Step-by-Step Guide to Cryptocurrency Trading, Investing & Mining

dr.Gachet

dr.Gachet

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#21
Bear & Bull Markets

The term bear and bull markets originally were used in relation to the stock market, but the same principals of these trends can be applied to the cryptocurrency market. An easy way to remember the difference between the two is by the animals they refer to. A bull will move its horns upwards to attack while a bear will swipe down with its paws. If the market shows neither pattern, it is a sideways market, and it is best to delay any transactions until a direction begins to show. However, it can be difficult to predict when trends will shift because both trends are based on the emotions and speculative opinions of traders and experts.

Bear Markets

A bear or bearish market is one that is showing lower highs and lower lows. For example, let’s say the price of cryptocurrencies fall because of strict regulations from a large government body.The market sees this, their trust begins to waver, and some begin to sell. This continues as the markets dip more and traders anticipate continued loses.


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There is a difference between a bear market and just a correction. A correction is often short-lived, lasting fewer than two months. Corrections are a positive situation, allowing investors to buy into the market at a discount price. How ever, bear markets are the opposite. There can be no guarantee when the losses will stop and where the bottom might end up.

Bull Markets

A bull or bullish market is when the market is showing higher highs and higher lows. Bull markets are created by high optimism, confidence and increased trust that values will hold or increase. A bull market is a good indication of a strong and growing economy. In the case of cryptocurrencies, improvements in technology, increased adoption rates and positive changes in regulations can be triggers.
 
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dr.Gachet

dr.Gachet

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#22
Technical Analysis

Technical analysis is the study of historical price movement by using charts and graphs. The goal is to be able to identify patterns, and price patterns tend to repeat themselves in the markets. This form of analysis along with fundamental analysis will help you make better predictions and become a stronger trader.

Whenever we are using technical analysis, we are using a variety of charts that measure different aspects of the price movement.We refer to these charts as technical indicators or indicators. There are dozens of indicators that you can use whenever you’re trading. Each of these indicators will have at least one strategy that you can apply to anticipate the future price action.

To access the indicators, we will need to use a charting system that will allow us to look at a variety of indicators and even change some of the trades that we will execute. Some of the popular charting system are MetaTrader, FreeStockCharts, or NetDania. Each of these platforms has a slightly different layout and offer different features. Most of the websites are either free or offer a free version that will allow you to decide which one suits you and trading style. Some examples of technical analysis indicators are RSI, moving averages and, candlesticks. We will be reviewing these and other ones below.

Candlesticks

The most important technical indicator that any new cryptocurrency trader should learn is the Japanese Candlestick chart. It is a technical indicator that was developed in Japan by traders in the 17th century to monitor the rice trade. Most of the technical indicators that you will learn in the future will fit perfectly on top of the Japanese Candlestick chart. In fact, it is highly recommended that you learn 2 to 3 other technical indicators. When combined, you will be able to make wiser trading decision.

Anatomy of a Candlestick Chart
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The chart itself works on an X (horizontal) and Y (vertical) axis. The X-axis shows us the time that has passed up until the present time, and the Y shows us the price of the coin. The candlesticks exist between the two as colored blocks. Depending on the charting system you use, the blocks could be red and green, or other charts use red and blue. Some of the blocks will be long, some will be short, some will have lines coming out of the top and bottom of them and others will have no lines at all. Alone, a candlestick doesn’t offer much information. The more candlesticks you have, the more you can analyze how the candlesticks interact with each other, and that will allow you to understand better how the price will move in the future.

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The body of the candlestick represents a period of time and are colored to show us which direction the price moved. Depending on the time frame that you have set your charting system to, each candlestick could represent a variety of time periods.

The Color of the candlestick will let us know whether the price went up or down during the period. Different charting systems can show different candlestick colors. If it’s a blue or green candlestick, this means that the price moved up for that period of time. If we have a red candlestick, it’s just the opposite. It means that the price is moving down for that time period.

