Cryptocurrency trading for beginners in India- basic cryptocurrency trading strategies

Cryptocurrency trading for beginners

July 09, 2021

Cryptocurrency trading for beginners in India- basic cryptocurrency trading strategies

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What is cryptocurrency trading 

Cryptocurrency trading - is one of the main ways to make money on cryptocurrency. Trading cryptocurrency tokens is not significantly different from trading valuable metals, currencies and stocks. 

The main objective: to buy as cheaply as possible, sell at a higher price - and make a profit.

Cryptocurrency movement trading platform
Cryptocurrency movement trading platform

Entering the world of cryptocurrencies is better by choosing a strategy. The main ones are trading or investing on the cryptocurrency market. The first implies the purchase of the asset and long-term storage. The second is short-term speculation. The trader makes a lot of transactions with digital assets, trying to profit in a short period of time.

Crypto markets operate on blockchain technology and are divided into two types:

Centralized (CEX) 

These exchanges are managed and controlled by organizations. They charge a fee for exchange transactions, which covers the cost of the service and the interaction between buyer and seller. 

Decentralized (DEX) 

Coins are traded without the involvement of intermediary organizations. No user information is stored on DEX. The account is the wallet from/to which funds are transferred.

Blockchain - is a technology that organizes a database consisting of a chain of blocks arranged according to certain rules. Each cell of a block carries information about the previous cell. This technology is based on the principle of decentralization, that is, the database is not located in one place, but in all the computers of the system participants, which form a network.

If a trader is a beginner and takes the first steps on the digital market, then to start trading it is better to have a demo account and choose the most popular assets, because there is enough information about them on the Internet. A well-known cryptocurrency will be a good simulator, because it is the one that most often shows the effectiveness of trading strategies, these coins are discussed on forums and social networks, their behavior is more predictable. After mastering the basic skills, you can open a real account and put real money into circulation. 

Notable cryptocurrencies 

At present, the financial market has a wide variety of cryptocurrencies, the number of which is only increasing every year. This is because digital money is attracting great interest from both the general public and large investors who are ready to invest in the rapidly developing segment of the market.

Here are a few of the best options for investing to make money in the long term:

  • Ethereum - is a digital currency developed from an open source software platform based on blockchain technology that allows developers to create and host decentralized applications that implement smart contracts. 
  • Litecoin - is a peer-to-peer cryptocurrency and open source software project. Creation and transfer processes are based on an open source cryptographic protocol without any centralized control.
  • Ripple XRP - is a cryptocurrency payment system platform focused on non-refundable currency exchange transactions.
  • Bitcoin - the most popular cryptocurrency, was created at the end of 2008 - beginning of 2009. At the moment, bitcoin's capitalization has exceeded $140 billion, which is much larger than the capitalization of other types of virtual money.
  • Bitcoin Cash - is another promising altcoin. This digital asset has an excellent chance of reaching new heights. This is partly because PayPal and its payment service Venmo have added the ability to buy, sell, store and transfer this cryptocurrency.
  • Stellar (XLM) - is a blockchain platform for transferring digital assets worldwide. The goal of its creation was to enable users to make payments quickly, cheaply and securely.
  • Cardano - is a smart contract platform for exchanging digital assets. Cardano is called the 3rd generation cryptocurrency. 
  • IOTA - is a distributed ledger with one important feature: it is not actually a blockchain. Instead, it uses Tangle's proprietary technology: a system of nodes that validate transactions. According to the foundation overseeing the development of the platform, it achieves much greater speed than conventional blockchains can provide. It's the perfect foundation for the growing ecosystem of the Internet of Things.
  • NEO - is a smart contract platform for exchanging digital assets. It was launched in China and resembles etherium in its operations, so it is often referred to as the "Chinese etherium.

Monero - is a decentralized, open-source cryptocurrency that relies on counterparty privacy and complete transaction anonymity.

Types of cryptocurrency trading analysis 

  • Fundamental Analysis 

This type of analysis focuses on the factors that are believed to determine the value dynamics of a cryptocurrency. Specifically, the trader examines the features of the coin - practical application, popularity, media background, involvement in the real economy and more.

