts without owning the underlying asset. For example, you can buy (go long) if you believe the cryptocurrency value will rise, or sell (go short) if you predict that the value will drop.
Like stocks and other financial markets, cryptocurrency trading can be complicated due to its complex components. Therefore, it is important to understand the assets and technology before trading.
How to trade cryptocurrencies for beginners
There are various approaches to cryptocurrency trading. To begin, you need to prepare several components before entering the crypto market. Here is a guide on how to trade crypto for beginners.
Sign up for Cryptocurrency Exchanges
Before starting crypto trading, the first step you need to take is registering with a cryptocurrency exchange. To open an account on a crypto exchange, you must provide personal information such as personal details, mobile number, and email address. Therefore, it is essential to choose a licensed platform to ensure safety and reliability. The goal is to avoid the risk of fraud or other detrimental actions.
One of the exchange platforms that you can choose is Tokenomy. Tokenomy already has an official license from the Labuan Financial Services and Security Act 2010 (LFSSA), which ensures high-security standards to protect the trading activities of its users. Tokenomy is also ISO 27001 certified, which guarantees the security and confidentiality of user data.
Fund your account
After registering on a crypto exchange, you will need to link a bank account with a digital asset wallet or wallet on the platform. Most cryptocurrency exchanges accept bank payments via debit cards or using wire transfers, which are more cost-effective.
Choose a Cryptocurrency to Invest
There are various choices of cryptocurrencies in which you can invest according to your preferences. Examples of popular crypto assets are Bitcoin and Ethereum. Their price movements are more predictable compared to other altcoins because Bitcoin and Ethereum have a longer history.
You can try crypto trading through licensed digital asset platforms like Tokenomy. With crypto-based financial services such as crypto derivatives trading and dual currency deposit, you can earn profits based on your investment goals.
Save Your Cryptocurrency
There are two types of cryptocurrency wallets for storing cryptocurrency, namely software and hardware wallets. Both provide good security. However, a hardware wallet can provide more protection because the cryptocurrency will be stored on a physical device that is not connected to the internet.
Cryptocurrency Trading Basics
For new investors, it is highly recommended to have an understanding of how the crypto asset market works. You can conduct in-depth research first, so you can make the right decisions in buying and selling activities.
The transaction process in Bitcoin trading is actually simple but quite complex in nature. For example, when exchanging into fiat currencies such as US Dollars, you can use various trading pairs to increase profits while adding to the investment portfolio.
Usually, crypto trading and risk exposure increase along with complexity. Therefore, make sure you have a trusted trading community and platform to get more credible information.
Crypto Trading Structure
Basically, crypto trading is a zero-sum game, meaning that there are winners and losers. In this case, the party in question can be a seller or a buyer. Therefore, having a basic understanding of the cryptocurrency market can help minimize the risk of loss and optimize profit potential.
When there is more buying activity than selling, prices usually go up. This indicates a high demand for the asset. Conversely, if more people are selling than buying, the price will fall.
Read the Market
To a layman, the crypto market may seem like a complex system that only specialists understand. But once you start to understand it, the concept of crypto trading will feel much simpler. Reading the market is an ongoing process of finding patterns or trends over time that traders can act on. Overall, there are two market trends: bullish and bearish.
A bull market or bull run occurs when price activity continues to increase. These upward price movements are also known as “pumps” because many buyers can increase the price. Meanwhile, a bearish market or bear market takes place when prices appear to continue to decline. These downward price movements are also known as “dumps”, where mass selling of assets results in lower prices.
Technical analysis (also known as technical analysis) is a method of analyzing past market data, especially regarding prices and volume, to predict price action. Although there are a wide variety of indicators for technical analysis, such as their complexity, that traders can use to analyze the market. Following are some basic macro and micro level tools.
Market structure and cycles
Technical analysis is needed not only to position yourself in an ever-changing market but also to navigate the ebb and flow that occurs. You do this by understanding the existing market structure and cycles.
This market cycle can be divided into four main parts, namely accumulation, markup, distribution, and decline. When the market moves between these phases, traders will continue to adjust their positions by consolidating, retracing, and correcting things deemed necessary.
Chasing whales (whale)
Price movements are mostly influenced by whales, namely individuals or groups that have large funds for trading. Some whales act as “market makers” who set selling prices and buying prices on both sides of the market.
The goal is to create asset liquidity while generating profits in the process. Whales are usually present in almost all markets, from stocks and commodities to cryptocurrencies. Traders can team up with whales to profit from their strategies.
Although the concepts of bull markets and bear markets are often referenced in trading markets, psychological cycles also play a role in providing a more detailed spectrum of market sentiment.
In trading, emotional behavior can also significantly affect the market. One of them is euphoria driven by the fear of missing out (FOMO) of those who have not been able to position themselves in the market. Therefore, traders should not involve emotions in developing trading strategies. They should be decisive in every action of their cryptocurrency trading.
Traders must be able to detect patterns and cycles in the market to gain clarity from a macro perspective. Because the macro perspective plays an important role in determining their actual strategy. Here are some of the most basic technical analysis indicators:
Support and Resistance
Support is the price level where the downward trend stops due to the entry of demand. Meanwhile, resistance is a price level where the upward trend tends to stop due to mass selling.