The top and bottom of a candlestick have their meanings too.The top of a red candlestick shows us what the price was whenever the candlestick started. The bottom of a red candlestick shows where the price stopped. For a blue or green candlestick, it’s the opposite

Shadows or wicks of candlesticks are the lines that come out of the top and bottom .They show us the full price movement during the candlestick’s time period as the price constantly moves in the market. For example, if you see a red candlestick with a line coming out of the top of it, it means that the price moved higher than where that candlestick started during its time period. If you see a wick coming out of the bottom of the candlestick, it just means that the price went lower than where it closed during that time period.The same holds true for blue and green candles.

Using Candlesticks to Analyze Trends

When looking at a candlestick chart, you are trying to see a pattern where the price is clearly moving in one direction for a period of time.You can spot a trend when a series of candlesticks are traveling in a direction.Therefore analyzing just a handful of candlesticks isn’t very helpful. Trends can be done in an hour or last months. There are upward trends where buyers are in control of the markets, and the price is moving in a general upwards direction. There are also downward trends where the sellers are in control of the market, and the price is moving in a general downward direction.
 
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dr.Gachet

dr.Gachet

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#23
Fibonacci Retracements

Level and time when the price stops going higher that is the resistance level. This is useful information because it can identify the best places for price targets, stop losses and other transactions.

Fibonacci retracement is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.

Areas of support and resistance are visually represented by horizontal lines at key Fibonacci levels. These levels are created by drawing a trendline between the highest and lowest price of a period.The tool will then divide the vertical distance by key Fibonacci ratios of 23.6%,38.2%, 50%, 61.8% and 100%. These ratios are mathematically significant numbers that occur in nature and often for some reason in financial markets. Historically, after a significant price movement up or down in the market, the new support and resistance levels are often at or near these lines.

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These levels don’t move with the chart as moving averages would. This allows traders to better predict and react to the market when price levels are tested. These ratio levels show places where it is usually expected that the market will struggle then fall lower or break to a new height.

The most significant Fibonaci retracement level to watch for is the 0.618. This is the inverse of the golden ratio, 1.618 or phi.The 0.618 retracement level tends to be the maximum pullback zone where fear climaxes as the final sellers throw in the towel and bargain hunters rush into the stock to resume the uptrend. On downtrends, the 0.618 price level should be where the final buyers are exhausted as sellers take the opportunity to unload their positions and short-sellers jump off the fence to push down the price and resume the downtrend.
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A fibonacci retracement in percentages after bull and bear runs

Fibonacci retracement levels can be used as triggers for buy order or drawbacks in an uptrend. In a down trending market, you can use these levels to short sell. As mentioned before, use more than 2 to 3 indicators to strengthen your predictions. For example, a 200-day moving average that overlaps with a retracement level would indicate an even stronger support or resistance point.

Useful Tip: Always look at the 0.618/61.85 level as it is the most important one. This is where the market tends to bounce back out of fear.
 
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dr.Gachet

dr.Gachet

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#24
MACD Indicators

MACD stands for ‘moving average convergence divergence.' It shows the shows the relationship between two moving averages of prices. While the name may sound complicated, it is simple to use. MACD is popular because of its ability to help quickly spot increasing short-term momentum which is helpful when creating your short-term strategies.
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The MACD is calculated by subtracting the value for the long-term moving average from the short-term average. In MACD calculations, 12 and 26-day exponential moving averages are used. The MACD can be customized to fit any strategy, but the defaults are these 26 and 12-day periods. The result of this calculation is plotted on the graph. A signal line is plotted on the MACD chart by using a 9-day exponential moving average calculation and works as a trigger for buy and sell points.

Reading the Signs


Crosovers

When the MACD falls below the signal line, it is a bearish signal.This typically means it may be time to sell. When the MACD rises above that signal line, it is a bullish signal, and the price is likely to continue moving upward. It is a safe strategy to wait until the MACD has risen above the signal line for a short period to avoid jumping into position too early. Otherwise, it could dip back below the signal line quickly which is a common market correction.