  • Technical Analysis 

Technical analysis involves predicting the value of a cryptocurrency based on information from price charts and the stock chart. Followers of technical analysis believe that the dynamics of the price already include all the factors affecting it and there is no need to study each of them separately, there is no need to look for reasons why the price has changed or may change in the future. Instead, one should focus on the dynamics of the price and trading volume of the cryptocurrency.

Bull and bear trends in the cryptocurrency market 

A bear market or trend is a market condition when the price of most currency pairs is directed downward. Most traders are set to sell currencies in order to fix profits. A bear market leads to a drop in the price of a coin. And this is the right time to diversify your portfolio and enter the cryptocurrency market. 

In a bull market, investors are more confident about tomorrow, as they expect prices to continue to rise for some time (although it is actually quite difficult to predict trends). A key factor influencing the formation of a new bull trend remains the growing acceptance of bitcoin and other coins as a means of payment, investment assets, the use of blockchain technology and applications in new areas of business. As well as legislative and tax changes that entail an immediate market reaction.

List of main technical indicator 

There are several common technical indicators that are used to conduct technical analysis:

  • Moving average (MA) - 

one of the main indicators of technical analysis today. When prices fluctuate up or down, their movement can be misinterpreted as a reversal or continuation of a trend. The MA (moving average) indicator calculates the average price over time and also recalculates it over time.

  • Exponential moving average (EMA) - 

is an indicator determined by adding a certain fraction of the current closing price to the previous moving average value. When using exponential moving averages, the most recent closing prices have more weight.

  • Stochastic oscillator -

is a popular indicator used to determine overbought and oversold periods in the market, as well as to identify moments of potential trend reversal on the basis of bull or bear divergence.

MACD technical indicator trading platform
MACD technical indicator trading platform
  • Moving average convergence divergence (MACD) - 

is one of the most popular technical analysis tools, combining the properties of a trend indicator and an oscillator. What distinguishes the MACD from other oscillators is the absence of the upper and lower limit. Therefore this tool is not suitable for detecting the oversold/oversold points in the market.

  • Bollinger bands - 

is a technical indicator consisting of three lines forming a channel which shows price changes. The middle line is the simple moving average (SMA), while the top and bottom lines are derived from the SMA and move based on price volatility. Traders use Bollinger lines to determine the current trend, measure volatility, and predict potential trend reversals.

  • Relative strength index (RSI) -

is one of the simplest indicators which indicates whether an asset is overbought or oversold. The RSI uses historical data to determine the total demand for an asset and then calculates whether people are buying the volume of an asset that could cause a downward price correction, or whether the opposite can happen.

  • Fibonacci retracement -

is one of the popular technical methods. Traders use it for technical analysis in the stock market, where it helps predict how much a particular stock will rise or fall.

Ichimoku cloud technical indicator on the  trading platform
Ichimoku cloud technical indicator on the trading platform
  • Ichimoku cloud - 

is an indicator chart used to visualize areas of support and resistance. They also show momentum and trends for a stock, all on one screen. If the current price is above the cloud, the stock is moving up. If the current price of the stock is below the cloud, it is moving down. Or: If the cloud is green, the market is bullish. If the cloud is red, then the market is in a bear trend. Lines, which form clouds, can be perceived as support and resistance levels. Ishimoku clouds show not only the current price dynamics. They project the current price of a stock about a month ahead.

  • Standard deviation -

measures the volatility of the market. This indicator characterizes the size of price fluctuations relative to the moving average. So, if the indicator value is high, the market is volatile and prices of bars are rather scattered relative to the moving average. If the indicator value is low, the market is characterized by low volatility, and prices of bars are rather close to the moving average.

  • Average directional index - 

is used to determine the presence or absence of a trend, its direction and strength. The direction of the market is determined by the +DI and -DI lines, while the ADX line is an indicator of trend strength. The position of +DI and -DI relative to each other can indicate either a bull or bear trend.

Сryptocurrency trading strategies

Below we offer you a variety of trading strategies, but keep in mind that each trading plan may have some overlap with others. It is always advisable to consider a hybrid approach to form your trades by combining several strategies.

Consider two areas of strategies - active and passive. 

Active trading strategies require more time and attention. We call them active because they involve constant monitoring and portfolio management. 

is a tradinging strategy that involves entering and exiting positions within a single day. Since trading takes place over the course of a single day, this strategy can also be referred to as intraday trading. The goal of day traders is to use intraday trading strategies to profit from changes in the price of a financial instrument.

