How To Enter The World Of Digital Currencies Based On A Basic Plan?

How To Enter The World Of Digital Currencies Based On A Basic Plan?

Suppose You Have Experience Working Professionally In The Stock Market And Buying And Selling Stocks. In that case, You Know Very Well To Succeed In These Markets, and You Need Experience And Tools To Be Able To Predict The Value Or Decline Of Stocks.

The world of digital currencies follows similar trading guidelines, with the difference that the volatility in this market is higher. People who intend to enter this market should know the risks involved in CFD transactions called Contract For Differences of digital currencies.

You should know about a set of trading and risk management principles if you plan to enter the world of digital currencies. We mention some of them in this article.

Entering the world of digital currencies and especially trading in this area is one of the day’s topics in the world of technology, which is of interest to a part of society. One of the most important reasons for the popularity of the digital currency market is its price volatility. For example, a digital currency may multiply in value in just one day and lose its weight in a short space of time.

In this case, only people who know when to sell and buy will profit the most.

Now we come to the critical question of how to become a successful trader in this market and earn money by trading currencies like Bitcoin and altcoins.

The digital currency market has experienced severe price fluctuations in recent years. As mentioned, some traders made huge profits from these fluctuations, and unfortunately, others lost their capital, which is the latest example in this field of Luna cryptocurrency. Why do some traders succeed in this market? How to become a successful trader in this field? What skill sets do we need to succeed in this field?

These are just some of the thousands of questions people who want to enter this field ask. This article will mention tips to help you become a successful trader in the digital currency market. Of course, as we said, the digital currency market is unstable, so you should not enter it without a plan or invest all your savings in this area.

Digital currency trading

Before we examine the characteristics of a successful trader, we must first point out what it means to trade digital currencies and the differences between traders in this field.

He does. A digital currency trader (Crypto Trader) is a person who monitors the price changes of a digital currency, such as Bitcoin or market currencies, and earns money in this way. For example, when a trader predicts that the price of Bitcoin will increase in the future, he buys digital currencies such as Bitcoin, and when he feels that the price of a digital currency may decrease, he sells it, thus making a profit. There are two general methods for trading in this market.

The first solution for buying and selling digital currencies through exchanges

One of the well-known methods is buying and selling digital currencies such as Bitcoin and Ethereum through a reputable digital currency exchange. This method is precisely the same as buying shares of a company through a stock brokerage.

In the world of stocks and stock exchange, brokerages play the role of intermediaries between traders and companies. The above method is also used in the digital currency market. Digital currency exchange acts as an intermediary between traders. However, the above process is not without flaws.

Some exchanges are located in countries where it is impossible to access their services in standard ways. Therefore, people in Iran who invest in these exchanges may face the risk of blocked assets, and there may be no way to recover the assets. There is always a possibility of hacking sales, which may cause the loss of people’s help.

The second solution is to trade digital currencies through our contract for difference.

The second method of activity in this area is the contract for difference (CDF), which you need a valid and legal brokerage to use. The contract for difference is one of the topics in economics and finance that allows you to trade on price changes. You can do these transactions on various markets, including the stock market, indices and commodities, and digital currencies.

The above method makes it possible to buy and sell digital currencies through an utterly legal infrastructure. In this way, a trader can use techniques such as leverage in trading, just like stock market shareholders use. Additionally, a CFD trader can use shorting or selling designs in the market to profit from falling prices and rising prices.

Considering the upward and downward trends in the chart of cryptocurrencies such as Bitcoin against the US dollar, using CFDs can be a successful strategy. Of course, the above method has disadvantages.

For example, each type of CFD trade has its own rules. General and rapid changes in the market may put your capital at serious risk, and for this reason, you should always check the changes.

It is recommended to open a demo account with no tangible assets in the brokers and make some test trades so that you do not suffer if you are unsuccessful in this field. The advantage of the above method is that CDF cryptocurrency traders can test their trading ideas and theories in a virtual trading environment without the risk of losing capital. You can trade different digital currencies using the CFD technique without using natural capital.

In the above method, a person must specify in which market he intends to transact before entering the trade. Trading in the CFD market has more advantages than trading in the spot market. Spot trading is also referred to as spot or cash trading and can include the purchase or sale of currencies, commodities, or digital assets to be traded on a specific date.

How to become a successful digital currency trader?

The first thing to note is that there is no 100% guaranteed way. Trading requires analytical skills, the ability to evaluate developments, make accurate predictions and use technical tools. Also, people who intend to enter this field should have a high tolerance threshold regarding possible losses. Another essential point to be aware of is that if you lose one day, you should not jump in and make another trade to compensate because, in most cases, you will lose twice.

Unfortunately, some people quickly take action upon seeing the first loss and lose one after another without evaluating the factors that caused them to suffer. In this case, you should check the events that caused you to lose. Give yourself a break and think about another deal the next day. They need digital currencies.

Choice of exchange

The first task is to choose a reliable and well-known exchange. At first glance, this issue does not seem very important, but you should not underestimate this issue. It is better to mention some crucial events in this field To understand the importance of choosing a good exchange.

In 2018, the digital currency exchange Coincheck in Japan was the victim of a hacker attack that stole nearly 500 million dollars from the exchange’s assets. In another example, in 2017, the Youbit exchange in South Korea fell victim to hacker attacks, finally declared bankruptcy, and had to say goodbye to the business world forever.

The most significant incident happened in 2014 for the Japanese exchange Mtgox. In 2014, nearly 80% of the world’s bitcoin transactions were done through this exchange, but due to a hacker attack, 850,000 bitcoins of this exchange disappeared. This hack caused billions of dollars in damages, which ended this exchange.

