The Basics of Cryptocurrencies
What are cryptos? Crypto they're just tokenized assets that represent value not much more than that not all cryptos are created equal though there are better coins, better blockchains, more useful blockchains and there are poor blockchains, and low-quality blockchains as well in terms of barriers to entry especially for retail investors there are very low barriers you can sign up with an exchange get trading straight away with very low fees so that's a positive for trading crypto over something like the forex or even stocks 24/7 trading as well.
Types of Blockchain
There are different types of blockchain and cryptos that we can trade you have blockchains that really focus on being a currency which is just a ledger of transactions that's all it is so the main example there is bitcoin, litecoin is a fork of bitcoin and actually dogecoin is just a fork of bitcoin so it's a fork of a fork but essentially these blockchains do one thing only and that is keep a ledger of people transacting now stable coins are a little bit different they are definitely used as a currency but they're not usually their own blockchain they're usually built on a different type of blockchain known as a smart contracts blockchain so the main one there is ethereum this blockchain is different to bitcoin whereas bitcoin is simply a ledger of transactions ethereum
Allows people to actually enter into contracts on the blockchain which means you can have a lot more uses on that blockchain you can actually issue different types of tokens on ethereum so you might want to go and trade. let's say uni swap which is a token that's an ethereum based token these are known as ERC-20 tokens so it's good to know the differences because when you're investing in cryptocurrencies you've got to know what you're investing in are you investing in the main blockchain are you investing in a different type of token so these are the main smart contracts blockchains right now they are very different to the currency type blockchains now
Types of Cryptocurrency
What do you want to trade what do you want to invest in, where do you want to focus your resources do you want to trade currencytokens really here this is like trading gold or something like that where there's not much value apart from the value that people actually think it's worth but then you have different types of tokens like exchange tokens so a lot of exchanges like binance and kucoin will have their own tokens so you can trade those different type of value proposition you also have protocol tokens injective protocol is a good one so that code actually does something specific and they have their own token it's going to be a very different investment proposition than something like a currency token D5 tokens are really popular utility tokens could have many different uses on a blockchain and can be very important over time you even have stock tokens which is a way of trading the value of a stock but with a cryptocurrency definitely some positives of doing that overall and then you have NFTs which are totally different so all of the cryptocurrencies that you'll trade will be known as fungible tokens the same as fiat currency if i gave you a dollar and someone else gave you a dollar those dollars are the same you can swap them around and give them back to someone else and they are all the same or otherwise known as fungible non-fungible tokens are completely different they are like art there's only one Picasso and painting of each certain type there is only one unique piece of art that a person makes and so that is non-fungible it cannot be swapped around
and that is what NFTs do as well NFTs are a completely different value proposition and investment as well it's like investing in art and NFTs can be used for a lot of different things though and then we come to coins and scams there are a lot of these and you want to stay clear of Those
Tokenomics
What is tokenomics? tokenomics is a mix of tokens and economics we can look at the value of a cryptocurrency the supply of it which is super important if it has an unlimited supply is that going to affect the investment over the long term if it has a very limited supply then if a lot of people want to buy it the price might rock it up the volume in terms of the trade daily weekly monthly how much is the project worth so each cryptocurrency is a piece of a wider investment so bitcoin has a certain amount of coins and you add all those up and then that gives you the market cap also who holds that crypto that's also super important because cryptos are here for investors to invest but also for projects and companies to raise money who's invested in it that's important to know burning tokens is also super important if a company burns tokens it literally takes them out of circulation and if you have the same Demand and fewer coins than the price should appreciate and then we come to one of the main reasons of a cryptocurrency especially these days is ICOs and IDO's or basically an initial coin offerings initial DEX offerings are essentially just a way for the project to issue cryptocurrencies to earn money and investments so they can build their project.
