With cryptocurrency’s popularity, many are now wanting to start investing in it. The number of people who gain a lot from trading cryptocurrency draws many into the crypto market, too. Even people without any background in any trading platform now want to try their luck and jump into cryptocurrency trading. However, it can be difficult to understand and navigate exchanges, especially if you don’t have any experience trading.
Some aspiring traders will try to paper trade first before putting their money to the test. Paper trading is like a crypto trading game; you do all trading activities without using real money. Traders use paper trading to get a feel of how trading works and check if their strategies are worth pursuing.
A Guide To Cryptocurrency Exchange
If you want to start trading cryptocurrency for real, follow the steps below to understand what an exchange is and how to navigate it.
1. Understanding Cryptocurrency Exchange
First, you have to understand exchanges as they’re the primary tools in crypto trading. You can think of crypto exchanges as stock market trading platforms, but for cryptocurrencies instead. It’s where buyers and sellers meet to trade cryptocurrency.
Here are some important factors usually found in a crypto exchange:
- Trading Pairs: Cryptocurrency pairs are the currencies you’ll be trading. The most common pair in crypto trading is Bitcoin to USD or vice versa. However, exchanges allow many different pairs, like BTC to ETH (Ethereum). This means that you can trade your Bitcoins with Ethereum instead of Dollars.
- Exchange Rate: The exchange rate tells you how much a unit of cryptocurrency costs when converted to another digital currency. For example, if you want to sell one Bitcoin and get 100 Ether in return, the exchange rate tells you how much ETH you’ll get for a single Bitcoin.
- Transaction Fee: Transaction fee is the payment that the exchange charges to every successful trades you make on the platform. Fees usually range from 0.1% to as high as 1%. It’s a small fee, but it can add up if you’re making many trades. Thus, it’s important to also consider the fee when planning your strategies.
2. Setting Up Account
Once you have a grasp of what an exchange is, you can start setting up your account. Make sure to select the right exchange with plenty of features yet it should be manageable for you.
Opening a cryptocurrency exchange account can be as simple as signing up on Facebook. However, you need to provide the platform with your contact details and proof of identity before you can start trading.
3. Funding Your Account
After setting up your account, the next step is to fund it. The exchange you’ve chosen will require you to input your external wallet address, which is where your funds will be coming from. Some exchanges also allow you to use a credit card as a funding method.
Once your account is funded, you’re now ready to trade.
Look at the exchange’s interface and familiarize yourself with the charts and graphs. This is important as those will be the main tools you’ll be using.
- Price Chart
One of the common price charts that crypto traders use is the candlestick chart. It’s like a bar graph that plots the opening and closing price over a certain period. It also displays the high and low for that day.
You may customize the price chart on every exchange by changing the price chart style. You may choose from bars, candlesticks, or line charts. You may also change the period you want to display on the price chart by using the timeframe drop-down menu and selecting your desired intervals.
You may also choose from a wide array of cryptocurrency technical indicators for your charts. Those will help you determine the strength of the price movement. You may use many types of indicators in crypto trading, but the most commonly used indicators are:
- Moving Averages: A moving average is a constantly updated line that shows an average price of a particular cryptocurrency. The average is calculated by taking the average for a period, which you set. There are three types of moving averages: Exponential (EMA), Simple (SMA), and Weighted (WMA). Each of the types serves a different purpose and has a different way of approaching price action.
- MACD (Moving Average Convergence Divergence): This is an indicator that consists of two lines: the MACD line, which is also known as the signal line, and the histogram line. The MACD plots the difference between two exponentials moving. Every time the two MACD line crosses, it gives a signal that there’s a significant move in the cryptocurrency’s price.
- RSI (Relative Strength Index): It’s a standard indicator that uses momentum to measure how overbought or oversold an asset is.
- Fibonacci Retracement: This predictive indicator is based on the Fibonacci sequence – a set of numbers commonly used by technical analysts to predict the next support and resistance price. To use this indicator, you need to identify where the support and resistance are. Once identified, draw a trend line between those two points and extend it until it meets the trend line from the other side. Doing this allows you to see where the retracement is likely to be located.
- Order Book
An order book is a list of all buy and sell orders that are waiting to be executed. Whenever you place an order on an exchange, it’s added to the order book until it gets fulfilled or canceled by another trader.
There are three types of orders:
- Market Orders: This kind of order matches up with the best available price at that time, instantly buying or selling your cryptocurrency.
- Limit Orders: A limit order puts a condition on order. So, your order only gets filled if the price you set for is reached.
- Stop Orders: A stop order is an order that gets executed when the price of a cryptocurrency reaches a certain point. Stop orders are usually used to limit your losses and protect your investment.
5. Executing Trades
When you’re ready to make your first trade, choose the cryptocurrency you want to buy or sell and then place your order using the preferred method. As mentioned, your order should reflect in the order book until it gets fulfilled.
Cryptocurrency exchanges can be confusing at first, especially if you’re new to this type of trading. You’ll need some time getting accustomed to the exchanges, but you’ll eventually master navigating on exchanges by understanding the basics and regularly practicing.
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