T H E R I S E O F Trading Cryptocurrency W W W. A I O N N E X T. C O M
What Is Cryptocurrency? The question, what is cryptocurrency seems to be asked a lot these days. There has been widespread interest in this revolutionary currency in recent years, yet it is so very complicated to those who have not yet been informed. If you are one of these curious yet uninformed folk, I will provide a core explanation in the simplest of terms. Cryptocurrency is digital money on software platforms that are interconnected all over the world on peer to peer networks which are decentralized. 01
Still confused? It s okay. The important thing to remember is that cryptocurrency is digital money which can be sent to anyone in the world without the need for any intermediaries. Every transaction between cryptocurrency whether it s bought, sold, or sent to someone is recorded on a technology called the blockchain. Transactions can never be duplicated or undone, which allows cryptocurrencies to operate without the need of third party intermediaries like governments, banks, PayPal, etc. In a sense, the creation of cryptocurrencies is more than just money, the technology behind it is truly revolutionary. It s what allows cryptocurrency to hold value and be transferred from person to person on a decentralized market. While cryptocurrency is an amazing technology and currency, the opportunity to profit by treating it as a financial trading instrument is incredible. We are living in the prime of the digital era. People who take advantage of this are profiting with astronomical gains, and you can too. 02
The Profits Of Trading Cryptocurrency There is so much money to be made trading and investing in cryptocurrency. Take Bitcoin for example. Since it s inception in 2009 Bitcoin has outperformed every asset in the world, except for in 2014. When people say Bitcoin is in a giant bubble, it just doesn t make sense. By definition, bubbles are short lived, they don t keep expanding for 8 years. The opportunity the trading of cryptocurrency provides is the best thing since the internet space in 1995. During the dawn of the internet there were so many opportunities, just like there is now. Back then the internet was just starting to change how companies operate and so came along various opportunities. Just as there is now with the rise of numerous cryptocurrencies like Bitcoin, Ethereum, Litecoin, Dash, and so on. There are literally hundreds of cryptocurrencies out there, although choosing the right ones to invest in is key. Just as in the internet space, there were.com bubbles where people lost their shirt, but also many instances where people had astronomical profits. Choosing the right cryptocurrency and strategy is all you need to be successful, which brings me to my next point. 03
Profitable Cryptocurrencies As mentioned before, there are hundreds of cryptocurrencies, but choosing the right ones to trade is key. While it s possible to profit from many of them, it s in your best interest to stick with the top 4. This is partly because you know they are not going anywhere. Many of the cryptocurrencies out there today are essentially like penny stocks. They are made out of thin air without any company or organization backing them up. Virtually anyone can create their own cryptocurrency which is why many of them could go belly up. As for the top 4, they have a large following behind them and have been given real value. As well, the most traded cryptocurrencies are traded on the most popular and reputable exchanges. 04
Many of the top exchanges and trading platforms won t even bother to offer the smaller, less established cryptocurrencies. Another aspect pertaining to the top cryptocurrencies are proven and tested trading strategies. There is enough data and media published on how to profit from these top cryptocurrencies that there is a much better chance of being successful. A trader can keep up with the latest trends, market news, and latest techniques used to profit in the booming cryptocurrency market. Although, with all this information out there it can be useless if you don t know how to use it. A successful cryptocurrency trader must find a proven strategy that works for them and stick with it. 05
Find A Trading Strategy If you want to make money from trading cryptocurrencies you must educate yourself on the trading methods and strategies available in the cryptocurrency space. As for the trading of all financial assets, you want to buy low and sell high while mitigating the risks caused by volatility and unpredictability. Successful trading requires a well-defined strategy, knowing precisely what you want when opening a trade, and what changes you can make if you need to rethink your position. To be a successful trader you must investigate cryptocurrency trading and how it works, even if you have previous background in other forms of trading. Before you begin trading you must think about and establish three things. 06