let's check to coingecko which is a very popular site for the cryptocurrency space and we can do some really easy to economics right now let's look at bitcoin let say the price 55 290 now so cryptocurrencies are valued in dollars because everyone knows what dollars are and they can easily compare it to other investments it's the world's reserve currency everything is valued in dollars so it makes sense so this is the price of one cryptocurrency right here then we have the one hour 24 hour and seven-day change in terms of the percentage price changes 24-hour volume this is all of the trading volumes in
bitcoin over the last day made up of all the different exchanges that do trade bitcoin it's given as US dollar value so 72 billion dollars’ worth of bitcoin was traded over the last 24 hours then we have the market capitalization which is a very easy calculation to do you take the price of each coin and you times it by the number of coins in existence and that gives you the total value of those coins in the case of bitcoin this is a trillion dollars more or less let's click into bitcoin and we can do some more tokenomics we can come and have a look at the market cap rank
super important we can also go and look at the website if you want to know more about the project every site will have docs and you can go and read those also on the right-hand side you have the tokenomics again and really important when looking at cryptocurrencies is the
circulating supply and the max supply so we can see that bitcoin is nearing the limit of its supply once there are 21 million coins that have been made that's it there will be no more and so we're getting very close to that it's going to be a good few years for making this article until we reach that supply cap but one of the main reasons that bitcoin is where it is is because of a limited supply and a high demand meaning a high price that is really very basic tokenomics though so you can really quickly compare projects very quickly if you want to go deep then you have to go to the project's website and have a look at their docs so you can see all this information can be found in the project docs that will be on the project's website as an example let say Solana right here have the token supply distribution this means we can see who is holding it seed sale 16 founding sale 13 so the founding sale is very early investors if this is very high are those founding investors going to sell out and the price goes up maybe they'll lock in some profits so when are they actually going to sell a lot of the time founders will actually have a time limit so maybe they'll have to hold on for two years but once that expires are they gonna dump all their coins on the market that could obviously put pressure on the price so it's very good to know these things you also have how much the team has so the team itself that developed it has 13 and then the community has 40 so you can compare these distributions from one project to the next.
Summary
cryptos are tokenized assets that's all they are they represent value and they are a digital representation of that there are many types of blockchain and tokens for different use NFTs are unique and not fungible cryptos are fungible each and every token each and every project is very different the tokenomics are different so we have to know them before we start getting invested
The Basics of Trading Cryptos
What is a Currency Pair? a currency pair when you trade cryptocurrencies when you trade currencies in general when you trade forex you have to trade in a pair if you want to buy something you of course have to sell something in return now when you go into a shop you've got all the prices there already and the thing you're giving the shopkeeper is a fiat currency usually let's say us dollars when you're buying a currency though you have to give them a different currency it's exactly like swapping your money at a money exchange when you're on holiday so we are exchanging two currencies and this is how you will see them right here so we've got BTC/USDT, BTC slash USDT what does that mean well each crypto has a ticker so BTC is bitcoin and then slash USDT, USDT is called US dollar tether it's a very popular cryptocurrency and a very useful crypto
Which is a stable coin is and us dollar tether in a second this is how we read a currency pair you have BTC against us dollar tether eth is ethereum so ETH/USDT
ethereum against us dollar tether so you know this trading pair is ethereum and u.s dollar tether and then you have other currency pairs like BTC/ETH bitcoin ethereum so if you just want to trade them directly you can trade bitcoin and ethereum this is how it will look.
