Since the beginning of the decade, cryptocurrency trading has been a hot issue in the financial world. Since the invention of Bitcoin in 2009 the digital currency market exploded. Many cryptocurrencies were created and traded across various platforms. The advent of automated trading bots makes it easier than ever for beginners to trade cryptocurrency. Before launching into a trading plan and the world of cryptocurrency, traders must first understand the basics.
What is Cryptocurrency?
Trading cryptocurrencies involves buying and selling them through a digital exchange. Cryptocurrencies use encryption techniques to verify and control transactions. Bitcoin, Ethereum Ripple, or Litecoin is among the most common cryptocurrencies. They can be traded on cryptocurrency exchanges against other digital currencies like USD EUR GBP or traditional money.
Trading in cryptocurrency can be done by hand or automatically with a bot. Manual trading requires traders make their own trading decisions. Automated trading allows the bot to analyze trends and execute trades according to preset parameters.
Types Cryptocurrency Exchanges
Cryptocurrency Exchanges are online platforms that allow traders to buy and sell cryptocurrencies. These exchanges are either decentralized or centralised. Decentralized exchanges enable peer-topeer transactions without an intermediary. Centralized trades act as intermediaries for buyers and sellers.
While centralized exchanges may offer better liquidity, more trading tools, and more cryptocurrencies to choose from, decentralized exchanges can provide greater privacy and anonymity as users don’t have to divulge personal information or undergo KYC/AML checks.
Understanding Cryptocurrency Trading Strategies
Trading cryptocurrencies can be done in a variety of ways, depending on your style, knowledge and risk appetite. Some common trading strategies include the following:
Day Trading: This involves buying and trading cryptocurrencies in a single day to take advantage of short-term movements in price. The goal of day trading is to make small gains throughout the day. These trades are typically based on technical analyses.
Swing Trading: Swing trade involves holding a cryptocurrency over a period of days, weeks or months to take advantage of long-term movements in price. The trades are based both on technical analysis and fundamental analyses.
Scalping: Scalping involves multiple trades in a short time period, taking advantage small price movements. The goal is to accumulate small profits from each trade.
Position Trading: This involves holding a cryptocurrency for a prolonged period of time. This can range from several months to many years. The trades are based upon fundamental analysis.
Technical Analysis and Fundamental analysis
Technical analysis is the process of analyzing cryptocurrency charts and identifying patterns which indicate a future price move. This type includes chart patterns, indicators and trend lines.
Fundamental analysis is the opposite. It involves analyzing underlying factors which affect the value of a cryptocurrency, such as news, regulations, demand and supply, and innovations. Fundamental analysis is a tool that can be used for identifying long-term investment opportunities. It can also help traders to make short-term decisions.
Risk Management
Cryptocurrency is a high risk activity and traders should have in place a solid risk-management plan to minimize losses. Position sizing is a key aspect of risk-management. This involves determining the amount of capital that should be allocated to each trade according to risk appetite.
Risk management can also be achieved by using stop-loss order, which closes a position automatically when the market reaches predetermined levels. Take-profit orders can be used by traders to automatically close a position when the market reaches their desired profit level. These orders help traders to limit potential losses and lock profits.
Before you dive into the market, it is important to understand the basics of cryptocurrency trading. Traders must understand how cryptocurrencies operate, the types of exchanges available, trading strategies, fundamental and technical analysis, and risk-management. With the right tools, knowledge, and a trading robot, traders can navigate the volatile crypto market with ease, and potentially earn significant profit.