First off, it s very important to establish your trading goals. Do you want to profit from long term or short-term trading? Second, you must determine your level of risk. This will help determine which strategy you choose. Lastly, establish a disciplined and realistic mindset. Trading with your emotions is never good, especially in a volatile cryptocurrency market. In the following sections you will learn various tried and tested strategies for trading cryptocurrencies. The methods described can be applied to trading any of the top cryptocurrencies mentioned earlier. Although these methods are proven and tested, it is up to the individual trader to find which one works for them. Each strategy requires a certain level of temperament and mindset which can only be enacted by the trader. 06
Trading Strategies Riding The Trend The most conservative of trading strategies is to ride the upwards price trend with long term financial goals. The strategy is accomplished by taking advantage of the constant price movements by buying when the price is at a low point in the general upward trend. This is done by a simple chart analysis in which anyone can understand. You look at a candlestick chart over a period of no shorter than a month. Then, by drawing a line from where the price started to where it is currently at, you can clearly see the ups and downs in price movement. From here, you project the line forward into the future. Look at the downward trends that have happened in the past and use them as a baseline as to what price you should buy at in the future. Once the price has reached your desired level, place a buy order. The upward trend will continue and not before long, the lower desired price in which you have bought at has risen, giving you more substantial gains than if you had just bought in when the price was high and rising. 07
You can use this strategy to hold cryptocurrency for however long you want, but it is always safe to sell a certain percentage, so you can benefit from the gains you are making. A sound method to this strategy is to take 5% out in fiat currency for every 25% you re up. This will give you an income while still benefiting from compound growth. By maintaining a long term financial goal, you can slowly take advantage of the upward trend by investing your money at low points and watching it grow. Sure, you will see downward trends and you may see a dip in your funds, but if you consistently follow this long-term strategy while taking advantage of the short-term price fluctuations, your portfolio will be profitable. 08 05
Day Trading An alternative strategy to riding the trend is day trading. This strategy places focus on profiting in the short-term rather than long-term. So, it is the best option for traders aiming to make quick and substantial profits. Day traders work on a time scale as short as hours, minutes or even less. Since cryptocurrency markets are driven by sentiment, popularity and as an assessment of the long-term value or potential, the price movements are short, significant, and plentiful, making it a perfect trading instrument for day traders. To start day trading successfully, one must understand how to read charts via technical analysis. Day traders analyze and study cryptocurrency charts daily as their trading decisions solely rely on these charts. The whole day trading strategy for bitcoin is based off chart analysis rather than market news and upward trends, although these factors do play their part as well. In the next section you will learn about the technical chart analysis skills necessary for becoming a successful day trader of cryptocurrency. 09
Chart Analysis If you are new to investing and trading cryptocurrency, reading charts, let alone analyzing them can be more than a little intimidating. Although in the reality of things, it s really quite simple. Mastering these skills is essential to becoming a successful trader, so to successfully trade cryptocurrency, you must understand the following technical chart analysis methods. Support & Resistance 10
The concept of this technical analysis is really quite simple once you know what you are looking for. Think of the support (the circled areas in the picture) as a giant trampoline stretching horizontally across the whole chart. Once the price drops to the point of the trampoline, it must bounce back up. Cryptocurrency day traders use this charting technique to spot these patterns and place their buy orders once the price reaches the trampoline point (the support line), then they will sell the currency later on when the currency has risen. With this chart analysis technique, traders can also use the same methodology to spot when the price has reached a certain point and is likely to fall. We call this the point of resistance and we can think of it as a roof. Once you establish where the roof is, you can bet that the currency will fall once it reaches this point or is quite close. A trader using this charting analysis will then sell the currency or short the currency and buy it back again once it has dropped, preferably at the point of the trampoline to maximize gains. However, this method of analysis isn t necessarily a sure thing. If the cryptocurrency breaks through the point of resistance or support, it tends to keep going in that direction for a while. So, if the crypto price breaks through the trampoline (support line) it might be a good time to cut your losses and sell. Although, your decision on whether to sell or buy more with the continuous decreasing price is up to you. This is when it pays to introduce fundamental analysis with your decisions by looking at the market news. 11
