Teaching digital currencies for beginners 2023
Are you looking for content that introduces you to the basics of teaching cryptocurrency trading for beginners? In this article, you will learn how to trade cryptocurrencies step by step.
If you want to learn how to trade cryptocurrencies, you are in the right place. There is an overwhelming amount of information available on the Internet that can easily leave a false impression and confuse anyone, including the seasonal trader. To help you understand things the way they should be understood without weight or confusion and simply, we have written this step-by-step guide to cryptocurrency trading for beginners who want to learn. In this guide, you will learn everything you need to know to get started with cryptocurrency trading.
Once you have finished reading this cryptocurrency trading education guide for beginners, you will be familiar with everything related to buying and selling digital assets in depth and detail so that you are ready and ready to apply.
What are digital currencies?
Simply put, cryptocurrencies (or digital assets) are digital forms of currencies or currencies of a digital nature. They can be used to pay for goods and services just like traditional currencies. And just as traditional forms of currencies are traded against each other in forex, cryptocurrencies can also be traded against specific pairs on specialized platforms called cryptocurrency exchanges.
The only difference is that unlike traditional currencies such as the US dollar, digital currencies are not controlled by a single entity. It is also secured using complex cryptography combined with a new form of online public ledger called blockchain. It is distributed to anyone and everyone who wishes to have a copy.
Cryptocurrencies have been around for more than two decades in various experimental forms, but the first currency that was successfully implemented was Bitcoin. Bitcoin was created by Satoshi Nakamoto (pseudonym), who released his white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in October 2008 and launched the network in January 2009.
Bitcoin catalysed the creation of an entirely new class of digital currency that can now be bought and traded on cryptocurrency exchanges around the world. Besides Bitcoin, there are other well-known and recognized cryptocurrencies such as Ethereum – which currently follows Bitcoin in terms of network value as well as Tether which is also the leading stablecoin in terms of network value currently.
Currently, there are over 8,000 cryptocurrencies listed on CoinMarketCap, which is a leading data aggregator for the cryptocurrency market.
What is the difference between trading and investing in cryptocurrencies?
As you learn how to buy and trade cryptocurrencies, you should become able to differentiate between cryptocurrency trading and investing. What is the difference? Which is better? And how do you take advantage of this difference between them to carry out your trades effectively? It should be noted that the two terms are often used interchangeably, but they are different.
They are similar only in regards to the ultimate goal which is of course profit making. Trading differs from investing in that the results from trading activities are often generally expected over a short to medium term. These periods can range from minutes or hours to a few days or weeks. In the case of investment, the investor is waiting for the results in the long term, and here we are talking about whole months or sometimes several years.
As a beginner, you will probably want to choose a trading strategy that involves trading and investing in the medium or long term. This will usually require more time to research and analyze your trades before fully committing. In the following cryptocurrency trading education guide for beginners, we will help you find out some trading strategies that you can consider.
The cryptocurrency market vs the stock market
The stock market has been around for a long time now and there is a body of literature on it and on the nature of its activities and the way it works. However, here we are interested in the differences and similarities between the established stock market and the emerging cryptocurrency market. Here’s what:
Similarities:
The mechanics and tools of investing and trading are more or less the same: This is especially true of technical traders who use tools and mechanisms such as charts to analyze the market. You can use the same tools to perform technical analysis of trades in both markets.
Assets denominated in fiat currencies: The digital market can be innovative and revolutionary with assets designed to catch up with the current financial system. However, denominations are still valued in the market compared to paper currencies similar to the stock market.
Trading and investing strategies are similar: In the stock market, traders can choose between day trading, swing trading, or position trading. They can also choose to buy and hold their assets for the long term. Similarly, traders and investors in the cryptocurrency market can do the same.