Stablecoin
stable coins though, because these are the entry into the crypto space and also used to trade against every other crypto so a stable coin is a crypto version of a fiat currency it is always a crypto version of a real asset so it doesn't have to be a fiat currency there are
other stable coins that are backed by other very stable real assets maybe like gold but it is definitely backed by a real-world asset and that's why it's called a stable coin its price is pegged
to that real-world asset so let's take US dollar tether USDT which is right here also US dollar coin which is this one and then binance us dollar BUSD, USDT, all three of these are pegged to US dollar meaning their value is the exact same value of US dollar they do this through various different mechanisms but you know that if you are holding binance us dollar USDT or USD right here that that will be worth one us dollar from now going forward so it's a really important asset for a lot of people if you want to come out of a cryptocurrency you think it's too risky you can come actually into a very solid real-world asset without having to take your money out and you just put that in the stablecoin so now we know that we trade currency pairs
Base Currency vs Quote Currency
This is really important to know when you are trading here is how it will look the base currency is the main currency that you're buying so if you want to go ahead and trade bitcoin you can see down
BTC/USDT 60,000
BTC/USDT 55,000
BTC/USDT +5%
here that bitcoin will be on the left-hand side that's the base currency the quote currency is the currency that you're selling or using to buy the base currency so the base currency you are using in this case we can see BTC it's definitely bitcoin and the quote currency tells us how much we need to buy one unit of the base currency and the quote right here so we've got bitcoin that's BTC so we know that, that is the currency that we're trading we can look at the quote currency which is US dollar tether so that is the quote we then have 60 000. what does that mean it tells us that it takes 60 000 usdt which is the quote currency to buy one btc which is the base currency this will obviously change depending on the exchange rate between the two currencies once more we have btc against us dollar tether now at 50 000 so it now takes more us dollar tether to buy one bitcoin this can also be shown to you in a percentage move on a day you'll see this a lot of times.
let's check coingecko from right here and we can come up go back to the home page you can
see this right here you'll get a percentage change on the day and this is a percentage change against us dollar tether a so we'll go back to our quotes and we can see that bitcoin has appreciated against the u.s dollar by five percent today this percentage move will always be how the base currency is valued so it takes more us dollar tether now to buy bitcoin because bitcoin has appreciated five percent against the quote currency also really important to know when you're trading is that not every currency pair is supported so let's say you have a really small altcoin that's like a micro cap it's not going to be traded against bitcoin directly.
example here of mana which is the central land it is an altcoin against cardano which is another altcoin it doesn't have a market at least on binance so if you want to sell one for the other you just can't do it you're going to have to first trade MANA/USDT, mana into us tether and then trade ADA/USDT, ADA against US dollar tether so you have to use a third currency to actually trade that this is sometimes known as a cross trade where you use a third large currency to trade
two smaller currencies that don't have a direct exchange this is why stable coins and us dollar
tether in particular are so important they really do help liquidity in cryptocurrencies all of the big cryptocurrencies though do have direct trading pairs and this is how you can trade one currency against another .
example here let's say you took a thousand dollars and you invested 500 each 500 in bitcoin and 500 in ethereum they're the top two cryptos and they both go up in value both have gone up so we're super happy but you can see here bitcoin actually went up 20 so our 500 times 1.2 is 600 ethereum though only went up 10 so 500 this four is supposed to be a dollar five hundred dollars times 1.1 is 550 now if you would have just put all of that money in bitcoin you would have made twelve hundred dollars because you would have gone up twenty percent a thousand dollars in bitcoin and ethereum you only made 150 so actually you would have been better to just put all of your money in bitcoin and none of it in ethereum bitcoin went up more than ethereum and so you can see investing becomes pretty complex and we're not going to go into diversification here and the benefits that that gives you they might go up and down at different times and they might
have different investors and so diversification is very key in my opinion but just to show you how actually trading in one or a different cryptocurrency can definitely change your investment outlook this is what we call currency pair trading which one of these cryptos do you think will outperform the other crypto you can actually bet on one crypto versus another this is not just an investment in one coin but you can think well which one of bitcoin or ethereum over the next six months is going to outperform then you want to put all your money in that coin if you've done research and you think ethereum is going to outperform
bitcoin over the next six months then what's the point of being in bitcoin put all of your money in ethereum and it will outperform you will get a higher rate of return when you buy cryptos with fiat currencies so if you've got us dollar or pound sterling and you're just putting money in then you are actually betting against those currencies pound sterling and us dollar if you're selling
those to buy cryptos you're betting against fiat currencies and you're placing your bets into cryptocurrencies that's what you're doing whenever you sell a crypto to buy one other then you're actually betting against the one you're selling this is the most basic strategy when it comes to currency investing and with cryptos the currency you're selling you're betting against and the currency you're buying you are thinking that that one will at least outperform the one that you're selling
Summary
currencies only trade in pairs you need to sell one to buy another stable coins are absolutely vital for the cryptocurrency industry and for trading we can analyze the quote and base currency to tell us more about how that currency pair in particular is trading and you can bet on one currency versus another.
