Introduction
When cryptocurrency first surfaced, it was like a joke, but no one is laughing any longer. It is the smart early investors that are smiling to the bank now. If you were one of those people that doubted the legitimacy of the industry initially, you are not alone. Many doubting Thomases have been converted to believers already, some are even helping to spread the good news. So, it is not too late to start.
In this guide, you will get the information you need to start trading cryptocurrency as a beginner. The entire material divided into three sections to take you through the rudiments of this new, exciting journey.
By the end of this post, we would have covered each of the following topics
- Introduction to day trading and investing in the cryptocurrency markets
- The role and importance of analysis in cryptocurrency investment
- How you can buy and sell cryptocurrencies
Please note that the content of this post even though was collated from adequate research is not exactly financial advice, it is only a representation of the author’s opinions and as mentioned above RESEARCH.
The reader is hereby advised to make additional findings about whatever they read in this post in order to satisfy their own instincts before putting the contents of this material to use.
Section 1: Introduction to day trading and investing in the cryptocurrency markets
Once upon a time, only those working with trading houses, financial institutions, and brokerages were actively trading in the stock market. However, things are different now, thanks to technological advancements and the rise of the internet, it is now easier for average traders to trade different assets, including cryptocurrencies from the comfort of anywhere basically.
The easy access that investors now have to the financial markets has given more prominence to the concept of day trading.
Day trading is one of the investment practice traders employ to buy and sell financial instruments within a daily timeframe whether the trade results in a profit or a loss.
Day trading involves buying and selling assets before a day elapses. Indeed, day trading can be used in any market. However, it is more prominent in the forex and stock markets.
Usually, day traders are well-funded and are usually highly informed people. They often take advantage of different short-term trading strategies to leverage small price movements. These movements are often common with currencies and liquid stocks.
How Financial Markets Work
A market refers to a place where trading activities take place. In the financial market, people buy and sell assets. The key feature of a financial market is that it affords both those who want to sell assets and those who want to buy them to initiate and complete transactions.
The stock market is an example of a financial market. This market grew out of the necessity to trade stocks conveniently and transparently.
New issues of stock cannot be possible until it is registered with the U.S. Securities and Exchange Commission (SEC). Interested parties will give a prospectus, which is the details of a company's stock and its operations. Investment bankers purchase this stock in large quantities and then sell it on an exchange.
When an individual wishes to buy a stock, he or she will place an order for it with a broker. It is now the responsibility of the broker to buy the stock on the appropriate exchange.
Trading cryptocurrencies also has a similar format. Cryptocurrency markets are not centralized. What it implies is that they are not controlled by the government. They run across a network of computers, which makes it easy to buy and sell them without restrictions.
Interested traders can buy them via exchanges and store them in a wallet. The prices of cryptocurrencies are affected by how the market evaluates the economy.
Types of Assets That Can Be Traded in Financial Markets
Although some are illegal, almost anything can be traded. The following are the most common types of assets that can be traded in the financial market:
Commodities
They are agricultural products such as wheat and corn, metals such as silver and gold, and energy products such as oil and electricity. Currencies are also part of assets in this category.
Stocks
These are financial assets that do not have an ending or expiring date. Buying stocks makes the buyer a part-owner of a company. Therefore, he or she will partake in the profit of that firm. They can be sold to other investors or held indefinitely.
Bonds
Government and companies use bonds to finance short-term projects. The bondholder is acting as a lender. The bond contains how much it is worth, interest rate, and maturity date.
Certificate of Deposit
It gives an investor the right to deposit a certain amount of money in a bank for a specific period of time. The investor will earn a guaranteed interest rate for the investment.
Digital Currencies
They are intangible digital assets that employ a highly sophisticated type of encryption to secure and verify transactions. The encryption is also used for controlling the creation of new currency units. Examples of digital currencies include cryptocurrencies such as Bitcoin, litecoin, ethereum, ripple, and stellar. Just like other assets, owners of cryptocurrencies can hold them, buy them, and sell them to earn more profits on various exchange platforms.
Section 2: Role and Importance of Analysis in Trading and Investment
Strategy is king in the realm of cryptocurrency. The right trading strategy increases the chances of earning a profit. However, a wrong approach will lead to loss of money and investment. Indeed, there are different types of trading strategies in the market and most of the time a single strategy is usually applicable to every type of financial market ranging from stocks to oil and so on.