Market-like products: The stock market has been around for generations leading to innovative products such as derivatives and techniques such as the use of leverage to magnify gains (and losses). These same products and technologies have been transferred to the digital currency market in the new era. You can now trade Bitcoin futures, options, and leveraged tokens. You can use leverage for most of your trades on most of the leading cryptocurrency exchanges such as Binance, Bitfinex or BitMEX. You can take a look at the full list of digital asset exchanges with trading leverage here.
The differences:
Market volatility: Because of its long history, the stock market has become more stable and less volatile. On the other hand, the cryptocurrency market is still experiencing wild price swings and it is normal to see double-digit percentage fluctuations in just a matter of hours.
Market maturity: The factor of history and the number of years of existence is also an important factor. The stock market has been around for a very long time now while the cryptocurrency market has only been around for a decade. This means that the market capitalization and trading volume in the first market is much larger compared to the second. The short duration of existence is also related to the extreme volatility of the cryptocurrency market.
Market assets: In the stock market, you invest in the shares of a company listed on the stock exchange by buying its shares. In the crypto market, you are investing in the idea, technology, or coin (or token) itself, but not the company (if any) behind the coin.
Regulations: Since the stock market has been around for a long time, regulators have had enough time to develop and implement rules and regulations that govern the behavior and direction of the market. This also contributes to the minimal fluctuations that we referred to earlier. In the cryptocurrency market, this is not the case. Regulators still struggle to understand the emerging asset class and this lack of (proper) regulations is also a contributing factor to the unruly nature of the market.
What is the reason for the demand for digital currency trading?
Considering that what I have known so far only defines the differences of the cryptocurrency market from the stock market: which makes trading in it a losing deal compared to the stock market. So why should you trade it? Here are some advantages that you should look at to know how exceptional and revolutionary this market is, in addition to its prospects and its set of added values:
Trade 24 hours a day: unlike the stock market which opens and closes at specific times, the cryptocurrency market never closes. You can trade cryptocurrencies 24/7 and you can even use trading bots and let your trades take place all the time.
Market volatility: This may be seen as both a negative and a positive trait. In the previous part of the guide, we focused on the negative side of these fluctuations, but now let’s talk about the positive side of these fluctuations. Traders (not investors) live off market volatility, i.e. benefit from it. The cryptocurrency market is experiencing huge volatility. This means that as a trader, you will get better trading opportunities with the volatile cryptocurrency market rather than the stock market.
Privacy and anonymity: If you care about your right to privacy, you will love trading cryptocurrency. With cryptocurrency trading, you get access to decentralized cryptocurrency exchanges. The latter gives you the opportunity to trade in self-custodial assets (in case you have your own digital funds) without having to provide your identity online. Of course, there are multiple central exchanges that can be used if you don’t mind sharing your details and having a third party store your digital assets.
Multi-Asset: Despite its relatively short duration of existence, the cryptocurrency market has progressed so quickly that traders now have access to similar stock market products including futures, options, leveraged tokens, swaps, and CFDs. Whether you prefer the long-term or short-term approach and whether you want to do bidding or bidding, you don’t have to look far. Every type of derivative that is currently available in the stock market has already been transferred to the digital currency market. And if not, it will be done soon.
Easily open an account: In the world of cryptocurrencies, there is no difficulty in logging in. You can easily create an account on the exchange and start trading in just a matter of minutes.
Cryptocurrency trading methods:
There are two main techniques that you can use in analyzing and evaluating cryptocurrencies. These two technologies have been around for generations and have been successfully adopted and implemented with traditional financial assets. They are fundamental analysis (FA) and technical analysis (TA). They are often used complementary to each other, but it is possible to apply them independently.
Fundamental Analysis (or FA):
Fundamental analysis FA is the art of a trader who uses both economic and financial factors affecting a particular asset to determine the value of that asset. By doing fundamental analysis, you will be able to find out if an asset is overvalued or undervalued at the current valuation. If you can figure it out, then you can decide whether or not to invest in it as well as when to invest in it and even how long to maintain that investment is appropriate. Fundamental analysis of cryptocurrencies involves evaluating two important factors: on-chain and off-chain metrics. On-chain metrics include network hash rate and wallet addresses
(active and passive), network applications, token/coin issuance rate (inflation/deflation), network fees, and transactions.
