Crypto Trading: An Introduction to the Basics
Fascinated with the world of crypto trading and already imagining the lifestyle of a professional crypto trader? Making your first successful trade is one of the most enjoyable feelings.
Crypto trading might be overwhelming, and you might be feeling the urge to just jump into crypto trading quickly, but you need to master the basics first.
This article introduces you to all the basics of crypto trading to get you started -
- Long-term vs short-term trading - Day trading
- Fundamental analysis
- Technical analysis
- Technical Indicators
- Stop-Loss vs Take-Profit
- Market cycles
After this article, you’ll be well equipped to succeed with YouHodler’s Multi HODL tool and discover various ways to generate profit.
Core Concepts of Crypto Trading
Let’s explore each of the above concepts.
1. Long-term vs Short-term Trading (Day Trading)
When you research about long-term trading in crypto, you notice the first major difference from stock markets. In stock markets, you can analyze decades of pricing data before making a decision which is not possible in crypto.
Long-term trading in crypto should be preferred for coins that have been around for a few years. You can refer to this article to check out some of the trends that you can identify to open a long-term move.
Short-term crypto trading, on the other hand, is done for a few weeks at max. Generally, short-term trading is about day trading, which can be profitable with the right approach.
Volatility is the biggest thing to consider for short-term trading as you can use various indicators to benefit from volatility to reap in benefits.
- Short-term trading is more about trading news and volatility.
- Long-term trading is about spotting trends over weeks, months, or years and trading according to them.
2. What is Fundamental Analysis in Crypto Trading?
Fundamental analysis is defined as analyzing a business's financial statements and market conditions to predict the future.
Fundamental analysis in crypto is not like stock trading in which you can scan through financial statements of the company and the industry to make future projections.
The way fundamental analysis is done in crypto is by reading through the whitepaper and understanding the underlying technology. You can also access the demand for this technology by looking at the problem that it is solving. For example, a blockchain project building decentralized identities is trying to reduce the cost and impact of data breaches. This is quite a big market as most people would prefer better data security for their personal information.
Although, make sure to remain up-to-date with crypto news as a lot can happen overnight in crypto.
3. What is Technical Analysis in Crypto Trading?
Technical analysis in crypto is based on looking for trends and patterns in history, which have a high probability of repeating.
Since the movement of prices is based on demand and supply, which is dependent on human emotions and psychology, a lot can be predicted from human psychology. And, charting tools help you to leverage that data for profit. It’s a very valuable skill to consistently predict future price movements based on technical analysis.
Moreover, technical indicators are also part of your technical analysis. One of the biggest tools for technical traders is technical indicators. These indicators are mathematical tools that analyze various types of data to give indications about possible future price movements.
The price changes because of human emotions. However, technical indicators give us the ability to better understand those human emotions by detecting patterns or trends. There are various types of indicators, and I would like to tell you a bit about the three main ones -
- Trend indicators - These indicators help you to identify and predict trends in the crypto market. These are based on various technical factors which take place before a trend reverses in crypto
- Momentum indicators - These indicators determine the strength or weakness of a crypto’s price.
- Volume Indicators - These indicators look for the sudden change in volume and momentum of a particular coin which is a clear indication of a trend reversal
Next, let’s take a look at two of the most widely adopted technical indicators.
Key Technical Indicators You Should Master
I am explaining two of the most prominent indicators which will give you a fair amount of idea about how these indicators work.
Moving Average Convergence Divergence (MACD) is an indicator which focuses on the 12 and 26 days average of a coin. By subtracting the 26-day Exponential Moving Average (EMA) from the 12-day EMA, we get the MACD line which is plotted on a chart.
Next, a 9-day EMA is plotted on the chart that acts as a signal line. Whenever the MACD line crosses this signal line, it indicates a potential trend reversal. Moreover, you can also derive whether the bullish or bearish movement is strengthening or weakening. For example, if the space between the MACD line and 9-day EMA line increases, this indicates that the bullish movement is strengthening. Obviously, you can customize the MACD by changing the signal line or MACD calculator with a different average. However, the “12 25 close 9” MACD setup is most preferred.
RSI is a momentum indicator that is based on the speed and change of prices of a particular coin. Sudden changes are an indication of an upcoming change in trend. A value of more than 70 in RSI is considered overbought and under 30 is considered underbought.
4. Stop-Loss vs Take-Profit
One of the best things that you can do for your trading career is to build a habit of using both stop-loss and take-profit from the very beginning. Trading without stop-loss can be risky, especially in crypto markets which are so volatile.
Stop-loss is a system of defining a value beneath your buying price which, when reached, will result in the selling of your trading position. This way, you will never lose funds beyond a particular limit and limit the risk per trade.
You can still be making mistakes after setting a stop-loss. So, to make quick and wise decisions, always refer to the risk/reward ratio to set a smart stop-loss. This ratio takes into account both the probable profit and risk and helps you calculate the best risk ratio for your trading appetite.
Check out YouHodler’s previous article about crypto trading techniques to maximize profits by controlling emotions, setting targets such as stop-loss or take-profit, or using percentage-based selling.
5. Understanding the Influence of Market Cycles
As you dig deep into the crypto or any other market, you will find numerous trends in the market. At its essence, market cycles define the period between two highs or lows in the market. Further, many different emotions can be linked to different phases in a particular market cycle. Understanding the current market feeling helps you identify long-term trends over several months up to several years.
The crypto market also moves in cycles which are also small in nature like hourly cycles and longer ones like a decade-long cycle. These cycles are the result of human emotions. With time and research, you will be able to witness changing trends in the market which arise due to emotions like anger and euphoria. Another predominant emotion is fear which often leads to a rapid market crash.
Recommended reading: “Do you know about crypto market cycles? You should”
As you can judge from what you have read, there is a lot to crypto, and you will find loads of stuff as you dig deeper. Always make sure to control and understand your emotions as that’s where the secret to your success lies.
As you trade more and more, you want to access more capital? YouHodler provides crypto traders with instant crypto loans and a platform to trade.
If you seek to get started with crypto trading using a safer strategy?, try out the Barbell Strategy which both combines a passive investment (savings accounts) with a more risky, and potentially profitable trading tool (Multi HODL).