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Cryptocurrency Trading Explained: Technical Analysis and Fundamental Analysis


In previous articles, we talked about cryptocurrency trading and the most popular platforms on the Internet, and now it's time to delve a little deeper into the explanation of cryptocurrency trading.

First of all, trading is very different from betting, betting is based on luck and odds while trading is based on studying the market and predicting the changes that will happen to the values of cryptocurrencies either in the short or long term.

In this article, we will learn about trading in detail, and we will explain how professionals follow it, whether through Technical Analysis or Fundamental Analysis.

We will also go over the types of trading and the types of orders that traders buy and sell through, in addition to the most important part of the article that discusses the most important mistakes that beginners usually make.

Note: This article is a link in a series of articles published on An Experimeter.

 

What is cryptocurrency trading?

Cryptocurrency trading is one of the most popular ways to profit from the Internet at this time, which has made tens of thousands of people around the world join the millionaires club.

In trading, an important feature of digital currencies is exploited, which is volatility, since these currencies are decentralized and their value is not linked to any assets of any kind, so their prices change very quickly.

This price change comes as a result of the change in supply and demand and global economic and political events, and here comes the role of the trader in order to anticipate and estimate the next movement or change.

For example, through the methods that we will mention later in this article, the trader will know that the price of a digital currency will rise, so he will buy it and keep it until its price rises and then sell it and take the price difference as a profit for him.

For example, a digital currency has a value of $1,000, and through market movements, I knew that its price would increase, so I bought 10 coins and waited until its price increased to $ 1050, and then sold it, with this I won 50 * 10, that is, $ 500 from this trade.

Of course, this is not the only style or form of cryptocurrency trading, but it is the prevalent and most used among traders.

 

Before we move on to the next topic, we must differentiate between trading cryptocurrencies and investing in cryptocurrencies.

Trading is based on buying at the lowest price and selling at the highest price, that is, dealing with currencies as mere tools.

While investing means treating digital currencies as assets to be held and benefiting from the increase in their prices in the long term.

Usually the investor holds digital currencies for long years that may extend to decades, while the trader may complete buying and selling operations within seconds and minutes.

I think the important question on your mind right now is; How do traders predict the rise or fall of cryptocurrency prices? The answer lies in the analysis.

There are two basic types of analysis, the first is Technical Analysis and the second is Fundamental Analysis.

 

Technical Analysis and Fundamental Analysis

This is the most important part of the article, as it briefly talks about the methods and tools by which changes in cryptocurrency prices are predicted.

 

Technical Analysis

Technical analysis is the most important analysis for you as a cryptocurrency trader, as it will allow you to predict changes and fluctuations in cryptocurrency prices.

It is based on studying the previous price patterns of the digital currency and anticipating them again before they are repeated.

It does not specifically predict the price, but instead predicts whether the price will rise or fall, and gives you the opportunity to exploit this change in order to obtain greater profits.

Technical analysis is not limited only to cryptocurrency trading, but is used extensively in all global financial markets.

Technical analysis is also used in order to reduce the risk as much as possible, it is able to give you a predictive model of what will happen in the market for your cryptocurrency or anything else.

Among the most important factors that are taken into account while performing a technical analysis:

 

1. Market Cycles

Market Cycles


Financial markets, such as the digital currency market, have specific patterns that some experts and economists have been able to identify. These patterns keep repeating and repeating over and over again.

The reason for this repetition is the fact that prices depend mainly on the actions of traders in addition to the variables in global events, especially those close to them in the financial and economic sector.

One cycle is divided into four basic phases: the accumulation phase, the mark up phase, the distribution phase, and finally the declining phase.

 

2. Psychological Cycles

Psychological Cycles


Psychological cycles are cycles that are similar to market cycles, but focus more on the traders in the market, yes, the traders or the people themselves, they are the ones who move the market and determine its volatility, intentionally or unintentionally.

Psychological cycles describe those behaviors and behaviors that traders tend to tend to at each stage of the market cycle, especially the novice ones.

Understanding and anticipating these behaviors will enable you to achieve greater profits and predict market movement more accurately.