Fortunately with cryptocurrencies, most networks are public like Bitcoin and Ethereum which makes accessing these on-chain metrics easy. To track metrics for both Bitcoin and Ethereum on-chain, you can use Bitinfocharts.com. This website contains a lot of data and is very easy to use and navigate. Off-chain metrics include community engagement, exchange lists, government regulations, etc.
Technical Analysis (or TA):
Technical analysis is a trading technique based on the idea that a trader can predict future price movements of an asset given historical price movement. Technical analysis uses a range of technical indicators to achieve this including volume, moving averages, trend lines, candlesticks, chart patterns and more. At the end of the technical analysis, the trader should have identified trading opportunities and the potential entry point. Cryptocurrency technical analysis can fit into any trading schedule from scalping and day trading to long-term investments.
Fundamental analysis FA vs technical analysis TA: which is better?
This totally depends on the profile of the trader. Are you the type of trader who likes to enter and exit trading positions multiple times a day (day trading/scalping)? In this case, cryptocurrency technical analysis will be your best friend. Or do you prefer to research and make informed bets every time (swing trading)? In this case, you may want to mix the two together.
For example, you can use fundamental analysis to determine the intrinsic value of an asset and whether it is really worth investing in. However, what you may not be able to do with fundamental analysis is determine the right time to invest. For this, you will have to rely on technical analysis as well. Conversely, if you use technical analysis (TA) to determine the future price movements of a particular asset, you can use fundamental analysis to confirm whether or not a price trend you are witnessing is viable. Therefore, there are cases where you can prefer one technology over the other, but in some cases it is recommended to use both in order to get a more complete picture.
Types of cryptocurrency markets
When it comes to the cryptocurrency markets available, just like the traditional financial instrument markets, there are two types of markets: the spot market and the derivatives markets.
Spot cryptocurrency market:
As the name suggests, in the cryptocurrency market, assets are bought or sold on the spot which means that the delivery takes place “on the spot”. If you buy Bitcoins, for example, the coins will be delivered instantly and the payment will be settled instantly.
The spot market consists of two types of traders:
The makers: They are those who initiate trading. As a maker, you will list a potential deal on the stock exchange. For example, if you want to sell your Ethereum coins, you will open a trade at a certain price point and then invite a potential buyer to fulfill the order.
Takers: On the other side of the equation, the taker will be the one who performs the request and is referred to as the taker. As the name suggests, these are the ones who “take” orders that already exist and execute them.
Makers bring liquidity to the market. There are makers and takers on both sides of every coin purchased. There are also makers of both buy and sell orders and, accordingly, there are takers of orders to buy and sell as well. The order book is the ledger in which available orders that have not yet been executed are recorded.
For example, if you are a taker, you can check the order book and choose to fulfill (receive) an existing order or place an order. The platform will automatically match your buy order with an existing sell order.
Digital Derivatives Market:
The cryptocurrency derivatives market consists of financial instruments whose value depends on the value of the digital currency. These derivatives can be based on the value of other derivatives and form multiple levels.
Cryptocurrency trading strategy:
In order to be successful in cryptocurrency trading, you will need an effective trading strategy. A trading strategy is simply a plan that you will have to follow when executing your trades. Your trading strategy will include the type of assets you invest in, the frequency of your trades, and the size of your investments as well.
In this part of the guide, we will discuss some of the most popular and reliable cryptocurrency trading strategies. However, you should keep in mind that you can always create your own personal strategy that suits you. You can build it on the strategies that will be mentioned here, or you can create a completely new one.
Why do you need a trading strategy?
Here are the top reasons why having a trading strategy is so important to your success as a cryptocurrency trader:
It works like a map. Having and maintaining a trading strategy is like having a map that you can rely on to track your path and make sure you are on the right track. They guide your trades and help you know when to trade and how and why you should take a particular trade.
