We talk about the basics of trading Bitcoin and other crypto assets on trading platforms, choosing a strategy, tools and risks
Cryptocurrency trading is the buying and selling of Bitcoin and other crypto assets on the market in the hope of making a profit.. Depending on the goals and strategy of the trader, cryptocurrency can be traded on various time intervals — from several seconds to several years.
It is worth considering that cryptocurrency markets can be highly speculative and volatile. It will be useful to study the situation, create a clear trading plan and understand the basics of cryptocurrency trading. Cryptocurrency trading may look different for each trader, but there are several basic principles that apply to all market participants.
Selection of cryptocurrencies. Traders choose which cryptocurrencies they want to trade. Bitcoin (BTC) or Ethereum (ETH) are some of the most popular options, but there are thousands of different crypto assets. Choosing a trading platform. Traders use cryptocurrency exchanges or trading platforms to make transactions. These platforms make it easy to buy and sell cryptocurrencies. Registration on the exchange. Every traditional cryptocurrency trading platform requires you to create an account. The process involves providing personal data, knowing your customer (KYC) identification and creating a wallet for storing cryptocurrencies. Refill. To start trading, you need to deposit funds to purchase cryptocurrencies on your exchange balance. These can be either government currencies (dollars or euros) or so-called stablecoins — cryptocurrencies pegged to the dollar exchange rate (USDT or USDC). In addition, cryptocurrencies can be directly transferred to wallets that are supported on the exchange. Placing orders. During the trading process, traders place orders (orders to buy or sell cryptocurrency) on the exchange.. There are different types of orders, including market (buy or sell at the current market price), limit (buy or sell at a certain price) and stop loss (trigger a buy or sell order when the price reaches a certain level). Analysis and strategy. Traders often use technical and fundamental analysis to make decisions about when to buy or sell cryptocurrency using a variety of trading strategies — day trading, swing trading, long-term investing, and others.. Management of risks. Transactions with cryptocurrencies on the exchange are associated with risk and sharp price fluctuations (market volatility). When trading cryptocurrency, you need to properly manage risks by diversifying your portfolio, setting stop-loss orders, applying hedging strategies, and not investing more money than you can afford to lose.. Order tracking and execution. Cryptocurrency traders closely monitor the market and complete their orders when pre-agreed conditions are met. Cryptocurrency market prices can change quickly. Safety. It is necessary to take measures to protect accounts on exchanges and wallets with cryptocurrency from hackers and scammers. rbc.group
Choosing a cryptocurrency exchange
When starting to trade cryptocurrency, one of the first and most important steps is choosing the right cryptocurrency exchange. It exposes the trader to a market where buyers and sellers interact to trade cryptocurrencies.
How to choose a cryptocurrency exchange in 2024. What you need to know
Different exchanges offer a different set of features, so their choice largely depends on the individual trading needs and goals of the trader or investor. Some of them have a more convenient interface, while others have more assets and higher liquidity. In addition, when choosing an exchange you should pay attention to security. Most platforms now employ robust security measures, including two-factor authentication and so-called cold storage of user funds.
It is also important to take into account the commissions that the exchange takes from traders when trading, as well as commissions for replenishing an account and for withdrawing funds. Before opening an account, you should check the availability of the exchange in the desired region, as well as its level of compliance with the regulatory requirements of the host country. For example, a number of large crypto exchanges do not work with Russian traders and do not support deposits in rubles.
Trading strategy
A trading strategy is a comprehensive plan that outlines a trader’s financial goals, acceptable risks, and specific techniques for buying and selling cryptocurrency.
Common strategies popular among crypto traders include day trading, long-term investing (“hold”), futures trading, arbitrage trading, or scalping.. Each strategy has its own advantages and disadvantages, and their effectiveness may depend on market conditions, experience and knowledge of the trader.
For example, day trading involves making multiple trades in one day, allowing you to profit from short-term price fluctuations, while the hold strategy involves buying and holding cryptocurrency for a long time with the expectation that its value will increase over time.. Futures trading involves entering into a contract to buy or sell a certain amount of cryptocurrency at a predetermined price on a future date, which allows you to hedge against market fluctuations.
No single strategy guarantees success, and depending on market trends, a combination of different strategies can often be used. Developing a successful trading strategy requires constant accumulation of experience, careful analysis and regular adjustments in accordance with the changing nature of the cryptocurrency market.
Tracking Market Trends
Monitoring and analyzing market trends plays a key role in cryptocurrency trading. Trading strategies largely depend on prevailing market conditions and sentiment.
For example, during a bullish period in the market, when the price of cryptocurrencies is rising, it is logical to take long positions (long), trading according to the general trend. And vice versa, with a general drop in prices (in a “bear” market), traders can play to lower prices, that is, taking short positions (shorts).
Traders often use technical analysis tools to identify market trends and patterns. These tools can help in predicting future price movements based on historical data. Commonly used technical analysis tools include moving averages (MA), relative strength index (RSI), and Bollinger Bands.
Technical analysis: what every investor needs to know
Another important aspect of analyzing market trends is understanding the “sentiment” of the market, that is, the general attitude of investors towards a particular cryptocurrency. So-called market sentiment can be determined using various indicators such as news, social media discussions and changes in trading volumes. Monitoring and analyzing market trends can help you make informed trading decisions, but it also does not guarantee success due to the inherent volatility of the cryptocurrency market.
Mistakes and risks
Trading cryptocurrencies requires a deep understanding of the market and a well-built strategy, but even the most experienced traders make mistakes.
One of the most common is trading “on emotions”, when a trader is subject to impulsive decisions rather than relying on analysis of market data. For example, you can buy a cryptocurrency at the peak of its price out of fear of missing out, or, conversely, sell it in a panic during a market fall at its minimum price before further growth. Such actions can lead to significant losses.
Another common mistake is neglecting to set a stop loss order. A stop loss is a tool that automatically sells a trader's cryptocurrency on an exchange when its price falls to a certain level, thereby protecting him from further losses.
Many traders also fall into the trap of overtrading, making many trades in a short period of time in an attempt to take advantage of every possible profit opportunity. Excessive trading in an attempt to do everything at once can increase the likelihood of making poor trading decisions due to fatigue or stress.