Crypto Academy / Season 3 / Week 1 - Homework Post for @lenonmc21|| An Introduction to Cryptocurrency Trading
Thank you, professor, @lenonmc21, for your beginners’ lecture on cryptocurrency trading. I am here to submit my homework and I promise to be detailed to the best of my capacity.
To ensure I follow the homework the way it is, I will be writing on the following outlines:
Cryptocurrency Trading-What it is
In order to really understand the concept of cryptocurrency trading, we have to first understand what trading is.
What is Trading
This a basic, foundational or fundamental economic strategy that involves buying and selling of chosen assets over a period of time. What is being bought or sold could be goods or services, in which the buyer pay the due compensation to the seller for the asset.
In some cases, trading involves the calculated exchange of goods and services between trading parties.
Looking at the concept of financial markets, the assets that are traded are termed financial instruments. These financial instruments include cryptocurrency, currency pairs in the case of forex, bonds, stocks, margin products, futures, options, among others.
Trading is not just a short-term buying and selling between buyers and sellers. It involves a wide range of methods and duration, which could be day trading, swing trading, trend trading, and many other strategic approaches.
How Trading Relates to Cryptocurrency Market
Cryptocurrency is a group of digital assets. Thus, in order for the assets to move from one person to another, there have to be a buying and selling, hence cryptocurrency trading.
The cryptocurrency market it dominated by traders, as such trading can never be separated from the cryptocurrency market.
Tools for Trading (Fundamental and Technical Analysis)
The two major tools for trading are fundamental and technical analyses. In this section, we are going to look into it one after the other in terms of trading and then as it relates to crypto trading.
Fundamental Analysis
In order to determine the value of an asset through assessment, a certain method can be used. This method is called Fundamental Analysis. In order to ascertain the fairness of the price of a chosen asset, a fundamental analyst studies both economic and financial factors surrounding the asset in the market.
The analyst would often make use of macroeconomic circumstances like industry conditions, the state of the wider economy and businesses connected to the asset (if any).
The aim of the analyst is to determine if the asset is undervalued or overvalued. The result of the fundamental analyst can be used by investors in their investment decisions.
Coming to cryptocurrency, fundamental analysis may involve the emerging the evolving field of data science, which concerns itself with the well-known blockchain data termed on-chain metrics. These group of metrics include top holders of the asset, network hash rate, number of transactions, number of addresses, among others.
Fundamental analysis are widely used in the Forex market, but in their current state, they are less suitable for cryptocurrency. This is because the crypto asset class is too new to be brought under a standardized framework in terms od determining market valuations.
It is worthy of note that the crypto market is mainly driven by speculations and narratives, as such fundamental analysis will have very negligible of insignificant effect on these digital assets.
Example of fundamental analysis is seen below:
Technical Analysis
This is a completely different one compared to fundamental analysis. The major idea behind technical analysis is that of history. It is based on the fact that historical piece action may dictate how the market will behave now and in the future.
Here, the intrinsic value of an asset is not considered, rather opportunities are discovered based on the history of trading activities for the chosen asset. The tools used here are the history of trading volume, price action, technical indicators, chat patterns, among others.
The major goal of technical analysis is to evaluate the market strength or weakness of the asset.
Technical analysis can be used for both the prediction of future price movement and as a framework for risk management. The provision of tangible market structure through technical analysis makes it possible to manage trade in a defined and measurable way.
As measuring risk is the first stage of managing it, technical analyst must not be strictly traders. Most of them use their analysis for risk management.
Although technical analysis can be used in any financial market, it is widely used among cryptocurrency traders. Since the crypto market is driven by speculations as we earlier mentioned, technical analysis can thrive more there, compared to fundamental analysis.
Example of Technical analysis is seen below:
Three Crypto Exchanges with Highest Trading Volume
The three exchanges with the highest trading volume are Binance with the trading volume of $18,041,703,300, Huobi Global with the trading volume of $4,675,374,999 and Coinbase Exchange with the trading volume of $2,325,959,184.
How to Buy Cryptocurrency on Huobi Global
Here, I want to illustrate how to buy BTC on Huobi Global using TRX. For easy screenshot, I will be using the Huobi Global application on my phone. Join me.
Step1: Open your Huobi App and click on Balances. When it opens, click on deposit and choose TRX.
Step2: Click on copy to copy the TRX address and take it to your TRX wallet where you will send the TRX from.
Step3: After your TRX must have been deposited, clik on markets. Choose the TRX/BTC pair and click on it. It will open the current chart on the market.
Step4: Click on sell. You will be required to put the amount of TRX you intend to spend. Put the amount and click on sell TRX. Now you have bought your BTC.
Conclusion
Trading on cryptocurrency is both exciting and risky. Anyone can learn and trade at least with spot trading. Besides, one can decide to buy and hold ctypto for future reasons.
Either by trading or holding, cryptocurrency is a group of digital assets everyone should have.
Thank you for reading.