Keep Emotions in Control: One of the biggest challenges for traders is the involvement of feelings and emotions. The latter becomes a handicap when the price of the asset begins to trend in the opposite direction of the bet. In the case of cryptocurrency trading, this happens so frequently that it can easily lead to emotional outbursts. Successful traders have learned to keep their emotions under control while making deals by sticking to their trading plans and trading strategies.
Risk Management: Having your own trading strategy effectively forces you to do the necessary research so you can create your own, and part of that research involves the risk factor that needs to be considered with every trade. Your risk identification is the first step towards risk management.
Below, we present to you some popular strategies adopted by highly successful traders and investors:
1- Day trading and scalping:
A cryptocurrency day trading strategy gives the trader the opportunity to take full advantage of the price volatility of cryptocurrency assets. As mentioned earlier, digital assets are currently very volatile: which works in favor of the day trader.
Day trading strategy is a numbers strategy game. In which the day trader makes multiple deals within one day, buying low and selling high within small gains that accumulate to large amounts by the end of the day. This is sometimes difficult to do manually and to be successful with this strategy you will need to consider completing your trades using trading apps or cryptocurrency trading bots such as Coinrule.
Scalping (a trading strategy where traders profit from small price changes) is part of day trading, but it usually involves short trading periods where you have to think about the minutes. When you are day trading or speculating, many trades will result in gains as well as losses. The idea is to make sure that the profit/loss ratio is in your favour. You have to make more winnings to finally consider your strategy a success.
2- Swing trading:
When it comes to swing trading, the time period varies. During day trading and scalping, traders typically open and close positions several times during the day. In swing trading, this may happen over a slightly longer period of time which can extend from a few days to a few months.
A cryptocurrency swing trader will aim to take advantage of an upcoming or ongoing trend. In the digital space, this strategy is sometimes referred to as a BTFD (“buy f’n dip”). It means buying when the price is low and selling when the price is high. Extensive application of FA and TA techniques is essential when adopting this strategy.
3- Waiting or holding strategy:
It is also called trend trading or trend tracking. This strategy relates to long-term investment in assets. A trader/investor usually buys or invests in an asset when the price is low and sells when the price is high, similar to other strategies. The only difference is the long periods between opening and closing a position.
Trades created through this strategy can take months and sometimes years. It is an ideal strategy for investors who prefer a hands-off approach. This strategy is sometimes called “HODL” (or Hold On for Dear Life) in the cryptocurrency space. The term is derived from a play on the word “hold” – to buy and to hold. A cryptocurrency trader invests in a coin or token and holds on to it even when the prices go down. Hence this trader will be called “Hodler”.
4- Margin trading (leverage trading):
Margin trading is not a trading strategy, but a trading method adopted by the traditional stock market. It involves a trader using borrowed capital to open positions on a trading platform.
As expected, the results of trading on margin are greatly magnified for any direction of the trading position. If you score a win, the bonus will be much larger, and the opposite is also true in the case of a loss. If the trade goes sideways, you lose a lot too. The higher the leverage, the closer the liquidation price is to the entry price.
To help you understand leverage better, let’s say you enter a trade with 5x leverage. This means that the size of your trading position is 5 times the capital you bet out of your own pocket (i.e. margin). The exchanges with margin trading options usually offer up to 100x leverage and it is a dangerous “game” and not recommended for beginners.
Managing the risks of cryptocurrency trading
It is difficult to talk about cryptocurrency trading without talking about risk management in cryptocurrency trading. It is another important core part to focus on for your success as a cryptocurrency trader. Risk in cryptocurrency trading refers to the possibility of an undesirable outcome.
You may have heard that trading cryptocurrencies is risky before, and it is true, and this is the case with trading all other financial instruments including stocks and bonds. What differs is only the level of risk.
There are different types of risks, and in this part of the guide, we will discuss all those related to cryptocurrency trading.
