Trading

Brief Guide to Trading Volatile Tokens #

Introduction to Trading #

Trading in the world of cryptocurrencies and digital assets on the blockchain generally refers to exchanging these assets on different markets or speculating on price action through methods like spot, futures and options. It can be seen as a combination of poker and chess, as it involves both chance and strategy, analysis and serendipity, the unpredictable and the calculated. For some, it’s a job; for others, a casino; and for others, a mix of both.

Technical Analysis (TA) #

Technical analysis is one of the most popular methods in cryptocurrency trading. This analysis is performed on charts that reflect price action, usually versus USDT. It uses line charts and Japanese candlesticks to interpret buying and selling pressure at different time frames, aiming to predict market trends. This method, inherited from other markets like the stock exchange, seeks to eliminate emotions from trading and focus on strategy.

Basic Elements of Technical Analysis #

  • Candlesticks: Represent price movement. Green candles indicate rises (bullish) and red candles indicate falls (bearish).
  • Patterns: Figures created by groups of candles that help identify important points such as supports and resistances.
  • Support: Price level where a coin usually bounces back up.
  • Resistance: Price level where a coin usually encounters resistance and turns back down.
  • Trendlines: Diagonals drawn between highs and lows to identify whether the trend is bullish, bearish, or sideways.
  • Range Lines: Horizontal lines connecting supports and resistances where the coin shows accumulation.

Chart Timeframes #

Charts can be analyzed in different timeframes:

  • LTF (Low Time Frame): Lower timeframes, like 15 and 30 minutes, used to see recent movements.
  • HTF (High Time Frame): Higher timeframes, like 4 hours (H4) or 1 day (D1), used for long-term analysis.

Price Stages #

  • Correction: After a rise, the price can correct downwards before summarizing its trend.
  • Breakout: When the price breaks through a resistance and continues to rise.
  • Loss of Floor: When the price breaks through a support and continues to fail.
  • Consolidation: Periods of rest after rises or falls, waiting to continue the trend.
  • Accumulation: Period where the coin has demand and buying pressure.
  • Distribution: Period where the coin has supply and selling pressure.
  • Rotation: Change of interest between different types of coins, such as moving from memes to AI.

Coin Monitoring #

It’s useful to have lists and favorites on platforms like TradingView, DEXScreener, and CoinGecko to compare and find coins with the best performance. It’s important to review charts to understand current trends and potential opportunities.

  • Onchain: Purchases of coins on a specific network, made on decentral ized exchanges (DEX) or directly in wallets.
  • Spot: Spot purchases on centralized exchanges (CEX), where you buy and sell directly at current market prices.
  • Futures or Derivatives: Operations based on the price action of a pair of coins, allowing betting on price increases or decreases.

Types of Trades #

  • Market Order (Taker): Activated immediately at the current price.
  • Limit Order (Maker): Activated at a specific price point, previously configured.
  • Long Trade: Betting on price increases.
  • Short Trade: Betting on price decreases.
  • Scalping: Short-term operations, within the day.
  • Swing: Long-term operations, carried out over several days.

Types of Trading on CEX (Centralized Exchange) #

  • Onchain: Purchases of coins on a specific network, made on decentralized exchanges (DEX) or directly in wallets.
  • Spot: Spot purchases on centralized exchanges (CEX), where you buy and sell directly at current market prices.
  • Futures or Derivatives: Operations based on the price action of a pair of coins, allowing betting on price increases or decreases.

Types of Operations (Trades) #

  • Market Order (Taker): Activated immediately at the current price.
  • Limit Order (Maker): Activated at a specific price point, previously configured.
  • Long Trade: Betting on price increases.
  • Short Trade: Betting on price decreases.
  • Scalping: Short-term operations, within the day.
  • Swing: Long-term operations, carried out over several days.

Elements of a Futures Trade #

  • Entry Point: Price at which the order is executed.
  • Take Profit (TP): Price at which the order is closed with profits.
  • Stop Loss (SL): Price at which the order is closed with losses.
  • Trade Size: Amount of money in the market, according to the risk that can be assumed.
  • Cost: Money needed to open a position.
  • Leverage: Allows entering the market with more money than you have, multiplying the cost of the operation.
  • Margin: Money in the account that backs the leverage.
  • Liquidation Price: Price at which the exchange automatically closes the operation if it goes against the expected direction.

Risk Management #

Risk management is crucial in trading. It is recommended not to risk more than 2-3% of the total capital in a single operation. It’s better to trade with little and build profits slowly than to risk large sums quickly.

Simulated Trading #

It’s advisable to practice first in simulated mode, using platforms like TradingView or exchanges that offer this option, to familiarize yourself with market dynamics without risking real money.

Fundamental and Psychological Analysis #

Fundamental analysis considers news and developments of a project to assess its value in the market. Psychological analysis involves managing emotions and avoiding impulsive trading. Having a clear trading plan and sticking to it is essential to avoid decisions based on fear or greed.

Summary #

Success in trading depends on rigorous analysis, proper risk management, and good emotional management. Staying informed, planning well, and being patient are key to making informed decisions in the cryptocurrency market.