How To Trade Cryptocurrency: A Comprehensive Guide to Safely Navigating in the Crypto Market
Cryptocurrency is a hot topic right now, and for a reason. If you are new to the world of crypto trading, this guide will teach you everything you need to know. We will walk you through the basics of trading cryptocurrencies, technical and fundamental analysis, some of the most popular strategies used by traders today, and other useful tips.
Let’s get started!
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions and control the creation of new units of a particular cryptocurrency.
Cryptocurrencies use decentralized control and a public ledger, known as blockchain, to allow users to make peer-to-peer transactions. There are several notable benefits of decentralization over the traditional financial system, such as the following:
No overhead costs.
Lower transaction fees.
Some exchanges offer commission-free trading.
No financial intermediaries are required.
Not dependent on regulations by any central authority.
There is no doubt that crypto is an exciting market to trade, but where do you start? The first step is to understand how cryptocurrencies work.
How Does Cryptocurrency Work?
Digital currencies are based on blockchain technology, where data is distributed across a network of synchronized and hosted ledgers. Monetary value is transferred between peers without middlemen or banks involved, making transactions easier and cheaper.
Public and private keys are required for successful transactions. The public key enables others to send cryptocurrencies, and the private key allows you to approve a transaction from your wallet as a sender.
Cryptocurrencies are created by users who ‘mine’ them by lending computing power to verify other transactions, which are then rewarded with new currency. Crypto mining is a very complicated process and involves solving complex math problems to verify blockchain data.
Though mining gives us new cryptocurrencies, many are supposed to have a limited supply. This means a decreasing number of new coins are rewarded for every block mined. It is predicted that a time will come when transaction fees are the only return miners will receive.
This limited supply of crypto coins closely mimics the scarcity of natural resources like gold and differs from the unlimited supply of fiat currencies that banks can produce.
How Many Cryptocurrencies Are There?
There are over 17,000 cryptocurrencies available online today. The table below lists the top cryptocurrencies and their respective market capitalizations.
Data current as of Feb. 28, 2022.
What Moves the Price of Cryptocurrencies?
The main reason why cryptocurrencies’ prices fluctuate is the law of demand and supply. When the demand increases for a particular currency, its value goes up. Vice versa, when supply increases, the price of a cryptocurrency declines.
If a government decides to criminalize the use of cryptocurrencies, people may be afraid to deal with them. Thus, the demand declines, and the crypto’s value drops.
The same thing happens when a country makes cryptos legal. People get access to the crypto market, demand increases, and prices skyrocket.
Many factors affect cryptocurrency prices. Some of the key elements are the following:
Supply and demand.
In general, it is safe to say that if a positive change occurs regarding the cryptocurrency market, there will be an increase in prices. If a negative event happens instead, prices will decrease because people will avoid buying cryptos.
How to Trade Cryptocurrencies?
Learning how to trade in the crypto market is not as hard or confusing as you might think. It is easy to get lost in all of its jargon and processes, but we’ve got you covered with six simple steps that will help you better understand this exciting new space.
Select Your Strategy for Trading Cryptocurrency
There are two distinct strategies: Speculating on the price of cryptocurrencies with CFDs or buying new cryptocurrency tokens, hoping they will appreciate in value.
Using the CFD Strategy
CFDs (Contracts for Difference) are financial instruments that allow you to profit on the price difference of a cryptocurrency without actually owning it.
These contracts work by allowing traders to use their existing brokerage account to speculate in both rising and falling markets in the same way that shorting or going long works.
Using the Cryptocurrency Exchange Strategy
When you buy cryptocurrencies via an exchange, the process is also simple. You only need to open an account with a crypto broker and deposit funds in your virtual wallet to start trading.
Understanding the Cryptocurrency Market’s Working Mechanism
Trading cryptocurrencies can be a lucrative venture. However, you need to know how the market works before getting involved. Here are a few things that you need to understand.
Peer-to-peer transactions: The first thing you should know about cryptocurrency is that it enables peer-to-peer transactions. Peer-to-peer means people who have crypto can exchange directly with other people. Traditional money transfers require an intermediary, like a bank or payment processor, to verify the transaction. In peer-to-peer transactions, there is no intermediary involved. People can send and receive money worldwide without requiring anything more than internet access.