Divergence

Divergence refers to when the two 12 and 26 days exponential moving averages begin to move apart. What this really means is a price low is not accompanied by a low of the MACD. This situation usually signals the end of a trend.

Rising Dramatically

When the short exponential moving average pulls away from the long-term version, it will show as the MACD rising drastically. This tends to be a sign that the cryptocurrency has been overbought but will return to normal levels soon.

Position to the Zero Line

Another signal to watch for is the position of the MACD in relation to the zero line. The zero line is often shown by a solid horizontal line on the charts. It represents the long-term average and acts as a support or resistance level. Upward momentum is represented by the MACD moving above the zero line meaning the short-term average is above the long term. Reverse this situation, and a downward trend could be forming.
 
dr.Gachet

dr.Gachet

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#25
Relative Strength Index (RSI)

The Relative Strength Index - RSI is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. It is primarily used to attempt to identify overbought or oversold conditions in the trading of an asset.

The relative strength index (RSI) shouldn’t be confused with relative strength which compare’s the performance of a coin’s price to the overall market average. RSI is a tool you can use to figure out if a coin has been overbought or oversold which can provide you with entry and exit signals.

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It can also help spot or confirm reversals through monitoring for divergences. It is a momentum indicator that measures the speed and change of price movements. Values move back and forth between 0 and 100.

When the RSI goes 7 0 or above, it indicates the coin has been overbought or overvalued. If it goes 30 or below, then it has been oversold or undervalued. In both situations, it is vulnerable to a trend reversal. The default time frame for comparing up periods to down periods is14 trading days.

The RSI is also used to spot divergence. When the price is rising, but the RSI is falling, this is known as a bearish divergence. When buying momentum is slowing like this then this is a warning that the price could soon correct lower. Bullish divergence is when the price is falling, but the RSI is rising. It warns the price could soon move higher since selling momentum is slowing.

Each coin will move differently and could have different ranges. When you notice the pattern, adjust the level to suit the movements. This could mean 40 may be a better entry point than 30. False buy or sell signals can happen in the RSI if there are sudden large price movements. To offset this issue, some traders use higher and lower values such as 80 and 20 as buy or sell signals.

However, it is very important to use other technical indicators to confirm your predictions when using the RSI indicator.
 
dr.Gachet

dr.Gachet

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#26
Moving Averages

A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices.

There are several types of moving averages, regardless of the type, they are all considered to be lagging indicators. Lagging indicators are all based on what has already happened while predictive indicators help us figure out what might happen in the future. Based on this information you may think they aren’t very useful. This is n’t true; they can be used to determine the strength of a market trend as well as help decide between actual market reversal points and common rate fluctuations. Only 3 are commonly used by traders. These are the simple moving average, the weighted moving average, and the exponential moving average. It will take some testing to determine which of the moving averages fits your trading style. We recommend you start with the simple moving average based on the last 20 prices.


Simple Moving Average


The simple moving average is calculated by taking a set of prices, adding the prices together and then dividing the total by the number of data points. It is the simplest form of moving averages. This is calculated in a way to move in response to the most recent data that was used. If you choose to include 20 of the most recent exchange rates, then the oldest will be the rate to drop out of the calculation when a new price takes effect. As each new price is included, the oldest one drops, this calculation type ensures that it is only based on the most recent 20 prices.

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Weighted Moving Average

A weighted moving average is calculated in the same way as the simple version. The only difference is this calculation uses values that are linearly weighted. So, the oldest rate in the calculation would receive a rating of 1; the next oldest would receive a 2, and so on until the most recent rate. This ensures that the most recent rates have a greater impact on the average than the oldest. Some traders find this method more relevant for trend determination, especially in a fast-moving market. However, there is a downside. The average line that is created could be more ragged than the simple moving average version. This means it could make it more complicated for you to figure out if a trend is happening or just a fluctuation. Solution: you can use both versions on the same price chart to see how they line up.