Of course you have to leave your feelings at the door before entering the world of trading, but this does not prevent the exploitation of knowledge of other people's behavior and profit from it.

In general, the effect of feelings, passion and impulsivity makes many people make serious mistakes that they later regret.

Among those feelings that you must leave at the door is FOMO or the fear of missing an opportunity, a feeling that causes a lot of losses for many traders and investors.

With buying without studying enough with the goal of not missing out on the investment or the trend, this may cause you to buy the currencies at an exorbitant price and you will lose a lot of money instead of winning.

 

3. Imitating the big traders

Imitating traders or, as they say, chasing the whales, is one of the most important factors of technical analysis that a trader makes by knowing the upcoming movies of the major traders controlling the market.

Yes, for example, the value of currencies may rise if they are supported by influential people, as happened with the Dogecoin currency when it was supported by Elon Musk.

Or, on the contrary, its value may decrease significantly if it receives a blow from one of the large whales.

Also, as happened with Bitcoin after Elon Musk announced that it will not be possible to buy Tesla cars using Bitcoin.

Knowing or predicting the movements of these big whales before they happen will make him correctly anticipate the market and price fluctuations which will make the trader a lot of money.

Technical analysis is the method that most traders rely on in order to predict market movement.

 

Fundamental Analysis

As for Fundamental Analysis, it is a method for evaluating digital currencies, and it is used as a means by investors to find out whether this digital currency is worth investing in or not.

It is a set of methods that aim to determine whether the price of a digital currency is fair and appropriate with its true value.

This of course is made possible by many complex economic and financial factors.

Fundamental analysis in general is concerned with looking at the real interest and value of the asset, and in the case of digital currencies here the value and use of each currency and its future fate, that is, it focuses more on the technology itself than on the fluctuations and price changes in the markets.

As you might guess right now, although fundamental analysis is necessary in many other areas such as forex, stock trading, etc., it is not used much in the field of cryptocurrency trading.

So far, there are no clear rules or frameworks for doing a fundamental analysis of the values of currencies in the market, especially since the factors of fundamental analysis do not affect the prices of cryptocurrencies at all.

In short we can say that fundamental analysis predicts by seeing the big picture and the value of technology rather than looking at price changes and market volatility.

Some of the most popular factors considered in the fundamental analysis of cryptocurrency are:

 

1. coin developers

The field of digital currencies, like any other field, contains a few bright and reliable names. If any one of them adopts a technology or develops it himself, it derives a lot of momentum from it personally, especially if it has distinct characteristics without the rest of the currencies or is specialized in a particular field.

 

2. Cowin technology

Professional investors see the capabilities of these digital currencies and the impact that technology can have behind them, and thus they invest in technology more than they invest in the currencies themselves.

 

3. The community for that coin

Everything may come true, but the investor or even the trader is shocked that the digital currency does not have many fans.

Thus, it will face many problems during the completion of buying and selling operations, as it will limit the growth of the currency and increase its value in the future.

 

4. Branding and Marketing

It is important for the currency to be able to establish a strong brand of its own and to be able to market itself to new investors and traders.

This will greatly help in increasing the value of this currency in the future.

 

The method of analysis that you will use in order to trade cryptocurrency is entirely up to you.

But in general, it will be useful to combine Technical Analysis and Fundamental Analysis while you are trading.

Because this will help you to predict more accurately, in addition it will give you a glimpse into the near future of currencies as well as the distant future.

 

Cryptocurrency trading orders

In order to sell or buy bitcoin or any other digital currency you will have to deal with something called order or order book.

You can think of it as a list of people who want to buy or sell cryptocurrency.

The platform or website matches them up so that each party gets the best possible offer.

Each platform contains several lists, each of which is concerned with a type of buying and selling process, for example, one for transferring from Bitcoin to Ether or vice versa, and another one for transferring between Bitcoin and dollar, and so on.

This order, whether it is buying or selling, will remain open until it is closed by its owner, or it is reconciled with someone else's order.

Because there are different needs for each trader or investor, the need arose for several types of these requests or offers, and each of them has its own distinct mechanism.

Among the most famous of these types are:

 

1. Market Order

Market order is the standard or traditional type of order that allows traders to buy and sell cryptocurrencies instantly and flexibly according to the prices in the market at that moment.