Mining: Crypto mining involves using computer processing power to help manage peer-to-peer transactions. Miners process these cryptocurrency transactions for a profit. They’re paid using blockchain technology in the form of coins or tokens.
The volatile nature of cryptocurrency: It’s important to know that cryptocurrencies are volatile. The prices of an asset can change drastically within a timeframe, causing slippage.
Sign Up for an Account
With CFDs, cryptocurrency investors can open a position much faster than buying the actual cryptocurrency. For trading CFDs on cryptocurrency, investors don’t need a digital wallet or an exchange account. You can open a leveraged trading account with a broker. Still, remember that leverage raises not only potential profits but also multiplies losses.
Decide on Your Cryptocurrency Trading Plan
Before you start trading crypto, it’s important to have a strategy. This involves making certain decisions about your goal, selecting the right currency for your investments, understanding how much risk is involved, and choosing an entry and exit strategy.
It is important to know what strategies you will be focusing your efforts and resources on for cryptocurrency trading.
Technical analysis focuses on chart patterns and signals that affect price movement. Traders use fundamental analysis to pinpoint the underlying factors that could move prices in either direction.
Select a Cryptocurrency Trading Platform
When choosing a cryptocurrency trading platform, you should carefully consider the following points:
Attractive Conditions: Check if the trading platform offers accounts with leverage and good trading conditions.
Security: Check that your account is protected with 2-factor authentication (2FA) and ensure that no human error (e.g., clicking on dubious links) provides hackers with access to your data or funds.
Trading Features: Does it offer a convenient chart with key trading tools? Does it have options for automated trading? If not, will it offer these features in the near future?
Speed: How quickly does the platform respond to changes in market conditions?
Operating Hours: Does it offer support on weekends and public holidays? The crypto market is always operating, so choosing a cryptocurrency trading platform that provides 24/7 service is best.
Ease of Use: Will the user interface be easy for you to use? Can you expect customer support in your native language?
Once you have chosen a crypto market trading pair, look for the ‘open deal ticket’ button and click it. This will give you a buy or sell price based on the current market value. You can then choose whether to open a long or short position. When you’re ready to take your trade off the table, just add stop loss orders, so you won’t lose a lot if the price moves against your forecast.
What Are the Strategies for Trading Cryptocurrencies
There’s an understandable confusion surrounding which strategies make sense for engaging in this space for those new to cryptocurrency trading. To break down these barriers, this section explains some popular day trading approaches that can be adopted by crypto traders regardless of their experience or preferred investment style, so you’re ready to engage in today’s market.
Arbitrage is simultaneously buying and selling to profit from a price difference. In other words, you keep an eye on two different cryptocurrency exchanges. If the prices of these digital currencies are quite different between both exchanges, you simply buy one currency from one exchange and sell it at another exchange. This enables you to retain the difference between the prices of both currencies.
However, this strategy does not mean there are no risks, such as market volatility, timing, exchange issues, and fees.
Another strategy for crypto trading is through bots developed using machine learning systems. It uses complex mathematical algorithms to determine the best time to purchase and sell cryptocurrencies. In addition, the system analyzes current trends in digital currencies before making decisions about long and short positions.
The trading bot needs historical data from the market to develop its strategies. Using this information, a bot can make all the transactions themselves without further human intervention.
A long straddle is one of the most basic option day trading strategies. It involves buying both a put and call option at the same strike price and the same expiration date, which means it will always be profitable if the crypto moves in any direction.
A long straddle gains money no matter what happens with the price of an underlying crypto asset but usually takes advantage of large price movements to make substantial profits.
To break even regardless of whether the option moves up or down, the instrict value of one option should be the same as the premium paid for both options. Another option will expire and become worthless.
The upside breakeven is the strike and two premiums. The downside breakeven equals the strike, excluding the premiums.
Range trading is a strategy to trade cryptocurrencies that helps traders take advantage of the market’s clearly defined entry and exit points. This aspect reduces the losses.
When you are range trading, you look for buy/sell opportunities within a range rather than outside of it. This means you are looking for an asset’s price to move between the resistance and support levels before buying or selling it. A trader should look for overbought or oversold conditions to apply range trading.
Scalping is a trading strategy that profits from very short-term price fluctuations. You buy an asset at one price and sell it fast for a slightly higher price, repeating the process many times per day.