Traders often use support and resistance levels to determine price direction, allowing them to adapt quickly when price levels break the upper or lower boundaries.
Trendline is a sequence of support and resistance levels that can indicate the larger trend in the market. Traders tend to pay attention to the support level of the uptrend line, as it shows certain areas that help prevent the price from going lower.
Similarly, when the market trend is down, traders will watch for a sequence of descending peaks to connect them to a trendline.
Round numbers price levels can influence support/resistance levels, as inexperienced or institutional investors tend to fixate on them. When a large number of trades are centered around a round number, it can be difficult for the price to surpass this point, creating a resistance. This incident occurs quite often. Proving the fact that traders are easily influenced by their emotions and tend to take shortcuts to gain profits.
With the market’s history of support/resistance levels producing downtrend/uptrend lines, traders often refine this data to create a single visual line representation known as a ‘moving average’.
The moving average will track the lower support levels of an uptrend, along with the peaks of resistance during a downtrend. When analyzed in terms of trading volume, moving averages provide a useful indicator of short-term momentum.
There are various ways to chart the market and find patterns in it. One of them is candlestick chart patterns which provide a kind of visual language for traders to anticipate possible trends.
Candlestick charts originated in Japan in the 1700s as a method of depicting the movement of a stock over a period of time. This method allows for predicting future stock prices.
Apart from technical analysis, fundamental analysis also plays a role in determining the potential of a particular crypto asset in the market. Fundamental analysis is the study of an industry, technology, or other assets of the market. In the case of cryptocurrencies, the trading portfolio consists of Bitcoin and altcoins. There are several factors to consider in the fundamental analysis of a new asset.
Developers are an essential factor to consider before investing in cryptocurrency assets. It is crucial to assess the integrity and capability of the developer behind it. What is their track record? What software ventures have they brought to market in the past? How active are they in developing the protocol underlying the token? Since many projects are open-source, you can view them live via platforms like GitHub.
The community plays a very important role in cryptocurrency trading projects. The combination of users, token holders, and crypto enthusiasts can provide the best boost in this asset market. This is especially true considering that every new technology cannot be separated from social elements. However, there are times when the discussion space becomes toxic due to disputes. Therefore, make sure you join a healthy and transparent community so you can obtain credible information.
The core technical specifications for crypto assets cover the choice of network algorithms (how to maintain security, uptime, and consensus) and issue/emission features such as block times, maximum token supply, and distribution plans. By understanding the various cryptocurrency network protocols along with monetary policies, a trader can determine whether the feature supports a potential investment.
Developers and entrepreneurs are not only discovering new use cases for the Bitcoin blockchain but are also designing new protocol innovations to accommodate a wider range of applications.
Liquidity (and Whales)
Liquidity is crucial for a healthy market. Is there a reputable exchange that supports certain crypto assets? If so, what trading pairs are available? Is there a healthy trading/transaction volume? Are there any major stakeholders present in the market? If so, what is the impact of their trading pattern? However, generating this liquidity takes time, as newly active protocol innovations don’t necessarily have instant access to liquidity. Moreover, whales, or investors with large amounts of crypto assets, can also have a significant impact on liquidity and price fluctuations.
Branding and Marketing
Most cryptocurrency networks do not have a central figure or company that facilitates the branding and marketing of their technology. As a result, their branding may lack a cohesive plan or direction. In fact, a comparative analysis of the marketing efforts of core developers, corporations, foundations, and community members can provide a detailed picture of how investors communicate value propositions to the masses.
The quality of crypto trading infrastructure can be seen as a manifestation of the technical specifications of the project. Regardless of what the white paper says, it’s worth mapping stakeholders, developers, block validators, companies, and users. In addition, it is important to understand who the administrators of the network are, their role in securing the network, and how power is distributed among these stakeholders.
Because all cryptocurrencies operate on blockchain technology, a new type of analysis has emerged that relies on data from the blockchain, namely on-chain analysis. By examining supply and demand trends, transaction frequency, transaction fees, as well as the rate at which investors are holding and selling cryptocurrencies, analysts can make appropriate qualitative and quantitative observations about the strength of blockchain networks.
On-chain data also provides valuable insights into investor psychology. Analysts can align various macro- and microeconomic events with investor actions that are permanently recorded on the blockchain.
Crypto trading vs stock trading
Cryptocurrencies and stocks are two very different types of investment vehicles. Shares represent ownership in a public company, with each share entitling the owner to a percentage of the company. Investors can profit by selling their shares to other investors, with the difference between buying and selling prices known as a capital gain.
On the other hand, cryptocurrency is a digital asset that exists only on the internet. It has no physical components and only exists as entries on an online ledger.
Crypto trading is risky
Risk management is an important aspect of trading, including in crypto trading. Before entering the world of trading, it is important to determine how much you are willing to potentially lose in crypto trading, which is based on factors such as your trading capital.
However, it is nearly impossible to predict future market activity with certainty. In the end, it is important to make decisions independently using information and strategies that have been prepared beforehand, taking into account your preferences, personality, trading capital, risk tolerance, and other factors.