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Reversal patterns are the closest thing you get to a crystal ball when it comes to predicting trend reversals within the volatile world of crypto trading. Once you start timing these patterns consistently, you’ll gain an uncanny advantage over your trades. A well timed trade off a reversal pattern can make the difference between making 5% on a trade or 50%.
It doesn’t matter if you’re trading Bitcoin, various altcoins, or any other asset, reversal patterns are an extremely important part of any traders skill set.
This guide will be covering 6 of the most widely used reversal chart patterns. Learn to recognize these bad boys for a well-placed trade that will leave you “head and shoulders” (pun intended) ahead of the pack.
One of the more infamous reversal chart patterns is the bearish formation known as head and shoulders. As you might’ve guessed, the pattern resembles a raised head with two matching shoulders on each side.
The bottom of the left shoulder should always be drawn across to the bottom of the right shoulder. The neckline serves as an area of support which the price will eventually drop below.
When the price drops below the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed lower off the right shoulder towards a bearish breakout.
Head and Shoulders Overview
Trend – Bearish
Signal confirmation – when the price drops below the neckline on the right shoulder.
Pattern target – tends to break out below the bottom of the right shoulder.
Percentage pattern hits target – 62%
The inverse head and shoulders is a common bullish formation which, as you might’ve guessed it, predicts the reversal of a downtrend. As the name implies, it resembles an upside down head and shoulders.
The top of the left shoulder should always be drawn across to the top of the right shoulder. The neckline serves as an area of support which the price will eventually rally above.
Once the price drops above the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed below (moving upward) the right shoulder towards a bullish breakout.
Inverse Head and Shoulder Overview
Trend – Bullish
Signal confirmation – when the price drops above the neckline on the right shoulder.
Pattern target – tends to break out below the bottom of the right shoulder (moving upward).
Percentage pattern hits target – 75%
The double bottom is a bullish formation that is frequently found at the end of a bear market. It predicts the reversal of a current downtrend and commonly resembles the “W” shape. The shape is formed by two consecutive dips that have roughly around the same lows that are separated by a peak.
The patterns neckline, which is drawn above the middle peak, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price rises above this neckline, indicating a bullish rally.
Double Bottom Overview
Trend – Bullish
Signal confirmation – when the price rallies above the peak between the two dips.
Pattern target – tends to break out above the peak towards bullish rally.
Percentage pattern hits target – 65%
The double top is a bearish formation that is frequently found at the end of a bullish market. It predicts the reversal of a current uptrend and commonly resembles the “M” shape. The shape is formed by two consecutive peaks that have roughly around the same highs which are separated by a dip.
The patterns neckline, which is drawn below the middle dip, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price falls below this neckline, indicating a bearish trend.
Double Top Overview
Trend – Bearish
Signal confirmation – when the price dips below the valley between the two peaks.
Pattern target – tends to break out below the bottom of the right peak to breakout towards a bearish movement.
Percentage pattern hits target – 74%
This bearish reversal pattern predicts the reversal of an uptrend and is sometimes referred to as an Inverse Saucer. This pattern is more easily found under the long term reversal patterns which typically last weeks or even months.
Rounding Top Overview
Trend – Bearish
Signal confirmation – price exceeds below the right bottom of the saucer.
Percentage pattern hits target – 27%
This bullish reversal pattern predicts the reversal of a downtrend and is sometimes referred to as a Saucer Bottom. It’s also easily identified by its “U” shape. This pattern is typically found under the long term reversal patterns which last weeks or even months.
Rounding Bottom Overview
Trend – Bullish
Signal confirmation – price exceeds above the right top of the saucer.
Percentage pattern hits target – 60%
These reversal chart patterns are not too hard to recognize once you actually remember to look for them. Go over a few of your favorite cryptocurrencies here, and see if you can spot all of the reversal patterns I’ve mentioned above.
These powerful cues will help you forecast dramatic shifts within the supply and demand of any cryptocurrency. Reversal patterns are a very important tool to add to your cryptocurrency trading skillset, so learn them, love them, and leave them.
Traders use technical indicators to figure out both long and short term price direction of an asset. They can measure anything from momentum, volume, quality of price movement and so much more. They are mathematical calculations or ‘signals’ used in technical analysis to determine what may happen next with the price of a security, commodity, stock, currency, or in our case cryptocurrency.
Some traders prefer to rely on historical price/volume data to predict the price movement rather than fundamental indicators like profit, revenue, or turnover.
Nevertheless, after reading this article, you’ll have an overall understanding on how the top six indicators are used. You should also be able to identify the trends in prices, for any cryptocurrency your currently looking to trade.
Within this guide we’ll discuss the following Technical Indicators:
Relative Strength Index (RSI) helps you quantify the gains and losses of an asset over a fixed period of time. This is one of the better-known indicators known throughout the crypto trading community. It’s used by both beginners and advanced traders.
RSI ranges from 0 to 100 and helps you figure out if an instrument is overbought or oversold. If an asset’s RSI is ticking around 70, it is overbought while anything below 30 means it is oversold.
It will also help you determine if your cryptocurrency is within a bullish or bearish phase. Anything below 50 is considered bearish. As you might’ve guessed, anything above 50 is bullish. If movement tends to fluctuate between 0 – 50 for an extended period of time, it’s in a bearish cycle. If movement fluctuates between 50 – 100 it’s currently in a bullish cycle.
Crypto traders also use a two-line momentum indicator called the stochastic oscillator to measure the difference between the closing price and the range of prices over a defined period of time. Typically, the stochastics oscillator uses the past 14 day’s prices to arrive at a score.
A score above 80 signifies the asset is overbought and a score below 20 means it is oversold. Stochastic Oscillator’s scale runs on a scale of 0 to 100, just like the RSI.
The %K and %D are the two defined lines in this chart. The %K line tracks the asset’s momentum and %D traces a three-day simple moving average of %K. Typically, the best buy and sell times are indicated by %K line cutting over or under the %D line.
Another famous indicator used by traders is called the Moving Average Convergence Divergence (MACD). This signal is used to predict beginning of a short-term price trends and the reversals of a security. To calculate the MACD, subtract the 26-day exponential moving average (EMA) of a cryptocurrency from the 12-day EMA.
MACD signal is said to be positive when the 12-day EMA is above the 26 days EMA. This indicates the momentum is rising i.e. it is time to buy. When the longer term moving average is above the short term average, you should sell since the momentum is moving downward.
Apart from the MACD, some traders also track the ‘signal’ line, which is a 9 days EMA to help them identify the buy/sell calls. When the signal line is breached in an upward move, it indicates a bullish run and MACD running below the signal tend to indicate a bearish movement.
