Cryptocurrencies have emerged as a strong competitor against real money mainly due to its ease of operation for participants. However, they still stand the risk of being banned in several countries and may be fraught with uncertainty in the future. However, as the number of people using cryptocurrencies has grown multifold and the participants running into millions with billions in cash, there is a school of thought that states that cryptocurrencies are here to stay. Another fact that has astounded its critics is that major cryptocurrencies around the world have made money for its investors. One of the most attractive things about cryptocurrencies is that they are more transparent than any other types of digital accounts. Naturally, for participants, this is more than enough to take a plunge into trading in cryptocurrencies.
Introduction to trading
Trading digital currency is like trading Foreign Exchange (Forex). The only difference is that you will be using pairs with one regular currency and one digital currency; for example, BTC/USD where BTC is Bitcoin (digital coin), and USD (Us dollars). Usually, they increase or decrease day by day, so day trading is a good option on cryptocurrency.
There are three types of charts.
We have the line chart, the bar chart, and the candlestick chart.
- Line chart
- Bar chart
- Candlestick chart
Reading the graph
Note: this method is a prediction only. Profits are not guaranteed.
Reading a graph the proper way is one of the essential steps in making a profit while trading. There are a few tips on how to read the chart correctly.
When a candlestick looks like a hammer, that means with a small body and a long shadow, most times twice the size of the body. If you see the hammer, the graph most likely will go up, and you will make a profit if you buy the coin.
If the candlestick is a hammer but outside down, as the name says it is an inverted hammer. The inverted hammer has the same function as the hammer. When you see this sign, most likely the graph will be going in a positive direction.
The shooting star
The shooting star looks like an inverted hammer. The only difference is that it is at the top of the graph instead of the bottom of it like the hammer. When you see the shooting star at the top of the chart. It will go downwards, and that will be your time to sell your pair, so you will not lose money.
The Hanging Man.
The hanging man is a hammer that starts at the top of the graph, and it has the same job as the shooting star. If you see the hanging man, it will most likely go down.
Positive and Negative slope.
Another strategy that works for me well is the positive and the negative slope. Let’s talk about the positive slope; this method works mostly for weekly and monthly trend line, where the trend has more movement than a daily pattern. The positive slope is a diagonal line that starts from the left and ends on the right. Left being the bottom of it, and right being the top of it. For it to be a valid trend strategy, the line must connect at least three different points — the second one is having a higher low than the first one.
The negative slope works as the opposite of the positive slope. It goes downwards from left to right as well. It has the same properties as the positive slope; the only difference is that it works as a selling point, not as a buy. It requires the three points, and the second one higher low, or high than the first point.
Take profit and stop loss.
We all know everyone has a life outside of making money trading. We have a job, we go to school, or we decide to get wasted without buddies. For that reason, we cannot be in front of a computer looking at a graph 24/7, and the market does not stop because we want it too. It will keep moving, and it will not have remorse for us. That means if it goes down we might end up losing lots of money. This is when taking profit or stops loss come in play.
Take profit is the maximum point that you set for the graph to buy/sell one of the currency pairs. You set the mark to your desire profit goal, and it will automatically buy/sell one of the pairs for a profit. Common mistakes most people do is set the take profit goal too high and expect to stop it in a day or so. If you place your take profit high, it will not reach that point in a short period. It is a must that you set the goal realistic.
Stop loss is the minimum point that you set to stop at a point where you are comfortable to lose that amount of money. This is essential to when the graph is going down because you do not want to lose more money than what you can afford. Setting the stop loss at a point lower than what you start for is the best option to go. The reason is that if the graph is continuously in the spot where you started. It will stop without giving you a chance of it.
Most trading platforms have this feature, so it is essential you take this step. It will give you peace of mind knowing you are in for a profit, and not so much loss.
What affects the coins prices?
Knowing what affects a coin plays a significant role in the trendline, where traders can predict if the price is going up or down in value because of the news and factors of the coins.
One of the things that come into considerations is the demand of the coin. The more popular it becomes, the more is going to grow in value, so if you cannot stop hearing about one currency in social media or the news. You should start considering buy a pair that includes that coin with a less popular coin.
Most of the time cryptocurrency can be trade with regular currency in a platform, so if you check for inflation on the currency. Most likely the coin will go up in value for that currency
The decrease of a coin.
There are several reasons why a cryptocurrency decreases. The leading causes are scandals and regulations.
Scandals such as hackers breaching into the blockchain of the coin can lead to decrease in popularity. It is forcing many investors to sell their coins, due to the trust of the consumer towards that currency. Another scandal is people trying to run Ponzi schemes. For example, BitConnect has caused many losses between the most popular coins because of the accusations of running this type of shady business.
Ponzi scheme: a fraudulent investment operation where the operator provides fabricated reports and generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.
Regulations such as bans in countries can lower the price of the coin as well. Bans such as in China and Russia damage the effects of the coin because many people in that country will have to sell their coins since they are no longer allowed buys and sells in their currency.
This two are the most common factors on the decrease and increase in the price of cryptocurrency. Also, they are not the first one that we will experience in the future, so keeping an eye on news of cryptocurrency can increase the profits and decrease the loses.
Practice, Practice, Practice!!
Practice is the key to perfection. There are plenty of software for you to get your hands dirty for free if you do not want to invest your money yet. I have not seen one for cryptocurrency for free since it does not require much money to spend in cryptocurrency, but forex has the same concept so that I will suggest Metatrader 4. That is if you do not feel comfortable with investing money yet.