Market Risk: Perhaps the most prevalent is the risk that the market price of a particular asset or the overall market will swing unexpectedly which will adversely affect your position in the market.
Liquidity risk: indicates a situation where you become unable to exit a position. This usually happens when you are unable to find a buyer for your asset.
Legal Risk: Refers to a situation where government regulations or policies adversely affect an asset or a trading platform. This could lead to liquidity problems if buyers of your assets are prevented from purchasing them. Also, if a trading platform is banned from your jurisdiction, you may end up losing your money stored on that exchange.
Operational risk: It is the risk involved if a trader cannot perform a trading activity such as exiting or opening a position. This may be due to a failure of the trading platform, a malfunction of the trading application, etc.
Systemic risk: refers to the losses incurred due to a failure of the entire trading system. This is closely related to market risk, but this risk is more serious since it is not only related to market downturns and volatility, but also due to the breakdown of the underlying systems within the market. Think of the 2008 financial crisis. This was a systemic failure that crashed the entire market.
Now that you know and understand the type of risk you could face, you should take it into consideration every time you are about to make a trading decision.
Portfolio management:
Professional traders rarely have only one asset in their portfolio because they adhere to the principle of diversification. Therefore, in order to juggle all their investments and trades, they need specific tools to be efficient while trading. This is where portfolio trackers come in.
They are software applications for computers, tablets and phones that help you track every type of investment you make in the digital market.
By tracking your portfolio and evaluating your performance, you can easily improve it and make sure you make better trades. As the saying goes, you can’t improve what you can’t measure and evaluate.
When it comes to managing cryptocurrency portfolios, you’ll want to know how much of a particular asset you own and where it’s stored. You will also want to know how much you gain or lose on a particular trade or investment.
Keep in mind that you may have to maintain multiple wallets. As a trader, you can use different trading strategies simultaneously which means you are actively trading while simultaneously swing trading or holding trading.
To be a good trader and succeed at it, you will need a combination of multiple applications from data portals and news aggregators to portfolio trackers. All of these apps work hand in hand to provide you with real-time data that you can use to make better trading and investment decisions.
How do you choose the best cryptocurrency exchange?
There are hundreds of cryptocurrency exchanges in the market today. Some are centralized (run by a company), while others are decentralized (run by a community). Whichever option you choose suits your preferences, you can count on it. But here are some factors that you should consider when trying to choose the best cryptocurrency exchange:
Liquidity: Liquidity denotes the number of supported assets as well as the sizes of the various order books. The trading volume will give you an idea of the popularity and reliability of the exchange you are considering choosing
Fees: Knowing the fee structure of the trading platform is important as this affects the type of trading strategy you will choose. Let’s say you choose day trading or scalping. As mentioned above, in this strategy, you will need to enter and exit multiple positions in one day to achieve your target profit. This profit depends on your trading fees and buy/sell spreads. The lower the fees, the higher the profit margins (considering other factors that are held constant).
Payment options: It would be better if you consider the payment options supported by the exchange. These options can include credit cards, bank transfers, other digital currencies, and so on. Some platforms support a wide range of options while others have limited and specific options.
Degree of protection: This is especially important in cryptocurrency trading. Never compromise on this factor. The trading platform must have the highest levels of security to secure its assets and those of its clients. Moreover, there should be an insurance policy for more guarantee.
User Experience: Ease of navigating the trading platform is also a big consideration to make, especially for beginners. You’ll want to find things easily, place orders easily, and track your trades more easily. Centralized exchanges are usually more user-friendly compared to their decentralized counterparts.
Customer Support: Although the trading platform looks easy to use, it is also important to consider how easy it is to access the help desk. You can check out Reddit and other related places to read reviews about the efficiency of customer support for a platform. This may be useful when you are facing a problem.
Summary:
We hope that our cryptocurrency trading education guide for beginners has helped you gain the deep understanding you will need to start your cryptocurrency trading journey. Try to take all of the above into account and make sure to apply them so that you can achieve all your trading goals and profit goals.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.