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Crypto

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Get Familiar With the Terms and Strategies for Wise Trading

Crypto

Cryptocurrencies (Crypto) are digital or virtual currencies that use cryptography for security and are not backed by real assets or tangible securities. Unlike traditional currencies issued by governments (like the dollar or euro), they are traded between consenting parties with no broker and operate on decentralized networks based on blockchain technology—a distributed ledger that records all transactions across a network of computers.

The most well-known cryptocurrency is Bitcoin, but there are thousands of others, including Ethereum, Litecoin, and Ripple. Cryptocurrencies can be used for various purposes, such as online purchases, investments, or transferring value globally with low fees and without the need for intermediaries like banks.

The decentralized nature of cryptocurrencies means they are not controlled by any central authority, making them immune to government interference or manipulation. However, this also introduces risks, such as volatility in value, security concerns, and regulatory challenges.

Cryptocurrency CFD

Cryptocurrency CFDs (Contracts for Difference) are financial derivatives that allow you to speculate on the price movements of cryptocurrencies without owning the actual assets. With CFDs, you can trade on both rising and falling prices, giving you the flexibility to go long or short. They also offer leverage, meaning you can control a larger position with a smaller investment, but this also increases the risk of larger losses. Unlike direct cryptocurrency purchases on exchanges, CFDs don’t involve ownership of the underlying coins, so there’s no need for a crypto wallet.

How to Earn

Earning through cryptocurrency offers several opportunities for investors. One of the most straightforward methods is buying and holding cryptocurrencies like Bitcoin or Ethereum, anticipating long-term value appreciation.

To earn from cryptocurrencies, you have two main options: buying the actual digital currency on an exchange or trading cryptocurrency CFDs. If you believe in the long-term growth of cryptocurrencies, you can purchase and hold them through an exchange, storing them in a secure crypto wallet. For short-term opportunities, trading CFDs allows you to speculate on price movements without owning the underlying asset, benefiting from both rising and falling markets. Crypto CFD trading offers leverage, which means you can start with a smaller investment, but it also comes with higher risk. Choosing the right platform, understanding volatility, and leveraging your trading strategies are key to earning from cryptocurrencies.

However, it's crucial to acknowledge the high volatility and risks associated with cryptocurrency investments, making thorough research and risk management essential to a successful strategy.

Terms to Know

Blockchain - The underlying technology behind cryptocurrencies, blockchain is a decentralized ledger that records all transactions across a network of computers. It ensures transparency, security, and immutability in the cryptocurrency space.

Wallet - A digital tool or software used to store, send, and receive cryptocurrencies. Wallets can be "hot" (connected to the internet) or "cold" (offline), with varying levels of security.

Private key - A cryptographic code that allows a user to access their cryptocurrency in a wallet. It must be kept secure and confidential, as anyone with access to the private key can control the associated funds.

Altcoin - Any cryptocurrency other than Bitcoin is referred to as an altcoin. Popular altcoins include Ethereum, Ripple, and Litecoin. Altcoins often offer different features or improvements over Bitcoin.

Exchange – Short for market capitalization, this term refers to the total value of a cryptocurrency. It is calculated by multiplying the current price of the coin by its total circulating supply. Market cap helps investors gauge the size and potential of a cryptocurrency.

Market Cap - The predetermined date on which the final settlement of the contract takes place in the futures market. Put simply, this is the date on which the two parties are supposed to fulfil their obligations, i.e. the buyer of the contract is supposed to buy the underlying asset, and the seller must deliver the underlying asset.

Liquidity - refers to how easily a cryptocurrency can be bought or sold without affecting its price. High liquidity means there is a large volume of trades, making it easier to enter or exit positions.

FOMO (Fear of Missing Out) - A psychological term often used in cryptocurrency trading, FOMO describes the anxiety traders feel when they fear missing out on a potential investment opportunity, leading them to make impulsive trading decisions.