  • Position Trading - 

is long-term trend trading on charts with large time scales. In position trading, fundamental analysis (its macroeconomic part) and technical forecasting method are very often used. This style of trading is used literally in all markets.

  • Swing Trading - 

is a type of long-term trading strategy that involves holding positions for several weeks or months. In a sense, swing trading is in the middle between day trading and trend trading.

  • Scalping - 

is one of the fastest styles of trading. Scalpers do not try to exploit large movements or prolonged trends. This strategy focuses on high-frequency trades with small changes in the price of an asset. Such trading involves forming trades on spreads between supply and demand, liquidity gaps or other market imperfections. 

Passive investment strategies provide a more relaxed approach, and don't involve active portfolio management, reducing time and attention. 

  • Buy And Hold -

is one of the passive investment strategies in which traders buy assets and hold them for long periods of time, regardless of fluctuations in the market. This strategy is used in long-term investment portfolios, where the idea is simply to enter the market without regard to the holding period of the assets. The idea behind this strategy is that over a long enough holding period, timing and entry price will not matter much.

Creating cryptocurrency trading strategy

There is no one correct approach to trading, so the choice of strategy depends largely on the trader's personality and preferences. Regardless of the approach is chosen, having a trading plan is important because it sets clear goals and prevents you from veering off course due to emotion. As a general rule, you need to determine what and how you will trade, as well as your entry and exit points.

There are different types of trading goals, which are generally divided into short-term trading and long-term trading. This is determined by how long you want to hold an asset before you sell it.

Position auto close on the  trading platform
Position auto close on the trading platform
  • Stop Loss and Take Profit are types of protective orders, which are set to automatically close the transaction. Stop Loss limits possible losses of trader, Take Profit helps to fix profit when it reaches the necessary level.

Also there are different Buy and Sell Orders which are used when managing stocks:

  • Buy Limit - trade order to buy at the Ask price equal to or lower than that specified in the order. The current price level is higher than the value set in the order. Orders of this type are usually placed in the expectation that the instrument price will start to grow when falling to a certain level;
  • Buy Stop - trade request to buy at the Ask price that is equal to or higher than that specified in the order. The current price level is lower than the value set in the order. Orders of this type are usually placed in the expectation that the security price will overcome some level and continue its growth;
  • Sell Limit - trade request to sell at the Bid price, which is equal to or higher than that specified in the order. At this the current price level is less than the value set in the order. Usually such orders are placed in expectation that the instrument price will start to decrease, having risen to a certain level;
  • Sell Stop - trade request to sell at the Bid price, which is equal to or lower than that specified in the order. In this case the current price level is higher than the value of the set order. Orders of this type are usually placed in the expectation that the security price will reach a certain level and will continue to decrease.

Working with technical patterns in trading begins with an assessment of price action. Before starting to work with charts and patterns, a trader should study the current price dynamics (specifically, identify the trend). After identifying the trend, the trader can turn to the indicator to clarify the received signal for entry and spot price. 

Spot price is the current price of a security at which it can be bought/ sold at a particular place and time.

Unlike traditional stock exchanges, the crypto market operates without interruptions or weekends. This means that trading in digital assets does not stop for a minute. But the time of day can affect the dynamics of the market, and it should be taken into account when trading. You need to choose your own trading times, but traders' activity is highest when the US and China are actively trading.Professional market participants usually choose the time of the highest dynamics of currencies. But it is advisable for beginning traders to trade during periods of less volatility, when one region dominates the market, or when there is a general lull.

Any money management begins with a financial risk assessment. For example:

  • Market risk - the risk of adverse changes in the value of an asset;. 
  • Credit risk - the risk that an issuer of cryptocurrency will go bankrupt or fail to fulfill its payment obligations;
  • Operational risk - the risk of encountering a lack of ability to make trades or deposit/withdrawal of assets.

Before you make your first deposit to the exchange, it is recommended to take into account all of the above points, as well as analyze the signals.

Cryptocurrency exchange signals are, in fact, insider information, which helps a trader to build the right strategy, develop a tactical pattern and make a profit with minimal losses.

The list of cryptocurrency brokers can be found here.