This indicator is used to detect the quality of a price movement. The ADI has a score range of 0 to 100 and is considered to be a non-directional signal. i.e it does not show a specific direction in the price movement. It is used to determine the strength of an upward or a downward momentum.
If the ADI gives a reading of over 25, traders consider that as a time to implement trend-trading strategies while a score below 25 indicates the opposite.
ADX Reading Strength
This indicator scale is set from -100 to 100 and is used to predict when the momentum of a security changes direction. Cryptocurrency traders believe the Aroon Oscillator is a versatile tool since it signals both the direction of the price movement and its strength.
A score above 0 indicates an upward momentum. The strength of the signal can be identified by the value of the AO reading. For Example, a security with an AO value of 10 is weaker in comparison to that of another security 50. Both are in a positive upward trend.
Following in the same lines, any score below 0 indicates a negative trend, i.e downward momentum. A change in the direction of the AO indicators signifies the reversal of the price direction.
Traders also use On Balance Volume (OBV) to predict the price of an asset based on the change in the volume of its transactions. On Balance Volume is a cumulative indicator and is a running total of positive and negative volumes.
The premise being that any dramatic shift in volume will indicate a future change in the price of an asset.
If the volume rises steadily with no change in price, the OBV indicator will rise and predict a price increase in near future. In case of OBV is decreasing while the price stays steady, it indicates an upcoming price fall of an asset.
Crypto traders use these Technical indicators to get a deeper insight into the price action in order to help them predict the future position of any particular cryptocurrency.
These indicators are mathematical functions that dig deep to find the co-relation between the price and volume shifts. When multiple indicators are used together, it is easier to forecast the price movements.
Now that you’ve got a good understanding on what these indicators are for, head on over to our technical analysis page and give them a try.
If you enjoy this article, check out some of our other technical analysis articles:
When you first start building your cryptocurrency portfolio, the number of coins you can choose from is a bit overwhelming. There are countless cryptocurrency coins out there so the big question is, which ones do you choose?
There are numerous strategies for choosing coins and building a killer portfolio that even Warren Buffet would be jealous of. Start by following a few fundamental tactics, in the beginning, in order to minimize your risk while learning.
Fortunately, I’ve developed this well-rounded, easy to read guide in order to ensure that your cryptocurrency investing experience is a profitable one. Done properly, you’ll have enough of those shiny crypto coins to buy you that lambo that everyone keeps annoyingly shouting about.
One great way to minimize your risk investing in cryptocurrency is to ensure that you diversify the coins within your portfolio.
First thing you want to do is take a look at the market cap of a few cryptocurrencies that you’re interested in. If you’re not familiar with what a market cap is, the most basic explanation is a coins price multiplied by its circulating supply. Pretty simple right?
Remember the higher the market cap of a coin the less volatile it is. On the contrary, lower market cap coins are more volatile and have higher percentage swings. A more “diversified” portfolio contains a mix of these high to low market cap coins.
Let’s group these into three categories…
Bitcoin, Ethereum, Bitcoin Cash would be considered large market cap coins. They may not experience a 40 to 50% fluctuation like some of the smaller altcoins, however their price generally more stable during bear markets.
Your risk tolerance will play a major factor on which coins you decide to diversify with. If you already believe that investing in cryptocurrency is an extremely risky endeavor, you may want to consider investing 90% of your portfolio in large market cap coins.
On the other side of the fence, if you have a lot of disposable income and wouldn’t be too upset losing some of it, you may want to invest in more risky low cap cryptocurrencies.
These coins have an extremely high profitability rate of 100 – 500% ROI, however it is worth noting that many are worth nothing down the road. The ones that do end up being extremely profitable however, tend to outweigh the ones that don’t.
As you can probably guessed by now, a moderately safe investment strategy would be to invest in all 3 market cap coins, splitting each one up evenly (34% large cap, 33% medium cap, 33% low cap).
Sometimes it pays to go against the grain and hunt for those hidden gems. Some of the best coins to invest in are the ones most people aren’t really focused on.
However, discovering these hidden gems can be quite the time-consuming process. You can spend days of research, as well as looking through countless whitepapers in order to uncover 1 or 2 hidden gems. Even after reviewing over 50+ coins, this can result in a single cryptocurrency worth investing in.
With that said, those 1 or 2 coins could turn your stagnant portfolio into an ultra-successful one. Let’s take a look at a few key examples:
Taking these examples into consideration, you can clearly see that finding these hidden beauties can earn you a massive return. If you have the time to research, investing in these gems could really pay off.
Another important aspect to building your portfolio is the industry in which your coin resides. Check out a few examples below as you can group most of these currencies into a few categories:
Blockchain is still in its infancy so it’s a bit difficult to predict which industries will be accepting the new technology. The list above is just a few of the categories in which you can spread your investment over. Remember some of them even overlap industries.
The main point of this strategy is to not overly invest in one particular industry. If for some reason a particular category ends up being left behind, you don’t want to be left holding all the bags.
This might seem like common sense to some of you, but investing in industries that you’re actually interested in is a great strategy to stick with.
Some novice crypto investors believe that only one coin per category will win out. That couldn’t be any further from the truth. In order to prove my point, take a look at some “real-world” industries. For example:
and the list goes on. Every industry is large enough to support multiple cryptocurrencies. Many may die off, however quite a few will survive.
Remember that a cryptocurrency doesn’t necessarily need to be in the top three or four of its industry in order to return a massive profit. The great thing about this industry is, if your currency is ranked number 10 within its industry, you can still see 100-300% profits.
Along your journey to cryptocurrency riches, you’ll find a number of other tactics and strategies that fit well within your trading portfolio. You’ll also more than likely take action on advice that absolutely sucks as well.
Becoming a cryptocurrency trading pro is a learning process that can only be mastered with real world experience. Each investor has his own personal style which will be cultivated over time with more experience. Just remember to be open, optimistically skeptical, and enjoy yourself along the way.
A major part of technical analysis is determining whether to buy in or sell out of a formidable crypto trading play. Kenny Rogers always use to say, “know when to hold em, know when to fold em, know when to walk away, and know when to run”.
Note: If you’re under 25, you probably have no clue what the hell I’m talking about, so just disregard my 80’s reference or go ask your dad.
These crucial chart patterns help traders forecast future price movements. It doesn’t matter which coin you’re trading, these bad boys show up all over the charts.
Continuation chart patterns DO NOT predict the future (wouldn’t that be nice). They help with locating the “probability of movement” within a particular trend. However, I promise these powerful buy and sell signals can help you make much better investment decisions. Scouts honor!
Go ahead and study the chart patterns I outlined for you below. If all else fails, we’ll go searching for a Dolorean and cheat our way to crypto riches. Deal?
As stated above, continuation chart patterns will tell you whether price movement is going to continue moving up or down within a prevailing trend.
