Trading on a crypto exchange: how to trade profitably
and what is needed for this
The phrase "bitcoin trading" can be heard today even in the state media. The reasons for the popularity of trading on the exchange are quite clear: it is a relatively new, promising and independent way of earning money. But due to the fact that enthusiasts pounce on this opportunity without understanding the principles of working on a cryptocurrency exchange, most of them suffer a deafening fiasco.
The purpose of this article is to give you an overview of cryptocurrency exchange trading, the basic concepts of the digital economy, and, possibly, prevent someone's naive one-on-one exit from the aggressive electronic money market.
Cryptocurrency is a digital asset written as a chain of program code. Unlike conventional assets such as gold or national currencies, digital money is not tangible. That is, the chain of code is the asset itself.
Where to start learning cryptocurrency for trading on the exchange? First of all, it is worth understanding its key properties:
• Decentralization. There is no single center for managing digital currencies;
• Publicity. All cryptocurrency transactions take place in an open digital space called blockchain. A copy of it is stored on the computers of all users of the currency network;
• Confidentiality. Personal data, personal keys to wallets and electronic money themselves cannot be obtained without the permission of their owners;
• Irreversibility of operations. It is impossible to carry out the reverse movement of money between wallets within the same transaction;
When entering the exchange, the cryptocurrency, in the volume specified by the owner, must be transferred to the client's wallet of the trading platform. This money will be used in trading. You can also open a wallet for national currencies on the exchange, and then exchange them for crypto in the course of trading.
For those who are mastering trading on the cryptocurrency exchange from scratch, first of all, one should understand that the essence of trading is to exchange one asset for another. For example, if you want to buy 1 bitcoin, which costs $ 10,000, you exchange the corresponding amount from your wallet for a unit of cryptocurrency.
In this case, the exchange process takes place in the bitcoin / dollar trading pair. Accordingly, any cryptocurrency trading on an exchange is a pair trade.
The following types of trading pairs are found on crypto exchanges:
• cryptocurrency / national currency;
• cryptocurrency / other cryptocurrency;
• national currency / cryptocurrency.
There can be more than one currency in the client's wallet at the same time. Thanks to this, the bitcoin trader is able to exchange several trading pairs at once.
It is the privilege of experienced traders to give preference to some electronic money and dislike others. For beginners, crypto trading usually boils down to learning the most accessible, proven and understandable trading principles. This also applies to the choice of cryptocurrencies. Before you start trading, you need to conduct a preliminary monitoring of cryptocurrencies, and answer the following questions:
• which digital money has a high capitalization and a large trading volume;
• which currencies are in circulation longer than others;
• is there any information about the coins from the developers and how complete it is.
Let's not drag out the intrigue - there are not so many "proven" coins. To begin with, you can limit yourself to the three permanent leaders, which include:
1. Bitcoin (BTC). It is the first cryptocurrency to date back to 2008. At the time of this writing, its capitalization was USD 198 billion, and its daily turnover was USD 48 billion. Bitcoin information is easy to find, check and use in calculations;
2. Ethereum (ETH). Released in 2015, the coin has found many followers thanks to the flexibility of its blockchain. The daily trading volume of cryptocurrency as of September 24, 2020 amounted to USD 15 billion, and the capitalization approached USD 40 billion;
3. Bitcoin Cash (BCH). A currency based on the BTC blockchain in 2017. The coin's capitalization exceeds USD 4 billion, with a daily turnover of almost USD 1.5 billion.
These currencies are more stable than most others. In addition, forecasts for changes in their rates are readily available and are often described in plain language.
To begin with, it is worth clarifying that, despite the specifics of the interface of each trading platform, most of the classic crypto exchanges are arranged in a similar way. Therefore, here we will describe the general principles of work that can be applied on different platforms.
So how do you trade the exchange correctly and understand its user interface? First of all, it is worth registering, undergoing verification using the KYC protocol (literally: “know your client”) and put assets in the exchange wallet.