Trend Line This chart analysis is very simple and like the support & resistance method as it is based on identifying common points of buy and sell, except it doesn t have to be a specific price that indicates support or resistance. With this chart analysis method, you are trying to find a common line in which the price of the currency consistently reverses, hence a trend line. By doing this you can project the line into the future and establish points in which you should buy or sell the cryptocurrency. As seen in the example above, there is a clear trend of buy and sell points. However, often with the trading of cryptocurrencies the trend is much more volatile, in which there will be points when the price breaks through this line. Although it is still possible to establish a trend for the most common buy and sell points. This trading method along with the one mentioned earlier are very simple and easy use, even for a beginner trader who is not familiar with reading or analyzing charts. 12
Head and Shoulders This chart analysis is a little more complex, but still very easy to understand. First, you must identify a head and shoulders pattern in the cryptocurrency chart. This chart analysis is a pretty good indicator of when the crypto price will stop climbing and begin a downward trend. However, it s not as easy as identifying any pattern that looks like a head and shoulders. For this analysis to work, the shoulder on the right side must be lower than the shoulder on the left. For the simple reason that the crypto price failed to break new highs, and even failed to break previous highs. The price then tends to begin a long downward trend. This pattern has proven itself time and time again in the cryptocurrency space and is used as a good indicator for when the price is about to take a big hit. 13
Moving Averages A technique many cryptocurrency traders use for more easily spotting the trends mentioned in the techniques above is moving averages. What moving averages does is smooth out the cryptocurrencies price fluctuations, so it is easier to see where the price has been going, therefore more easily identifying trends in the charts. Volume Another key analysis technique for gaining deeper insight into the price movements of cryptocurrency is the volume of trading. High volume trading results in strong price trends, while low volume results in weaker trends. When a cryptocurrency experiences a substantial gain or loss it is wise to check the volume of trades. For example, if a cryptocurrency has been moving along quite well, then suddenly drops quite significantly in one day, it is worth examining the volume of trades to determine if this is a temporary setback or the beginning of a downward trend. For a cryptocurrencies price will rise with increased volume and be relatively stable. However, when a cryptocurrencies price increases with low volume, this could be an indicator of an imminent downward trend as it runs out of gas. 07 14
Chart Analysis Conclusion While chart analysis is widely used for the trading of cryptocurrency, there are other factors involved in which traders must incorporate into their strategy if they want to be successful. The factors I speak of are market changing news, the economy, politics, business, and everything that could possibly influence the price of cryptocurrencies. To be a successful trader you must understand what to watch out for and consider when forecasting price movements. The process in doing this is called fundamental analysis. 07 15
Fundamental Analysis What Is Fundamental Analysis? Fundamental analysis is the method of evaluating a security such as cryptocurrency to better determine its intrinsic value. The security is evaluated through a variety of resources such as economics, financials, industry conditions, company management, politics, and the news. The goal of fundamental analysis with cryptocurrency is to determine the assets quantitative value so that the investor can compare it with the current price, thus determining whether the currency is undervalued or overvalued. 16