For example, if price movement of a downtrend shows signs of a continuation pattern and of that trend, what do you do? If you guessed, “buy in” then you really need to study this guide. The correct answer is…wait until a reversal pattern emerges or move onto another coin to trade.
So let’s start things out with 6 of the more popular continuation chart patterns. Study each as there will be a test at the end of this guide. Just kidding, no one likes tests. Ready? Let’s go!
This continuation pattern depicts sideways price movement between 2 horizontal trend lines (support and resistance) along a strong uptrend, which generally results in an overall uptrend continuation.
In order to be defined as a true bullish rectangle, price movement should touch each trend line at least two times on both support and resistance. Upon doing so, the price action should break the top trend line of resistance. Investors want to purchase the cryptocurrency when the price action closes (candlestick close) above the upper trendline.
This continuation pattern depicts sideways price movement between 2 horizontal trend lines (support and resistance) along a strong downtrend, which generally results in an overall downtrend continuation.
In order to be defined as a true bearish rectangle, price movement should touch each trend line at least two times on both support and resistance. Upon doing so, the price action should break the bottom trend line of resistance. Investors may want to short the cryptocurrency (refer to margin trading) or sell the coin at this position for a loss.
This bullish continuation pattern is depicted by a right triangle which is created by two trend lines. The bottom trend line is drawn horizontally upward, where support prevents the price action from breaking through.
The top trend line is represented by a horizontal level which prevents the price from breaking through this resistance. Once this resistance line is broken, upward price momentum is expected to continue.
This pattern showcases that the demand for the crypto coin is increasing over time.
The bullish continuation pattern is depicted by a right triangle which is created by two trend lines. The bottom trend line is drawn at a horizontal level where support prevents price action from breaking through.
The top trend line is represented by a downward horizontal line which prevents the price from breaking through this resistance. Once this resistance line is broken, downward price momentum is expected to continue. It is recommended to sell here.
This pattern showcases that the demand for the crypto coin is weakening over time.
This continuation pattern resembles a flag at the top of a pole. The bullish flag is a short-term continuation pattern which tells you that a temporary market consolidation is occurring before a continuation of an uptrend.
Within the pattern, the flagpole is represented by the sudden vertical spike in price as the flag portion is represented by a temporary downward consolidation against the uptrend.
Typical bullish flags are angled downward from the predominate trend, however on occasion it can be angled upwards. The continuation pattern is complete once price action breaks above the upper resistance trendline.
A typical price target is measured by adding the length of the flagpole to the price associated with the bottom of the flag.
This continuation pattern resembles an upside down flag. The bearish flag is a short-term continuation pattern which tells you that a temporary upward market consolidation is occurring before a continuation of a downtrend.
Again, the flagpole is represented by a sudden vertical dip in price as the flag portion is represented by a temporary upward consolidation against the downtrend.
Standard bearish flags are angled upward or sideways from the dominant downward trend, however on occasion it can be angled downward. The continuation pattern is complete once price action breaks below the lower trendline of support.
A typical price target is measured by subtracting the length of the flagpole to the price associated with the top of the flag.
You did it kiddo! You studied your ass off right? You ready for the big leagues now? Don’t get to far ahead of yourself…..there’s more.
This is where the rubber meets the road. Now you need to apply these patterns to real charts before you can actually claim your fame. Head on over to our Tradingview charts and get started on a few while it’s still fresh in your mind.
Once you’re comfortable with recognizing these patterns, throw a few dollars down on your favorite exchange (whatever you can manage – start slow). See if you can win a few rounds within your own crypto trading challenge.
Remember young grasshoppa, practice doesn’t necessitate real world experience, but it sure as hell helps!
Over the last few years cryptocurrency has not only gained a lot of attention in the media, but also gaining more trust and curiosity from investors, banks, governments, and corporations. Even though it was initially met with cynicism, more and more investors and companies are moving toward the utilization of cryptocurrency.
Cryptocurrency is a digital currency in what seems to be more fitting for us in this digital age than your standard fiat. When compared to the longevity of fiat currencies, the 9 years that Bitcoin has been active seems like a blip on the radar. However, regardless of what your stance is on the cryptocurrency, the blockchain technology behind it is here to stay.
It’s also more likely than not that cryptocurrency has solidified its position as an international currency. It should not be taken lightly as an asset and will surely be around a lot longer than most have predicted.
One of the key characteristics of the cryptocurrency market is its volatility in price. Have you ever wondered why the price of cryptocurrency, whether it be Bitcoin or Ethereum, tend to fluctuate so much? Were here to explore those aspects of volatility and what drives market prices one way or another.
This aspect to volatility is easy to understand. Each time the government passes a law or publishes statements about how to regulate cryptocurrency, the price of the currency is bound to show an effect. For instance, heavy regulation tends to push people into selling their cryptocurrencies, thereby causing a downward pressure on the price.
It’s not necessarily that the new regulations are imposed on cryptocurrency specifically, but a general financial action by the government may also be translated into fluctuations.
An example of this is when Cyprus witnessed a banking crisis and discussion ensued on whether or not the country should start using Bitcoin as its currency.
There is an inherent anonymity behind cryptocurrency that has been a primary reason why the currency has garnered so much popularity. With this recent popularity, more and more governments are pushing to impose rules to end this anonymity and increase transparency as well as regulation. If this occurs, cryptocurrency prices are bound to be affected.
User trust is an important factor in determining the price of any financial asset. By trust, we mean whether or not individuals believe that the given currency will be able to sustain its purchasing power in the future.
As an example….
Imagine that you invested in a Ethereum, but as the months pass you expect the value of your investment to likely decrease in the future. This could be due to media, government regulations, or a host of other factors. This will more than likely reduce the trust that you have with this currency.
So what do you do?
If you’re a new trader or investor the chances are high that you will likely sell. You take this action because you don’t trust in your shares of Ethereum to have the same value it currently holds.
If there are a lot more people like you who sell their investment today due to this news, they will also garner a “lack of trust” in Ethereum or even cryptocurrency as a whole. You will inherently be driving the price of the currency down, thereby playing an integral part in the currency’s inability to preserve its future purchasing power.
Trust is extremely valuable within the crypto sphere. Always remain calm and headstrong before you make any decision to sell, as more times than not, the market will change and the price of your now sold cryptocurrency will rise well above the price you purchased at. I like to think of this as “seller’s remorse”.
Trust was one of the reasons Bitcoin was able to rise to an all-time high back in December 2017 to 20k. Another major reason why cryptocurrency is valued at such a high price is due to the fact that it cannot be hacked. Also note that most Top 10 cryptocurrencies are expected to exponentially gain value over time. Many cryptocurrencies have 5X their value and more within a year, so think about that before you start panic selling.