You can see that choosing a reliable exchange is the most important thing you should do. As a general rule, check the reviews people post on TrustPilot about different brokers is recommended. For this purpose, refer to the following address:

Choose a reliable trading platform.

Trading platforms and charts that show price and time are the essential tools in digital currency trading that allow viewing the price history, performing analysis, and implementing technical analysis tools on the charts. The advantage of the above platforms is that they receive and display prices quickly. That is why it is essential to go for a suitable platform.

Using MetaTrader software is one of the choices that stock market operators use in this field. Some traders also use the Trading View website for analysis. Some traders use a charting platform separate from their brokerage platform. However, as the type of trading becomes more sophisticated, most brokerage platforms provide clients with a charting platform.

Choose the strategy of your business activity in the field of digital currencies.

Trading means buying, selling, or holding a commodity or asset in a particular market. Traders who are successful over a fixed period use a specific trading strategy to make decisions in this area. Trading strategies help simplify the process of analyzing information, which may include timing a trade or not, focusing on critical technical indicators, etc. Typically, trading styles include one or both of the following types of analysis:

Technical Analysis

This type of analysis involves analyzing the price movement of digital currencies to identify repeatable behavioral patterns. Most traders use technical indicators when picking a cryptocurrency to find clues as to where the market may be headed. In technical analysis, we only use the price chart of a digital currency.

Fundamental Analysis

This technique involves analyzing news related to digital currencies, such as emerging uses of digital currency in technology or economics. Also, holding some events, happenings, and even tweets directly affect the increase or decrease in the price of digital currencies. The above analysis focuses on the project and its management team, blockchain, and other issues.

Choosing the right trading strategy requires a lot of experience in cryptocurrency trading. For this reason, you should not expect to be able to prepare a good plan in a short period. However, please pay attention to the critical point that without a trading strategy, it is difficult to make money and profit from the digital currency market.

When choosing a trading strategy in the field of digital currencies, you should know about some basic styles below:

  • Day Trading: In the above method, all transactions are done in one day, and at the end of the day, there are no open trading positions. The trader adjusts all purchases and sales so that the assignment of all transactions is determined in just a few hours. In the above method, we are only able to use technical analysis.
  • Swing Trader: The above method is mainly based on buying, holding, and selling in a specific price range. Technical analysis or fundamental analysis can be used in the above process. This retention period may be several days, weeks, or years.
  • Auto Trading: In the above method, buying and selling is done by an algorithm. This algorithm is written by the trader or a team of programmers. Of course, the performance of algorithms is only helpful for a certain period and must be constantly rewritten to maintain its performance. The above method is one of the most popular digital currency and stock market trading methods.
  • Copy Trading: This trading style is not new, but cryptocurrency traders have used it for some time. Copy-based trading means copying or imitating the work pattern of someone who has made successful trades. This option is more suitable for people who have just entered the world of digital currency trading.

What are the characteristics of a good trader?

It doesn’t matter what trading strategy you use. Almost most traders in the digital currency market follow certain principles. Successful traders first choose their trading strategy and then act like a robot. More precisely, they buy whenever they get a signal in line with their design and exit the trade whenever they see a sign to exit the market.

More precisely, they act like a machine and never involve emotions in trading. People who constantly buy and sell digital currencies on the advice of others are likely to suffer in the long run. Still, successful traders make decisions based on their analysis. A successful trader is a person who is not influenced by the words of others or the emotions of the market.

Risky step purchase strategy

One of the strategies that some experts suggest to traders is the Martingale strategy, which is a stepwise and progressive buying method. In the theory of statistics and probability, martingale refers to a sequence of random variables at a particular time. The martingale method says that if the trade fails, the trade size should be doubled, assuming you will get back what was lost. Given that the amount of money invested through the above method grows exponentially and no trader has the infinite capital necessary to succeed, the above strategy is risky.

Paul Levy first proposed the concept of step buying in 1934, but Jean Ville referred to it as a statistical concept in 1939. To have a detailed understanding of the Martingale method, pay attention to the following example:

Suppose we have a transaction with two outputs with equal probability.

Trader X decides to invest a fixed amount of $50 with an expected exit of 1. However, exit 2 occurs, and the transaction fails. If the martingale strategy is used, the trade size will increase to $100 with the hope of success and getting exit 1, but again exit two will happen, and another $100 will be lost. Since losing this trade, its size will double again and increase to $200.

This process continues until the desired result is reached. If you remember, at the beginning of the article, we told you that if you face a failed trade, don’t continue.

The martingale strategy works on the premise that if the size of the thriving trade is greater than the sum of the losses of the past transactions, the trader will eventually make a profit. Still, the probability of success is low, and you may lose all your capital. Given that the Martingale strategy is based on the concepts of statistics and probabilities, different results may be obtained as follows:

 Successful first trade and earn $50 profit.

 Failure of the first transaction and victory in the second transaction:

  • A loss of $50 on the first trade and a win of $100 on the second trade is a net profit of $50.

 Failure of the first and second trades, but success in the third trade:

  • A loss of $50 on the first trade, $100 on the second trade, and a win of $200 on the third trade is still a net profit of $50.

 The failure in the first three trades and success in the fourth trade:

  • Lose $50 on the first trade, $100 on the second trade, and $200 on the third trade. With a win of $400 on the fourth trade, the net profit is still $50.

As you can see, the risk-reward ratio of the martingale strategy is not logical. The loss is irreparable if you spend all the capital and exit during trading. In addition, the above method does not consider transaction fees.

last word

Once again, we must point out that the cryptocurrency market has a lot of price fluctuations and is classified in the group of high-risk markets. In addition to the risks and extreme market volatility, there are other risks.

Among the critical issues, you should be very careful about are money laundering and tax evasion, cyber theft, exchange hacking, supply of fake and fraudulent cryptocurrencies, etc.