This yields a lower profit than holding assets for longer periods, but it also requires less initial capital. You could potentially earn a significant profit over several small transactions if done correctly. However, there are risks related to market volatility involved.
Technical Analysis (TA) for Cryptocurrency Trading
To trade cryptocurrency, technical analysis is vital. Technical analysis can be defined as the study of past market price action to forecast future price movements. It involves using tools and techniques to predict where prices will go next, such as:
Market Structure and Phases in a Cycle
The market structure must be understood to predict where the price will go next when it comes to cryptocurrency trading. The market structure of any financial instrument is based on supply and demand.
In a financial market, buyers and sellers constantly buy at lower prices and sell at higher prices, respectively.
Traders encounter two distinct types of markets: Bull and bear, with opposite roles within a shared environment. Cryptocurrency exhibits different levels of price movement depending on which phase the bull or bear market is in. A strong understanding of these phases will help traders determine their next move, whether it be correcting, retracing, or consolidating.
The market goes through four stages: accumulation, markup, distribution, and decline. The cycle repeats itself with every change in the crypto market structure.
Whales are individuals or groups providing large investments. They are so-called “market makers.” Whales can influence the market by choosing to sell or buy cryptocurrencies. When they release their orders, the market price of a crypto asset moves in a certain direction, so that others will follow their way.
As a digital asset trader, your strategy must include the best TA indicators and other tools of whales, so you can predict their intentions.
Psychological Trends and Their Effect
Psychological cycles are the emotional responses of traders in a particular market. For example, if most traders in a cryptocurrency market are optimistic and waiting for prices to go up further, it results in an uptrend or accumulation phase.
Similarly, when they start getting pessimistic about a certain asset and want to cut their losses by selling off their assets, it leads to a downtrend or distribution phase. Traders tend to follow psychological cycles, but they should also not forget about certain other factors, such as trading volume analysis, support, and resistance levels before deciding when would be the best time to buy or sell.
Technical Analysis Indicators
Traders use technical analysis indicators to make sense of market dynamics and forecast future market behavior to find trade opportunities. Technical analysis does not use fundamentals and other events to predict prices, but purely prices themselves as a source for evaluation and forecasting.
Technical analysis indicators should be computed on historical data before being used in real markets. There are many types of technical analysis indicators:
Support and Resistance
Support and resistance levels are among the most popular technical analysis tools. They indicate that price is likely to rebound according to the nearest local maximum or minimum.
Support levels act as barriers against a downward movement, while resistance levels act as barriers against upward movement.
A support line is a level where sellers lose their force, and the downward movement pauses. At this level, buyers get chances to buy low.
A resistance level is the exact opposite of a support level. The upward movement will pause because buyers can’t control the market anymore. Thus, sellers can sell higher.
Trendlines are a method of technical analysis that uses straight lines to connect at least two tops or bottoms, creating an upward sloping line (called a bullish trendline) or downward sloping line (called a bearish trendline). Trendlines can be used across all timeframes from intraday to monthly.
As the price moves higher and makes higher highs, a bullish trend line is drawn along these highs. A bearish trendline is drawn along the lows as the price falls and makes lower lows. The higher the timeframe being analyzed for drawing the trendlines, typically the more significant or stronger they become.
The round number is a price level without any decimals, for instance, 5,500.00, 10,000.00, etc. The key reason why round numbers are preferred when trading crypto is that they’re easier to use for setting up stop-loss and take-profit orders.
Traders use the moving average indicator to predict future price changes based on past price movements, thus allowing traders to specify entry and exit points. Simply put, moving averages are created by taking the average price over a certain period.
Relative Strength Index
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. The RSI fluctuates between zero and 100. A middle line at 50 can also be included, wherein the points above will indicate better buy opportunities in the bull market. Points below this line are indicative of a bear market for opening sell trades. The values above 70 indicate that an asset has been overbought, so it’s time to sell the cryptocurrency. While the values below 30 show that the asset is oversold, you should buy the crypto.
Traders usually recognize chart patterns based on their distinct shapes. These are common arrangements of price movements with varying predictability levels, depending on the pattern. Some are classic chart formations, while others are more advanced and based on number theory.