Cryptocurrency once had a humble beginning. While they are valued at a high price today, this was not always the case. What suddenly brought this onset of new found value? The rising demand and mass adoption of blockchain technology as well as viral like exposure within social media, news, media, as well as word of mouth.
It’s been gaining this momentum since its inception. This coupled with the fact that more technologically advanced countries like China, Japan, and South Korea are starting to utilize it within their everyday commerce.
More and more people every year start understanding why cryptocurrency is a beneficial investment and realize how much of a lucrative opportunity it is. As a result, the popularity of cryptocurrency, especially Bitcoin, has gone through the roof. The law of supply and demand dictates, when demand increases while the supply stays constant, the price increases.
Remember, almost all cryptocurrencies are available in a limited amount. When there is an increase in demand, it’s soon followed by mass adoption. While more investors enter the market, the price further increases. This trend is expected to continue as cryptocurrency is still a hot topic in most countries.
Speculators exist in every facet of the financial market, and cryptocurrency is no different. Speculation regarding the future value of a particular currency is derived from the news and other venues like social media and online forums.
For instance, if the liquidity of a particular cryptocurrency were to increase, speculators would deduce that more people are likely to buy. This would translate to an increase in prices. This speculation could have some investors purchasing cryptocurrency today in order to sell it tomorrow at a profit. This single action is what would drive the prices upward, thus creating a “ buying frenzy”.
On the other hand, news regarding how much more effective another cryptocurrency is when compared to say Bitcoin, can lead to a decrease in Bitcoin’s price before the newer currency hits the market.
Why? Speculation my friend, speculation.
Speculators will be expecting the new cryptocurrency to drive the price down and traders will begin selling their investment before its release in order to get a jumpstart on the market.
Speculators might be responsible for the initial decrease in prices, however the “trend followers” are the ones that cause it to exacerbate. Not everyone understands what they are doing. If everyone else is selling their investment, they would follow the trend and more than likely, do the same. This mentality is what governs a further decrease in price.
It’s hard for any financial asset to avoid price volatility caused by speculators. However, since cryptocurrency is largely unregulated and features high returns, the effects of speculators are felt much more prominently.
As long as the stock market has been active, news and other media outlets have always played a major role in price fluctuations. This is also common place with cryptocurrency, however generally more pronounced.
News regarding crypto related bankruptcies, hacks on exchange websites, government regulations, delays in service, issues with crypto technologies, can cause an immediate disruption with any particular cryptocurrency.
Media influence can sometimes reflect a more negative “opinion” on some less notable media outlets which may release false information in order to decrease the value of a particular cryptocurrency. Negative news which is found to be primarily false is commonly referred to as FUD (Fear, Uncertainty, and Doubt). Be very careful when falling into this inevitable trap. Always do your own research (DYOR) and check other credible sources of news for comparison.
If you’re not familiar with the term “whales”, you’re obviously very new to any form of trading or investing. That’s okay, you’re here to learn right?
The term is commonly referred to as an individual (or group like a corporation) who buys or sells large amounts of cryptocurrency, thus greatly influencing the trend of that particular market. These are also referred to as “market makers” and can be found within any trading marketplace (forex and stocks).
As you can imagine, these individuals maintain a lot of power within the market. Selling off a large amount of cryptocurrency, only to take advantage of other “panic sellers” selling off their digital asset. Then, when the time is right they buy back that currency at a lower rate. This is standard protocol for these whales.
There’s nothing that you can do to stop this from happening other than recognizing when it’s happening and riding the current trend in which these whales are dictating. Having a fundamental understanding with technical analysis can also help you spot these trends and take advantage of them before they happen.
There are many factors that determine the price of cryptocurrency. The ones mentioned above are just the heavy influencers. Remember, not only does each factor on their own play a significant role in determining the price of a cryptocurrency, but two or more can wreak havoc.
Just be careful that you’re not on the other side of these renegade dips and stay current with daily news. Following your invested cryptocurrency on Twitter can help you keep an up to the minute pulse on the latest developments.
Overall, most of the Top 10 cryptocurrencies located here will increase in price over time. This is true even after the weekly (or sometimes monthly) volatility in price is experienced. Understanding how these factors work will allow you to be in a much better position to realize when to buy or sell your digital asset. Understanding how the process works, along with personal experience, will give you an edge over all the other so-called “trend followers”.
No matter what anyone has told you, producing a steady income with trading takes time, experience, dedication, and a lot of emotional grit. However unlike traditional markets, you can make money much faster with trading cryptocurrency due to its volatile marketplace and low barrier of entry.
There are 2 parts to becoming an successful crypto trader and that is mastering technical analysis as well as your own emotions. I would even go so far to say that the emotional aspect of trading is a bit more difficult. We’ll divulge into that aspect of trading in another guide.
Let’s talk technical analysis and some of the most basic cryptocurrency trading indicators you’ll need to master, in order to get a foothold on what you’re doing.
Technical analysis (AKA – TA) displays a cryptocurrency‘s price and trading volumes over time using a nice and easy to read graphic representation of candlesticks.
The only other option you have to make sense of all these variable numbers would be for you to calculate volume and price on a linear scale over time multiplied by pie over distance, but for most people that is completely impossible. Believe me, that crap will make your brain clench up faster than solving a trigonometry problem on 8 cans of red bull. Let’s just say, unless you’re a math genius, just stick to the charts, ok?
There are two types of research methods that you want to be familiar with before starting to make actual trades; technical analysis and fundamental analysis.
Fundamental analysis is focused on aspects of the development team behind each cryptocurrency. It also includes the latest news, and rumors surrounding your potential coin. Believe me, all these can play a major part on the value of any cryptocurrency.
PRO TIP: You can learn more about the fundamentals of trading here.
Before we go into details of technical analysis, remember that price movements within a chart are not random. They often follow a trend, both long or short term, depending on the timeframe you are looking at.
Trends within the trading community are not some new pair of stone washed jeans you decided to purchase for $100 because Justin Biebers wearing them. These trends refer to the mass psychology of a group in order to capture gains through the analysis of an asset’s momentum in a particular direction. The “group of people” (or herd) were analyzing, always follow certain patterns and react to certain price action. These can be predictable to those who know what to look for. This my friend, is what technical analysis is all about.
In order to be a one of the great crypto traders of your time, you’re going to need to recognize these trends like chart and candlestick patterns, as well as certain indicators (RSI, MACD, Stochastics). We cover more about candlesticks patterns here. Click the link, as it opens in a new tab, and check it out once you’re done here.
Let’s get started…
One of the more simple indicators to identify in your early stages of your trading career are support and resistance lines. Trading patterns are always comprised of these lines.
