Basic features of cryptocurrency trading. Cryptotrading

2017 year was marked by the exponential growth of the cryptocurrency market, the dynamics of which is amazing. Many last year were once again convinced that the return on investments in new assets is often more attractive than the results of investing in the shares of even the most successful companies. Prospects for obtaining significant returns on investment are attracting new members to crypto-trading, including well-known players in the world of traditional finance.

Below is a rather entertaining infographic taken from the Visual Capitalist website. It depicts the amounts into which, by the end of last year, $ 1000, invested in shares of well-known American companies a little over ten years ago, on the eve of world economic crisis.

Note that the pre-crisis October 2007 of the year was chosen as the base period, when these shares were traded on "Hayah". On the other hand, it would be much more profitable to buy these Blue chips shortly after the global market collapse, for example, in 2008-2009.

Nevertheless, a patient and rational supporter of long-term investment, provided that the assets were successfully selected and even if the entry point was not the most optimal, could significantly increase its capital over ten years (at least several times).

The cryptocurrency market makes it possible to achieve comparable profitability in a much shorter period of time (unless, of course, you are bought on hays and not panicked during periods of price collapse). For example, the same $ 1000, embedded in Bitcoin just a few years ago, could also grow dozens of times:

Of course, a comparison of Bitcoin with shares of top companies is not entirely correct - Bitcoin appeared only shortly after the start of the global financial crisis (perhaps, as a kind of answer to it). On the other hand, if a cryptocurrency had appeared a year or two earlier, then its profitability indicators would hardly have been completely different and would have looked equally impressive.

Below is a comparison of Bitcoin with the most profitable 2017 shares of the year:

Other cryptocurrencies demonstrate amazing profitability indicators. So, over the past year, the second market capitalization of the cryptocurrency Ethereum has increased in price by dozens of times:

Thus, it is not difficult to guess why, in recent years, the cryptocurrency market has been so attractive institutional investors and closer integrates with the traditional world of finance.

Few will doubt that cryptocurrencies are very attractive as an object of long-term investment, as well as a tool for diversifying a portfolio with various asset classes. However, a natural question arises: why are cryptocurrencies attractive for a regular trader who trades in small timeframes?

We list the main advantages of this market for short and medium-term trade.

24/7

Unlike the traditional financial market, the cryptocurrency market is devoid of many restrictions. So, it is distinguished from the stock market by the fact that it operates in the 24 / 7 mode, it does not have high barriers to entry, while the trade commissions are relatively small. Since the cryptocurrency market operates around the clock and without interruption, there is no need to close positions at the end of a trading day or week.

Low entry threshold

To enter the foreign exchange market, the investor should have a significant deposit, which is problematic for newcomers to trading. Even more capital is required to enter, for example, the securities market (for the American stock market it is from several tens of thousands of dollars). For bitcoin trading, the minimum possible order is relatively small (usually from 0.0005 to 0.001 BTC, depending on the rules of a particular crypto-exchange).

No correlation with other assets.

Cryptocurrencies are also distinguished by the fact that they practically do not correlate with the assets of the traditional financial market. Moreover, during periods of decline in world indices, buyers are often activated in the digital currency market. Thus, more and more investors see “safe haven” in Bitcoin to preserve capital during periods of economic turmoil.

In recent years, even supporters of a conservative approach to investing more and more often seek to diversify their portfolio with cryptocurrencies, and at the same time increase the profitability of the latter.

Volatility

Many “dinosaurs” of the traditional finance world are scolding digital currencies for their volatility. However, significant price fluctuations, on the contrary, attract crowds of traders to this market.

It's no secret that cryptoactive assets are much more volatile than fiat currencies. The latest on the Forex market are trading mostly “with leverage”. For example, when trading liquid currency pairs, say EUR / USD, the volatility will be approximately 2-5% per month. Such a small range of price fluctuations necessitates the use of borrowed funds in trading.

"Chip" cryptocurrency is that they can be successfully traded on spot market, without the use of leverage and, accordingly, without stop-loss, margin calls, fees for the use of borrowed funds and additional risks.

Bitcoin intraday volatility can reach, 5, 10 and more percent per day, which is very attractive for a trader.