The crypto trader has several main working windows, which are displayed:
• List of available trading pairs (ticker);
• Graph of the rate change of the selected trading pair;
• A set of tools for customizing the display and analysis of the chart;
• Journal of orders (orders to buy / sell)
• Trading history
• Functionality for creating an order and choosing its type.
First, you need to choose a trading pair based on what currency is already in your exchange wallet. Then it is worth examining the chart using analysis tools, identifying markers of growth or decline in the asset of interest. Before trading on the exchange, it is advisable to study the forecasts for changes in the rate of the selected pair.
After preparing and selecting a trading strategy, the crypto trader selects the right time to open an order to buy (bid) or sell (ask) his asset in order to ultimately make a profit.
But how to make money on the cryptocurrency exchange with a constant change in quotes? The classic scenario of a profitable trade looks like this:
1.the trader buys cryptocurrency A for fiat B;
2. waits for the price of the purchased asset to rise;
3. sells to A, getting more B for him than he had initially.
However, there are many nuances in this scheme, and its success depends on the accuracy of the forecast.
The main indicators of the movement of the rate of digital coins are not a guide to how to trade cryptocurrency right now. They indicate the key features of the rate movement for the period of time selected by the trader in the past. Based on this information, as well as the latest news from the cryptoindustry, you can build a forecast for the movement of the course in the future.
The basic indicators of the course include:
• Trading volume. A graph showing the amount of cryptocurrency traded over a specified period of time. A high indicator usually indicates an increase in price, while a low trading volume may cause a decline in the rate;
• RSI (Relative Strength Index). The indicator calculates with what probability the asset rate will rise or fall based on the relationship between supply and demand;
• MA (Moving Averages). Lines that smooth out the jumps in the asset rate that are not related to the main trend (movement vector). They allow you to view the trend without unnecessary "noise" fluctuations;
In addition to these, there are several more complex indicators, but first it is worth mastering the principles of working with this particular three.
There are many proprietary cryptocurrency trading strategies created by experienced traders. But all of them, one way or another, are based on basic trading schemes, which include:
• Scalping. The bottom line is to open many orders for short periods. Such transactions last from 1 to 10 minutes, and as soon as one of them manages to get micro-profit, this transaction is closed;
• Trading on volatility. In this case, trading in cryptocurrency on the exchange is reduced to making a profit on short-term fluctuations in the exchange rate, which can last from half an hour to several hours;
• Day trading. This strategy involves opening a deal for one trading day and fundamentally depends on the accuracy of the forecasts;
• Hodling. The simplest strategy consists in buying an asset with the expectation of its growth over a long period of time (week, month, year).
The choice of a strategy is based on a preliminary technical analysis of the exchange rate, as well as on the fundamental analysis of the asset itself. No one can guarantee the success of a trading strategy on a cryptocurrency exchange, so when preparing for trading, you should study as much relevant information as possible about the state of the market.
The success of crypto trading directly depends on the awareness of the trader. In addition to learning the principles of work, you should also constantly monitor the news of the cryptoindustry. Resources such as Bloomberg, Coinmarketcap, CryptoCompare and other reliable sources will help you with this.
You should not bet all available resources on deals at once. It is better to distribute funds and store them in different assets and in different wallets. This will protect you from force majeure and your own mistakes.
You need to trade using the tools and recommendations of reputable experts. Novice traders are often prone to panic, so it is worth adhering to the trading rules and not being afraid to sometimes be in the red. Experience comes with bumps, abrasions and, in the end, with confidence in their own actions.
So is it possible to trade profitably on the crypto exchange? Of course, you can, but this should not be done spontaneously. This does not work as a "hit or miss" principle, as it can negate all the efforts. To begin with, you should register on the exchange and carefully study the specifics of working on it. Feel free to ask more experienced players for advice. Take notes and follow the news daily.
This path is open to the walking!