Trading cryptocurrency can be exciting for many people. Especially with the amazing increase in valuation that cryptocurrencies like Bitcoin have seen. Still, for many others, the process can be a little daunting. There are many processes that go with buying and holding crypto. So we’ve decided to break it down into an easy-to-read guide that will help you understand how to trade crypto and how the market works.
The Crypto Market
At the time of writing this article. The cryptocurrency market capitalization has surged past 2 trillion dollars. In a matter of just 2 months, the market cap nearly doubled.
The cryptocurrency market is a decentralized digital currency network. This means that it operates through a system of peer-to-peer transaction checks, rather than a central point of control. Any transaction done with cryptocurrency (buying or selling) is registered in the blockchain – which records information about the crypto trades.
Bitcoin and Ether (Ethereum) are the two most important coins. However, given that this market is still fairly new, and hasn’t had time to fully mature.
We can anticipate that other alternative assets may emerge to compete in the space and drive up overall market capitalization. In the meantime, the cryptocurrency market has been notoriously volatile, especially in comparison to the traditional forex market. So when trading users should really think about making a trading plan.
Different Ways you Can Buy Crypto
There are a few common ways you can buy cryptocurrency. Through CFDs (Contract for difference) where you would speculate on their short-term price. Directly buying the digital currencies, or using an exchange traded product choosing to hold them or selling them for profit once they increase in value.
- Buying and selling Crypto using CFDs – With CFD trading you don’t actually buy and sell the underlying asset (in this case the asset being a cryptocurrency). Instead, you can buy or sell exposure to units of a cryptocurrency, based on whether you believe the value will go up or down. In other terms for every point the price of the instrument moves in your favor, you gain multiples of the number of CFD units you have bought or sold. For every point the price moves against you, you will make a loss. Tradeview offers CFDs on crypto through its platforms.
- Outright buying and holding a digital portion of a cryptocurrency – Alternatively, people choose to buy and own crypto by holding it in their own digital wallet (Cold Storage) or a wallet in an account at a cryptocurrency exchange. This makes you the owner of a portion of the cryptocurrency that you decide to buy and hold in hopes of it gaining value.
- Buying Exchange traded products – Similar to a stock or commodity you can find a number of on-exchange products such as ETF’s or CME traded Options & Futures.
Whether you decide you want to trade crypto through CFDs, on exchange or owning a piece of the digital currency. You need to understand the ins and outs of the crypto market. Unlike stocks and forex, cryptocurrency is a non-tangible asset. This means that in no way can this asset be seen beyond a computer screen. This makes the market for these ‘coins’ unique in the way it operates.
How to Trade Crypto: Opening an Account
When you learn how to trade crypto, or if you decide to buy cryptocurrency or open a position with them through a CFD, your first step will be to open an account. Usually, CFDs are better for trading since the operation will be much faster. With Tradeview, you can short or long positions on Crypto CFDs, and opening an account will only take a few minutes.
Developing a Cryptocurrency Trading Plan
The first step in trading Crypto (or anything for that matter) is to trade by controlling your emotions.
Fear and Greed are dangerous emotions for traders, not sticking to a plan because you fear that you might lose or becoming too ambitious, can be devastating to any trader regardless of their experience. And yes, these emotions are totally normal and common emotions for humans – and well, traders are humans – so feeling fear in the face of uncertainty, or greed in the face of success is normal.
However, in order to be successful on learning how to trade crypto, we must become masters of controlling emotions. There are a few techniques that can keep us grounded when we feel overwhelmed by emotion at the moment of executing a trade:
- Plan de trade and trade the plan – When you enter a position, you must have a plan for what to do if things go right, and what to do if things go wrong. So let’s say you set a max loss for $50 USD, and you plan on exiting a trade once you’ve made $150 USD. Once you reach your goal you exit, or once you reach that max loss you cut your losses.
- Bank in the Bank – It’s far too easy to think about what to do with your money once you see some profit, but the thing is, until you actually sell and have that money in the bank your profit is just theoretical. The same goes for losses, a loss isn’t a loss until you sell.
- Think of trading as a game – When humans think about money and risk, usually all rational thought goes out the window, when trading, think of profits as a game with points, or pips. That way, You can detach yourself from emotion and think of it as a score in a game.
How to Trade Crypto: Reading Trading Charts
Trading charts have been around for hundreds of years, no really. So within those hundred years, new charts for analysis have come to give different perspectives on price predictions. Crypto traders, like forex and stock traders, should also learn to read charts. For this example, we will look particularly at candlestick charts. Candlestick charts show activity for a specific timeframe that traders can choose, their main components are:
Candlestick charts also use colors to represent a change in price GREEN for growth and RED for a decline. The main portion of the candlestick is called the body. The long thin lines above and below the body represent the high/low range and are called shadows or tails. The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the stock closes higher than its opening price, a green/hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price.
Related: How candlestick patterns work
The shape of a candlestick can tell us a lot of information of what’s going on in the market, thus giving us an in-depth understanding of what might come next. There are a lot different patterns for candlesticks but we will look at the most common ones for this article.
The Doji pattern is a classic sign of indecisiveness. The relevance of a Doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a Doji signals that the buying pressure is starting to weaken. After a decline or long black candlestick, a Doji signals that selling pressure is starting to diminish, indicating that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.
Hammer patterns are usually an indicator that a bearish trend is soon to end. As their name indicated the pattern resembles a hammer. This pattern shows that the bulls took control of the trading. (indicated by the wick) but quickly lost it (short body). As a result, the price returned close to the opening number.
In other words, the bears tried to sink the asset but bulls regained the initiative and didn’t let it happen
When learning how to trade crypto, the shooting star pattern is very similar to the hammer pattern with the exception that it’s backwards. And unlike the hammer pattern where it represents the end of a bearish trend. The shooting star pattern represents the end of a bullish trend.
In other words, bulls who were in control lost the initiative to the bears. Bears managed to sink the price close enough to the opening figure by the end of trading.
Trading Crypto can be something that people do as a long-term or short-term investment. Whatever your reason, it’s important to understand how the cryptocurrency market works and establish a strategy that works for you and your goals. Starting by deciding HOW you want to trade, remember that with Tradeview you can trade Bitcoin and other Cryptocurrencies with CFDs.