Cryptocurrency Trading Platform
Understanding the best crypto trading platforms really important that you know the difference between them the pros and cons of each what are the best trading platforms what are the best trading apps what do they offer us and what are the fees of each before you start trading with them there are a lot of them.
Centralized vs Decentralized Exchanges
what are the pros and cons of both should you use a decentralized exchange what are the benefits of dexes what are liquidity pools and which one should you choose.
what is a dex ? a dex is a decentralized exchange meaning that it's essentially just a bit of code and that's it when you have a centralized exchange then that is actually a company that provides exchange services and liquidity it provides you all the systems for people to go and trade with each other a decentralized exchange is just a bit of code on a blockchain it has no central operator and you're on your own 100% on a decentralized exchange you don't actually trade with someone else but you swap tokens it's a really different type of trading but you do have very low fees you can see you can pay around 0.05 percent so the fees are very low and that's because it's literally just a computer program.
examples uniswap and pancakeswap essentially doing the same thing but they're on different blockchains uniswap is on ethereum pancakeswap is on binance smart chain swapping is super different to trading. but essentially when you swap you're just using the blockchain and the decentralized exchange to go into an existing pool of assets and use your currencies to swap for the currencies inside the pool very different from a centralized trading exchange where the exchange actually just matches buyer and seller directly and you trade together one of the biggest decks is though and the biggest blockchains for dex is well you have ethereum which is a smart contracts blockchain you need a smart contract blockchain for a decentralized exchange and swapping because you need smart contracts in there so ethereum has uniswap by far the biggest finance smart chain has pancakeswap by far the biggest on finance smart chain then you have Solana, cardano and polkadot they have some dexes growing on there a lot smaller than ethereum based dexes though.
What are Swaps, a swap you can swap one token for another in a completely decentralized way the fees are way way lower so that's definitely an advantage of a dex you have to use a crypto wallet though this is not a company that is providing you a service it's simply a computer protocol and you need a crypto wallet and coins in a wallet to actually go ahead and swap and the way that you swap is through a liquidity pool so people put all of their coins in and then you can swap in and out of that pool this is pancakeswap so you can see the actually exchanging binance coin into caketokens and just using a liquidity pool to do that liquidity pool is a massive collection of tokens so you have other people and these are called LPs or liquidity providers and they provide their tokens or just literally give their tokens into the pool to provide liquidity for other people that want to swap the reason they do that is because they earn fees liquidity providers or lps earn trading fees and this is great so you can actually earn fees yourself if you have some coins you can put them in the pool and you can earn some exchange fees which is really great most liquidity pools will use an automated market maker system or an AMM back in the day in the stock market, market makers were actual people who did all that thing with their
hands and bought and sold and actually facilitated trade between a buyer and a seller to big organizations now that is done on the blockchain by a computer system the AMM will match a buyer and seller and will get a decent price for them both with the swap what are the
Pros and Cons of Decentralize
pros and cons of dexes are really decentralized so no one owns them also they're very low cost you have massive access to really small altcoins which you may want to go ahead and trade
they also offer staking and rewards so like you put your coins in a liquidity pool and you'll earn trading fees that is a way to increase the income that you get from your cryptos there are also staking rewards as well to increase liquidity so you get paid for that you earn commission instead of paying it obviously you pay it when you trade there are security concerns for dexes though a lot of security concerns especially smaller dexes there have been a lot of rug pools millions of dollars stolen so that's definitely a downside of the dex you might just want to stick to the top one or two dexes and they are way too slow for day trading we cannot use a decks for day trading we get no charts we get no order book we get no technical analysis and they require a cryptocurrency wallet to go ahead and use them.
