10 Critical Concepts In Crypto Trading

10 Critical Concepts In Crypto Trading

Table of Contents

Traders have to have a certain perspective and be able to separate their need for greed and the feeling that they need to be in the market all of the time while they are waiting. They also need a plan and a trading strategy that helps them trade more size with less risk. In this article, you’ll find out 10 concepts that will help you a long way if you are just getting started in crypto trading.

Create a trading plan that addresses your unique risk tolerance

It is essential to tailor your trading plan to fit your unique risk tolerance. This involves setting clear boundaries on how much you are willing to lose and stick to them.

You also need to be honest with yourself about your underlying motivation for trading. Are you looking to make a quick profit, or are you more interested in long-term gains?

If you’re risk-averse, then you’ll need to approach trading differently than if you’re comfortable with taking on more risk. For example, you may want to focus on buying and holding currency, rather than day-trading.

No matter what your tolerance for risk is, it’s important to have a plan in place before you start trading. This will keep you disciplined and avoid making impulsive decisions that could cost you dearly.

Protect yourself against volatility

In the world of cryptocurrency trading, volatility is always a major concern, and for good reason. Prices can swing wildly up and down more than 15% over the course of a day, or even an hour, and if you’re not careful, you can end up losing a lot of money very quickly.

There are a few things you can do to protect yourself against volatility, though.

  • First, don’t put all your money on one bet. Diversify your portfolio across a number of different coins and exchanges. This way, if the price of one coin plummets, you won’t be wiped out completely.
  • Second, take advantage of stop-loss orders. These orders automatically sell your coins when they reach a certain price, so you can limit your losses if the market takes a turn for the worse. Use a crypto exchange that offers stop loss orders that can be adjusted by percentage or dollar value.

Market selection – Pick a coin, not 20

It is important to select a market that you are comfortable with and have a good understanding of. There is no need to try and trade every single currency out there just because your friends are talking about it. In fact, it is often better to focus on one or two markets that you are familiar with. This will help you make more informed and profitable trades. 

Select a single coin to focus on, rather than spreading yourself too thin by trying to trade 20 different coins at once. Not only is this more manageable in terms of time and effort, but it also allows you to really get to know the market trends and the underlying dynamics of that particular coin, which in turn gives you a better chance of making successful trades.

Choosing a coin among the top 20 by market cap is always a safe bet since you know that it will probably be around for a long time. Selecting a new hot cryptocurrency might hurt you in the long run if the coin fails to meet expectations and is delisted.

Amount vs volume

When it comes to crypto trading, one of the most critical concepts to understand is the difference between amount and volume. Amount represents the total value of a given cryptocurrency, for example, $21,000 worth of one Bitcoin, while volume represents the number of coins traded in a given period of time through order books out on exchanges.

A high number of orders going through at a high volume means that there is an increased trading activity.

Why is this distinction important?

Well, for one thing, it can help you better understand price movements. For example:

  • If the price of a coin goes up but the volume traded remains relatively static, that could be an indication that there’s only a small group of traders driving the price increase.
  • Conversely, if the price of a coin falls but the volume traded spikes, that could be an indication that there’s widespread panic selling taking place.

Understanding amounts and volumes can also help you more effectively use technical indicators like a moving average. For instance, if you’re using a 10-day moving average as your guide, then you’re technically looking at an average volume over the past 10 days rather than actual amounts. So, if there’s been a recent spike in trading activity, it may take a few days for that to be reflected in the moving average.

Profit from large moves

In order to profit from large moves in the cryptocurrency market, it is critical to have a firm understanding of technical analysis and a gut feeling of when prices are about to break out. Technical analysis is the study of price action in order to identify patterns and make predictions about future price movements. One of the most important concepts in technical analysis is support and resistance.

Support is the level at which buyers are willing to step in and purchase an asset, while resistance is the level at which sellers are willing to step in and sell an asset. When the price of an asset breaks through a support or resistance level, it is said to be experiencing a breakout. Breakouts can be bullish or bearish meaning the price moves up (bullish) or down (bearish).

The reason for these large breakouts is normally because of a grouping of contracts around these price levels. Later when the price breaks past the support or resistance, many traders are forced less their positions at a loss further pushing the price up or down.

Another important concept in technical analysis is trend lines. Trend lines are used to identify the direction of a trend. They are drawn by connecting two or more price points on a chart. Uptrends are defined as periods when prices are consistently rising, while downtrends are defined as periods when prices are consistently falling.

By combining these concepts, traders can develop trading strategies that aim to only profit from large moves in the market with good timing.

