Cryptocurrency is a digital currency that uses cryptography for security. It is an alternative to fiat currency and it can be used for online transactions. The first cryptocurrency was Bitcoin, which was released in 2009.
The most common use of cryptocurrencies is to purchase goods and services on the internet without any middleman or third party involved in the transaction. A popular example of this is Amazon’s e-commerce website, where you can buy items using bitcoins instead of your credit card or other payment methods.
What is Cryptocurrency?
Cryptocurrency is an internet-based medium of exchange that uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
Cryptocurrencies can be sent directly between two parties via the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
What Is a Blockchain?
A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation of a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
Crypto Wallets
A crypto wallet is a place where you can securely keep your crypto. There are many different types of crypto wallets, but the most popular ones have hosted wallets, non-custodial wallets, and hardware wallets.
What is Mining?
Bitcoin mining is the process by which new bitcoins are entered into circulation; it is also the way that new transactions are confirmed by the network and a critical component of the maintenance and development of the blockchain ledger. “Mining” is performed using sophisticated hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem is awarded the next block of bitcoins and the process begins again.
What is Altcoin?
An Altcoin is an alternative digital currency to Bitcoin.
The word Altcoin is a portmanteau of “alternative” and “coin”, to form “altcoin”. It actually refers to a group of cryptocurrencies, ultimately all the cryptocurrencies other than Bitcoin.
What Is Altcoin Season?
Altcoin season refers to the cycle of the cryptocurrency market when some altcoins (cryptocurrencies other than Bitcoin) experience sudden price spikes that surpass BTC and the US dollar.
What Is a Smart Contract?
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.
What Is a Stablecoin?
A stablecoin is a class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
Different Styles of Crypto Trading Defined
With the above introduction covered, here are some detailed descriptions of trading styles (all of which are common to all types of trading, but which we will discuss in the context of crypto):
Scalping
Scalping is all about making very quick trades. The goal is to make constant profits (even if the profits are very small). You’ll take profits quickly, and you’ll cut losses just as quickly. You might make a trade every few minutes, or you might only scalp a few positions a day. You want favorable setups, not just any trade. Ideally, you’d want to be able to go long and short (and would thus need to margin trade, even at 1x leverage, so you can short). However, you can scalp by spot buying and selling (buying and selling crypto).
Day Trading
Day trading is just what it sounds like, it is like scalping, but instead of making trades over the course of minutes, you typically make them over the course of the day.
A day trader might scalp, trade the range, or even take short-term position trades in a single day. They are day trading because they aren’t holding their position into multiple trading days.
Range Trading
Cryptos will constantly define a range they are trading in. Generally, this range will be a type of consolidation (either accumulation, big players getting more coins for the next leg up, or distribution, selling coins at a high before the big players let the market drop).
Intraday Trading
This is day trading, but a style of day trading that allows for holding positions over more than one day. Simple as that. The reality is traders do this and there is no rule that it can’t be successful. In crypto, the market never closes, so there is no end to a trading day (the best we get is daily candle closes). With software, you can automate positions and in this respect, there is not specifically a reason to close a short-term position just because the clock strikes 4 pm or whatever.
Swing Trading
Swing trading is all about finding support and trading to the next resistance level, or more generally picking an entry and a target and holding the position until your target is hit or other exit conditions are met.
Here you will open a position (sometimes gradually) at what you calculate to be the local bottom AKA support, then you will aim to HODL your position all the way to what you believe to be the local top AKA resistance (generally gradually scaling out of your position to lock in profits). Obviously, it is the reverse logic for shorting, you aim to short the top of the forming trend to the bottom.
Position Trading
Position trading is like a zoomed-out version of swing trading or like the trading version of investing. Here you’ll try to build/take a long position low or short position high and then stick with that position for weeks, months, or even years.
Investing
I don’t consider investing and trading to be the same thing. Trading is all about taking a position and aiming to take a profit. Investing is all about having ownership of an asset as a store of value with a very general goal of increasing that value over time.
Bull Market vs. Bear Market
A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value. Because the financial markets are greatly influenced by investors’ attitudes, these terms also denote how investors feel about the market and the ensuing economic trends.
A bull market is typified by a sustained increase in prices. In the case of equity markets, a bull market denotes a rise in the prices of companies’ shares. In such times, investors often have faith that the uptrend will continue over the long term. In this scenario, the country’s economy is typically strong and employment levels are high.
By contrast, a bear market is one that is in decline. A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs. In a bear market, share prices are continuously dropping. This results in a downward trend that investors believe will continue; this belief, in turn, perpetuates the downward spiral. During a bear market, the economy slows down and unemployment rises as companies begin laying off workers.
TYPES of Exchanges
Crypto exchanges are the once you purchase, trade and some cases store your crypto coins.
There are two types of exchanges: Centralized and Decentralized
It is difficult to know which crypto exchange is suitable for your requirements until you do a little bit of research. For instance, you will need to evaluate what crypto markets the exchange supports and how much it charges in fees and commission.
Bottom line
Cryptocurrencies are a new technology, but they are quickly becoming the future of finance. This article explored the basics of cryptocurrencies. If you want to stay ahead of the curve, start learning about cryptocurrencies now. They might just be the future of money.
