Crypto Trading: Unique Features and Basic Rules

It’s undeniable that cryptocurrencies are our future. More and more traders and investors are entering the cryptocurrency market. However, some still doubt whether it’s worth dealing with these assets. Their caution is caused by daily news about cryptocurrency’s enormous volatility and legal problems.

Cryptocurrency acceptance is growing worldwide, while high volatility isn’t as scary as it seems. The crypto market is positively correlated with the stock one. If you believe in stock trading, you should take advantage of crypto trading opportunities. The only thing you should do is learn the unique features of crypto assets so that you can trade them successfully.

How to Trade Cryptocurrencies

Beginner traders believe cryptocurrency trading is something complicated that they will never figure out. However, as for trading, nothing special was developed.

You can trade cryptos on spot and futures markets.

• Spot trading. Spot trading allows traders to buy and sell cryptocurrencies with immediate delivery. It means that to buy a certain cryptocurrency, you should have an asset (cryptocurrency or fiat money) you buy it for on your balance. To sell a crypto asset, you should also have it in your balance. You can buy and sell cryptocurrencies at the current market price or at a price you determine. In the second option, the order will be opened if only the price reaches the level you specify.
• Futures trading. When trading on the futures market, you don’t have to own a cryptocurrency you plan to buy or sell. You should determine a cryptocurrency’s price direction and entry and exit points. If your forecast is correct, the trade is closed with profit—otherwise, you bear losses. A futures market allows you to trade with leverage. It means you can borrow money from the platform you trade on so that you can open a larger trade. Remember that leverage trading leads to higher risks.

Whether you trade on the spot or futures market, it’s vital to catch a perfect entry point. However, it’s impossible to monitor the market constantly. Therefore, you can use alerts. These are notifications you receive when a cryptocurrency’s price, market capitalization, or volume goes above or below the level you set. Find out what crypto alerting on Margex is.

How to Choose Cryptocurrencies

Another critical point is to choose the right cryptocurrency for trading. The rule says highly volatile assets provide higher income. However, they also lead to increased risks. If you aren’t experienced enough, you should choose more stable assets.

Stability depends on:

• a strong idea of the project the cryptocurrency relates to;
• The liquidity level, which is determined by the asset’s popularity — if every buyer meets a seller and vice versa, trades are executed immediately. 

There are many one-day assets that don’t have fundamental ideas. They may provide exciting trading opportunities with enormous volatility. However, you risk losing all your funds. You must analyze the cryptocurrency’s prospects and real utility. Some popular assets also suffer significant price fluctuations — for instance, Cardano (ADA). At the same time, the token is one of the most popular cryptocurrencies with substantial market capitalization.

It’s always better to trade popular assets than new ones. First, they appear more often in the news, posts, and analyst reviews. It’s vital for fundamental analysis. If you know the events that can affect a cryptocurrency’s price direction, you can easily determine favorable trading opportunities. Second, most of their prices can be predicted with technical and fundamental analysis—despite high volatility.

How to Analyze Cryptocurrencies

There are a few fundamental events that can affect a cryptocurrency’s price. As most crypto assets follow Bitcoin, they are affected by macroeconomic factors, including inflation in the US, employment data, and the  Fed’s monetary policy. Also, internal project events such as upgrades and new cooperations may drive a token’s price. Still, it’s not much compared to other assets — for instance, stocks and fiat currencies.

However, in technical analysis, the standard indicators used for fiat pair, stock, and commodity markets are effective for cryptocurrencies. The only unique feature of cryptocurrency you should keep in mind is its high volatility. Therefore, it’s recommended to mostly use momentum indicators, which quickly signal the future price direction.

If you have used standard technical indicators, you can implement them on cryptocurrency charts. If you don’t know what indicators start with, you can use the most popular tools, including simple moving averages, relative strength index (RSI), moving average convergence divergence (MACD), volume, and Bollinger bands. Although moving averages and MACD are lagging indicators, they are vital to identify market trends.

Also, you can look for chart and candlestick patterns. They are also standard for the trading of any asset. The most effective chart patterns are head and shoulders, inverted head and shoulders, double top and bottom, triple top and bottom, triangles, and wedges. As for candlestick patterns, you can look for engulfing candlesticks, morning and evening stars, a hammer, and a hanging man.

Tips for Crypto Trading

These are recommendations that will help you in crypto trading.

Enter Volatile Markets with Caution

Although high volatility allows traders to gain more significant income, it causes enormous risks. If you are a newbie trader, you should avoid trading ahead of and after fundamental events or cryptocurrencies that constantly suffer high volatility.

Don’t Trade All Your Funds

You should never put all your funds in one trade, especially if you trade with leverage. High volatility requires you to be wise and determine the amount you invest in advance so that you can cover potential losses.

Diversify

This rule relates to any market, including cryptocurrencies. You should choose several assets that react to different events so that you have an opportunity to open trades constantly. If you focus on one cryptocurrency, you risk missing attractive opportunities.

Test Different Strategies

Short-term trading is widely used in highly volatile markets. However, numerous cryptocurrencies often trade within narrow ranges. You should test various approaches, including swing trading, trend trading, scalping, and intraday trading.