Complete Guide to Cryptocurrency Trading for Beginners

 Complete Guide to Cryptocurrency Trading: Trading is a fundamental economic concept involving the buying and selling of assets. 

These can be goods and services for which the buyer pays compensation to the seller. In other cases, the transaction may involve the exchange of goods and services between the parties.

What is trading?

In financial markets, the assets traded are called financial instruments. These can be stocks, bonds, pairs of currencies in the Forex market, options, futures contracts, margin products, cryptocurrencies and many others. 

If these terms are new to you, don't worry: we'll explain them all in this article.The term “trading” is commonly used to refer to short-term trading, where traders actively enter and exit positions over relatively short periods of time. 

However, this is a slightly misleading assumption. In fact, trading can refer to a wide range of different strategies, such as day trading, swing trading, trend trading and many more. But do not worry. We will examine each of them in more detail later.

What is an investment?

Investing is the allocation of resources (such as capital) intending to generate a profit. This can mean using the money to finance and start a business, or buying land to resell it later at a higher price. 

In financial markets, this usually involves investing in financial instruments with the expectation of selling them later at a higher price.

The expectation of profit is central to the concept of investing (also known as making). Unlike trading, investing takes a longer-term approach to wealth accumulation. The aim of an investor is to build up a heritage over a long time (years or even decades). 

There are many ways to do this, but investors will use factors of fundamentals to find potentially interesting investment opportunities.

Because of the long-term nature of their approach, investors are not concerned with short-term price fluctuations. Therefore, they will remain relatively passive, without worrying too much about short-term losses.

What is the difference between trading and investing?

Traders and investors seek to make profits in the financial markets. Their methods of achieving this goal are quite different, however.

Investors seek to generate a yield over a longer period - think years or even decades. As investors have a longer time horizon, the returns they target for each investment are larger than well.

Traders‌ try to take advantage of the volatility of the market. They enter and exit positions more frequently, and can search for returns weaker with each trade (since they often carry out several trades).

What is best? What suits you best? It's up to you to decide. You can start learning about the markets and then learn by doing. Over time, you will determine what best suits your financial goals, your personality, and your trading profile.

What is Fundamental Analysis (FA)?

Fundamental analysis is a method of assessing the valuation of a financial asset. A fundamental analyst studies economic and financial factors to determine if the value of an asset is fair. 

These may include macroeconomic circumstances such as the state of the economy industry conditions, or activity related to the asset (if applicable). Leading and tracking macroeconomic indicators often follow these.

• Once the fundamental analysis is complete, analysts look to determine whether the asset is undervalued or overvalued. Investors can use this conclusion when making their investment decisions.
• With cryptocurrencies, fundamental analysis can also include an emerging field of data science that is interested in public data from the blockchain called on-chain metrics. 
• This metrics can include the network hash rate, the list of the biggest possessors, the number of addresses, transaction analysis, and more. 
• Using the abundance of data available on public blockchains, analysts can create indicators using complex techniques that measure some aspect of overall network health.
• Someone widely used if fundamental analysis in the stock market or theorem, it is less suitable for cryptocurrencies in their current state. 
• This asset class is so new that there is simply no standardized and comprehensive framework for determining market valuations. 
• A large part of the market is driven by speculation and a narrative. Thus, fundamental factors will have negligible effects on the price of cryptocurrency. 
• However, more precise ways of thinking about the valuation of crypto assets can be developed once the market matures.

What is Technical Analysis (TA)?

Technical analysts work with a different approach. The key idea of technical analysis is that past price movements can show how the market will behave in the future.

1. Technical analysts do not determine the intrinsic value of an asset. Instead, they look at past trading activity and try to identify opportunities based on that. 
2. This may include price action analysis and volume, THE graphical analysis, the use of technical indicators and many other charting tools. This analysis assesses the strength or weakness of a market.
3. That said, technical analysis is not just a tool for predicting the probabilities of future price movements. It can also be a useful tool for risk management. 
4. As technical analysis provides a model for analyzing the structure of the market, the management of trades is more defined and measurable. In this context, measuring risk is the first step in managing it. 
5. Therefore, some technical analysts may not be considered traders in the strict sense. They can use technical analysis only for risk management.
6. The practice of technical analysis can be applied to any financial market, and traders widely used it in cryptocurrencies. 

But does technical analysis work? As we mentioned earlier, the valuation of the cryptocurrency markets is mainly because of speculation. 

This makes it an ideal playground for technical analysts, as they can thrive by considering only technical factors.

Fundamental analysis or technical analysis - which is better?

It entirely depends on your trading strategy. In fact, why not use both? Most market analysis methods work best when combined with other methods or indicators. 

It therefore becomes possible to find more reliable investment opportunities more easily. Combining different trading strategies can also help you eliminate bias in your decision-making process.

This concept is sometimes called convergence. Convergence traders combine several strategies into one that exploits the benefits of these strategies. 

The trading opportunities presented by the combination of these strategies can be of higher quality than those provided by a single strategy.

What are the drivers of financial markets?

The price of an asset is simply determined by the balance between supply and demand. It is determined by buyers and sellers. 

When supply meets demand, there is a market. But what are the other elements that can determine the value of a financial asset?

As already mentioned, there may be fundamentals, such as the state of the economy. In addition, there may be technical factors, such as capitalization of a cryptocurrency. There may be other factors to consider, such as the market sentiment or the news.

However, these are just the factors to consider. What really determines the price of an asset ‌is simply the balance between supply and demand.

What is a market trend?

A market trend is the general direction of an asset's price. In Technical analysis, we usually identify market trends using price movements, trend lines or even from moving averages keys.

There are two main types of market trends: bullish trends and bearish trends. A bull market comprises a sustained uptrend, where prices are continuously rising. 

A bear market is a sustained downtrend, where prices are continuously falling. We can also identify merging or “sideways” markets, where there is no clear directional trend.

We should note that a market trend does not mean that the price is always moving in the trend's direction. Smaller bearish trends, and vice versa accompany A prolonged bull market. 

This is simply the nature of market trends. It's a matter of perspective, because it all depends on the time you're studying. 

Market trends over longer time frames will always matter more than market trends over shorter time frames.A special thing about market trends is that they can only be determined with absolute certainty in retrospect. 

You may have heard of the concept of hindsight bias, which refers to the tendency of people to convince themselves that they have correctly predicted an event before it happens.Hindsight bias can have a big impact on identifying market trends and on trading decisions.

What is a market cycle?

You may have heard the expression “The market moves in cycles”. A cycle is a pattern or trend that appears at different times. Market cycles in higher time frames are more reliable than market cycles in lower time frames. 

But you can eventually find small market cycles on an hourly chart, just as you can when looking at decades of data.

Markets are cyclical. Cycles can cause certain asset classes to outperform others. In other segments of the same market cycle, these same asset classes may underperform other types of assets because of different market conditions.

We should note that it is almost impossible to determine ‌where we are currently in a market cycle. I can only carry this analysis out with great precision after this part of the cycle. 

Market cycles also rarely have a proper beginning and end. It turns out that being in the moment provides a very skewed perspective on financial markets.