Significant growth potential

Digital currencies are still a nascent market that is incomparably small compared to the stock market, forex, or derivatives market. This indicates significant growth prospects for cryptocurrency in the coming years.

From this it follows that even if you ever buy altcoins "on huyah" and soon the price of these low-liquid koin will fall by several times, they can be left to keep "for long-term." Sooner or later the market will recover, some coins will sink into oblivion, some will fall even more in value, but a few of them may grow tenfold, and eventually you will remain in the black.

However, trading in "illiquid" is still a very risky undertaking. Therefore, at least at first, you should focus on the top ten or twenty of the Coinmarketcap rating.

It is also worth noting that blockchain technology is developing rapidly and attracts the attention of not only private investors, but also the largest corporations. The more blockchain-based solutions are developed and the more investments are directed towards their creation, the more popular cryptocurrencies become and, accordingly, the more intensively the capitalization of this market grows.

Why trade if you can “Walk”?

The data on the profitability of cryptocurrencies over a relatively long period is very attractive, and many ask the question: why not just invest in cryptocurrencies using the Buy & Hold strategy and keep them in a "cold" wallet for at least a couple of years? It is hardly possible to give an unambiguous answer to this question, since each has its own strategy, psychology and propensity to take risks.

Some arguments in favor of trading:

• not all cryptocurrencies live for a long time, and those assets that are now in the lead may become outsiders after just a year or two; this is very clearly visible if you find a screenshot for 2013 or 2014, which shows, say, the top ten top cryptocurrencies at that time, and compare it with the current data;
• investing according to the Buy & Hold strategy is quite justified if there is significant free capital that can be diverted from circulation for a long period of time;
• you can increase the profitability of investments in cryptocurrencies if you combine the Buy & Hold strategy with active trading (or at least rebalance the portfolio from time to time);
• preferring only long-term investment, it is impossible to acquire trading skills, which, by the way, can become an additional (if not the main) source of income, etc.

As for the arguments in favor of the Buy & Hold strategy, the image below illustrates them most clearly:

Thus, trading allows you to make a profit in the short term, and long-term investment does not require frequent activities, as well as the study of various intricate indicators and trading strategies. However, in both cases rational choice of assets, discipline and carefulness in decision-making are required.

The materials of this course are designed to help beginners in the crypto market gain basic knowledge. Perhaps this knowledge will someday save someone from the "drain" of the deposit. Thanks to the understanding of the basic principles of trading, it will become clear to many why you should enter the transaction "From level"why not go all-in and “chase the departing train”, why greed and excess emotions are so dangerous, etc.

Probably, over time, many will have analogies with real life, where buyers tend to buy quality goods cheaper, and sellers want to sell them at a higher price (but not the other way round).

Glossary to the article

"Hai" (from the English. High - high) - slang expression. It means that the asset price is currently very high and, most likely, it is overvalued. Experienced traders often advise beginners not to buy “on highs”. The opposite meaning has the term "low", which is used in relation to the extremely low price of an asset.

Blue chips - the most liquid stocks of large and reliable companies with stable rates of return.

Timeframe - time period of the chart used to display price movements in the market. The most common weekly, daily, four-hour, hourly, 30-, 15- and 5-minute timeframes.

Spot - direct exchange of one asset for another without the use of leverage. Trading on the spot market allows you to “sit out” a significant drawdown without the threat of losing a deposit due to the triggering of the margin call.

Margin Call - the circumstance under which the transaction is forcibly completed. This happens when the account balance, necessary to maintain the amount of collateral of all active transactions, approaches zero. Like a sword of Damocles, the margin call “hangs” over traders who trade using borrowed funds (“with leverage”) and do not follow the principles of risk management.

"Hodl" - supposedly comes from a typographical error. 'hold' Literally means to keep an asset “for long term”, without selling it under any circumstances.

Levels - price marks, near which many orders are concentrated and where the distribution of buyers and sellers changes significantly (the ratio of supply and demand). There are levels of support (located below the price) and resistance (located above the price). The first of them seem to restrain the onslaught of "bears" (sellers), and the latter serve as an obstacle to further price growth.