The pros and cons of a dex versus a centralized exchange essentially a dex is very very low cost you get access to small coins you get yield farming so you can actually earn more you can earn commission by putting your coins in but it is very blockchain and very crypto a centralized exchange is just like trading on the stock market or anything else you have an actual company who is there providing you a product you get ultra fast trading you get all the pro trading tools you get great charts you get a lot of liquidity which is super important when you're trading a lot of money there are some downsides but centralized exchanges are an absolute
must if you are a trader.
Summary
dexes offer swaps and yield farming that's the positive they only run on smart contract blockchains they have pros and cons in terms of they're
slow and they're also not great for day trading and they also have security concerns if you go for the less well-known dexes we're going to have to use a centralized exchange to day trade and swing trade our cryptocurrencies
Cryptocurrency Trading Strategies
What are trading strategies what are the best trading strategies what type of investor are you are you, short medium or long term or are you a mix of these and what is dollar cost averaging super important to know them in trading.
Swing Trading
The swing trading is super popular a lot of people do this with stocks forex and cryptocurrencies swing trading is short and medium term only this isn't a long term strategy you open trades for maybe a couple of days maybe a couple of weeks but with swing trading you're looking maybe a few days maybe a couple of weeks depending on the trade you use both technical and fundamental analysis for your trading but we certainly rely on technical analysis for when we're getting in and out of our trades and what you want to do with swing trading is just capture a percentage of a price move so you want to anticipate a move in the price either up or down and then place your trade so that you get at least a percentage of that and make your money one of the benefits of swing trading is that it requires less time you don't need to be researching you can use some technical analysis here to just get right in and start trading you can definitely make some short-term profits and with swing trading, going to be using a one-day chart for swing trading downsides of swing trading could miss out on the longer term trends you know if you just invested in bitcoin five years ago you'd be up a lot now and you wouldn't have had to have done anything with swing trading so that's definitely a downside of swing trading and with swing trading you can be stopped out a lot with short-term movements so you actually may be right about a trade but in the short term the price could just move up in the wrong direction stop you out of the trade so you make a loss but you're right about the trade so that's just part of trading one of the downsides of swing trading.
Breakout Trading
what is breakout trading, breakout trading is slightly shorter term than swing trading but it can be for the same amount of time it really depends on you as a trader you open trades for maybe even a few hours to a couple of days and you mainly use technical analysis but you need also to know what's going on in the markets and what types of news may move the markets as well we can use specific chart setups for what is a breakout well there are specific things we look for that show us whether there is going to be a breakout or not and that's how you trade it requires way less time because you're really just looking at potential breakouts and you're putting your trades in definitely short-term profits with this one we can use either the one-day chart or maybe the eight-hour or four-hour chart depending on who you are as a trader you could miss out on longer term profits once more and again short-term swings can stop you out of your trades making a losing trade but it may actually go in that direction that happens quite a lot with breakout trading so something to be aware of .
what we call a wedge pattern and it is possibly going to have a breakout from that pattern eventually so this is what breakout trading is trying to spot areas of consolidation that could then lead into a breakout place your trade get that move and the volatility in the price and maybe take advantage of it
Scalping Ultra
Intraday trades you may be looking at a five minute chart trading 10, 20 ,30 times a day even there are computer systems that scalp as well you may open trades for a few minutes to a few hours certainly not overnight and not a few days only rely on technical analysis and nothing else
you trade off tiny movements in the price now this requires a lot of time a lot of effort you have to be watching the screen at all times but you get hundreds of trading opportunities per
day definitely so if you want to trade a lot look at scalping there are a lot of opportunities to trade with scalping that long-term investing just doesn't give you essentially what you're doing
with scalping is actually trying to trade off other people's orders if a huge buyer comes into the market over a very short period of time the price may move up a tiny amount let's say a quarter of a percent in forex it's going to be much smaller but in cryptocurrencies it might be a quarter
of a percent maybe 0.1 as a scalper you're trying to anticipate that get in off the back of their order and try and basically buy some crypto before they finish their buy and then
sell it to them as well it definitely requires more funds it's very difficult and time consuming to implement.