Support (you can think of them as a base) is where you have more than two candlesticks that touch a particular price level on the way down a trend. These tend to bounce off support and move upwards from towards resistance to form another cycle. The more candlesticks that touch your support, the stronger it is. Let’s take a look at a strong support.
Now if a support is the bottom of a cycle (or base), then what do you think resistance is? That’s right….you guessed it! A resistance line would be where your candlesticks continue to touch at a price level moving up and then eventually dips to touch the support again. Let’s take a look at a strong resistance line.
As stated above, you need at least 2 touches of a candlestick, within a cycle, in order to claim any sort of support or resistance. I typically look for at least 3, in order to be more confident about a certain level.
Ok, now you have mastered support and resistance lines (well, with a little practice you’ll get there), so let’s move onto trend lines.
The major difference between support and resistance lines and trend lines are that trend lines “typically” tend to be drawn in a diagonal direction. Support and resistance are drawn with straight horizontal lines. That’s not always the case, but it’s more often than not.
When it comes to trading, a picture is definitely worth 1000 words. In order to better conceptualize trend lines, let’s have a closer look at both a rising and falling trend.
Much like the support and resistance lines, you want to make sure you have “at least” 2 or more touches off a candlestick in order to consider it a trend. The more the merrier.
Trend lines can also move sideways, which we typically label as a “consolidations”. You also have short, intermediate, and long term trend lines depending on the timeframe of the chart you’re looking at.
Now that we’ve covered the basics of trend lines, let’s step your game up a little and start getting a little more “technical” with moving averages.
|Moving averages are generally used to simplify trend recognition. These moving averages are based on the average price of a coin over a designated period of time.|
You can calculate moving averages to show the average of any group of days, but most traders calculate these averages over a period of 10, 20, 50, 100, and 200 days. The one I personally use the most is the 50 day Simple Moving Average (SMA) which is used to identify trend direction.
There are also two types of moving averages you can use, exponential or simple moving averages, depending on how broad or narrow you want your insight to be. I recommend using both. Let me explain…
There are certain strategies for each, however to be more specific, exponential moving average give higher weighting to recent prices, whereas simple moving averages assign equal weighting to all values.
To put it in layman’s terms, SMA will give you a broader overview of where a trend is at and EMA is better used to make quick judgment calls on more recent price action and trend reversals.
I like to use a 50 day moving average in all my charts. These allow me to quickly tell whether a trend is moving up or down. It also tells me if the current trend is in a bullish or bearish state within the current timeframe I am viewing.
Anything below the 50 day moving average tells you that the trend is currently in a short or long term bearish trend. If the candlesticks are above the 50 day moving average, you’re in a bullish trend. Knowing which trend you’re in (both long and short term) will allow you to better formulate a strategy moving forward.
Exponential moving averages (EMA) will help you decide if a trend is about to reverse on a more short-term scale. Many traders use different EMAs, however the one that I found to be the most useful are the 13 and 34 day moving averages.
Here is the basic strategy behind EMA …
As you can see, as soon as any of the lines cross, a substantial shift within a trend can be seen. This combined with a few other indicators will help you formulate a game winning trade.
Next, let’s talk about a very important indicator that all traders use… volume.
Trading volume plays a crucial role in identifying whether a trend is weak or strong. Strong trends with high trading volume, will always be accompanied by many long candlesticks. The same goes for weak trends. These will be accompanied by many short candlesticks.
Let’s break this down and structure it appropriately…
– If you have several long candlesticks within the volume indicator this indicates a strong trend. If most of these are green, that would indicate a strong bullish trend. Vice versa for red candlesticks indicating a strong bearish trend.
– Many short candlesticks within the volume indicator show a weak trend. If most of these are red, it would represent a weak bearish trend. On the other hand, if most of are green, this would indicate a weak bullish trend.
Pretty simple right? Exactly! This ain’t brain surgery folks. Volume indicators are pretty simple to understand.
Don’t be lured into the always present debate between fundamental and technical analysis. Many novice traders tend to choose sides between these two research powerhouses. They believe one is ultimately better than the other.
This my friend, could not be any further from the truth. You should be asking yourself….why choose one method over the other, when you can choose both right?
Using technical analysis (TA) as well as fundamental analysis (fundamentals) will equip you with the prophetic knowledge you need to culminate a precise trading strategy that you can actually feel good about.
Technical Analysis will give you a practical way to measure past price movements and their corresponding trading volume. This is vital knowledge you’ll need when considering a trade.
Fundamental Analysis will empower you with significant insight regarding the current cryptocurrency conditions. Everything from current news, rumors, and development plans will play a crucial role in your decision with fundamental analysis.
Combine these two powerful research techniques into one highly effective and targeted trading strategy.
You want to utilize fundamental analysis to dictate which coin is worth investing in, while tightening up your strategy when you’re ready to trade, by finding a good entry point with technical analysis.
In order to get started, we’re obviously going to need to use a trading chart to plot out some beautiful technical analysis right? You can start by utilizing our free chart here, however there will come a time when you need more than what this free solution has to offer (like alerts, more indicators, etc).
This is why I highly recommend TradingView for all your trading and chart plotting needs. TradingView offers a lot more than just charts. They include a massive selection of experienced traders that you can both follow and learn from. You can view expert TA trades on a number of coins and learn from real life application.
It is the quintessential social media platform for all traders, both novice and experts alike. They also have a very comprehensive technical analysis reference guide that you can study if you ever want to expand your trading know-how. Reading up on trading ideas of various indicators, chart patterns, candlestick patterns, and then seeing them in action really helps.
I highly recommend starting with the Pro plan to start. If you need more indicators and alerts on down the line, go for the Pro+.
This guide has presented you with the basic concepts behind technical analysis for trading with any particular cryptocurrency. I highly recommend you practice using the indicators I discussed above and move on to more advanced charting patterns, which we’ll cover in another future guide.
Now get out there and start charting!
Go on….you can do it! Don’t just let your dreams be dreams! 😉
Have you ever caught yourself scratching your head over not understanding what the hell other crypto nerds are talking about while scrolling through Reddit, cryptocurrency related forums, or slack groups?
Well those days are over my friend! Today we start a whole new chapter in your life to help alleviate that eternal thirst for crypto knowledge! Excited? I know you are…
|Print or bookmark this unofficial cryptocurrency lingo cheat sheet so that you no longer have to be left out in the dark.|
Altcoin – any cryptocurrency that isn’t bitcoin. Yes, I do mean ANY!
Arbitrage – taking advantage of the different cryptocurrency prices, of the same coin, from one exchange to the other.
ASIC – stands for Application Specific Integrated Circuit. Specialized silicon chips which process SHA-256 algorithms in order to mind cryptocurrency and validate transactions.
ASIC Miners – the actual hardware which is used to house the ASIC silicon chip which is inherently connected to the Internet.
