About the trade
Digital currency trade, or cryptocurrency, refers to the transaction or buying and selling of Bitcoin and digital currencies, which is done with the aim of making a profit. A trader uses price charts, market news and future market events with the aim of making a profit.
According to the definition of Instoppedia, when it comes to trading or dealing in the financial markets, it means giving something (which can be money or currency, an asset, commodity, digital currency or any other object) and getting something else. Consider someone who buys bitcoins to sell them at a higher price in the hope that the price will rise in the future. In fact, he gave money and bought bitcoins and will exchange bitcoins for money in the future.
According to the definition of the 99 bitcoins site, bitcoin trading means buying at a low price and selling at a high price. Unlike investing, which involves holding Bitcoin for the long term, a trader seeks to predict the price of Bitcoin. To predict prices, one should follow the news and events of this industry and deal with different charts. A trader needs a lot of time, capital and effort to become proficient in trading.
A trader is someone who seeks to buy or sell any type of financial asset in the financial markets. This activity can be done by a person for himself, another person or an organization. The main difference between a trader and an investor is the length of time one holds the assets. Investors take a long-term view, but traders are usually interested in short time frames to profit from short-term trends. Traders make more purchases and sales in the same time frame than investors.
Traders in the digital currency market refer to those who buy and sell and exchange different digital currencies in a period of one day to several months. But with a long-term view, investors are looking to keep digital currencies in their wallets for one to several years.
What is digital currency?
The first step in learning how to trade digital currency is getting to know the concept of these currencies. As you know, the world is moving towards digitalization at an incredible speed. The increasing use of this space by people led some people to transfer monetary transactions to the digital space. The result of this ceaseless effort was the emergence of amazing digital currencies that we are all more or less familiar with. Digital currency is a type of digital money that, unlike the banknotes we are all familiar with, does not have a physical or external form. Transactions related to this type of money are done through a computer or electronic wallet connected to the Internet or special networks. It means that you do not have money in the real world, nor can you spend it physically! With this money, you no longer need to carry multiple bundles of bills with you here and there and risk the security of your property. All you have to do is access the internet to buy whatever you want! It should be said that digital currencies are created based on the science of cryptography. You can buy goods and services with this money easily and without any trouble. Therefore, digital currencies are functionally similar to physical currencies and banknotes printed by the government. You must say, may God have mercy on the father of the person who opened the feet of these currencies to our lives and ended many of our problems! Digital currency or so-called cryptocurrencies are available in many different types. Each of these cryptocurrencies has unique features and specific uses. Bitcoin, Ethereum, Ripple; Cardano and BNB are the most popular types of digital currency in the market.
The difference between trade and investment
Please do not confuse trader with investor. Because an investor buys digital currency at low prices, then keeps the purchased currency for a long period of time to sell it at a higher price at the right time and pocket a huge profit. But traders love short time frames. They buy digital currency at low prices and try their best to profit from short-term trends. This period of time may be a day, a month or even several months. This is despite the fact that the investment period is more than one year. Not only the time frame of interest, but also the working tools of traders are different from investors. For example, digital currency traders use online exchanges to instantly buy and sell cryptocurrencies or convert them to each other. The place of keeping the assets of this group of people is different compared to investors and accordingly their work risk is also higher. We said this so that if you ever step into the digital currency market and buy a cryptocurrency, you will get rid of the thought of keeping it for a long time. If you do this, you are no longer a trader and invest! As a digital currency trader, you need to analyze the price of digital currencies in different time frames. This work requires learning the knowledge of technical analysis and fundamental analysis. If you acquire enough knowledge in this field, you can easily identify market opportunities. This is where if you touch the dirt, it becomes gold!
So now we know that investment and trading are two different categories. Trading means taking a buying or selling position and making a profit from it. But investment means owning an asset It is considered a value storage tool and its purpose is to increase the asset value over time. When people invest in bitcoins, it means that they do not intend to buy and sell and they decide to keep their bitcoins in the long term. In other words, they believe that regardless of the ups and downs that occur along the way, eventually the price of Bitcoin will rise. Usually, people invest in that digital currency because they believe in the technology, its approach, and the team behind the currency. People like Warren Buffett are investors. They buy shares of different companies. If you own part of one of the 500 largest American companies, you will not seek to profit from the increase in its value, but you will follow the continuation of its value growth in the long term. Investors do not necessarily use the concept of stop loss. They form their investment with some reasons in the beginning, and as long as those reasons are true, they trust their investment. Investors are considered real custodians. They don't look at charts much, except when they want to increase their investment position.
People who are looking to invest in digital currencies, more than anything else, should examine the fundamental characteristics of a project. These people who intend to invest in the market for several years should choose a suitable wallet (exchanges or hot wallets are not a good choice for keeping digital currencies for several years) and after examining the various aspects of the digital currencies they intend to buy. have, transfer them to the wallet.
What are the important and famous digital currencies for trading?
This part of the digital currency trading training is dedicated to the introduction of important and popular digital currencies. As we mentioned earlier, digital currencies are available in many different types. You may be interested to know that there are currently more than 1600 different cryptocurrencies available. Of course, not all of these cryptocurrencies are popular. Therefore, many of them are unused and have no use.
Among the most important digital currencies in the market, which, in addition to high efficiency, are also remarkably popular; Bitcoin, Ethereum, Ripple, Cardano and BNB can be mentioned.
What is fundamental analysis?
