Sentiment about cryptocurrencies was split among users after the market drawdown in May. More experienced traders were ready for the fall, and mainly newbies and enthusiasts lost their funds and exited the market in anger.
In this review, I will try to tell, based on personal experience and knowledge, all the subtleties of trading on the crypto market.
Cryptocurrency trading spot or derivatives
Today, exchanges and marketplaces offer many trading tools for trading in the cryptocurrency market. Crypto markets offer different contracts, like spot and derivatives. A significant difference between trading on the spot market and the derivatives market is the actual acquisition of an asset. So, for example, when trading on the spot market, a person acquires an asset for the purpose of selling it in the future to generate profit from a difference in price.
Trading in the spot market can be compared to trading in the stock market, and the person trading in this market will be considered an investor. To fix profits on the spot market, you can set only one order – a sell order, and place a buy order to buy putting the amount of the purchased or sold the asset. The most popular exchanges for spot trading are Coinbase, Kraken, Gemini, Binance.
Unlike the spot market, when trading in the derivatives market, a person does not actually acquire an asset but opens a position for the purpose of price speculation, and a person trading in this market is classified as a trader. The advantage of trading in the derivatives market is trading in both directions, that is, profits can be obtained even if the price of an asset falls, comparable to trading contracts for differences (CFDs) and trading futures (also a class of derivatives). Derivatives trading platforms provide a fairly high leverage, which allows a trader to increase his capital and reap great benefits, but also implies the risk of losing all funds in the position.
It is also important to take into account that trading on the derivatives market, a trader can set various orders to make a profit from the trade or accept a loss for the trade: take profit and stop loss functions. That is, since the asset is not actually purchased, two orders can be placed simultaneously. The advantage is that a trader, when the price reverses, will be able to close the position with an insignificant loss, and if the price continues to move in the predicted direction, close the position and fix the profit automatically. Popular exchanges and platforms for trading crypto derivatives: FTX, Bybit, Overbit, and Bitget.
Market analysis and education
There are several types of analysis for predicting price movement: technical, fundamental, market sentiment analysis.
The most popular type of market analysis, which includes the study of asset price movements and trading volumes. Everyone determines for themselves a trading strategy based on technical analysis, but mainly Dow theory, Elliott Wave theory, and Fibonacci mathematical tools are used. The best tool for technical analysis nowadays is considered TradingView.
The study includes an analysis of such fundamental data as the financing of the project, reports on the updates made, deposit/withdrawal of funds to/from the exchange, the open interest ratio, the funding rate, as well as, if the asset is traded against a currency, economic data affecting this currency (more often the US dollar).
Market sentiment analysis
The second most popular analysis method in the cryptocurrency market. Market sentiment is calculated using algorithms that wander popular social networks and all over the Internet looking for positive and negative comments about the cryptocurrency. Such algorithms are used to calculate one of the important indexes – the “Fear and Greed” index.
Most crypto exchanges and cryptocurrency trading platforms provide their own training materials, but they are more introductory and do not contain detailed information. Therefore, after reading materials on any type of analysis of the cryptocurrency market, you should not consider yourself a pro and open positions that exceed 50% of your deposit. Coinbase is a good example of providing educational material. To start trading after completing the training, you can use indefinite demo trading on HitBTC for spot, Binance and Bitget for derivatives, the latter provides only a few pairs, but the balance can be replenished with an unlimited number of times.
There are groups and traders, as well as various applications/indicators that sell signals for a certain fee. Signals are calls to open a position or place an order when a certain price is reached. You must study each received signal yourself, if you are ready to use such services, then do not disregard your own analyses, so you can learn how to trade yourself even faster.
You can use signals and enter manually into the market, or you can copy the orders of popular traders. Copy trading is based on the automatic opening of a position with the copying of all settings: entry price, take profit, stop loss. The world leader and first social trading platform, eToro pioneered copy trading in the forex market, and now provides the same platform with minor modifications for trading cryptocurrencies. Copy-trading can also be used to conduct your own analysis, to consider why the trade was successful and vice versa.
On BitGet platform, which claims to have a higher copy trading turnover than eToro, it is possible to view all traders in detail, consider the trading strategy and positions, which can also be used to study trading in the market. Just like trading with other tools, copy-trading has its own risk of account drawdown, therefore, before subscribing to a trader to copy his trades, you need to view the history of his trades in detail, as well as find information about him on the Internet, in social networks.
Trading in the cryptocurrency market has its risks, but so does the reward. You should always take a cold-blooded attitude towards all market situations. To begin with, study the market, study and possibly start using signals and copy trading on small volumes, but always strive for an independent understanding of the market and analyze. Study carefully risk management, never trade more than 50% of the balance at the initial stage. Do not get upset about low profits, a small profit is better than any loss.