All these patterns can be traded using technical analysis indicators. Here is a breakdown of some popular ones:
An ascending triangle is a bullish chart pattern used to denote an uptrend continuation and sometimes a trend reversal. Generally, the ascending triangle indicates that a resistance level will soon be broken, and the asset price will rise.
The resistance line is drawn by creating a horizontal line that connects the highs in the price chart, while the support line is created by drawing a diagonal line through the swing lows.
A descending triangle is similar to an ascending triangle, but it is one of the bearish chart patterns and is the continuation of the downtrend. It signals that downward pressure on prices will continue as long as the higher bottom boundary of the descending triangle remains intact.
The descending triangle can easily be identified by its downward sloping resistance line and a horizontal support line.
Double Top and Double Bottom
Double Top: a double top pattern is characterized by two peaks with nearly identical highs separated by a downturn in price, which forms the trough between the peaks. This pattern can be best confirmed if the price drops below the neckline (which acts as the support level) post the second peak. A sell order can be placed here.
Double bottom: a double bottom pattern occurs when the price makes two consecutive lows at approximately the same level, with both bottoms separated by a moderate peak between them. The price then rises until it reaches the resistance line. If it breaks above it, you can expect a continuation of the upward movement.
Before trading any double-top or bottom, you should wait for confirmation via a break below the resistance or support levels for selling opportunities and a break above resistance or support levels for buying opportunities. As with all patterns, false breaks do occur.
Head and Shoulders and Inverse Head and Shoulders
A “head and shoulders” pattern consists of three consecutive peaks, with the one in the middle being higher than the two on either side. The third peak falls to the support level or the neckline. This pattern indicates that an uptrend is moving towards its close.
The inverse head and shoulders pattern is the reverse of the above indicator. In this case, instead of peaks, the shoulders and the head form troughs, representing three consecutive lows where the head is the lowest. After the third trough, the price moves up, indicating that the market may form an uptrend if the price breaks above the neckline.
A common rule for both versions: To measure an approximate distance of the price movement after a breakthrough of the neckline, count the number of pips between the highest/lowest point of the indicator and put this distance from the breakthrough.
Fundamental Analysis for Cryptocurrency Trading
The fundamental analysis investigates the core aspects that drive a cryptocurrency’s price fluctuations by analyzing related news events and financial data from reputable sources. To do this, you’ll need a solid foundation for making informed cryptocurrency trading decisions by gathering the right information from the most reliable sources.
You need to consider several factors if you want to stay ahead of your fellow traders and profit from the opportunities that arise now and then.
Check the Developers and Team Members
First of all, you should establish the developers’ reputation. Try to find out how long they have been in the business and whether they are a real or anonymous person. Take a look at their previous projects and go through their social media profiles.
Try to keep tabs on the developers’ and team members’ progress and their plans regarding future steps. Moreover, you can also observe whether or not they can deliver their promises by looking at any recent updates on their projects’ official GitHub repositories.
Observe the Community Environment
Since cryptocurrencies are open-source, decentralized projects that work on peer-to-peer protocols, you will need to join a community to help you study. Most of the time, communities around such projects are very active and supportive, as they too believe in the success of their project and token.
Try to find out if their communities are happy with the recent updates or if their comments on social media are negative. If there’s nothing positive coming from users of the product, there’s a high chance something is wrong with the project.
The more people get involved, the greater the potential for mass adoption of the coin. It is equally as important to check whether the community comprises real users and not just bots. If there are no genuine discussions or people posting about this coin, it might reflect red flags.
Research the Technical Details
The value of a cryptocurrency is developed through its technical specifications, which typically address the problems with fiat currencies and other cryptocurrencies. This includes measures to ensure the security of a decentralized network and information on how much of a particular coin will be minted. Researching this information for an upcoming trade could potentially save you some major losses.
Study Innovations and New Use Cases
The explosion in a number of cryptocurrencies since Bitcoin’s original launch, such as Litecoin, Ethereum, Dogecoin, etc., has led many investors to seek opportunities to diversify their portfolios, including with alternative coins that may offer better returns. An altcoin provides expanded capabilities.
Understand the Importance of Asset Liquidity in Cryptocurrency Trading
In a market without a central authority, everything is controlled by the market participants. For a market to be healthy, there needs to be liquidity that can attract more buyers and sellers participating in trade.