Fundamental Analysis For Cryptocurrencies Cryptocurrencies are like any other currency for the purpose of fundamental analysis in which it all starts with the supply and demand that drives prices. There are various things that affect demand for cryptocurrencies including user adoption, transaction activity and trading volume. As for transaction activity, the majority of cryptocurrency transactions are automated and not in fact economic activity which shifts the focus of cryptocurrency as more of a medium of exchange and a store of value. For this reason, it is difficult to fundamentally analyze this aspect of a cryptocurrency and must consider other things to determine its quantitative value. Supply is much more manageable thing to consider in the fundamental analyisis of cryptocurrency. Many cryptocurrencies have a market cap as to how many coins will ever be created. Take Bitcoin for example, there will only ever be 21 million bitcoins ever created. At the time of this writing there are just over 16.5 million bitcoins are in circulation. As bitcoin reaches its market cap, we should see a steady rise in the price. Another part playing a major role in influencing the price of cryptocurrencies are major events. These events can be any number of things and don t necessarily have to directly relate to cryptocurrency. Such as the economic events of Cyprus and Greece which caused economic turmoil resulting in the rise of widespread Bitcoin adoption, thus raising the price. 07 17
Final Words on Fundamental Analysis By utilizing fundamental analysis, cryptocurrency traders can get a better sense of the assets true value and whether it s a good time to buy or sell. By keeping up with the latest news, press conferences, and latest market insights, as a trader you can gain the upper hand on what the future might hold. Using fundamental analysis along with technical analysis will give traders the ultimate upper hand for making profits and mitigating risks. By using both techniques, many traders will determine a decision to buy or sell using technical analysis and will cross reference this decision using fundamental analysis to ensure it is the best possible decision. Proper use of both will make a beginner trader successful in no time. 07 18
Top 5 Tips For Trading Cryptocurrency 1. Educate Yourself Possibly the most important thing you can do before trading cryptocurrency is to properly educate yourself. You should understand what you are doing, how you are doing it, and why you are making the moves you are making. This is true for not only trading cryptocurrency, but the fundamentals of cryptocurrency as well. The better you understand the core concepts of what you are trading, the better you will be able to make decisions from technical and fundamental analysis. Before you start trading, you should at least know these three things; what cryptocurrency is, the most popular types of cryptocurrency, and what factors cause the value of cryptocurrency to move. 07 19
2. Know Your Sources The amount of information on the internet regarding cryptocurrency is astronomical, which is amazing. However, unfortunately there are many sources with biased information. Some of them may be trying to sell a specific cryptocurrency, or blatantly lying about the potential of profits to be made and risk involved. To avoid problems such as these, it s important to acquire information from multiple sources and publications. Follow several cryptocurrency news outlets and compare what they are saying to get a true understanding of the cryptocurrency you are interested in trading. 3. Invest Only What You Can Afford To Lose When trading cryptocurrency it can be easy to get excited over the profits you are making, in which then you end up overinvesting to the point if you were to lose, it would ruin you. This is true especially to beginner traders, who tend to trade on emotion rather than strategy, which brings me to the next tip. 07 20
4. Always Trade With A Plan (Strategy) & Stick With It! A solid trading strategy will keep you grounded in your decisions and prevent unnecessary losses due to emotional trades, that is, if you stick with your strategy. Along with your trading strategy, you should have entry and exit points which further takes emotion out of the process. 5. Learn To Understand Cryptocurrency Trading Charts The trading of cryptocurrency relies heavily on the use and understanding of cryptocurrency charts. If you want to be successful trading on a daily basis, having at least a basic understanding of these charts is key. By understanding these charts, you will be able to implement every part of your trading strategy exactly when you need to. While it s still possible to trade and profit without the proper knowledge of these charts, if you understand them they will ultimately maximize your gains and minimize losses. 07 21
1. What is/are the most popular cryptocurrency/ies? Bitcoin Litecoin Dash Ethereum All of them 2. How many bitcoins will there ever be in circulation? 1 billion 16 million 900,000 21 million Quiz 07 22
3. The Riding the Trend trading strategy is a long-term trading strategy? True False It s not a strategy 4. What s more important for implementing a trading strategy? Fundamental Analysis Technical Analysis Both Neither, just wing it Quiz 07 23
5. Is the cryptocurrency trading market stable? Yes, it is. No, it is volatile. 6. Is volatility a bad thing? Yes, you will lose all your money. No, it s actually a great thing for day traders. No, but it s not that good either. Quiz 07 24