Cryptocurrency 101, a complete guide for beginners: this is what this article strives to be. 

Here you’ll find only helpful information: from the definition of cryptocurrency to the most popular trading strategies and techniques. 

What is cryptocurrency?

This guide, which could also be called cryptocurrency for dummies, can’t start without a definition of cryptocurrency. 

Cryptocurrencies are digital currencies that can be used to make financial transactions. They work thanks to blockchains, immutable and decentralized ledgers able to record any transaction.  

How did it all start?

It all started with Bitcoin, the first cryptocurrency. Satoshi Nakamoto created it – we don’t know the creator’s identity, it’s just a pseudonym. 

Bitcoin was created because after the financial crisis of 2008, it was clear that the world needed a more transparent and inclusive financial system in which people would have complete control over their assets without the need for intermediaries. 

Bitcoin was launched in 2009, and it showed that it was possible to have a different financial system: 

• Its owners didn’t need to deal with banks to have an account;
• Privacy – thus, security – was prioritized for the simple reason that a decentralized system doesn’t need trust, but it’s controlled by all the participants involved in the project;
• Its blockchain can solve significant problems like double spending, even for peer-to-peer transactions.

Bitcoin’s website homepage.

Cryptocurrency trading vs. Investing

As with any other market, there is a difference between trading and investing: while investing involves holding your assets for long periods, relying on the asset’s value, trading involves different timeframes, and traders profit from both positive and negative trends. 

Crypto market vs. Stock market

The main differences between the crypto and stock markets don’t have anything to do with the way you can trade but with characteristics like volatility and possible returns. 

The stock market is generally less volatile because there are huge exchanges where you can trade a company’s whole amount of stocks, and there are more participants. In this sense, the stock market manages to collect more liquidity. 

On the other hand, the crypto market has fewer participants, and you can find the same cryptos available for trading on countless exchanges. This makes the whole market more volatile, but this volatility allows you to earn higher profits compared to the stock market. 

Why trade cryptocurrencies?

Higher profit is precisely the reason why people trade cryptocurrencies. Moreover, joining this market means you also have access to the world of decentralized finance, which is more inclusive and prioritizes privacy. 

Cryptocurrency trading techniques

For beginners, cryptocurrency can be a difficult market to invest in. But in reality, some techniques can help you understand how to deal with it. Despite the Random Walk Theory, many traders and financial experts developed theories according to which markets don’t move randomly. The Wyckoff Strategy is just an example and the Elliott Waves Theory. 

In any case, all trading techniques start from analysis, and there are mainly two types of analysis you can run. 

Fundamental Analysis (or FA)

Fundamental analysis is what allows you to determine the value of an asset. When it comes to stocks, it’s easier since you can evaluate the company behind the stock. Still, when it comes to cryptocurrency, there are other elements you can evaluate: supply, community, technology, the team behind the project, whitepapers, consensus algorithm are just some of these elements and all them can help you assess whether the cryptocurrency will be able to gain value over time. 

CoinMarketCap is a valuable source to collect all the info you need for any cryptocurrency. 

Technical Analysis (or TA)

On the other hand, technical analysis focuses on price patterns, technical indicators based on specific mathematical formulas, and the past behavior of prices to predict future developments. 

FA vs. TA – which is better?

There’s no one better. The best way to analyze markets is by using them both. Try to consider fundamental analysis as a sort of filter that allows you to spot the more reliable crypto projects, and technical analysis as the way to look at the market closer to decide when it’s time to buy or sell. 

Cryptocurrency markets

The crypto space is sufficiently developed to allow the types of markets you can find in the traditional financial space. 

There are mainly two crypto markets we want to list in our guide – crypto for dummies: the spot market and the derivatives market. 

Crypto spot market

The crypto spot market includes all those cases where you can directly buy your crypto assets. It can happen on both centralized and decentralized exchanges – but in the second case, you’ll have full control over your asset since you don’t have to entrust your keys to any centralized exchange. 

Crypto derivatives market

Crypto derivatives markets include all those services that allow you to buy or sell financial products whose underlying assets are represented by cryptocurrencies. 

This involves markets like the futures market or CFDs (Contracts for Difference). 

Cryptocurrency trading strategy

As well as techniques, traders and investors can use different trading strategies across different timeframes according to their needs. 

Why you need a trading plan

A trading plan is useful for many reasons: 

• With a plan, you’ll respect your trading budget;
• Despite traders should be flexible enough, having a plan allows you to avoid emotional trading;
• A plan will make it easier for you to rebalance your portfolio when needed. 

Day trading and Scalping

Both these strategies involve short-term tradings, but there are some differences: 

• Scalping consists in keeping a position open for a few minutes – usually less than five minutes. This means that to make a profit, scalpers need to open and close hundreds of positions every day;
• Day trading consists of keeping a position open even for hours, profiting from usually higher levels of volatility. 

Swing trading

Swing traders take advantage of the so-called swings, which are minor price fluctuations. This strategy doesn’t involve only short-term positions: a swing can develop in hours, days, or even months. 

BTC/USD price chart – Kraken. The chart above shows some swing trading opportunities for swing traders. Source: TradingView. 

Position trading (HODL)

This kind of trading, which is more similar to investing, consists in buying and holding an asset for long periods. Since we’re talking about cryptos, it’s correct to say hodling – the word “HODL” is a part of the crypto slang. 

Margin trading (trading with leverage)

Not every exchange supports this type of trading. Margin trading consists of leveraged trading: simply put, the trader uses the platform’s funds as a loan to increase the available capital, which means you can amplify both profits and losses. 

Risk management 

Risk management is an essential part of any trading strategy. 

Some of the most common mistakes that must be avoided are emotional trading – you should always avoid being trapped by fear or greed when trading or using your whole capital in a single trade – especially if you’re not a professional trader or investor. 

Moreover, when it comes to cryptos, you need to take the necessary measures against possible hacking. For instance, you should never save your private keys and passwords on your devices, and you should always use 2FA (two-factor authentication).

Portfolio management

Portfolio management consists in being able to rebalance a portfolio when needed or to use specific strategies. For instance, some traders prefer to trade only assets considered stores of value – like Bitcoin. Others prefer more risky portfolios because they usually allow higher profits for less capital. But good practice is to create a balanced portfolio, which can be adjusted according to market conditions. 

How to pick the best cryptocurrency exchange and wallet

Traders and investors should always do their own research before choosing a specific exchange or crypto. 

There are some elements they should consider: 

• For what concerns the exchange, reliability, compliance with national and international regulations, volume trading, and fees are all elements that should drive your choice;
• For what concerns cryptocurrency, the first step should always be reading the whitepaper: is it complete? Are there any typos? Does it have a specific roadmap and goals? What does its fundamental analysis tell us? These are just some of the questions you should ask and then choose according to your needs, strategies, and the level of risk you can accept. 

Abstract of Bitcoin’s whitepaper. 

Conclusion

In this article, we covered all you need to know to start your journey in the crypto market: it can be adventurous and risky, so you need the right tools to cope with it!