Liquidity is important. With a lack of liquidity, you may have to pay more for your order than the price that you’d like. Having a low volume of orders on exchanges or even no orders at all can be dangerous, as it creates room for whales to prey on unsuspecting traders.
Whales are traders who hold a significant amount of capital, allowing them to place large orders that move the market. For example, imagine if someone has 1 million USD in their account. They can then buy or sell large amounts at once, thus determining market prices.
This leaves people looking to trade smaller amounts in a difficult situation. If you want to sell, you may have to settle for a lower price than you expected.
If you want to buy, but there’s no one willing to sell at the price you’re offering, then someone with a million dollars in their account could swoop in and make you pay more. Whales are a normal part of cryptocurrency trading, but they can be harmful to smaller traders.
The Role of Crypto Marketing
Promoting branding for cryptocurrencies is an ongoing process that requires strong, consistent commitment across all platforms where potential investors are gathered. While many activities help build brand equity, three prominent areas often stand out as main opportunities to enhance product or service brand equity and the ones you can use in your fundamental analysis. They are the product itself, the communications surrounding it, and its impact on society.
On-chain analysis in crypto trading is the study of transaction history, allowing traders to make calculated trading decisions based on current market conditions. Cryptocurrency is different from traditional currencies because its transactions are recorded on a public ledger, called the blockchain, instead of using banks or other financial institutions.
Since this kind of information exists in a decentralized public database that is immutable, many people feel more confident about cryptocurrencies. An on-chain analysis examines this information to extract meaningful data.
Tips for Trading Cryptocurrencies
The internet has been filled with news about people who have made a fortune investing in cryptocurrencies. However, the crypto market is extremely volatile and can be quite difficult to navigate if you’re not well-versed in how it works.
If you want to get involved with trading cryptocurrencies, you should be equipped with all the necessary knowledge before even beginning. Here are some tips for trading cryptocurrencies to help you get started:
Don’t jump into the market without research: One of the biggest mistakes that novice traders can make is believing that they’ll trade successfully on their first try. If you decide to become a cryptocurrency trader without doing your research, you could lose a lot of money.
Think long-term: While the cryptocurrency market is known for its volatility, it’s important to remember that this is a long-term game. Don’t expect overnight success. Becoming an experienced trader takes time and dedication. Don’t get discouraged if your first few trades don’t work out, as you’ll only need to learn from your mistakes, give your best, and keep moving forward to learn how to trade cryptocurrency.
Decide how much time you can invest in trading: The cryptocurrency market is volatile, so you mustn’t trade impulsively. The best way is to set aside an amount of money that you are willing to risk and a set number of hours that you are willing to spend on trading each day.
Keep up with the news: Read about what other people have been saying about cryptocurrencies and pay attention to current news about the market. If you stay abreast of current events within the crypto industry, it will help you make more informed decisions.
Read online educational materials on crypto trading: The best way to learn more about trading cryptocurrencies is by reading educational content related to the subject. Your broker can be of great help in this respect. If you want the best information, you should consider finding a community of other traders who can help support your journey into this market.
Familiarize yourself with how it works: Rather than doing things by guesswork, it might be best for you to sign up for a trading account with NAGA and use their demo version until you’ve managed to get everything under control. This is especially important if this is your first time trading cryptocurrencies because there’s no way of knowing how successful or unsuccessful your investments will be until you actually try them out and see what happens.
Begin Your Crypto Trading Journey
Witnessing the steady rise of crypto adoption, it is safe to say that cryptocurrencies are here to stay. There are multiple ways to trade cryptocurrency, but the common denominator is that it requires research and practice. No one will become a good trader overnight, and many professionals have spent years perfecting their craft.
For those considering trading in cryptocurrency, be sure to consider the following factors:
First, you will need an account with a crypto exchange or broker that allows for deposits and withdrawals from your bank.
Second, make sure you understand how trades work on the platform. Go through the features and conduct technical and fundamental analysis.
Third, what type of security does the cryptocurrency exchange offer against hacking attempts?
Finally, research which currencies have been most successful over time so that you can find a good match for your trading style.
You can keep increasing your knowledge by reading up on new trends, DeFi, or Metaverse.
Trading cryptocurrencies requires careful consideration of all these factors before making any decisions about where to begin investing your money.
IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
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