Volume indicator

The volume indicator is a technical analysis tool that is used to measure the strength of a market move and can be used as a leading or lagging indicator. A rising volume indicates increasing buying pressure while a falling volume indicates decreasing buying pressure.

One way to interpret the volume indicator is to look for divergences. A divergence occurs when the price is making new highs or lows but the volume is not confirming these moves. This often happens at the end of a trend and can be used as a leading indicator for a reversal.

The volume indicator can also be used to confirm breakouts. When the price breaks out above resistance or below support, it is usually accompanied by an increase in volume. This increase in volume indicates that there are more buyers (or sellers) than there were before and that they are willing to pay (or accept) a higher price.

The volume indicator can be used to measure the strength of a trend. When the price is moving up on high volume, it indicates that there is true momentum behind the move and that the trend is likely to continue. When the price is moving down on high volume, it indicates that there is strong selling pressure and that the trend is likely to continue.

On the contrary, when the price is moving up on low volume, it indicates that there is not much interest in the move and that it could reverse. When the price is moving down on low volume, it indicates that there are fewer sellers than buyers and that the trend could reverse.

Taking profits and cutting losses like a robot

One of the most important things you can do to increase your chances of success is to take profits consistently and cut losses at the right time.

When you’re in a trade, there are two key price levels to watch:

  • Entry price
  • Stop-loss price

Your entry price is the point at which you enter the trade, and your stop-loss price is the point at which you exit the trade if it goes against you.

Taking profits means selling your position when the market moves in your favour so you can lock in the gains. You can do this by setting a take-profit price that’s higher than your entry price. For example, let’s say you buy Bitcoin at $10,000 and set a target profit of 10%. If the market reaches $11,000, you would sell and lock in a profit of $1,000.

Cutting losses means selling your position when the market moves against you so you can limit your losses. You can do this by setting a specific order type called a stop-loss which limits your losses to a specific dollar or percentage value.

For example, let’s say you buy Bitcoin at $10,000 and set a stop-loss of 5%. If the market falls to $9,500, you would sell and limit your loss to $500.

Both taking profits and cutting losses are important parts of risk and trade management. By carefully managing these two aspects of your strategy you will give yourself more opportunities to find the big winners.

Fundamental analysis is the meaning behind what you see

By understanding the basics of fundamental analysis, traders can get a better handle on what they are seeing and make more informed decisions.

Fundamental analysis in crypto trading is the process of looking at the underlying factors that affect the price of a cryptocurrency.

This can include things like:

  • The technology behind the coin
  • The team working on it
  • Community support
  • Adoption
  • Early investors
  • Use case
  • Is it better than its competitors

By doing a thorough analysis of these factors, traders can get a better understanding of where the price is likely to go in the future and if there is a chance for a positive trend.

Fundamental analysis can be a complex process, but it is essential for anyone looking to trade cryptocurrencies successfully. With many different factors to consider, it can be difficult to know where to start.

Start by first reading up on the problem that the team behind the coin is trying to solve. Then try to find out how far they have come and if their product is actually better than what is currently available on the market.

Make a final judgment on how popular this cryptocurrency seems to be among investors and traders. If you see that the general public seems interested, it might be a good investment or trade opportunity.

Choosing a charting program

Choosing a charting program
​​

Choosing a good charting program for crypto trading is essential and there are many factors to consider. Some of the programs available are very comprehensive and come with a lot of features, while others are quite basic. It really depends on your needs as a trader as to which one you choose.

Most programs will allow you to plot price action and indicators on your charts, as well as provide other handy features such as news alerts and economic calendars. Some even offer trading simulator apps so you can practice your strategies without risking any real money.

Before making a decision, take some time to research the various options and read online reviews from other traders. This will help you narrow down the field and choose the program that best suits your needs.

One tip I can leave you with is that your charting program needs to be fast and it should offer the latest technologies when it comes to indicators, drawing tools, and order types.

Day trading vs swing trading

Day trading involves buying and selling crypto assets within the same day, in an attempt to profit from short-term price fluctuations. Investors who day trade cryptocurrencies aim to make small but frequent profits, and they typically hold their assets for only a few hours or even minutes.

Swing trading, on the other hand, involves holding onto crypto assets for longer periods of time— anywhere from a few days to a few weeks—and profiting from larger price swings. Swing traders usually buy crypto when prices are low and sell when prices are high, waiting for the market to correct itself in between.

So which type of trading is right for you? It depends on your investment goals, risk tolerance, and timeframe. If you’re looking to make quick profits and don’t mind incurring more risk, then day trading may be the better option. But if you’re patient and willing to ride out the ups and downs of the market, swing trading could be a more profitable strategy in the long run.

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