Exponential Moving Average

Just like the weighted moving average, the exponential moving average is similar to the simple moving average.The difference between the two is the simple moving average will remove the oldest price when the new one is in effect. An exponential moving average calculates from the starting point you choose the average of all the historical ranges. Let’s go back to our initial range of the last 20 prices. The first calculation you receive will be identical to a simple moving average because there are 20 prices(or reporting periods).This is where an exponential moving average differs. When a new price becomes available, instead of taking the most recent 20 as with the simple average, you will now have the average on 21 reporting periods. As new prices take effect, they are included in the total pieces of data used to find the average.
 
dr.Gachet

dr.Gachet

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#27
Risk & Money Management

In this section, let’s cover some of the important tips and advice to follow when managing your money and exposure to risk when trading.


Safe Trading Checklist

Be Realistic: Trading in cryptocurrency isn’t something that will make you rich overnight. Set some realistic returns on your trades for set periods of time to monitor yourself. Use stop-loss and take-profit points to manage your trades and remove emotion from your transactions.

Manage Your Emotions:
Create a plan and stick to it. Research and use credible sources to base your decision on. Don’t fall victim to fear and follow the herd when they are moving in the wrong direction. When you feel a little too excited or worried, slow down, think, use your data to make decisions that are best for your success.

Diversify: It is cliche but don’t put all your eggs in one basket. It should be obvious that you shouldn’t put all the money you have into cryptocurrencies. However, there is no need for you to put all the money you are able to part within one type of crypto coin. A majority should be in a stronger coin like Bitcoin, Ether, and any in the top 5 of the market. A small percentage can be in new coins that have been performing well while the smallest amount should be in ICOs or coins with a little history.

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Ease into Trading: If you are new to trading, start small and start slowly. There is a lot to learn and experience with cryptocurrency which can overwhelm even traders with experience. Test out a few coins and a few exchanges with small transactions. Watch some videos of miners before potentially spending thousands on your own mining machine. Want to start with an ICO? Only invest a small financial amount so you can get the hang of the process before committing more funds and increasing your risk.When you are ready, you will have a better understanding of what type of trader you are, what your strengths are, what your weaknesses are and how best to execute successful trades.

Check Your Sources: When doing research or just interacting with other crypto traders, make sure to be wary of scammers. Don’t fall victim to a ‘pump in dump’ or fake ICO scheme. Do your homework, use trusted sources and make sure you are monitoring the market.

Don’t Trade with More Than You Can Lose: The cryptocurrency market is a volatile one. There are times when it seems what is hot one day is tanking the next. To protect yourself, don’t trade with more than you can realistically part with. You can start with a very small amount and build over time as you become a stronger trader.

You will Lose at Some Point: It will happen, there will be an off day, and you will make a bad trade. Maybe even have a series of bad trades. You are no different from anyone else and immune from this happening to you. So, don’t put all your coins in one trade and when you do make a mistake, learn from it and move on.

Research, Plan, Chart, Monitor: Don’t rely on guesswork, gut feelings or the advice of others to trade. No mater how much trading experience you have, don’t try to predict the market on your own. Follow long-term market trends, learn to read and understand the charting tools we have covered in above, follow the news, watch videos, and learn new tips. Use both fundamental and technical analysis to get a good sense when it is a good time to sell or buy.


It’s About the Big and Small: Speaking of charts, it may be very tempting to monitor your coins in short time frames on your graphs. As a beginner or intermediate trader, it’s better that you focus on research and monitoring long terms trends than get caught up in short-term movements. These fluctuate rapidly and can cause you to make emotional decisions that go against your plan.


You Are the Boss: There are platforms out there that allow you to copy the exact trades of successful traders. While tempting, doing this teaches you nothing and puts the control (and your cryptocurrency) in someone else’s hands. If things go wrong, you won’t have developed the experience or emotional control to deal with the mess and potentially fix the situation.