Dollar Cost Averaging
dollar cost averaging this is not a day trading strategy it's not a short-term strategy it's a long-term investment strategy now you are purely price agnostic this means you don't care what the price is you don't care how the price is moving short term just put in money at regular intervals you really trade off fundamental analysis essentially meaning go and research a project go and look at the tokenomics and look at the fundamentals is it a good project does it have good people does it have a good future yes it does i want to invest in that project over the long term this is
investment not trading and you don't have to deal with fomo or fear of missing out because you're in for the long term it actually requires little time really what you have to do is research a cryptocurrency or other cryptocurrencies that you want to invest in once you've done that all you have to do is just go and set up your dollar cost averaging setup and it's really simple you don't have to trade the markets not interested in the short term whatsoever and it relies on the premise
that markets go up over time low cost low that should be a low cost, low stress one of the big benefits of dollar cost averaging is the mentality of it you don't have to worry about missing
out you don't have to worry about buying in dips you're just going to drip feed investments over the long term mathematically speaking there is no mathematical advantage to dollar cost averaging compared to lump sum investing however that's not really the whole story.
if you dollar cost average and you build up large positions in cryptocurrencies you could face significant losses if you go heavy into a crypto over the long term and you're not keeping up with the crypto and the fundamental analysis that price could drop a lot and then you're in a loss because you're not trading daily you can't really save that loss because you're not looking at the markets as a daily trader. but here is what dollar cost averaging would look like all you do is choose how much you want to invest and then you split that up over a time scale so i've just done it once a month here so let's say you've got two and a half thousand dollars to invest in bitcoin so you start in may now rather than putting two and a half thousand dollars in you put five hundred dollars in the price of bitcoin in may is forty nine thousand so you've got five hundred dollars worth of bitcoin and each bitcoin was worth forty nine thousand dollars now in june you had another 500 july august september you add 500 each month we can see the price of bitcoin each month changes 49 here a little bit more ex pensive more expensive then a bit cheaper and then a little bit more expensive what's great about dollar cost averaging is that you can not worry about getting in at the wrong time you can just buy some at cheaper prices buy some at more expensive prices but it doesn't matter because your average price is decent this is how DCA or dollar cost averaging compared to lump sum though let's say our dollar cost averaged into bitcoin over five months my investment overall two and a half thousand dollars would buy me 0.05 of a bitcoin now in september that would be hundred and worth dollars i've definitely made some profit here because the bitcoin price has gone up for me and i bought some cheaper I bought some at 49 i bought some at 49.8 it's all under this so i'm up on my trade if you would have just gone ahead though and invested in may lump sum two and a half thousand in may then you would have actually got a much better
price because the price of bitcoin has gone up you would have actually bought 0.051 so you would have got slightly more bitcoin in may because you were investing more money at the lower price and so actually the lump sum would have made you more money by september lump
sums beaten out DCA in this occasion but let's say you put two and a half thousand in in july when the price is very high well you put two and a half thousand dollars in at a really high
price 50 100 and so you just didn't get as many bitcoin you actually got .049 bitcoin and the price now in September you're only making four bucks profit on that trade so this can basically show you the difference with dollar cost averaging versus lump sum if you get in early and at a low price lump sum is better but if you haven't dollar cost average is great and if you don't have a lump sum to invest right now if you're a young guy who just wants to build up and accumulate then dollar cost averaging for an investment really is the only way to go.
Summary
trading strategies you can trade short term and you trade off short-term price movements it requires skill and knowledge short-term trading is a full-time job it as a full-time job so it takes a lot of time a lot of effort and you have to look at the market all day long you can be a long-time investor which is a completely different strategy you can use DCA but these are not exclusive of each other you can dollar cost average and also have some money aside for the short term to take advantage of short-term opportunities.
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