Complete Guide to Crypto Trading

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Cryptocurrency exchange is a platform for trading and exchanging one digital money for another or for various world currencies (USD, EUR, RUR, CNY). In addition to the cloud mining and mining on your own computer, which is the original way to create cryptocurrency, exchanges offer the only option to receive it. In addition, only with the help of stock markets you can exchange it for real money. The division of the entire list of stock exchanges can be made conditionally basing on one of the most important criteria:

• Stock exchanges where bitcoins and some of the main forks can be exchanged for national, world currencies (fiat money).
• Stock exchanges which carry out trade exclusively between bitcoins and forks and exchange one cryptocurrency for another. Forks are digital money derived from the main bitcoin. Many forks can be exchanged only on certain stock exchanges.

Trade principles​

Exchange operations and speculation on cryptocurrency exchanges are identical to any other. To get profits, you need to buy cheaper, to sell more expensive, i.e., just like when investing in a common currency. Naturally, the tool base and the principle of setting targets for trading are the same way as in the securities or forex markets. To make a profit by trading virtual money will not be a problem for those who know the basics of trading in the stock market, securities and national currencies. The main components with which a trader operates on a cryptocurrency exchange can be represented by the following list:

1. currency rate chart;
2. sell and buy orders;
3. transaction history;
4. trading volumes conducted on the exchange (s).

To understand the basics of a cryptocurrency exchange, it is worthwhile to consider all these elements one by one.

1. Cryptocurrency rate charts ​

The chart is a history of one cryptocurrency rate in relation to either another one or to fiat money. Most often, the chart is presented in the form of candlestick patterns, clearly demonstrates the development over time of the spread difference ratio.

Candlestick charts display more data than just the closing price: each 'candle' shows the opening price, the lowest and highest price of the given time-period as well as the closing price. In addition, the color of the candle body indicates whether the closing price was higher than the opening price (usually a green bar, called an 'up-bar') or lower than the opening price (usually with a red body, called a 'down-bar').

Spread is the difference between the current offers, the best values for sell (ask) and purchase (bid) of currencies that are relevant on the exchange. The presentation of the chart in the form of candlestick patterns is taken on the stock exchange, currency exchange, as it is considered the most informative in terms of trading. This especially concerns the issues of technical analysis.

Candlestick patterns indicate the price movement for a certain period of time. Figure 2 presents an example showing the main elements of the candle. Charts of the same pair of cryptocurrencies can be presented with different time axes, for example, an hourly chart or a 15-minute chart, on which, respectively, the unit of time is an hour or 15 minutes. One candlestick shows the values that were relevant for this period of time.
The candle body, i.e., a rectangle, is formed from the values at the beginning of the next time period and its end. If the opening level is below the closing level, then this candle is called bull candle, and colored red or black. In the opposite case, the bear candle is colored green or white. So visually it becomes clear that with the bull candle the rate grew, and with the bear candle it fell.

The lines extending from the candle are called shadows, and indicate the presence of highs and lows that were recorded during the formation of the candle. In the absence of the upper shadow, it is said that the top of the candle is cut off; in the absence of the lower shadow, the base is cut off.

Doji candlesticks are called candles which actually have no body, which means, the price at the beginning of the time period and at the end is equal. A spinning top is a candlestick pattern with a small body size. The ability to read candlestick patterns makes trading cryptocurrencies and other financial instruments much easier.

2. Bid and Ask Orders​

Bid / ask orders from trade participants in the cryptocurrency exchange form the so-called ‘Depth of Market', aka the Order Book. This is a list or table that contains orders from users to buy or sell one cryptocurrency for another or for fiat money and approximate in value to the current price at which the pair is being traded. Figure 3 shows an example of such a list presentation. The three positions show the bid rate, the total amount of cryptocurrency that traders want to buy or sell at this rate and the total amount of the second cryptocurrency or real money for which the operation is performed.