ATH – All Time High. When a cryptocurrency breaks its current record with regard to price.
Bagholder – someone holding onto an altcoin that has dropped in price, with the intent of holding onto it until it increases in price, to where they originally purchased at.
Bearish – an expectation of when the price is set to decrease.
Bullish – an expectation that price is going to increase.
Bitcoin – the mother of all cryptocurrency. The very first cryptocurrency that started it all.
Blockchain – blockchain’s are distributed online ledgers, that are secured by cryptography. Look at them like public databases that anyone can access and read, however the data can only be updated by the owners. Also note, the data is copied and resides across thousands of computers worldwide. For a more in depth explanation, check out: https://en.wikipedia.org/wiki/Blockchain
Fiat – currency issued by the government, like the US dollar.
Flippening – an event where a cryptocurrency (altcoin) surpasses bitcoin in market capitalization (yet to happen at time of writing). It has been stated on numerous occasions that at the rim may be the currency to cause this event.
FOMO – Fear of missing out. This is yet another term for greed, where you have the overwhelming emotional need to purchase a cryptocurrency when the price starts for has been skyrocketing.
Forging –the process in proof of stake blockchains where there is no block reward for crypto miners. Forgers however are able to keep transaction fees instead, as a reward.
Fork – this is where blockchain splits into another separate chain (AKA – splitting into 2 separate cryptocurrencies). These typically happen when new rules or updates to the blockchain’s code are built. More details here: https://en.wikipedia.org/wiki/Blockchain#Hard_forks
FUD – Fear, Uncertainty, and Doubt. Another negative based emotion spread intentionally by the media or a group of people within the crypto sphere that are typically looking to cause a price to drop, in hopes that they can purchase the cryptocurrency at a discount.
FUDster – anyone who is intentionally spreading FUD.
Genesis Block – the first block to be mined in a blockchain.
Going Long – a margin trade where you profit from the price increase
Going Short – a margin trade where you profit from the price decrease
Halving –rate at which the block reward creates a new Bitcoin.
Hard Fork – new blockchain software that is non-backwards compatible. This causes a cryptocurrency to split into 2 separate currencies.
HODL – slang for “hold your coins”. This was an un-intentional misspelling of the word “hold” which was used among the cryptocurrency community when encouraging traders to resist the urge to sell their holdings when market fluctuations were bearish.
ICO – stands for Initial Coin Offering. This is basically crowd funding for the crypto world. These startups issue their own proprietary token in exchange for your fiat investment. You’re hoping that the exchange will result in the tokens (altcoin) gaining value once the ICO has been released
Lightening Network – is a payment protocol which is operational on top of the blockchain which is capable of millions to billions of transactions per second across the entire network. Has been touted as one of the most potent solutions to the cryptocurrency scaling issue.
Limit Order (buy or sell) – these types of orders can be thought of as “for sale signs”. You request a specific buy or sell price to be met so that the exchange buys or sells the cryptocurrency at your requested price. The only issue with these types of orders are that the buy or sell price may never be met, thus leaving you with an unfilled order.
Market Orders (buy or sell) – this is the exact price that the current cryptocurrency is at right now. When you place a market buy or sell order, you’re getting that order filled immediately since you’re currently purchasing the currency at retail value.
Market Cap – the total value held within a cryptocurrency. This is calculated by multiplying the total supply of the currency by the current price. Coinmarketcap is where most crypto junkies check on the latest market caps.
Mining – the process of where a computer is trying to solve the next block in a blockchain via cryptography. This process requires an immense amount of computer processing power, but is rewarded with ether (other cryptocurrency).
Mining rig – a computer specifically designed to process blockchain’s (like BTC, ETH, NEO, OMG, etc). It often consists of multiple high-end graphic processors(GPU) in order to maximize its processing power.
Moon – optimistic term used when cryptocurrency is or about to increase in both price and volume. Used often within cryptocurrency communities.
Node – a single computer that possesses a copy of the blockchain and is working to maintain it.
OCD – Obsessive Cryptocurrency Disorder. For those who can’t stop monitoring their cryptocurrency daily.
Paper wallet – cryptocurrency wallet public and private keys held on a piece of paper. I recommend storing these in an extremely safe place.
POW – proof of work. The current algorithm utilized by cryptocurrency.
Private key – a private number that allows you to open your cryptocurrency wallet. Without this key, you’re screwed, so keep it in a safe place.
Proof of work – a requirement defined by an expensive computer calculation called mining. It is very easy for others to verify however is very difficult and time-consuming to produce.
Proof of stake – the creator of a new block within a blockchain, which is determined on his/her wealth (how many coins they hold) and also defined as a stake.
Public key – typically referred to as a Bitcoin or crypto address, this is a string of numbers and letters that you need in order to send or receive cryptocurrency from an exchange or wallet.
Pump and Dump – this is typically when an altcoin gets a ton of attention leading to a very quick price increase, then followed by a massive crash. These can be both coordinated and uncoordinated. Beware of pump and dump groups.
ROI – Return on investment. How much money you have made compared to your initial investment (net profit). Example: an ROI of 100% means that you just doubled your money.
Satoshi Nakamoto – the anonymous creator of Bitcoin.
Sell Wall/Buy Wall – when looking at an exchanges order book, and then “depth chart” tab, you’ll find a graphical representation of what current buy and sell orders are.
Walls are graphical representations of a very large order that is waiting to be filled. Here is an image of a “depth chart”. Notice the “walls” where large orders are waiting to be filled.
Sharding – a solution for scaling blockchains. Every node within a blockchain utilizes a complete copy of the blockchain. Sharding allows nodes to include partial copies of the entire blockchain in order to effectively increase the overall network performance and speed.
Shilling (AKA – pumping) – someone purposely and overtly advertising a cryptocurrency coin for their own personal gain because they have currently invested in it.
Silk Road – the first modern day, underground marketplace where goods such as firearms, drugs, and other illegal items were bought and sold. It was later shut down by the FBI who auctioned off the confiscated Bitcoins.
Smart contracts – applications that run without any sort of external influence.
Soft fork – you cryptocurrency that is backwards compatible so that the currency doesn’t split (the splits are often known as a hard fork).
Software wallet – storage of cryptocurrency that exists as software files on your computer software wallets can be attained free from a variety of different sources. MyEtherWallet and Exodus are among a few of the popular choices.
Stable coin – any low volatility cryptocurrency (stable), which is typically good to be traded against a cryptocurrency pair (Crypto pairs – BTC/NEO, ETH/NEO, USDT/NEO) one of the most stable coins to trade against, at this time, is tether (USDT).
TA – technical analysis or trend analysis. The process of examining trading charts in order to predict which way the market or particular cryptocurrency will move next. Check out our free trading charts here.