Something nobody tells anybody……

Cryptocurrencies are highly volatile, much more so than traditional assets like forex or commodities. This volatility provides short-term traders with greater opportunities for profit. However, it also means there’s a higher risk of significant losses. Traders who are confident in predicting price movements often see this volatility as a chance to profit. Keep in mind to avoid common mistakes such as:

  • Making decisions based on emotions

  • Inadequate research

  • Lack of a solid trading plan

  • Poor risk management

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  • Tested Strategies

  • Tools to Use

  • 1

    HODL

    HODL is a crypto trading strategy where investors buy and hold onto their cryptocurrencies for the long term, regardless of short-term market fluctuations. It's based on the belief that the value of cryptocurrencies will increase over time, so investors resist the urge to sell during market downturns. The term "HODL" originated from a misspelling of "hold" in a Bitcoin forum post and has since become a popular meme in the crypto community.

  • 2

    Scalping

    Scalping is a crypto trading strategy where traders aim to make small profits by executing many trades in a short period. They capitalize on small price fluctuations and typically hold positions for a very brief time, sometimes just seconds or minutes. The goal is to accumulate numerous small gains that add up to a larger profit over time.

  • 3

    Arbitrage

    Arbitrage involves taking advantage of price differences for the same cryptocurrency across different exchanges. Traders buy the cryptocurrency on one exchange where the price is lower and sell it on another exchange where the price is higher, making a profit from the difference. This strategy requires quick execution and low transaction fees to be effective.

  • 4

    Day trading

    Day trading is a strategy where traders buy and sell cryptocurrencies within the same trading day. The goal is to take advantage of short-term price fluctuations to make quick profits. Traders closely monitor price charts and use technical analysis tools to identify patterns and trends. They often employ leverage to amplify their gains (or losses) on small price movements. Day traders typically don't hold positions overnight, as they aim to capitalize on intraday price movements. This strategy requires constant monitoring of the market and disciplined risk management to mitigate losses.

  • 5

    HFT Trading

    High-Frequency Trading (HFT) in Crypto involves using algorithms to execute trades at lightning-fast speeds, taking advantage of small price differences across different exchanges. These strategies rely on computers to analyze market data and execute trades in milliseconds, aiming to profit from short-term fluctuations in cryptocurrency prices. HFT traders often use advanced technology and co-location services to minimize latency and gain a competitive edge in the market.

  • 6

    Range Trading

    Range Trading is a crypto trading strategy where traders aim to profit from the price oscillations of a cryptocurrency within a defined range. In simple terms, it involves buying at the bottom of a price range and selling at the top. Traders identify support and resistance levels to determine the range within which the cryptocurrency's price is expected to fluctuate. They then buy when the price reaches the lower boundary of the range and sell when it approaches the upper boundary. This strategy works best in markets with low volatility, where prices tend to bounce between specific levels without significant breakthroughs.

  • 7

    Trend trading

    Rend Trading in crypto involves following the direction of price movements over time. Traders look for patterns where prices consistently move in one direction, either up or down. They buy when the price is rising (uptrend) and sell when it's falling (downtrend). The idea is to ride the trend for profit, capitalizing on momentum. Traders use technical analysis tools like moving averages and trend lines to identify and confirm trends. The goal is to enter positions early in a trend and exit before it reverses. It's a strategy based on the principle that trends tend to persist, allowing traders to profit from the direction of the market. More about trend trading here.

  • 8

    Long straddle

    A "Long Straddle" in crypto trading involves buying both a call option and a put option with the same strike price and expiration date. This strategy is used when you expect a significant price movement in the cryptocurrency but you're not sure which direction it will move. By having both a call and a put option, you profit from whichever direction the price moves, as long as it moves enough to cover the cost of buying both options.

  • 1

    Portfolio Trackers

    Portfolio trackers like Blockfolio or Delta allow you to monitor your cryptocurrency investments in real-time. They provide detailed analytics, performance tracking, and alerts for price changes, helping you manage and assess your portfolio efficiently.

  • 2

    Charting Tools

    Tools like TradingView offer advanced charting capabilities, allowing traders to analyze market trends, set up indicators, and develop technical trading strategies. These tools are essential for visualizing price movements and making informed decisions.

  • 3

    Price Alerts

    Setting up price alerts using tools like CoinMarketCap or CryptoCompare allows you to receive notifications when a cryptocurrency reaches a specific price point. This helps you stay updated on market movements without needing to monitor prices constantly.

  • 4

    Crypto News Aggregators

    Staying informed is crucial in the fast-moving world of crypto. News aggregators like CoinDesk or CryptoPanic compile the latest news, market analysis, and updates from various sources, helping you stay on top of market developments.

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