Don’t Brag: This may sound like an odd risk management suggestion, but there is truth in it. Bragging about your success in the cryptocurrency community will alienate you. If that doesn’t bother you then keep in mind, it also makes you a potential target for scammers and hackers. By learning everything that you do and how your trading set up is, they may be able to find weaknesses and exploit them. Be careful what you share and to whom.

Dive Deeper into the Code: The best part of cryptocurrency is the innovation behind the technology. You should try to dig deeper and understand everything that cryptocurrencies can offer besides being a form of currency. Some of the most recent coin successes have been because of the innovations these cryptocurrencies have brought to the market. Look for coins that provide solutions to needs not already met in the market and avoid clones of Bitcoin that have minimal changes.
 
dr.Gachet

dr.Gachet

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#28
Cryptocurrency Mining


How the Mining Process Works

Mining is the process of authenticating cryptocurrency transactions in its ledger.Your computer ends up being an all day, everyday computer accountant verifying transactions. Every cryptocurrency has its own ledger that has a record of every transaction from the very first to the most recent. Every time a new transaction happens, it will need to be added to the cryptocurrency ledger or blockchain. Transactions are then added up until there is enough to reach what is known as blockchain status. Than this block is sent off to miners.

This process happens on many mining computers, all connected to a single peer to peer network. Miners use special hardware, software and data keys called ‘nonces’ to encrypt the block of data into a’hash.'A hash is an identification sequence that includes all the block data.This sequence is added to the block which authenticates it. Then the block is officially added to the blockchain. It is now part of the permanent history of this cryptocurrency. To encourage people to willingly verify the network, miners get reimbursed for their efforts with cryptocurrency when they complete a block. Payment comes in the form of crypto coins and how much depends on the coin you are mining.

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Things to Consider Before Mining


Initial & Ongoing Financial Investment:

To be able to mine you will need to have a computer system powerful enough to handle the task. Whoever verifies the block first gets payment, so the better your system is at outperforming slower miners, the more you will make. You will also need to pay to upgrade your equipment regularly. Competition is fierce for some coins, and people are constantly updating their equipment.This includes your software, wallet, and hardware. Stay on top of mining news and and never feel like you can’t change your mind about the coins you are mining.


Time Commitment:

Mining is not a casual task. If you aren’t technically inclined you will need to learn about hardware, the specific software your chosen coin will need, encryption, and be willing to monitor the conditions of the market for the coin you are mining.


Bitcoin vs. Altcoins:

Bitcoins have become very difficult to mine for individual miners. Entire mining pools have been created for the sole purpose of mining Bitcoins, and the difficulty level of Bitcoin has surpassed what an individual miner can achieve . The hardware cost alone could prove to be too much.You do have the option of mining an altcoin though such as Litecoin.The difficulty level, hardware requirements, and power consumption usage are generally less and the payouts high enough that it is worth the effort. Choose wisely; there may be significantly fewer transactions for less popular coins. Do your research to see what coinis worth the effort.

Mining Pools

If you still hope to mine Bitcoins or aren’t quite ready to mine alone then joining a mining pool is the recommended path to take.When mining solo, payments are only awarded when you are the first to validate a block or whatever other milestone that coin has. If you are n’t the first, your efforts go unrewarded. If you are competing alone against stronger mining computers, you may never receive a payment. This is where mining pools come in. Users band together to mine as a group, and all payments are divided amongst the group. It is split based on how much computer power you have been contributing. As you can see, this increases your chances of payouts.


Generally, each altcoin has different mining pools. Some pools will actually switch between currencies based on that coin’s position in the market.To find a pool, you can find the community site for the coin you are interested in places like Reddit. When deciding which pool to join there are some important questions you need to have answered. How long have they been in existence? What fees do they charge? Do they divide coins by computer power or another measure? On, average how often do they find blocks? What are the reviews saying about them? What ways can you withdraw?
 
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