Tokens – a type of currency, built upon the ethereum network, that have raised money issuing their own inclusive currency (tokens). These are essentially what an altcoin is called when it’s in its ICO stage (startup stage), before released to the general public and traded on popular exchanges.
Vitalik Buterin – creator of Ethereum.
Now get out there and show off your new vocabulary to all your friends. Show em how much of a crypto nerd you are now! 😉
There are a lot of theoretical trading tips out there from novice traders (watch out who you follow on YouTube). There are also just as many experienced traders who really know what they’re doing and share great strategies with the general public.
However, today I’m going to go over some of my own personal time-tested cryptocurrency trading tips. These are just some of the techniques I found, through my own trial and error, helped me generate steady profits day trading within the volatile cryptocurrency market.
The entire goal of day trading is to produce quick and steady profits over the course of a few hours? Day trading can be a fast way to make money if you know what you’re doing and a fast way of losing it if you don’t.
Day trading has always been summed up as quick “in and out” trading during the day for traditional stocks, however the cryptocurrency exchanges never close, so trades can resume 24/7. Due to this fact, cryptocurrency trading can be very lucrative no matter what your particular schedule is.
Now remember, if you decide to enter the day trading arena, you can’t exactly hold a coin over the long term. This usually entails getting in and out of a trade within an hour or two. Anything trade over a 24 hour period of time would be considered swing trading. We’ll cover that in another guide.
So let’s get started with a few fundamental tips.
When first embarking on your day trading journey, it’s best to eliminate any sort of wild swings or fluctuations within the marketplace. This is why I highly recommend you start out trading USDT to bitcoin or other Altcoin pairs so that you’re not dealing with fluctuations on both sides of a currency when trading pairs. USDT is a stable baseline commodity that will not fluctuate while you’re trading with your current altcoin.
Now let’s get down the actual strategy. Assuming your exchange has 15 USDT, your goal for the day should be to produce 1% to 2% from 7 different altcoins or even one single altcoin, which show a history of stability over the last 3 to 5 days, in order to produce a minimum of 7% profit, that’s 49% profit over the course of a week. Utilizing this simple yet effective strategy can double the profit of your initial investment in just under two weeks.
The goal here is to accumulate smaller profits into a much larger one, over a set course of time. If you want to aim for a higher percentage, that’s not a problem either, but you should be ready to face any consequences that can result from being a bit too greedy. Generally speaking, if you stick to around 1-2% increments, you’ll be safe from any significant losses that may incur from our natural instincts to want more.
Never buy a coin under pressure, as long as there is profit to take. Just remember that if you’re walking away with profit, your winning. Do not look back and fight the urge to speculate on “your potential best case scenario profit”.
If you accept somebody else’s price (that is already listed in the order books) then the trade will take place and you will pay a higher fee because you accepted (took) the offered price. In this situation you are the “taker”. It’s always advisable to be a maker and not a taker as you will incur lower or no fees from certain exchanges.
A trading bot’s job is to to buy and sell cryptocurrency as you see fit, under the current trading situation. This as opposed to trading on every overbought/oversold RSI signal. Believe me when I tell you, this is a quick way of losing your cryptocurrency.
You want to set the trading bot to buy and sell your chosen coin at 1-2% intervals. You also want to make sure that the cryptocurrency you’re trading is stable over a 24 hour period (longer if possible), or is in a bullish trend (upward movement).
From that point, you want to assign the trading bot to do the heavy lifting of buying and selling between the 1-2% intervals as opposed to you manually doing it within the exchange.
NOTE: A nice stable coin worthy of daytrading, is usually one represented with 24 hours of consolidation, so make sure you’re checking your daily timeframe (or even the 4 hour will do) on your charts.
You can tweak your trading bot, as per your preference, through following indicators like Stochastics or RSI on the 5- 30 minute timeframe. I’ll most likely write another detailed article (or video) in the future with regard to bot trading. For now, this should give you something to go off of.
|PRO TIP: Make sure to sign up for our notifications (bottom right corner bell icon) or sign up for our newsletter located on the right sidebar for all our future guides and step-by-step walk-throughs.|
You’ll have to set trading notifications in order to be notified of these breakouts. We offer a free trading notification service here. I highly recommend you take advantage of this service when utilizing this strategy.
On the other side of the spectrum, you need to set a sell limit order to cash out of the trade when the coin reaches your goal (1-2%). Setting both a limit order and stop loss will allow you to step away from the trade and let these cryptocurrency exchange functions do the job for you, without any emotional attachment from your end.
These are just a few of the fundamental day trading tips that have garnered me a stable income along my day trading career. If you follow these tips and don’t veer too far away from the fundamental strategy, you’ll undoubtedly enjoy a long and prosperous career with day trading.
Good luck and happy trading!
Since the dawn of cryptocurrency, we’ve seen a major increase in its value. It’s value and utility over paper currency is much better suited to our entire way of life within this new digital era. It’s very possible that it takes over the future of currency, but that’s a bit over speculative for now. One things for sure though, with so many benefits to offer, many are tempted to trade these digital nuggets of gold.
Even if the concept of cryptocurrency seems foreign, trading is fairly simple when you get a handle on it. However, in order for it to be useful, you need to understand the ins and outs of the market and the rules that the market follows in order to get a grasp on certain trading fundamentals.
Much like institutional stock trading, it’s important to understand the fundamental signals to start and what they mean. Understanding these signals can be the difference between winning or losing your ass on a trade. One of the most important “signals” ‘you can begin to study along your cryptocurrency trading career is the candlestick.
|Candlestick patterns have been in use for decades and have become very popular in terms of plotting the price action of a security or stock. Typically, a candlestick chart has a series of bars, called candles, which have different colors and heights. The colors and sizes depend on the price action of the security being studied at that point in time. It usually contains both opening and closing prices.|
The bars of the candle depends on the unit of time, be it a minute, day or even a week, depending on the time frame of the chart you’re looking at. This, however, does not affect the candle’s colors. If a hollow bar is visible, it means that the closing price is higher than the opening price of the currency.
A red candlestick is used when the opening price is higher than the closing price, thus showing a downward pull, whereas a green color is used to show that the price rose from the starting period to the end.
Even though the candlestick chart can let a person determine what the rate of the cryptocurrency is headed towards, technical analysis is also needed so that a better decision on movement can be made.
Let us look at some patterns that can be often found in a candlestick chart. There are two categories: continuations and reversals. Most candlestick patterns fall into these categories. A continuation pattern can predict the extension of the price action currently prevailing, reversal patterns predict the change in the price direction.
Take a look over the 9 following bullish candlestick patterns which you’ll want to focus on for a strong reversal signal:
Being the bullish reversal pattern, the hammer can be seen as a signal that the cryptocurrency has almost reached the bottom in a downtrend. This means that the bears have been exhausted.
