If you’re just starting in trading, I understand the overwhelming feeling of all the concepts you are trying to understand as a beginner. As crypto popularity increases, more and more suddenly want to participate in crypto trading because of its high-reward opportunities. But sometimes, people forget that it is also a high-risk investment platform. This is what we want to help you avoid by helping you understand what to look for when trading cryptocurrency. We will discuss fundamental trends in the market, ways of analysis, and finally, the tools that can help you spot those golden opportunities that can help you profit.
Set Your Trading Style
First, you have to decide what your trading style will be. The proper program to use and indicators to look for will depend on how you want to trade. Will you be like those who trade long-term? Who would accumulate assets towards a specific currency, usually, Bitcoin? Or are you a spot trader looking for short term opportunities to gain profit? Do you prefer to trade in BTC or fiat money? Knowing these factors can help you manage to monitor crypto stocks.
Basics in Trading Analysis
In general, you aim to accumulate crypto assets that are bought at a lower price that you can sell higher in time. Some basics you have to know before diving deeper into what to look for when trading cryptocurrency are (1) two states of market and (2) categories of analysis:
- Two States of Market: The market is in a bullish state when the prices are going on a rising trend and expected to continue that way. And in a bearish state, if prices are going down and expected to keep on plunging.
- Categories of analysis: Effective analysis of the trading market makes use of all categories of analysis. But for this article, we will focus on technical analysis. Technical analysis uses all current and historical data in the market, including opening and closing price, trade volume, market cap, circulating supply, and many more. Using these, you will try to identify a trend and anticipate its direction to guide your trading decisions.
On the other hand, you should also familiarize yourself with fundamental and sentimental analysis to help you read external factors (like investment news, tech breakthrough, etc.) and human factors (like loss of trust from a currency, sudden drive to crypto trading, etc.). You can read articles about this and develop this kind of skill over time.
Tools That Can Help You
You can easily find software, websites, and applications that can quickly help you monitor the market stats and generate graphs and data that can help you analyze the market movements. Some of them are Binance, Bittrex, Bitfinex, and coinmarketcap.com. Learn more about cryptocurrency trading here!
Indicators You Signs Should Check
If you are wondering what to look for when trading cryptocurrency, then this part is for you. Here are some of the indicators you can find on trading views of exchange platforms. Add them to the basic info you monitor from market cap, trading volume, price, and others to help you make your trading decisions.
- Fibonacci retracement is derived from the number sequence identified by Leonard Fibonacci. In technical analysis, it is created by taking two extreme points in the chart (a peak and trough) and dividing the vertical distance by the key ratios of the sequence—23.6%, 38.2%, 50%, 61.8%, and 100%. Once these are found, draw horizontal lines to help identify support and resistance lines.
Support lines are usually where prices bounce up back again, and resistance lines are where assets generally stop rising. Traders commonly buy at support and sell at resistance. If the price breaches these points, it usually continues rising or dropping until it reaches another support or resistance.
- RSI or Relative Strength Index measures how strong and fast is the market’s price movement by comparing cryptocurrency to its past performance. The range is from 0 to 100. The measurement helps traders see whether the gains were “overvalued” or “undervalued.”
The formula is computed as: 100 – (100/(1-RS))= RSI
Luckily, most trading platforms have this indicator, and you don’t have to compute for it. Just check the value. If a coin’s RSI reached 70 and above, it could be considered overbought, meaning the price may soon go down. On the other hand, if it is as low as 30, the crypto was undervalued, so chances are the price may go up. This indicator should still be used along with other indicators to validate the false buy/false sell signal.
- Candlesticks are the red and green rectangle plotted on trading charts. They have extended lines on both ends, making it look like a vertical rolling pin. The red ones signify a falling price while the green one of rising price. The upper line of the red rectangle is the trading session’s opening price, while its bottom line is the closing. Their tails signify the highest and lowest price recorded during that trading session.
Bearish and Bullish Patterns on Candlesticks
The specific shape of the candlestick can provide breakthrough opportunities to traders. Knowing how it works adds up to your knowledge on what to look for when trading cryptocurrency. Here are basic patterns to anticipate:
Bullish reversal patters
- Hammer candlesticks have a long line at the bottom telling you that the price had dropped sharply before closing higher with little to no upper shadow, which means that when the market opened, sellers were able to control the market getting to decline the price. But, as the buying momentum bounced back, so strong that it exceeded the opening price, buyers can come in strong.
- Bullish Engulfing Pattern is a two-candle pattern where the first one is red, and the other is green that overwhelms and covers the first candle. Meaning that the first one has sellers in control with the price dropping, then the second one comes back at a strong rally, overpowering that bearish state. This is an excellent indicator that signifies that the bull has strong momentum.
Bearish reversal patterns
- Shooting Star has little to no lower shadow at all. Price closes at the lowest ¼ of the range with a high upper shadow but eventually closes with increased selling pressure. This shows that even with a point of high price, the momentum of the sellers is stronger.
- Evening Star is a 3-candle pattern. The first candle is bullish, followed by a second candle with a small range and the third close aggressively in control of sellers. This means that buyers were exhausted in the standoff and momentarily loses the market to the sellers.
The crypto market is really among the most volatile market the world has seen. For beginners, trying out should be done with caution and careful consideration. The drive to study patterns and trends can help you make sound trade decisions in the long run. Now that you know what to look for when trading cryptocurrency, you may now start your journey as a crypto trader. Enjoy trading!