Fundamental Analysis (Fundamental Analysis) or FA in short, is a method to evaluate the value of a financial asset. An economic analyst measures both financial and economic factors to determine the fair value of an asset such as digital currency. These factors include consideration of macroeconomic conditions such as the state of the broader economy, the conditions of the industry or businesses associated with that property (if any). These factors are often analyzed through leading and lagging macroeconomic indicators.
Analysts determine whether an asset is cheap or expensive as soon as they complete fundamental analysis. Investors also use these results and make investment decisions. (Be aware that cheap or expensive an asset does not mean only its price is low or high, but the price is lower or higher than the real value of that asset that people pay for it. In the trading market and digital currency trading, analysis Fundamental includes an emerging field of data science that examines data from public blockchains called "on-chain" metrics. These metrics include the network's hash rate, top holders, number of addresses, transaction analysis, and more. There are many others. Using this abundant data available on public blockchains, analysts are able to construct sophisticated technical indicators that measure certain aspects of the overall health of the network. Fundamental analysis is widely used in the stock market or forex, and given The current state of cryptocurrencies is less applicable in this area. This asset class is so new that there is not yet a standard and comprehensive framework for determining its market valuations. In addition, the cryptocurrency market is more affected by speculation and fiction. Hence Fundamental factors generally have a negligible effect on the price of a digital currency. However, as the market matures, more accurate ways to determine the value of a cryptocurrency asset will be developed.
What is technical analysis?
Technical Analysis (TA) has a different approach. The main idea behind technical analysis is that historical price actions are indicative of future market behavior. Technical analysis does not seek to find the intrinsic value of an asset, but instead seeks to identify opportunities based on historical trading activity. This can include analysis of price action and volume of transactions, chart patterns, use of technical indicators and other tools. The purpose of this type of analysis is to evaluate the strength or weakness of a market. However, technical analysis is not the only tool for predicting the possibilities of future price movements. TA can also be a framework for risk management. Because technical analysis provides a model for analyzing market structure, it makes trading management more transparent and measurable. In this case, risk measurement is the first step in trade management. This is why some technical analysts are not considered mere traders. These people use technical analysis as a framework for risk management. The science of technical analysis can be extended to any financial market and many traders in the field of digital currency also benefit If their transactions use it. But does TA really work? As we said earlier, the valuation of cryptocurrency markets is purely based on speculation. This feature makes cryptocurrencies an ideal field for technical analysts, as they only deal with technical factors.
Comparison of technical analysis with fundamental; which one is better?
The answer to this question depends entirely on your digital currency trading strategy. But why not use both? Most market analysis methods perform better when combined with other methods or indicators. Therefore, with the simultaneous use of technical and fundamental analysis, there is a greater chance of finding valid investment opportunities. Training and learning to combine different trading strategies and digital currency trading also helps to remove bias from the decision making process. This concept is sometimes defined as "confluence". By combining several strategies and turning them into one strategy, traders benefit from all their advantages. The idea behind this is that the cryptocurrency trading opportunities provided by combined strategies are stronger than those of a single strategy.
The main ways to make short-term cryptocurrency transactions or trades
1- Direct exchange of cryptocurrencies with another currency
You can trade a cryptocurrency pair with each other or with fiat currency, with the goal of making a profit by buying low and selling high. This may include buying a cryptocurrency before a major event (for example, imagine the Cardano network is going to add smart contracts) and selling and converting it to a stablecoin after the price hype.
If you do it right, your capital will grow. If you do it wrong, your capital will decrease over time, as constant failed trades and fluctuating markets can wipe out your holdings. This method requires accurate market timing which can be difficult and requires a lot of research.
Uses: Avoiding excessive risks, keeping the trade simple
Don'ts: High risk/high reward strategies, profiting from falling markets
2- Trade derivatives of digital currencies
There is no need to have any cryptocurrency to enter into derivatives or option transactions (mostly known as futures or perpetual). Instead, you can predict the trend of the markets. Cryptocurrency derivatives trading offers much more flexibility than the first method of simply buying and selling digital currencies, but is also more complex and only suitable for experienced traders. There are different types of derivatives, such as futures, options and perpetual swaps, all of which have their own nuances and can be used simultaneously. Trading cryptocurrency derivatives often involves the use of leverage, which can significantly increase profits and losses. Traders can also profit from cryptocurrency price declines by entering short or short positions, reduce their risks by hedging (or hedging), and make large trades even if the markets are relatively quiet. Option trading can also be a very quick way to lose money.
Uses: High profit (or loss) even in suffering markets, quick profit or loss, high risk/reward strategies, flexibility in any market conditions.
Disadvantages: Not recommended for beginner cryptocurrency traders.
3- Trade with CFDs
Cryptocurrency CFDs (contracts for difference) are a special type of derivative that allows you to bet on the price movement of a stock asset. Like other derivatives, they allow traders to use leverage without owning the underlying asset. Unlike other derivatives, CFDs are not traded on an open market. Instead, you only trade on trading platforms that you specifically use. While most digital currency derivatives treat it as a commodity, CFDs are almost identical to what happens in forex trading.
Applicable cases: rentals, large profits or losses even in flat markets, quick profits or losses, people who are experienced in forex trading and want to test their skills in digital currency.
Disadvantages: Not so good for beginners; Because of the high stakes, the potential for bigger losses, and all the extra tools and jargon they need to know.
Training to trade
What you read in this article was a window to a big and almost endless world. But knowing these things alone is not enough to make a safe trade. In the world of cryptocurrencies, where we see many highs and lows, small and large points are always missed in every article, and there are moments when only gaining full experience through trading training can save you. and bring a great profit or free from a huge loss. So don't forget! In this field, nothing is more important than education.