The hanging man is the exact opposite of the hammer. Here, the signal is that the cryptocurrency is nearing the top in an uptrend. If you see a hanging man when the prices are going up, do not buy since the prices will most likely be going down very soon so it’s best to take your profits now.
When you spot a pattern with three soldiers, you can immediately recognize that a period of downtrend has just been active or is in the price consolidation.
It is a reversal pattern with two candles, and it usually appears in a downtrend.
During a gloomy downtrend, the morning star can be considered as a sign of hope for investors. Obviously, this is a bullish sign.
The piercing line can be seen in a downtrend.
This signal is an excellent indicator of the fact that the prices are about to as the bulls are now exhausted. This is a good reversal pattern candlestick indicator.
This is one bullish reversal pattern and indicates the support level. The signal shows that bulls are attempting to raise the prices upward, this is also why you will see long shadows (also referred to as wicks). They aren’t strong enough to push the prices up at the moment, however when you see this signal, you need to stop selling your currency because there is a very high chance of an upcoming rally.
When you see a doji, you need to be cautious since the pattern means that the market is not very sure about future movement and is waiting for an external sign. Usually, this means that it shows reversal signs. The signals are not as strong as can be seen in the signals discussed above, however if you see this signal, you better stop buying and selling since the uneasy market can mean you might end up losing your investment.
When you decide to trade cryptocurrencies, it is better to use a variety of technical analysis and candlestick patterns so that you have a clear idea of what plan of attack to take for future movement. Both upward and downward movements are a lot more prominent when evaluating over a long period of time, for example hours or days, however this depends on if your day or swing trading.
When you take candlesticks pattern into consideration, try to wait until the next candlestick forms and then analyze the previous one. Since the candlesticks are patterns based on speculation, any news can turn the whole pattern upside down. This is why you should try to trade on days when there aren’t any huge events so that the candlestick pattern is properly represented within the market and won’t change drastically.
I highly recommend checking out our charts here and practice predicting certain candlestick patterns as they form. While you’re at it, print this candlestick cheat sheet until you get a good grasp on candlestick patterns. Hell, I even use it from time to time myself and I’ve been trading for several years now.
Now get to work and start practicing your trades!!
So you’ve been hearing a lot of things within the crypto world about this ever-profitable system called “margin trading” and stumbled across this article because you need a little real insight on what to do next. Well you’ve come to the right place, if you want an unbias review of how it works and if you should be involved.
Simply put it allows traders to trade with money they don’t inherently own at the moment of trading. Margin trading allows you to open up a position on what’s called “leverage”, which is essentially the process of borrowing money from the actual exchange in order to purchase a much larger amount of cryptocurrency as opposed to utilizing your own money. So for example, if we had an open position at 2X leverage at $50, we would essentially be trading with another $50 of the exchanges money, totaling $100.
Standard “long position” trades are traded at a leverage of 1:1. With leverage trading you can double, triple, or even quadruple your leverage, thus exponentially increasing your profits (or losses).
|PRO TIP: limit your potential losses by implementing a stop loss with every margin trade. We cover more on the stop losses topic here.|
So by now you might be asking yourself, “why would an exchange lend me money if there is a good chance I might lose it?” Well, the short answer is, your obviously going to pay for the losses on that loan amount with your current money.
This is better explained with a real world example…
Let’s say you opened a leverage position with $100 of your own money. Now if you 2X your leverage then you’ll receive another $100 from the exchange bringing you to a total of $200. Now if the cryptocurrency coin your trading drops by 50%, it’s now worth $100. You essentially just lost the exchanges borrowed money and have to pay them back with the $100 of real cryptocurrency you just deposited, plus interest.
You can also look at it like this; you’re essentially doubling, tripling, etc. your profit or loss percentages. If the cryptocurrency goes down by 10%, you really just loss 20%, however if it goes up 20%, you just gained 40%. Either way you look at it, your risking more to make more, and at a much faster rate.
Margin trading allows you to make larger bets than you presumably would be able to afford at the cost of extra fees and risk.
Now there is a cost to margin trading in the way of interest. Paying interest for the borrowed cryptocurrency (it could be the exchange or other users) can differ from one exchange to the next. The maximum amount that you can lose is the amount that you originally invested into the position, so if your coin goes down by 50% and you’re at a leverage of 2X, then you just lost all your coins.
This is also referred to as liquidation value. This value, at which the exchange automatically closes your position at, is there so that you don’t actually lose any of the lenders money (or the exchanges).
Again, in the example we used above, if you lost $100 of your $200 position, then your trade is essentially closed by the exchange because you just lost all of the lenders money. However, in reality your position would close at around the $90-$95 mark, as you have to pay fees on the borrowed money.
Most people know what a long position is as its very simple concept to comprehend. You look for a place to “buy the dip” and if it goes up 10% on $100, you now have $110. Simple right?
|Well a short position is a bit more difficult to understand, however just know that this is a trade where you expect the price to decrease. If you think that a particular cryptocurrency is about to drop you could open up a leveraged “short position” by telling the exchange to sell you borrowed money so that you can buy it back later.|
Well a short position is a bit more difficult to understand, however just know that this is a trade where you expect the price to decrease. If you think that a particular cryptocurrency is about to drop you could open up a leveraged “short position” by telling the exchange to sell you borrowed money so that you can buy it back later.
In other words, if you open up a 2X short position with $100, and it went down 50%, you would earn $100, thus coming out of the trade with $200. If the trade went up 50% then you would have lost $100 in the exchange which would automatically close out your position.
|PRO TIP: there’s generally a set time limit on margin trades. If you can’t execute your trades within the set time limit, the leverage portion of your trade will be settled after once that time limit has expired.|
|I strongly suggest you stay away from margin trading unless you have a lot of experience trading and have done an ample amount of research on the cryptocurrency that you’re about to trade. Trading cryptocurrency is stressful enough without having to worry about borrowing funds, along with the interest applied. This only magnifies your stress level.|
I strongly suggest you stay away from margin trading unless you have a lot of experience trading and have done an ample amount of research on the cryptocurrency that you’re about to trade. Trading cryptocurrency is stressful enough without having to worry about borrowing funds, along with the interest applied. This only magnifies your stress level.
If you begin margin trading, you can easily wipe out your entire trading exchange balance when a coin goes south all the sudden, whereas if you’re simply trading long (with your own money), you can always recoup those costs with time by holding onto the coin to recover (or as they say in the crypt world hodl).
However if you’re a “logical” risk taker and want to give margin trading a chance, make sure you have the experience to back it up. Read over all margin trading ratios and calls within the documentation of any given exchange that you’ll be trading on before taking that dive. Good luck and have a safe swim 😉
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