Cryptocurrency trading explained and 8 common mistakes you should avoid


Cryptocurrency trading explained and 8 common mistakes you should avoid

First of all, trading is very different from betting, the latter 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, whether in the short or long term.

cryptocurrency trading platform

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.

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, 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 guess 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 price of $1,000, and through market movements, I knew that its price would increase, so I bought 10 coins from it and waited until its price increased to $ 1050 and then sold it, with this I won 50 * 10, or $ 500 from this trade.

Of course, this is not the only style or form of cryptocurrency trading, but it is the most 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 dealing with digital currencies as assets to be kept 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.

First: Technical Analysis

Technical analysis is the most important analysis for you as a cryptocurrency trader because it will allow you to predict changes and fluctuations in the prices of cryptocurrencies, as it is based on studying the previous patterns of the cryptocurrency price and predicting them again before they are repeated.

It does not predict the exact price, but instead predicts a price increase or decrease, and gives you the opportunity to exploit this change in order to obtain greater profits.

Technical or 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

crypto market cycle

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 that prices depend mainly on the actions of traders in addition to the variables in global events, especially those related to the financial and economic sectors.

One cycle is divided into four basic stages: the accumulation stage, the mark upstage, the distribution stage, and finally the decline stage.

The stages of ascending in market cycles are called the bull market, while the stages of decline are called the bear market, and we dealt with this in detail in the article on technical analysis of cryptocurrencies referred to as one of the series above.

2. Psychological Cycles

Psychological cycles of the market

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, are the ones who move the market and determine its volatility, intentionally or unintentionally.

Psychological courses describe those behaviors and behaviors that traders tend to at each stage of the market cycle, especially beginners, and understanding and anticipating these behaviors will make you able to achieve greater profits and predict the 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, emotions, and impulses causes many people to 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.

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 in English, “Chasing the Whales” is one of the most important factors of technical analysis that a trader does by knowing the upcoming moves 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 drop significantly if it receives a blow from a large whale, as happened with Bitcoin after Elon Musk announced that Tesla cars were not available to buy using Bitcoin.

Knowing or anticipating 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.

Second: 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 know whether the price of a digital currency is fair and appropriate with its true value or not, of course, is done 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 for 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. Technical

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 trader even encounters that the digital currency does not have many fans or fans, and therefore he will face many problems during the completion of buying and selling processes, and 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, as this will greatly help in increasing the value of this currency in the future.

The method of analysis that you will use for cryptocurrency trading is entirely up to you, but in general, it will be beneficial to combine Technical Analysis and Fundamental Analysis as you trade.

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 an order or an order book or just an order.

You can think of it as a list of people who want to buy or sell cryptocurrencies, and the platform or website matches them up so that each side gets the best possible offer for them.

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 the 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

A market order is a 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 risks, 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 cryptocurrencies at a price of $1,000 per coin, you make the limited order, and then wait until there is a buyer at that price, so the trading process takes place with the least possible risk.

This method is very flexible as the trader sets a minimum price that he wants eg 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 indeed 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 avoid and limit losses, through which 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 scaling a 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 cryptocurrencies at $100 per coin, and you trade them, but you can't afford them 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 severe 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, and it is very useful for day traders who cannot stay in front of screens all day and follow market movements.

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

The most common cryptocurrency trading mistakes that you should avoid

There are some mistakes that some traders make, especially beginners, that we do not want you to make, dear reader:

1. To start trading without having the necessary knowledge

A very common mistake is for a beginner to enter and pay money to buy cryptocurrencies without having real knowledge and knowledge of trading, and because of this terrible mistake, many people lose all their money.

They are not even aware of the trading terminology and strategies, so they make decisions at random without planning or analyzing the cryptocurrency market.

So never start making money and start trading without being aware of all the issues you will face and potential problems, and practice trading several times.

2. Believing that cryptocurrency money is easy money that does not need a lot of time and effort

Profit from digital currencies, especially from trading them, like any method of profit from the Internet, you will need a lot of time, effort, and knowledge in order to obtain dollars.

Many beginners are fascinated by the money that can be obtained from cryptocurrency trading, and they do not think about the effort they have to put in to get it.

And then when they enter the field, they are surprised by the amount of effort and time required to become professional in trading and start earning a large amount of money.

3. Trade on your emotions

As we said earlier in the article in order to be a professional trader you have to let your feelings and emotions out before entering this fierce world.

Trading is based entirely on numbers, analysis, and statistical predictions, and many traders lose their money due to feelings of greed or fear controlling them.

For example, fear may lead some people to terminate their trading process quickly as a result of reading a random warning article or listening to rumors from some individuals or others.

As for greed, it is also a form of fear, as the trader is afraid that he will lose a great opportunity to profit and find him risking a lot of his money for the sake of profit.

An example of this is sentiment trading: selling hysterically when the prices of some currencies start falling to escape from them and thinking that they are losing their money, only to be surprised that the prices of those currencies skyrocket again for a short period of time.

It is also the case when some buy digital currencies when their prices drop in the hope of obtaining large profits when the prices of those currencies double, without doing any research or study of the market and the possibility of currency prices rising again.

4. Not to be careful and fall into the trap of fraud and deception

There are a lot of scams going on in the cryptocurrency world, from platform hacks to fake coins and impersonation attacks.

In order to survive this fraud, you must first be aware of it, protect yourself well by appropriate methods, and not underestimate any risk that may threaten you or your money.

And we can dedicate an entire article on this topic if you are interested in it, just tell us in the comments box below.

5. Trading without a plan

Not having a clear and logical trading plan is one of the most common mistakes made by traders, and this mistake causes many to lose their money.

Before making any trading process, no matter how simple, you must know why you are doing it, and what you will do next. Profiting from trading is a long-term goal rather than a quick way to profit.

Even worse than trading randomly, you risk a large amount of your money, up to all the money you can afford, in the illusion of getting quick and big profits from trading.

Of course, the latter leads to disastrous results that no one can bear, such as losing most of his money or even large percentages of it.

And we will talk in an entire article about how to trade cryptocurrencies, and we will introduce you to the way professionals trade their cryptocurrencies.

6. Keep cryptocurrencies on the platform

A common mistake that beginners make is to leave their cryptocurrency on exchanges without withdrawing it to their crypto wallets.

Hackers can hack your account or platform and you will find that you have lost your digital coins and your wealth, so always make sure after every transaction that you put all your digital currencies in your wallet.

And you can learn more about cryptocurrency wallets through the previous article we published on Winners: The Best Cryptocurrency Wallets and Their Types and How to Choose What Fits You.

7. Wasting Cryptocurrencies

Yes, as you have read, do not waste your cryptocurrencies, according to statistics, 1 out of every 5 bitcoins is wasted by their owners.

This is done in many ways either by forgetting the passwords of the wallets, losing the mobile wallets for currencies, or entering the wrong keys while transferring digital currencies and sending them to other people.

This error, despite its simplicity, is quite common, so be careful.

8. Not learning from your mistakes

It's normal to make mistakes, we all do this, we are humans in the end, but the bad thing here is that you don't learn from your mistakes and keep repeating your mistakes over and over.

In the end, I hope that you liked the article, my dear future trader reader and that it encouraged you to start trading cryptocurrencies.

If you have any questions of any kind about trading, you can ask them in the comments box below, and we will get back to you as soon as possible.

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