Market depth, a compilation of all buy and sell orders, reflects the desire to trade cryptocurrency at the specified rate. If there is a counter offer to sell or buy, the transaction is made, and the current price of the traded pair is adjusted in respect to the transaction made. It should be considered that, for example, if there is an ask order, the counter bid offers are searched at a price equal or greater. In the absence of response offers, the order remains on the call list, or until the command to cancel the order comes from the participant who placed it.

 

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Market Depth Chart Analysis ​

You can perform analysis and make decisions for doing business only basing on data from a market depth chart. The first thing that can be calculated based on the book orders list is the current spread for the traded pair. To do this, take the first values from the order book list, and calculate their difference: 23,694-23,439 = 255 USD.

Based on the orders placed in a market depth with a large volume, it is possible to predict the future behavior of the price chart before trading on the cryptocurrency exchange. So if there are large bid orders, we can expect a quick growth. In the reverse situation, a large ask order is likely to push the rate down.

It is important to remember that not all orders made by participants are presented on the book orders list. It reflects only the positions that are closest to the current price, so finding out how the rate will change after a number of used large positions is already quite difficult, so if you take into account only the quotes, you can count on a short-term analysis. The easiest way to filter the list is though major orders and to draw the appropriate conclusions only after their analysis. For a deeper analysis, it will be necessary to apply such approaches which include a review of news regarding the pair to be traded, or technical analysis tools.

Passive and Aggressive Orders ​

An order is passive when traders set a price that stock must reach before they go ahead with buying or selling. In contrast, aggressive orders are when a trader executes the order to buy or sell straightaway. Passive orders are the most common kind of order and can help traders make sure they don't buy and sell below their target price. Despite the name passive orders still require a clear and active trading strategy. However, they can be cancelled prior to execution. They have an expiration date attached to them so if the limit prices are not reached within the time-frame, a new order will have to be placed.

Aggressive orders are those that are intended to be traded on the stock exchange at the current level. In other words, they are called instantaneous, since they are executed at the first opportunity, in the presence of a response offer. Aggressive orders form and maintain the main part of the movement on the chart of the pair. After the execution of a large aggressive order, the exchange rate can make a significant movement and trigger actuation of an entire list of pending passive orders.

Resistance and Support Price Levels ​

The price is constantly changing, it forms the chart that is far from being straight-line. There are peaks and drops that mark the highs and lows, often called local extremes. In addition to this, utmost extremes at a considerable time interval are called significant or absolute. If you can draw a line along a series of highs or lows, it will mark the level of resistance and support, respectively. These are the levels and quote values at which the cryptocurrency rate clearly meets a significant opposition, after which it turns in the opposite direction.

Strong levels of support occur in places where a large list of bid orders gets accumulated. The same happens with the resistance level, which is determined by the presence of a significant list of ask orders. Actually the main goal of most players of the exchange is to buy cryptocurrency during the rate fall and sell at the moment when the price reaches higher values.

If we imagine the lines of resistance and support in the form of a channel, it is most profitable to trade on the borders of the channel. Determination of significant levels for the price chart is one of the main tasks for any analysis and forecasting.

One of the main definitions market participants face is the trend and trend price movement. It is important to know the direction of the trend. The trend itself is just a channel composed of parallel resistance / support levels.

The direction of the trend movement is determined by the slope of the levels. If they are directed upwards, the trend is called uptrend. This means that the cryptocurrency is traded with a predominance of purchases. For a downtrend, the opposite is true. A sideway trend is a movement in which the levels of resistance / support are arranged horizontally and there is an approximate equality of sales and purchases.

Transaction History​

According to the history of transactions, you can judge about the total trading volume on the exchange and about that of a specific pair. This helps, in the first place, to assess the interest of the majority of participants to one or another price for the provided tool.

 

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Using Trading Volumes in the Analysis​

The trading volume is represented as the total number of units of a traded cryptocurrency which became outstanding on the basis of executed orders for a certain period of time. Naturally, it is about the direct transfer of something tangible. An indicator of the volume which appeared when the price reached any level is very important for the analysis.This can be a strong signal to start trading in anticipation of further price movement.

Representing the vertical and horizontal volumes is used in various software platforms for trading in cryptocurrencies. The vertical volume has been the most prevailing on exchanges.

