Financial investments were for many years an almost exclusive space for a select group of people preparing to operate in these markets. Since the massification of the Internet and its opening to the different areas of life, financial markets approached all kinds of people. Cryptocurrencies have been key to the spread of trading, thanks to the massive exposure they have had in recent years for their explosive price increases.
Currently, anyone who wants to venture into the financial world, can do it and learn how, when and how to operate.
You need, of course, a previous preparation, then get involved with specialized literature to deepen your knowledge. It could be said that starting trading requires simple preparation, but that it will only pay off if knowledge is applied with strict discipline and consistency.
To help you on your path to success as an investor and cryptocurrency trader, we have made this guide composed of 5 lessons; This is the first, where we review definitions to understand what this activity is about, the tools used, and if it is really profitable. Let’s start
What is trading?
We can define it as monitoring the behavior of prices in financial markets, to negotiate or exchange products between people who offer and people who demand.
The activity of trading these instruments is what we know as trading; while the person who engages in such negotiations is known as a trader. So trading is then the action of trading, buying and selling financial instruments.
One of the most common negotiations is one that involves currencies; so the trader observes the currency pair in which he wishes to speculate and depending on his behavior, he will decide to buy or sell.
However, even if it seems simple, it certainly is, it is necessary to establish specific investment strategies, accompanied by discipline, knowledge and self-control.
How to do cryptocurrency trading?
We have already said that cryptocurrency trading is the same as fiat currency trading. Here we can use 2 different methods to operate with crypto assets, trading with cryptocurrency derivatives, and buy in the Bitcoin spot market.
- Buy in the Bitcoin spot market: You can do this through a cryptocurrency exchange. Through these types of platforms you can buy Bitcoin and save them in an encrypted digital wallet.
- Trading cryptocurrency derivatives: This is the method that interests us in this subject. This type of product offered by brokers, allows us to take a position and take advantage of Bitcoin price movements in a trend, whether bullish or bearish. This is the most popular method among cryptocurrency traders; Well, leverage is generally offered when used, which gives you the ability to open more expensive operations than your initial capital, allowing you to make a profit no matter how small the fluctuations are.
Operating with cryptocurrencies
As with fiat currencies, the trader does not own the asset, when using derivative products; It simply speculates with the price movements of the cryptocurrency.
If the trader considers, after its analysis, that the price of the cryptocurrency has a downward trend, it will take a selling position. Otherwise, if the behavior is bullish, then the trader will take a position to buy.
When trading with cryptocurrencies and in particular with Bitcoin, it is operating in a fairly advantageous market, although prone to very aggressive movements. Trading with leveraged CFDs and Bitcoin futures carries a great risk, because as well as it is possible to benefit from small movements, the losses are directly proportional in case they happen.
What is the technical analysis?
It is a study that is carried out to the market with the intention of predicting its behavior in the future; so that it allows us to speculate on the direction that the cryptocurrency leads. That is, predict whether a next move is more likely down or up.
To perform this technical analysis tools such as Fibonacci, MACD, ADX, Moving Average, Stochastic Oscillator, Divergence, RSI Indicator, Bollinger Bands, trace support and resistance lines are used. These tools make it easy for us to know the behavior of the price of the asset to be traded, and make it easier for us to make decisions.
A good technical analysis will show us the probabilities that we have of obtaining benefits in an entrance to the market, be it of purchase or sale. These tools have been designed to facilitate the exchange in your trading task.
In summary, the main purpose of technical analysis is to facilitate the identification of trends and patterns, so that you, as a cryptocurrency trader, can make an action decision within the market, by using the graphical and mathematical tools that will help you predict the most likely outcome.
What is fundamental analysis?
Through the fundamental analysis, the trader can calculate the value of a cryptoactive based on the balance sheets and data from it, and then compare them with what is observed in the market.
The fundamental analysis offers an approach to try to know the true value of a cryptocurrency or asset, whatever, and its objective regardless of the price.
Once you know the value of the cryptocurrency, you are in a position to understand if it is undervalued and there is a potential investment opportunity, or quite the opposite.
This analysis offers you a better visualization, so that as a trader, you take action and position in front of that action. This constitutes a tool focused on the evaluation and valuation of an asset based on external factors, facts or influences that influence price determination.
Can technical analysis and fundamental analysis be used to carry out the activities of a cryptocurrency trader?
Both tools are intended to know the reality of the market and its possible behavior in the future; making it easier for the cryptocurrency trader to make the best decision at a specific time. Because the operator works based on predictions, these tools show you the probability of obtaining benefits from the action to be taken.
Undoubtedly they can be used together, as they complement each other, and constitute the best study that can be carried out on the market to which you want to speculate.
Is cryptocurrency trading profitable?
The answer is positive, yes, you are well informed, prepared and trained. Trading is usually very profitable, but for this, the trader must have experience, as it is the only one that leads him to achieve real results that give him the confidence to invest real money.
That is, before investing, the trader must practice in a demo account to refine his vision and agility to interpret the clues that the market offers with his behavior.
If you’re wondering how much a cryptocurrency trader earns, it’s really hard to answer your mystery; Due to the unlimited possibilities offered by this activity, the income is totally different from case to case.
Although the experience of earning and losing real money is not lived with a demo account, it must be used to test your strategy.
However, it is recommended that as soon as possible, after establishing a trading plan with probabilities in your favor, you start in a real account, no matter how little the capital is, because that is where you begin to forge your psychology, being this One of the most important aspects to improve when entering this profession.
This was the theoretical introduction to what it means to be a cryptocurrency trader. If you want more information, and tips to achieve the success you want, stay tuned for the following 4 lessons.
Creative editor and trader of cryptocurrencies, fiat currencies and commodities.