However, these strategies can be rendered useless when you don’t know how to analyze the market.
The two primary forms of market analysis are technical and fundamental analysis.
Fundamental analysis involves focusing on the big picture. In other words, it involves considering historical statistics and other forms of logistical data that is provided for that asset.
A fundamental analyst does a thorough investigation of the intrinsic value of an asset. They do this by gathering all of the possible qualitative and quantitative factors of a coin/asset.
Fundamental analysts invest in coins or projects that they feel has an intrinsic value beyond its current price and is likely to have a price increase in the future resulting in profit for them.
A common trading strategy is for investors to wait until the price of a coin or assets has decreased to an extent before they invest if they feel it is currently undervalued at the price it decreases to.
Fundamental analysis sounds simple and logical, but it is actually complex. It only works for experienced traders.
Contrarily, technical analysis is based on the idea that history repeats itself. Analysts who employ this method consider historical market data such as past pricing trends and trading volume.
Unlike fundamental analysis, it does not focus on the specific purpose of a project, asset or coin.
Technical analysts have the objective of building a vivid image of the market’s sentiment by considering historical market data.
They achieve this aim by identifying patterns of repeated behaviors.
Afterward, they make predictions based on the bullish or bearish trends of the market.
Fundamental Analysis in Cryptocurrency Market
Fundamental analysis is not exclusive to cryptocurrencies. Nonetheless, it is a viable analytical method of the market. When using this style for cryptocurrencies, the potential applications, and the strength of the community are used to gauge the value of the coin.
For example, an investor might be interested in Bitcoin. The first thing a fundamental analyst will look at is the feasibility of using it as a medium of exchange. He or she will also consider those factors that make it different from traditional money.
Bitcoin makes it easy to simplify cross-border payments. Therefore, the chances of it becoming widely adopted are on the rise. Meanwhile, as the adoption increases, the intrinsic value will also continue to rise. Global crypto-related events such as BTC halving are also a factor that determines intrinsic value.
Anticipated and highly-publicized events can affect the price of a coin. Nonetheless, unannounced and sporadic ones can also have the same impact.
On-Chain Analysis
An effective method of considering the fundamental factors of cryptocurrencies is on-chain analysis.
This process involves focusing totally on one crypto asset by considering historical trends.
It is also used for comparing different crypto assets to evaluate undervalued or overvalued coins.
This method of analysis helps in the separation of the speculative value of a cryptocurrency from its utility value. For example, by examining user adoption and miner activity by using blockchain data, an analyst will be able to know whether the current price equates the intrinsic value.
Technical Analysis in Cryptocurrency Market
A chart of volume and prices showcases all the past decisions traders of cryptocurrencies have made in the past.
This information affects the actions of future participants psychologically. In other words, most traders will want to sell a coin at the price at which they bought it if it declined and reach break-even again. The information also makes traders reflexive.
In other words, some traders act by identifying common trends and chart patterns.
Technical analysis can be separated into two types, that can used independently from each other, they are
- Technical indicators
- Price action patterns
Technical Indicators
They are pattern-based signals produced by the volume, price, and open interest of a security by traders. Technical analysts use indicators such as MACD, Relative Strength Index, Moving Averages, Accumulation & Distribution Line, and Support & Resistance Line.
MACD
Moving Average Convergence Divergence is an indicator that follows momentum showing the relationship between two moving averages of the price of a security.
Relative Strength Index
RSI is a technical indicator that helps to analyze financial markets. It evaluates the strength of a stock based on recent trading period’s closing prices.
Moving Averages
It helps to smooth out price fluctuations. Therefore, it helps to distinguish between the actual trend direction and market “noise” due to emotions. Moving average refers to the average closing price a coin pairs for a specific period.
Accumulation & Distribution Line
This technical indicator relates volume and price in the stock market. It also acts as a leading indicator for evaluating price movements in the cryptocurrency market.
Support & Resistance Line
Support & resistance indicator includes Fibonacci tools, moving average, and pivot points that recognize supply and demand zones.
Price Action
In technical analysis, price action refers to the up and down movement of the price of an asset.
