A complete guide to cryptocurrency trading for beginners

Today we have prepared for you a comprehensive guide dedicated to trading in the cryptocurrency market. Here you will find out who a crypto trader is, where and how you can trade cryptocurrencies, and also get acquainted with the most common terms in the field of cryptocurrency trading.

Chapter 1. Fundamentals of Trading
What is trading?
Trading is translated as "trading", and trading is a fundamental economic concept covering the purchase and sale of assets. It can be a case when the buyer pays compensation to the seller, or an exchange of goods or services between the two parties.

In the context of financial markets, assets that are traded are called financial instruments. These can be stocks, bonds, currencies, options, futures, margin products, cryptocurrencies and much more. If these terms are new to you, don't worry – we'll explain them later in the article.

Trading is usually understood as short-term trading, when traders actively open and close positions for relatively short periods of time. But in fact, trading can be called a wide variety of strategies, such as day trading, swing trading, trend trading, etc. But don't worry. Below we will look at them in more detail.

What is investing?
Investing is the investment of resources (such as capital) in the expectation of making a profit. This may be financing a business or, for example, buying land in order to resell later at a higher price. In financial markets, it is usually about investing in financial instruments in the hope of selling them more expensive later.

The expectation of income (payback or ROI) plays a key role in investing. In contrast to trading, investing usually uses a long-term approach to increasing wealth. The investor's goal is to accumulate wealth over a long period (years or even decades). This can be achieved in many ways, but investors usually use fundamental factors to find potentially favorable investment opportunities.

Due to their long-term approach, investors usually do not pay attention to short-term price fluctuations. Therefore, they tend to remain relatively passive without worrying too much about short-term losses.

Trading and investing – what is the difference?
Both traders and investors want to earn income in the financial markets. However, their methods for achieving this goal differ significantly.

As already mentioned, investors usually seek to earn income for a long time – years or even decades. Since investors have a longer time horizon, the desired income from each investment is also greater.

Traders, on the other hand, are trying to take advantage of market volatility. They open and close positions more often and can look for less income in each transaction (since they often make a lot of bets).

Which is better? What suits you best? It's up to you. To begin with, you can learn more about the markets, and then check in practice. Over time, you will be able to determine what best suits your financial goals, personality and trading profile.

What is Fundamental analysis (FA)?
Fundamental analysis is a method of estimating the value of a financial asset. A fundamental analyst studies economic and financial factors to determine whether the value of an asset is fair. This may include macroeconomic circumstances, such as the state of the economy in general, conditions in the industry and the business associated with the asset (if there is one). And they are often tracked using leading and lagging macroeconomic indicators.

Based on the results of fundamental analysis, they try to determine whether an asset is undervalued or overvalued. Conclusions can be used to make investment decisions.

In the case of cryptocurrencies, fundamental analysis may also include a new area of data science dealing with public blockchain data, which are called on-chain metrics. Such metrics may include network computing power, the largest holders, the number of addresses, transaction analysis, and much more. With the abundance of available data on public blockchains, analysts can create sophisticated technical indicators that measure certain aspects of the overall health of the network.

Although fundamental analysis is widely used in the stock and currency markets, it is less suitable for cryptocurrencies in their current state. Since this is still a new asset class, there is no standardized, exhaustive method for determining market value. In addition, the market is largely driven by speculation and the information field. As a result, fundamental factors usually have negligible influence on the prices of cryptocurrencies. But when the market becomes more mature, more accurate methods of estimating the value of crypto assets may be developed.

What is Technical Analysis (TA)?
Technical analysis uses a different approach. Its main idea is that historical price behavior can indicate what will happen to the market in the future.

Technical analysts do not seek to determine the fair value of an asset. Instead, they study historical trading activity and try to determine favorable opportunities based on it. This may include analysis of the behavior of prices, volumes and graphical patterns, the use of technical indicators and other tools. The purpose of such an analysis is to assess the strength or weakness of a particular market.

However, technical analysis is not only a tool for predicting the probabilities of future price behavior. It can also serve as a useful method for risk management. Because technical analysis provides a model for analyzing market structure, it makes transaction management more defined and measurable. In this context, measuring risks is the first step to managing them. Therefore, some technical analysts may not be traders in the strict sense. They can use technical analysis solely as a risk management method.

Technical analysis can be applied to any financial market, and it is widely used by cryptocurrency traders. But does technical analysis work? As already mentioned, cryptocurrency prices are largely driven by speculation. Therefore, such markets are ideal for technical analysts, since they can succeed only by taking into account technical factors.

Fundamental and technical analysis – which is better?
It all depends on your trading strategy. Why not use both? Most market analysis methods work best in combination with other methods or indicators. This makes it more likely to find more reliable investment opportunities. The combination of different trading strategies also helps to eliminate bias from the decision-making process.

This concept is sometimes called confluence. Confluent traders combine several strategies into one that takes advantage of each of them. The bottom line is that the favorable trading opportunities presented by combined strategies may be stronger than those presented by any one strategy separately.

What drives financial markets?
The price of an asset depends on the balance of supply and demand. In other words, it is determined by buyers and sellers. Where supply meets demand, there is a market. What else can affect the value of a financial asset?

As already mentioned, these can be fundamental factors, such as the state of the economy, as well as technical ones, such as the market capitalization of cryptocurrencies. In addition, it is worth considering other factors, such as market sentiment or the latest news.

However, these are nothing more than factors that deserve attention. In fact, the price of an asset at one time or another depends on the balance of supply and demand.

What is a market trend?
A market trend is the general direction in which the price of an asset moves. In technical analysis, market trends are usually determined using price behavior, trend lines, or even key moving averages.

There are two main types of market trends: bull market and bear market. A bull market is a steady uptrend when the price rises. A bear market is a steady downtrend when the price falls. It is also possible to identify consolidating, or "sideways", markets when there is no clear trend.

It is worth noting that a market trend does not mean that the price always moves in the direction of the trend. A long-term bull market may contain smaller bearish trends, and vice versa. This is the nature of market trends. It all depends on the perspective and the chosen time scales. Long-term market trends are always more important than short-term ones.

The peculiarity of market trends is that they can be determined with absolute accuracy only in hindsight. You may have heard of the retrospective distortion-the tendency of people to convince themselves that they accurately predicted an event before it happened. As one can imagine, a retrospective distortion can significantly affect the process of determining market trends and making trading decisions.

What is the market cycle?
You may have heard the phrase "the market moves cyclically." A cycle is a periodically recurring pattern or trend. As a rule, long-term market cycles are more reliable than short-term ones. Nevertheless, market cycles can be found both on an hourly chart and by looking at data for several decades.

Markets are cyclical in nature. Cycles can lead to the fact that sometimes due to different market conditions, some assets will bring more income, and sometimes others.

It is worth noting that it is almost impossible to determine at any given moment at what stage of the market cycle we are at. With high accuracy, such an analysis can be carried out only after the completion of a certain part of the cycle. Market cycles also rarely have a specific start and end point. Analyzing financial markets from the point of view of the current moment is a very biased approach.