The concept of cryptocurrency goes beyond the financial system and uses different tokens or coins, Bitcoin being the most famous. Buying and selling cryptocurrencies for profit is the essence of cryptocurrency trading. Someone who does this is called a crypto trader. Cryptocurrencies have their own digital currency exchange where people can trade coins just like traditional currencies have currency (forex). Cryptocurrency trading is a 24-hour market, unlike traditional exchanges which close at the end of the day. Speculate on bitcoin price movements using a CFD trading account or by buying and selling the underlying coins through an exchange.
CFD trading is a type of derivative that allows you to bet on bitcoin price changes without having to check the underlying currency. You can go long (buy) if you think the value of the cryptocurrency will rise, or go short (sell) if you think the value will fall. Both are leveraged, meaning that only a small deposit (aka margin) is required to have full exposure to the underlying asset. Since your profit or loss is still determined by the total size of your investment, leverage increases both your return and your loss.
When you buy cryptocurrencies on an exchange, you are actually buying coins. To initiate positions you need to open an exchange account, deposit the full value of the asset and keep the cryptocurrency tokens in your wallet until you are ready to sell. Stocks have their own steep learning curve as you have to wrap your head around the technology and figure out how to interpret the data. Many exchanges also have limits on the amount of money you can deposit, and maintaining an account can be expensive.
Who is a cryptocurrency trader
A cryptocurrency trader is a person who makes money from short-term fluctuations in cryptocurrency prices. A cryptocurrency trader can focus on just one coin and pairs, such as the well-known Bitcoin-US Dollar (BTCUSD) (or BTCEUR) pair. Alternatively, they may target some major coins and thus pairs like Bitcoin and Ethereum pegged to the USD or the Euro.
You’ve probably heard the phrase “alts,” which refers to alternative cryptocurrencies that are typically smaller and have a matching market cap. Some cryptocurrency traders may focus solely on altcoins and not know the major cryptocurrencies. None of the above scenarios are “wrong”, but you should choose the method that best suits you, your risk tolerance, and your ultimate goals.
5 essential things to become a cryptocurrency trader
These are some basic skills that every cryptocurrency trader should have, things and situations they should understand and be aware of.
A successful cryptocurrency trader must understand the risk-reward ratio. Risk management evaluates the volatility of the trade and the likelihood of a bad outcome. A successful trader, on the other hand, should never avoid risk because risk and potential profit are positively correlated. The greater the risk you take, the greater the reward you will receive if you are successful.
Order types: limits and stop losses
Stop losses and limit orders are two tools available on digital asset exchanges that traders can use to avoid mistakes and prevent losing trades from spiraling out of control. Cryptocurrency traders should be aware of different order types and strategies to limit losses.
Limit orders, unlike standard “market buy” orders, allow you to specify the highest price you’re willing to pay for a cryptocurrency. This method protects you from paying more than expected if the price of your order increases during processing. On the other hand, it stops losses and automatically sells your cryptocurrency if the price falls below a certain threshold, meaning you don’t lose more money than you expected.
News and community
As community discussions and news affect the market price of cryptocurrencies, cryptocurrency traders should keep an eye on them. News and rumors can have a major impact on the market and can often lead to profitable trading opportunities. By staying involved in the Blockchain community and keeping abreast of industry news, successful traders harness the power of information.
A cryptocurrency trader should be aware of their emotions, especially fear and greed. The ability to control one’s emotions is what sets great bitcoin traders apart from the rest. Fear and greed are strong emotional factors that can cloud one’s judgment and lead to bad deeds. Successful traders learn to control their emotions and stick to their trading plans.
This list should have given you a solid foundation for success as a bitcoin trader. However, it is important to understand that no matter how good you are at trading, you will occasionally make mistakes and lose money. Negative events are inevitable; success just means winning more than losing.
Cryptocurrency traders use technical analysis to analyze and predict trends and patterns in currency value movements. Investors can use technical analysis to identify major support and resistance levels. This information is used to determine when is the optimal time to start or end an event.
Trends describing the general direction of a cryptocurrency chart. A series of higher highs (points of resistance) and lower lows characterize an uptrend (levels of support). Fibonacci retracements, moving averages and Bollinger bands are all part of advanced technical analysis.
- Moving Averages: A moving average is a technical analysis indicator that separates random price fluctuations from the underlying trend of a cryptocurrency chart to “smooth out” the price action. Exponential Moving Average (EMA) gives more weight to current prices, while Simple Moving Average (SMA) takes averages over a period of time (such as days or weeks).
- Fibonacci Retracements: Fibonacci retracements are calculated by dividing the vertical distance between the two extreme points of the chart by the following Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8% and 100%. After that, horizontal lines form to indicate possible support and resistance levels.
- Bollinger Bands: Bollinger Bands are lines drawn two standard deviations above and below the simple moving average of a cryptocurrency chart. Many traders believe that when prices approach the “lower band” they should buy and when they reach the “upper band” they should sell.