There’s been an increase in the usage of bitcoin, ethereum, ripple and many other cryptocurrencies lately. These cryptocurrencies, other than than primary function have also become trading and investments instruments. That is why many like yourself are eager to understand and learn crypto trading.
To get you started, we will introduce you to the basics of crypto trading, terms you should be familiar with and strategies often employed by traders.
Generally, trading involves the sale and buying of products (assets). These assets may include; stocks, cryptocurrencies, bonds, among many others. Now, crypto trading involves the buying and selling of cryptocurrencies. It entails monitoring the price movement of cryptocurrencies to determine the best time to purchase or sell in order to make profits.
Understanding what crypto trading is about will help you determine the digital currency you should invest in and the best time for the purchase or sale.
Before delving into the basics of trading, let’s briefly look at the difference between trading and investing.
Trading and investing focus on making a profit; however, they follow different patterns in terms of how profit is made.
What is investing all about?
Investment usually involves generating profit over a long period. It involves the purchase of assets and holding them over an extended period to generate wealth. Investments may take years and even decades, depending on the preference of the investor.
What about trading?
Trading focuses on making profit in the short term. Think about traders of any kind of goods or commodities; they focus on selling their wares as quickly as possible to make profits. It doesn’t really matter to a trader if what they have right now might be worth much more 5 years from now. They mainly focus on the profit they can make in the nearest future, be it hours, days, weeks or few months.
So trading and investments involve the same basic actions but differ in duration, strategies, and how they operate.
Traders operate on the volatility of the market. That is, they take advantage of the rise and fall of assets to determine when to enter and exit the market. This allows them to make frequent but smaller profits.
The crypto market like most financial markets is volatile, and price fluctuations occur quite frequently. Traders depend on this volatility to make profits within a short time even though it may lead to a loss if not properly timed. Investors, on the other hand, are able to evade downtrends that result in short-term losses. This is because they believe that over time an asset's value will increase, and downward trends are only temporal.
Dump: This is when a trader sells off cryptocurrency; it is sometimes motivated by a downward trend in the market.
Exchange: This refers to an exchange platform, such as Yellow Card, where traders can network to either buy or sell an asset (cryptocurrency).
FOMO: This is an acronym for the "fear of missing out." Traders may experience a fear of missing out on a trade opportunity that promises significant profit.
Inflation: This refers to the decrease in the value of a currency and a subsequent increase in a commodity's price.
JOMO: This is an acronym for the 'joy of missing out." A trader may experience joy about a decision not to follow a market trend that had promised profits but fallen short.
Liquidity: This is an indication of how easily you can buy and sell cryptocurrency
Over the Counter (OTC): This is when trades are completed between two parties without making use of an exchange.
Pump and Dump (P&D) Scheme: This is a fraudulent scheme put in place to inflate the price of a cryptocurrency to sell at a higher price.
Shilling: An act of promoting a cryptocurrency to increase its value.
Volatility: This refers to the degree of variation of the trading price of a cryptocurrency over time. It can be measured using the standard deviation of returns.
Hodl: This refers to holding onto a cryptocurrency and not selling even when its price dips.
Moon: This is the rapid increase in the price of a cryptocurrency.
Rekt: This term is used to refer to losing trade over a short or long space of time.
Whale: A whale is an individual who holds a significant amount of cryptocurrency. A large buy/ sale order from such an individual may alter the price of a cryptocurrency.
Knifedrop: This refers to a quick drop in the price of a cryptocurrency
(Going) Long: This is when a trader enters or exits a trade with the expectation that a cryptocurrency price would increase.
(Going) Short: This is when a trader enters or exits a trade with the expectation that a cryptocurrency price would decrease.
Bid-ask spread: The bid-ask spread refers to the calculated difference between the highest price a buyer would be willing to buy and the lowest price the seller is interested in selling at.
Fundamental analysis: This involves the evaluation of a cryptocurrency's financial and economic variable (such as cryptocurrency adoption) to determine its value for trade and investment.
Technical analysis: This is an analysis done on a cryptocurrency market trend to determine when and how to trade it. It also helps traders predict the rise and fall of a cryptocurrency market value based on previous market data.
A trading strategy is a plan executed to make the most profit out of a trade. There isn't just one suitable trading strategy that is built to make the most profit. The trading strategy you choose to implement depends on your experience, preference, and risk tolerance.
A trading strategy enables you to plan and make the best profit from your trade. It affects the time you choose to enter and exit a trade as well as help you minimise loss and maximise profit.
The most common strategies include:
Trading pairs, also referred to as cryptocurrency pairs, are cryptocurrencies that can be traded for each other. For instance, You can trade Ether for Bitcoin (ETH/BTC), Polkadot for Litecoin (DOT/LTC) or Bitcoin for Tether (BTC/USDT). It is important to understand trading pairs as not all trades include a fiat currency.
There are two important parts of a trading pair: the base currency and the quote currency.
A base currency is a common currency that can be used to exchange other cryptocurrencies. Because it is not always possible to exchange fiat currencies for the over 1000 cryptocurrencies that exist, a base currency such as Bitcoin and Ether provides a quote for the other cryptocurrencies so that you can easily exchange them. The crypto you’re exchanging the base currency for is known as the quote currency.
For instance, you may have Litecoin and want to purchase Polkadot. Instead of first exchanging your Litecoin for a stablecoin like Tether, the exchange may have a trading pair of DOT/LTC. This way, you can see how much it will cost to directly exchange Litecoin for Polkadot.
In addition, specific cryptocurrencies can only be purchased with other cryptocurrencies. As such, it is important to note these cryptocurrencies and crypto exchanges that allow trading pairs. Understanding trading pairs will enable you to broaden the range of cryptocurrencies you can trade or invest in. Multiple trading with different cryptocurrencies may improve your profit margin. Trading pairs make it easier to purchase other cryptocurrencies using specific cryptocurrencies.
First, in order to start crypto trading, there are certain things you need to put in place, which includes:
Numerous cryptocurrency exchanges offer a trading platform for crypto enthusiasts. However, there are certain details you need to put in mind when selecting a crypto exchange. These factors include:
It is vital that you research before selecting a crypto exchange to trade on. You can, however, rest assured that Yellow Card remains one of the best exchange platforms offering users top-notch service at their convenience.
Certain tips would be very practical while trading. These tips would help you minimise loss and maximise profits. These tips include;
The crypto market is highly volatile and liquid, presenting an opportunity for individuals from across the globe to trade and invest in cryptocurrencies. As a beginner, it is essential to dedicate time to learn more about how the market works and the best strategies that work for you.
Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.
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