You just specify how many cryptocurrencies you want to sell or buy, and the platform will immediately provide you with the best possible offer.

As you can see, this order is the simplest and easiest among all types of orders, and many traders use it all the time.

But it also contains a lot of risk, you are buying or selling according to the current prices that exist, which can rise or fall in the next moment, and thus you will be causing yourself a loss.

So if you are going to use this type of request, you have to choose the right time and study it well.

 

2. Limit Order

This type of order is very different from a market order or a traditional order, as it is the trader who sets the buying and selling prices that he wants.

For example, if you want to sell 5 coins at a price of $1,000 per coin, you make the limited order, and then wait until there is a buyer at that price, and so the trading process is done with the least possible risk.

This method is very flexible as the trader sets a minimum price that he wants e.g. to sell and the transaction takes place either at this price or at a higher price, which gives the traders the control they want.

This method is actually safer than the others, but it also has some drawbacks, firstly it may take a lot of time for the order to be available for another trader to agree to these prices.

Also, the request may be made only partially, for example in the previous example you may find that you sold only 3 coins at a price of one thousand dollars, and you are waiting for another buyer to agree to this price to buy the remaining two coins.

 

3. Stop Order

This type of order is used to protect profits or to avoid and limit losses.

Through it, you can buy or sell digital currencies if they reach the so-called Stop Price.

This type of order is usually used for a stop loss when a point is reached, which is determined in advance by the trader, beyond which he cannot afford to lose.

At this moment, the currencies are sold as per the market order using the price of the currencies in the market now.

 

4. Stop-Limit Order

The next type on our list is a mix between a stop order and a limit order, and it is also used for limiting the loss.

It consists of two main components, namely:

  • Stop Price: It is the price at which the order is activated according to what the trader determines, whether by buying or selling.

  • Limit Order: The price that sets the highest price the trader is willing to pay in order to buy cryptocurrencies or the lowest price at which he is willing to sell cryptocurrency.

 

As you may have noticed, a stop-limit order is very similar to a regular stop order, but it just gives some extra flexibility to traders.

It determines the prices at which the digital currencies you own will be sold in a time of crisis, so that you do not lose a lot of money, or on the contrary, it determines the prices at which you will buy digital currencies in order to get the largest possible profit from them.

 

Let's give two examples to make it easier to understand this type of request:

First example: Suppose you buy 10 coins at $100 per coin, and you trade them, but you can't afford to lose more than 90 percent of their value, so you'll set a stop price at, say, $95 and your sell limit at $90.

Thus, if the price of this currency drops to 95 dollars, it will place an order to sell at a minimum price of 90 dollars, with the aim of not losing more than 10 percent of the currency price in the event that its price continues to decline.

 

Second example: Suppose you want to buy bitcoins when they reach the price of 60 thousand dollars ($ 60,000) because at this point they will continue to rise and you will get a lot of profits from them, for this reason you put the stop price at 60 thousand dollars ($ 60,000).

You also set the limit price for their purchase at $60,100, so when the price reaches 60 thousand, you will open an offer to buy them at a maximum price of $60,100, and thus you will have achieved your goal.

 

One of the most important features of this type of order is that it helps traders to adapt and deal with sudden and extreme market fluctuations.

Especially since it works 24 hours a day and it is difficult for a trader to monitor it around the clock.

But its problem is that it is not like a traditional stop order that it will be executed immediately, and it may take some time to execute, be executed only partially, or even in the worst case not at all.

 

5. Stop Loss Order

Stop loss orders are one of the most important risk management tools that you as a trader must use effectively in order to protect you from losing your money.

It works like a stop-limit order to deal with changes in the cryptocurrency market and violent fluctuations in prices.

It is also very beneficial for day traders who cannot stay in front of screens all day long and follow market movements.

This type of order works like a limit stop order as it has a stop price and a limit or loss price.

The trader adjusts them according to his ability, capabilities and trading strategy.

But the disadvantage of this type of order is that it is prone to slippage just like traditional market orders.

 

In the end, I suggest you read an important article entitled: Cryptocurrency trading mistakes that you should avoid.

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