In this case, they create a list with information about the size of all concluded deals for a certain period of time. It is displayed in the form of bars under the price chart in relation to time. The time interval for building one bar is the same as that on the price chart. That is, if an hourly chart is used, the volume is presented in the form of bars, each indicating the total volume of trade in the past hour. In case of the daily chart, it is calculated for the entire trading day.

The most practical use of trading volumes can be to determine the end of the corrective movement within the trend. A strongly increased volume at a price that goes against the main trend can signal its end. This moment is beneficial to start trading in the direction of the trend.


However, you should bear in mind that the presence of a large trading volume in cryptocurrencies may not always indicate a further strong price movement. Aggressive orders are the main incentive to change quotes, and it is impossible to determine the prevalence of bear or bull movements only by volume. This can be done through the simultaneous analysis of a glass of quotes and volume.

 

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Differences of Cryptocurrency Exchange from Stock and FOREX Markets​

Unlike the stock or forex market, volatility observed at the cryptocurrency exchange is hundreds of times greater. Volatility determines the size of the price movement over a certain period of time. For example, in 2013, the bitcoin rate rose by more than 5,500%. Such yearly fluctuations can are impossible in the market for securities, stocks or real currencies.

Considering the steady rate movement at stock exchanges, in order to trade with tangible income, it is necessary to invest substantial funds in turnover. On the other hand, concerning the entire list of cryptocurrency exchanges, you are quite likely to receive net income in the amount of 500-600 USD in a few days, having invested only 75 dollars. Naturally, together with the possibility of rapid growth of savings, you can also quickly lose everything, i.e., incredible volatility carries high risks. It all comes down to the possibility for a participant to correctly predict rates in trading at the stock exchange. To do this, you can use both a fundamental analysis, relying mainly on news related to cryptocurrencies in question, and count on a technical analysis as well.

The technical analysis in terms of its effectiveness in relation to cryptocurrency exchanges causes some doubt. It all comes down to the high volatility of trading tools and the presence of a small proportion of systematic events in this market. As a result, the rates are managed by groups of players that are scattered according to the specifics and purposefulness, and are capable of increasing the volumes traded at one time. Nevertheless, many participants successfully apply a small list of elements of technical analysis to predict prices. They use only the basic tools and simple approaches that are easier to interpret.

News trading strategies are more effective, however, it is extremely difficult to find adequate news on cryptocurrency and, most importantly, on time. One of the best sources of news is thematic forums and blogs, in which players often post their thoughts and comments on further developments. the media publish news on cryptocurrency with a long delay, which negates their relevance. Much can be learned, for example, by visiting the thematic forum - bitcointalk.org

It should be noted that the main part of the movement at the cryptocurrency exchange is created by limited groups of participants who trade large amounts of funds and are able to make a significant correction of the exchange rate. Such groups or individual players are unlikely to speak about their intentions in advance, you just have to timely detect the beginning of events and place the corresponding orders.

more dangerous for a newbie are situations when some market participants deliberately cause a sharp price movement in order to draw the attention of the public to the beginning of a more significant advance. As a result, many hasty market participants join the initial breakthrough, begin to trade, and by their own efforts stimulate movement.

Important rules for cryptocurrency exchanges
​

For beginners, and for many already familiar with cryptocurrency exchanges, it is advisable to look at the list of key points:

• Greed is the main enemy of any trade. You should never wait for additional growth or decline, if the forecast convincingly does not speak about this, it is better to be safe and stop on time or enter under existing conditions without waiting for the ideal option.

• Patience is a guarantee of profit. This applies to both tracking open positions and to waiting for more convincing entry signals. This simple thesis will allow you to understand how to trade a cryptocurrency, avoiding unnecessary impulsive entries and exits in anticipation of strong movement.

• It is extremely important to always control the Market Depth. The book orders is the main source of information for the exchange.

• Volume and capitalization for markets are key factors reflecting the mood of other players. Therefore, only knowing these characteristics, you can clearly predict the change in quotes.