INTRODUCTION
Cryptocurrency trading is the buying and selling of digital assets with the purpose of making a profit as a result of price changes. Compared to traditional markets like stocks or bonds, the crypto market is highly volatile: prices can fluctuate significantly and make double-digit movements in a matter of minutes or hours. This volatility offers greater profit potential, but also greater risk.
This guide reviews the basic concepts of cryptocurrency trading, including where to trade, common strategies, and popular tools.
WHAT IS CRYPTOCURRENCY TRADING?
Traders buy and sell cryptocurrencies in an attempt to profit from price variations. The most basic way is to buy a token and sell it if the price goes up.
Example:
If the price of Bitcoin is $40,000 and a trader believes it will rise, they buy 1 $BTC. If two days later the price rises to $45,000, the trader has an unrealized gain of $5,000. If they decide to sell, they will have earned that amount in two days. Of course, if the price drops to $35,000, the loss would also be $5,000.
WHERE TO BUY AND SELL CRYPTOCURRENCIES?
Trading occurs on exchanges (trading houses), which charge a small commission for each transaction. There are two main types:
Centralized Exchanges (CEX): Markets with a central custodian (e.g., Binance, Coinbase). They require registration and identity verification (KYC).
Decentralized Exchanges (DEX): Software programs on a blockchain (e.g., Uniswap). They operate without intermediaries and are accessed via wallets like MetaMask or Rabby.
TRADING VS. INVESTMENT
Trading: Short-term time horizon (minutes, days, or months). Seeks to take advantage of volatility.
Investment: Long-term time horizon (over a year). Seeks long-term appreciation of the asset (buy and hold or 'HODL').
TYPES OF CRYPTOCURRENCY TRADING
1. Spot Trading
You buy the actual asset. If you buy 1 BTC in spot, the Bitcoin is yours and you can withdraw it to your own wallet.
2. Derivatives Trading
You trade with contracts whose value depends on the price of the asset, but you do not own the actual asset. This includes perpetual futures, options, and futures.
(On the original site, a candlestick chart of Bitcoin is shown here)
3. Leveraged Trading
It involves borrowing money from the exchange to make larger trades. It is a high-risk, high-reward strategy, as you can lose more than your initial capital.
STRATEGIES BASED ON TIME (TIMEFRAMES)
Scalping: Trades of seconds or minutes. Small profits are sought in hundreds of daily trades.
Day Trading: Positions are opened and closed on the same day.
Swing Trading: Positions are held for days or weeks to take advantage of market trends.
Position Trading: The longest form of trading; positions last for months.
ANALYSIS METHODS
Technical Analysis (TA): Analyzes price charts, candlestick patterns, and indicators to predict future movements. It is based on the premise that human psychology tends to repeat itself.
Fundamental Analysis: Evaluates the real value of a project by analyzing its team, partnerships, revenues, and technological utility.
On-Chain Analysis: A unique crypto method. It uses data from the blockchain (whale movements, exchange flows) to inform decisions.
(Shows how a significant on-chain wallet is visualized)
TRADING TOOLS
Charts: TradingView is the industry standard.
On-Chain Analysis: Arkham Intelligence (to track entities and money flows).
Market Data: CoinGecko or CoinMarketCap for prices and supplies.
RISKS AND CHALLENGES
Extreme Volatility: Prices can fall to zero quickly.
Security: Risk of hacks on exchanges or loss of private keys.
Complexity: Technical errors when sending funds can result in total loss.