Hello, Power Profit Traders!
The internet is loaded with information about Cryptocurrency and I know it can be overwhelming.
Get started here with some of the basics and you’ll be surprised how quickly your confidence can grow as you learn.
How Bitcoin Got Started
To begin with digital currencies have actually been around for more than a couple of decades in experimental forms, but Satoshi Nakamoto (pseudonym) wrote about it in a paper back in 2008, and then launched the first cryptocurrency network called Bitcoin in 2009.
Bitcoin may have started the crypto rage, but there is now you’ll find a whole new digital coin class that can be bought and traded on cryptocurrency exchanges worldwide.
Currently, there are over 13,000 cryptocurrencies listed on Coin Market Cap, which is a data aggregator for the cryptocurrency market. If Bitcoin kick started it all, what is cryptocurrency?
Cryptocurrency
Digital currencies, cryptos, virtual assets or digital assets are essentially all synonymous terms to define digital forms of currencies. More and more we’re finding retail stores accepting cryptocurrencies as a payment method for goods and services – just like conventional currencies. In the past you may have heard about people buying Tesla cars with cryptocurrency.
I know many of you are familiar with the forex exchange where you can trade traditional currencies against each other. Like the forex market, cryptocurrencies can also be traded against specific pairs on specialized platforms called cryptocurrency exchanges.
There are differences, however, between conventional currencies and cryptocurrencies. One difference is that cryptocurrencies are not controlled by any single entity. They are also secured using cryptography, coupled with an online public ledger known as a blockchain.
Just like the stock market, the cryptocurrency arena can be traded, invested and leveraged in small or large quantities.
Trading vs. Investing
In my weekly discussions on Money Morning Live, I’ll continually to help you become more comfortable with Cryptocurrencies. There are a variety of trading techniques for you, so you can decide how you want to trade them once you’re ready.
The two styles I’ll discuss is trading vs investing.
Simply put, trading cryptocurrencies usually refers to a shorter holding timeframe – days to weeks, while investing in cryptocurrencies usually means you’re willing to hold the coin for months and even years.
There are also the pendulum extremes, such as day trading (in and out of the trade in minutes or hours) and long-term investing (years).
There’s not necessarily a right or wrong investing timeframe, because it will highly depend on your desires. Simply ask yourself if you want to be an active manager, meaning you’re watching for entries and exits in shorter time frames, or a passive manager, meaning you’ve got capital to tie up for extended durations and let it ride.
Next, let’s talk about crypto markets and the general stock market.
Crypto market vs Stock market
The Crypto market has several similarities with the stock market, but there are also differences between the two. Let’s start with the similarities first.
Similarities
Technical trading tools can be used to help with decision making whether you’re looking at a crypto chart or a stock chart.
Trading and investing strategies are also similar. Just like stock market trading, crypto traders can choose to day trade, swing trade or hold positions for longer durations.
The stock market has been around for generations and over the years has added products such as derivatives and leveraged ETF’s. So, it’s no surprise then that Bitcoin futures, options and leveraged tokens are available as well. Some of the leading cryptocurrency exchanges will allow you to use leverage.
Differences
I’m sure that over time the volatility associated with crypto trading will become more aligned with the stock market. For now, the crypto market can have some wild price swings. It’s not uncommon to see single digit moves in the broader stock market, while at the same time seeing double digit swings in the crypto market.
Part of the volatility in the crypto world is due to its age. Crypto trading has come along way in security and oversight since inception, but it is still just over a decade old versus the stock market which has been around for generations.
Market assets are different as well. In the stock market you invest in publicly listed company by buying stock. In the crypto market, you invest in an idea, the technology or the currency (token), but not the actual company behind the currency.
Regulations are also something that marks a difference. Since the stock market has been through turbulent times (great depression, etc.) regulators have developed rules to govern investor conduct.
The crypto market is gaining regulations as it grows, and luckily regulators have had decades worth of stock market experiences to help them determine where crypto regulations may be needed, and I would expect that as more regulations come down the pipeline, the volatility in the crypto space will subside.
Between now and then, however, crypto volatility is appealing and offers great opportunities.
Now that you’ve got some of the basics down, let’s discuss some of the reasons you might be inclined to trade cryptocurrencies.
Why Trade Crypto
To help understand why traders are attracted to the crypto arena, let’s look at some of the benefits.
The general stock market opens and closes at specific times, but the crypto market is always open – 24/7/365. If you’re really sophisticated, you can let trading bots do the work and let trades run all the time.
Market volatility is appealing, but it acts as a double-edged sword. As a trader, volatility is something that can bring quicker profits in less time – something everyone likes to see. Now, of course, what can benefit you quickly can also hurt more in shorter amounts of time, too.
This is why I risk management is so important to me. I like the idea of using volatility to my advantage, while mitigating risk as much as I can along the way.
Cryptocurrency is still fairly young by comparison to the stock market, but as I mentioned above there are multitude of assets available, including futures, options, leveraged tokens and more. If the derivative exists for the stock market, we can expect there will be a match in the crypto market eventually.
Trading Styles, Plans and Crypto Accounts
There are two common trading styles to choose from, and some of you will choose to mix them both.
From your stock trading experience, some of you may be interested in fundamental analysis and use both economic and financial factors to help you with trading decisions. On the other hand, others of you may simply be comfortable using technical analysis to analyze trading scenarios. Here again, there’s not a right or wrong, but more so a style that suits you better.
One of the appeals technical analyses has on traders is the idea that technical analysis can work for any trading timeline – day trading, swing trading and even long-term investing.
Once you’ve determined your style and the technique you may want to employ in crypto trading, I think it’s important for all of you to write down on paper a trading plan.
You all know I use patterns for trading, but I also have a start-to-finish trading plan for all my trades.
Those of you who have subscribed to any of my services know how important the trading plan is.
All trading plans should be able to answer the following questions:
- What am I trading?
- Why am I trading this security (to make money is not the answer here)?
- How much should I trade – investment amounts and number of total outstanding trades?
- How am I Managing Risk (max dollars invested, stop losses/exit strategies)?
- When should I get into the trade?
- What are my Targets/Expectations/Time Frames for a winning or losing trade?
- When should I exit the trade?
Part of your preparation into the crypto world will be opening an account.
Crypto accounts have become less complex and fairly easy to open. In some cases, you can create a crypto account and begin trading in a matter of minutes.
I think it’s important to do your homework to determine which trading platform you want to choose, but in my opinion, I think Coinbase is best for beginners. The platform makes trading cryptocurrencies simple, but it also has high levels of security and transparency.
You may want to consider fees, but since the company is listed on the Nasdaq and is regulated in the United States, it’s a good starting point for new investors, although the fees may not be as low as other operators. Regardless, it’s still your choice on which platform you decide on.
I hope this has helped you as you begin your journey into the exciting world of crypto.
Be sure to join me in my Live discussions for more insights and trading techniques I use in the crypto space.
Please join me at 12:00 NOON ET Today.
I hope to see you there!
Tom Gentile
America’s #1 Pattern Trader
Learn About Trading with the Money Morning Live Professionals!
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