Three ways to trade cryptocurrencies for beginners

trade cryptocurrencies for beginners : Digital assets are a type of high-risk investment, and their unplanned trading usually leads to a loss of capital. While most analysts agree that there is no such thing as a “perfect” trading strategy, we have three well-known methods that are well-suited for novice traders. The CoinDesk website explains these three strategies in articles that you can read below.

Dollar Cost Average (DCA)

Dollar cost averaging is a popular and proven trading strategy that works best when applied over longer periods of time. The concept is simple; Instead of investing all your money in one particular digital currency at once, divide it into small amounts, choose a specific time and day of the week, and only make your purchases at those times.

Example: Bob has $ 10,000 that he wants to invest in Bitcoin (BTC). Instead of spending the entire amount at once, he decides to use the DCA strategy and split his $ 10,000 into 20 $ 500 lots. He then chooses a specific day of the week and time to buy Bitcoin – for example, Monday at 12:00 local time. For the next 20 weeks, Bob regularly buys $ 500 in bitcoin every Monday afternoon until he invests his entire $ 10,000.

Three ways to trade cryptocurrencies for beginners

Shopping at such regular intervals over a long period of time helps to reduce the impact of market fluctuations – that is, sharp price fluctuations – and means that Bob spends more than the average bitcoin on a case-by-case basis. Receives for the same money.

The DCABTC website, a bitcoin-focused DCA calculator, illustrates this in more detail.

For example, if you bought $ 150 bitcoins every Monday from January 1, 2018, you would have spent a total of $ 23,550 and had 3.04 bitcoins ($ 161,265 at the time of writing). Whereas if on January 1, 2018 you paid $ 23,550 in one lump sum for bitcoins, you could only buy 1.69 bitcoins ($ 90,033 at the time of writing).

If you decide to go it cheap and risk the low bandwidth you are only fooling yourself. Be red; That is, when the price of that asset is less than the value of 24 hours before it. Live cryptocurrency price data can be found on the Fxcomfort website.

Golden cross / Death cross

The cryptocurrency trading strategy (Golden cross / Death cross) is a method that uses two moving average lines (MA) on the trading chart; A moving average is a chart indicator line that shows the average average price of an asset over a given period of time.

Simply put, a moving average is a line drawn on a chart so that we can guess price behavior more accurately from past data.

In this strategy, you look for intersections between the moving average 50 (previous 50 days average) and the 200 moving average (previous 200 days average) over long time frames on charts such as daily and weekly charts. Because it deals with observing price activity over long periods of time, it is a long-term trading strategy that shows the best performance in 18 months and above.

There are two types of intersections to look for:

Convergence (Golden Intersection): When the 50 moving average line crosses the 200 moving average line upwards.
Divergence (Death Intersection): When the 50 moving average line crosses the 200 moving average line down.
Convergence indicates that the short-term momentum is rising from the long-term momentum; And this is a buy signal. This happens when buyers return to the market and raise prices. Divergences are also a sign of the opposite: short-term momentum is falling relative to long-term momentum; This is a sell signal. Divergence occurs when a large number of traders decide to exit the market and sell their assets.

Three ways to trade cryptocurrencies for beginners

To do this, you need to enter the trading view chart; The image below shows an account of the Trading View website. Change the time period (red arrow) to daily or weekly (red square), click the indicators button (blue arrow) and search for “moving averages”. Double-click to add two moving averages.

Then you have to change the settings of the moving average by clicking on the toothed icon of each moving average (in the upper left corner) and changing the length parameter (red arrow) to 50 and 200, respectively. You can also click on “Style” and change the colors (blue arrow) so you can distinguish between the two lines.

It is worth noting that this method of cryptocurrency trading is most effective in a very volatile market (when prices fluctuate very sharply), but when the market is neutral, given that the two moving average lines are constantly converging and diverging, this method It can show multiple buy and sell signals. This usually happens when there is not much confidence in the market and the number of down and up traders is equal. This is the only problem with this trading strategy, but the average profit is greater than the losses incurred during periods of volatility.

Again, this is a long-term strategy that works best for at least 18 months and can be combined with other metrics to achieve better results.

Three ways to trade cryptocurrencies for beginners

In the chart below, the last golden intersection of the Bitcoin chart was around $ 8,000. This means that if you have been using this strategy for the past two years, you will receive a buy signal for $ 8,000 and still maintain your bitcoin. The price of Bitcoin is currently growing by about 670% compared to that price.

Trading strategy based on RSI divergence

The RSI divergence strategy is a more technical strategy, but it is more effective in predicting the reversal timing before it occurs. Inversion is the trend when the price starts to move in the opposite direction; From a downtrend to an uptrend or vice versa.

The RSI, which stands for Relative Strength Index, is a chart index that measures momentum by calculating the average number of gains and losses over a 14-day period. You can easily add an RSI in the trading charts from the Indicators section.

This index fluctuates between 0 and 100 and can be used to highlight an “over-selling” or “over-buying” an asset. To indicate this, a channel between 30 and 70 is usually used. When the indicator line crosses the 70 level above the channel, the asset is considered in the “overbought” position, indicating that the price is likely to return to the bottom. Conversely, when an asset falls below 30 below the channel, it is considered in the “oversold” position, which means that the price is likely to rise.

Although this system alone can be used as a simple strategy for cryptocurrency trading, it can sometimes lead to incorrect results. For example, there are cases where the RSI indicates that an asset has been over-purchased. This is usually a buy signal, but sometimes the price continues to decline.

The RSI divergence strategy is more advanced than this and can be used to determine when the price trend changes before it occurs. This is done by searching for heterogeneity between the price and the RSI index. Normally, price and RSI move in almost the same direction. But sometimes the price goes down but the RSI goes up, or vice versa. This only happens when there is a slight change in the volume of buying or selling, and is a sign that the momentum is in the early stages of trend change.

Three ways to trade cryptocurrencies for beginners

The best time frame to look for divergence is usually in a four-hour or daily window. These time periods show more drastic changes in the medium to long term trend. Looking at the chart below, we see that there are three main RSI divergences in the recent Bitcoin / Dollar (BTC / USD) chart that predict a change in the overall trend. The yellow lines show the difference between the direction of the RSI and the price. The best time to look for divergences is when the price is in oversold or oversold areas.

You can also use this strategy to find smaller changes in a trend; For example, identify a reversal in a downtrend. If we look more closely at the area marked with a circle (white) in the 30-minute chart, we see that there is another divergence that indicates a reversal of the uptrend.