Price action in the market can be identified by certain patterns on the chat, the following are examples and short explanations of some of these patterns:
Bearish Engulfing
This is a pattern that indicates lower prices to come.
Hammer
This is a price pattern that occurs when an asset is trading significantly lower than its opening. However, it rallies within the time close to the opening price.
Hanging Man
It is a bearish reversal pattern, consisting of one candle present in an uptrend of price charts of financial securities.
Inverted Hammer
This pattern indicates a downward trend, and it is often seen as a trend-reversal sign.
Shooting Star
Shooting star shows a falling price. It is similar to the inverted hammer.
Gaps
These are sharp breaks that often occur in the weekend, demonstrating the absence of trading activities.
Double Bottom Doji
This price pattern shows that the opening and closing price are the same.
Gravestone Doji
It is a bearish pattern that indicates that a reversal followed a downtrend in the price action.
Flying Dragon Doji
It represents a potential reversal in price to the upside or downside.
Dark Cloud
This pattern shows a potential reversal of price to the downside.
Section 3: Buying and Selling Cryptocurrencies(How and Where)
The aim of every investor is to earn a profit. Therefore, it is crucial to take advantage of strategies that can help in purchasing assets like cryptocurrencies at the lowest rates. One of the strategies an investor can take advantage of is arbitrage trading. This style of trading is the purchase and sale of an asset to earn profit from the change in the price of the asset between exchanges.
Cryptocurrency traders leverage custodial or non-custodial exchanges when buying and purchasing assets. Each has its advantages and letdowns.
Custodial exchanges hold the funds of their users and are responsible for its safety. Examples of these exchanges are Bittrex, Binance, and GDAX.
These exchanges do all they can to give the users a more seamless experience while protecting their assets from hackers.
However, these exchanges hold the money and not the users. So, there may be periods the funds are not available for trading for various reasons.
These exchanges also hold custody of the investor’s private wallet keys. Therefore, they have unannounced access to users’ money.
Besides, information security support requirements for the exchange are more complicated than non-custodial exchanges. They also set a fixed price for an asset, thereby cheating customers out of possible profits. Moreover, a breach of security is possible despite the measure put in place by custodial exchanges. In case of such an occurrence, it will be a catastrophe for every user due to the centralized nature of the system. So, non-custodial platforms like ExchangeFast offer more flexibility, accessibility, and less risk.
ExchangeFast enables users to leverage arbitrage trading and other common strategies to make more profit.
The unlimited access investors have to their money ensures that they will be able to take advantage of changes in price to earn more.
ExchangeFast uses the Changenow API to facilitate transactions. This API is connected to most major exchanges in the market. So, whenever a user buys a token via ExchangeFast, the system will automatically run through the order book for that crypto asset on various exchanges and matches the order with the one that offers the lowest price, so every transaction run through ExchangeFast is poised to inch the buyer/seller towards the maximum possible gain.
For a buy order on ExchangeFast, the system will then choose the offer with the lowest price for that coin. It will buy from there and send the bought funds to the investor’s wallet.
Therefore, those trading with ExchangeFast will be able to have the best exchange rates in the market of most exchanges. Besides, this platform guarantees the security of investors’ funds by not storing or trying to store customers' funds or data at any point. ExchangeFast also offers seamless transaction processing. Besides, it allows traders to trade and acquire different altcoins such as ethereum and others.
A non-custodial platform like ExchangeFast offers customers the security of custodial exchanges with additional perks.
Therefore, it is not shocking that lots of traders prefer these platforms. The platform gives you more responsibility by allowing you to secure your funds with your private wallet key. Therefore, no one can have access to your fund unless you allow them. Besides, the decentralized system makes this exchange less attractive to hackers. They know that they will need access to an individual’s wallet key before they can tamper with their funds.
So, when you trade with ExchangeFast, you can be certain that your asset is in safe hands.
Conclusion
Life is beautiful and scintillating when you know what to do. You need the right information, especially when it comes to trading cryptocurrencies.
Lack of accurate and useful information will lead to loss of money or low profit. This guide was aimed at exposing you to vital tips that will enable you to earn more profit from your investment. Ensure that you leverage the information to achieve financial independence.
Thanks for reading.