Despite the constant volatility, the crypto market is one of the most progressive and profitable. As a result, volumes of investors are joining the crypto trading bandwagon – hoping to leverage the moving prices for maximum profits.
However, crypto trading entails more details. This means that before choosing to go into trading, it is important to have a good understanding of the market tides and how best you could time your moves to lock in your profits.
In this piece, we examine some of the ways you could approach crypto trading as a beginner and make the best out of the booming crypto market:
Volatility: The Prevalent Theme in the Crypto Market
The crypto market is one without a constant price movement. Crypto prices are driven by several dynamics such as the crypto supply and demand, the mining, the utility of the cryptocurrency and the existing market sentiment.
Hence, before choosing to trade, you as a crypto trader have to consider some of the factors that affects the coins you’d choose to invest in for trade.
1. Crypto Supply and Demand
Like everything in the global market today, cryptocurrencies are subject to the basic laws of supply and demand. The price movement today is fuelled by the total circulating supply – which differs from coin to coin.
The demand for a coin influences its price in the market and when pitted against its total supply in circulation raises the bar for its price movement.
2. The Utility of the Cryptocurrency
It is no news that the crypto space’s expansion is due to the influx in crypto projects – all professing to bring something valuable to the table. As a result, the crypto market is influenced by the usefulness of the coin demanded and in circulation.
No one would want to invest in a coin without value or that might not be of use at some point in the future. The more useful a coin is, the more its demand will be. Stellar, for instance, provides a decentralized foundation for the development of decentralized applications. This proves the integrity of its presence in the crypto space.
3. The Market Sentiment
Having a detailed view of the current dynamics or sentiments of the market on cryptocurrencies gives you an edge when trading. Investing in coins without coverage or moves of adoption/integration in the market could be detrimental to your trading position.
Understand the Technicalities
While the technicalities of the crypto market could be daunting especially as a beginner, it is important to be familiar with a few technical terms. This helps to determine trading positions and the profit margin.
1.The Moving Average Convergence/ Divergence Indicator (MACD)
The MACD indicator explores differences between moving averages of a coin to evaluate its dynamics. This indicator allows traders to use the price trends in the short-term and long-term to determine the future movements.
This method of analysis checks the convergence (i.e. the closeness) or divergence of two moving averages of a particular coin to determine the position of the coin and the trading signal.
One peculiarity with the MACD indicator is the crossovers at the signal line. If viewing the signal line indicates a crossing over of the MACD above the signal, it could be a good time to buy. Conversely, if it goes below the line, it could be an initiator for a sell off.
Another point to view is the Bollinger bands which plots two standard deviations at the side of the moving average. Using this allows you to exploit the market volatility for better returns.
Here, the bands move closer to the moving average whenever the market volatility is low and diverge when high. However, thinner bands are mostly indicators of a near-volatility and when the price of the crypto moves closer to the upper edge of the band, it is a signal of an overbought or overpriced coin.
2. The Relative Strength Index
The RSI value is an indicator of the value of the cryptocurrency at the point in time. This indicator weighs a coin’s current price against its recent performance in the market to determine whether it is undervalued or overpriced.
Higher RSI values like say 80, indicates an overpriced cryptocurrency – which means a reversal could ensue in a short period.
Before Trading Cryptocurrencies
Successfully trading cryptocurrencies is also weighed on the trading points or venues as well as its storage. Hence, as a crypto trader, you’d need an exchange and a wallet to move your coins successfully.
As implied by the name, crypto exchanges allows traders to exchange their cryptocurrencies with either fiat currencies or other cryptocurrencies. Different forms of exchanges are in existence. So, here are some of the different exchanges you might encounter:
- Fiat Gateways or On-Ramps
These exchanges are characterized by direct purchases of cryptocurrencies with fiat currencies. To trade on these platforms, it is mandatory to purchase cryptocurrencies listed on their platforms with fiat currencies. This gives the trader sufficient grounds to trade.
However, trading here is dependent on the jurisdiction of the trader and the listed pairs on the platforms. The commonest pairs are Bitcoin, Litecoin, Bitcoin Cash and Ethereum and in most cases, they are paired with the USD or EUR.
- Decentralized Exchanges
Decentralization is one of the most prevalent terms in the crypto space. Trading on decentralized exchanges means that users have the freedom to secure, trade or list their coins at any point they want.
It is not controlled by any central entity and traders can anonymously trade with them since they are not subject to KYC/AML demands. Examples of these exchanges include IDEX, Bisq and CryptoBridge.
- Altcoin Exchanges
These exchanges are characterized by crypto trading alone without fiat involved. This is due to the regulatory moves the crypto market is being subjected to. However, these exchanges make up for the circumventing of regulatory frameworks by giving traders a wide range of options to choose from.
Examples of exchanges include KuCoin, Binance, CryptoBridge and so on.
It will be devastating to keep up with the changing price trends and lose one’s coins to prying hands. Security is a major issue in the crypto market these days due to the nature of cryptocurrencies and their forms of trade.
Hence, as a trader, it is paramount to choose the right and convenient storage facility. You could choose a hot storage or cold storage. Wallet services are made available on exchanges these days and this is form of hot storage. It allows you to store and trade conveniently.
Cold storage is a more secure form of storage that allows you to store your crypto assets offline with the use of either a paper wallet or hardware wallet. Ultimately, they keep your private keys and other valuable information offline which could be retrieved for transactions whenever needed.
When Choosing to Trade as a Beginner
Trading in a dynamic market such as the crypto market can be tasking especially since unlike the traditional stock market, its activities are continuous. The crypto market never goes to sleep, hence, traders are required to be on their toes at every moment.
Luckily, thanks to the awesome innovations in technology, managing one’s portfolio can be automated. Today, automated tools like Shrimpy allows traders to rebalance their portfolio according the market movement for better profit maximization.
However, it is important to consider the factors shaping up the market volatility, the technicalities involved and the trading avenues when choosing to trade. More importantly, regulations and taxes should be major considerations.
Crypto traders are subject to FATF and IRS regulations in the US for instance. Each country has their own set of rules which is up to each individual to adhere to. Though it isn’t exactly an exciting point in trading, it is important to consider the regulations guiding the crypto assets in your portfolio and those governing your chosen trading platform.
Ivo van Herwaarde
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