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Crypto Fundamentals: Crypto Trading Strategies for Beginners

Crypto strategies & fundamentals for beginners: types, analysis, risks & more.

Published in: One Trading · 5 min read

Introduction

Crypto-assets have taken the financial world by storm, offering relatively new investment opportunities and revolutionizing how we think about money and confirm transactions.

However, entering this market without a well-thought-out plan can be overwhelming. Hence, it is crucial to learn the basics.

This article explores crypto fundamentals, including the different crypto trading strategies and the role of crypto exchanges in protecting beginners. 

1. Understanding Different Types of Cryptos

Due to the exponential growth of the crypto markets, beginners need to know the various types of cryptos. Let’s take a look at the different categories of cryptos.

1.1 What are Crypto-Assets?

Crypto-assets (also known as crypto) are digital currencies that use cryptography to protect digital data and distributed ledger technology to record transactions. They make decentralization, immutability, and safe peer-to-peer crypto transactions possible.

Unlike traditional fiat currencies, these virtual currencies are not controlled by any trusted third party or centralized authorities like financial institutions. They offer unique features that distinguish them from traditional financial services and are hosted on a decentralized system that is often based on blockchain technology.

1.2 Major Crypto Categories

1.2.1 Bitcoin

Bitcoin pioneered the modern crypto movement. It was created in 2009 by someone or a collective (known by the pseudonymous name of Satoshi Nakamoto) who decided to remain anonymous.

Bitcoin serves as a decentralized store of wealth and digital currency. It is also seen as a long-term investment and a hedge against inflation. Bitcoin, a deflationary commodity with a limited supply of 21 million coins, has become increasingly popular among investors and has become the top-performing asset of the year and the last decade. Off the back of its success, we have seen increased adoption and increases in the time held by long-term holders, which shows that those who are investing have high conviction in its long-term success. 

1.2.2 Altcoins and Tokens

Altcoins, or sh*tcoins, as they’re affectionately known to crypto natives, are any other crypto-assets other than Bitcoin. Many of these are used for smart contracts, privacy features, and utility tokens for certain platforms or services. Examples of popular altcoins include Ethereum (ETH), Ripple (XRP), and Litecoin (LTC).

Tokens, on the other hand, are assets created on already-existing blockchains like Ethereum. They can represent diverse physical or digital assets. The success of the project they're linked to often plays a key part in how much value they have, though there are often a broad range of other factors that can determine the value- which, much like company stocks, is often built on speculation. 

Examples of tokens include Uniswap (UNI), which is used for decentralized exchanges, and Chainlink (LINK), which facilitates smart contracts.

1.2.3 Stablecoins

Stablecoins are created to reduce the extreme volatility that often characterizes the crypto market. These coins are pegged to stable assets, such as the US dollar or gold. Popular examples of stablecoins include the market leader, Tether (USDT). Others include USD Coin (USDC), and DAI.

Stablecoins offer a fast way for traders to transfer money and preserve the value of their crypto holdings during market volatility.

2. Fundamental Analysis for Beginners

Crypto trading can be a lucrative task, but beginners should have a solid foundation in fundamental analysis. This may reduce trading risks and help novice investors to make more informed decisions.

2.1 What Is Fundamental Analysis?

Fundamental analysis refers to the process of researching the underlying factors that determine a crypto's value. It helps to know whether a specific digital asset is overvalued or undervalued by considering several factors.

Here are some essential steps that you can start with:

2.1.1 Evaluate the Whitepaper

The foundation of any crypto project is its whitepaper. It is a technical report that the crypto's creators published to showcase its purpose, technology, and goals. Start by thoroughly reading the whitepaper of a crypto when evaluating it. Pay attention to the following when doing this:

  • Understand the goals and vision of the project. What issue is it trying to address, and how does it intend to solve it?
  • Evaluate the crypto's technological components. Is it based on a strong, cutting-edge blockchain? Does it add any new features or make any changes to the existing cryptos?
  • Examine the project's roadmap to see how it is evolving. An organized roadmap signifies how committed a team is to accomplishing its goals.
  • Assess the qualifications, backgrounds, and prior successes of the advisers and team members.
  • Make sure you evaluate the team's interaction with the community. Do they respond to questions and concerns? Transparent communication can build trust.
  • Look at the token allocation- how much is allocated to the team, and what is the vesting period they have to hold for? Urge caution with any projects that hold more than 25% of their token as a team or between the team and their early-stage investors. The reason is that if, for example, they have more than 40% as a team and a short vesting period, they could all sell if the token pumps, causing a huge fall in price, leaving the investors that have come in later with nothing. This is often known as a rug pull. Projects with longer vesting periods are therefore seen to be more secure as It shows the core team has confidence in the long-term success of the token. It also means they can’t sell their holdings if the token pumps if they’ve not reached their vesting stage. 

2.1.2 Analyze Utility and Use Cases

Consider the real-world use cases of cryptos when evaluating them. Do they provide unique solutions to specific issues? Analyze its use cases, utility, and integration with the blockchain ecosystem as a whole.

2.1.3 Investigate Market Trends

Keep up with the most recent market trends and advancements in the crypto space. Examine the crypto's compatibility with these developments. For instance, is it leveraging non-fungible tokens (NFTs) or AI (artificial intelligence) trends?

2.1.4 Analyze News, Social Sentiment, and Social Media Following & Engagement

News and social sentiment significantly impact the crypto market. Keep up with any big collaborations, announcements, or regulatory changes involving the crypto you're considering. Also, research forums and other media sites to determine community sentiment.

Do your due diligence on their social channels- if the project has lots of followers, do the likes and interactions/engagements on their posts seem legitimate for the number of followers they have? If not, they may have fake followers or bots to make it appear that they have more followers and that the project is more popular than it actually is. This is a major red flag to watch out for! It’s also worth checking if their following is consistent across various platforms as, unless they have just set up a new account, this could be another potential red flag.

3. Technical Analysis for Beginners

Understanding technical analysis can increase your chances of success when it comes to crypto trading. This is because you will be able to make informed decisions in your trading activities.

Keep reading to explore the basics of technical analysis and also discover the tools and knowledge to get started.

3.1 What Is Technical Analysis?

Technical analysis refers to the process of examining volume data and historical prices to predict future price changes. Although technical analysis cannot predict the future with full certainty, it helps traders see patterns, trends, and potential entry and exit points in the crypto market.

As a beginner, it is highly recommended that you understand the following components of technical analysis:

3.1.1 Reading Price Charts

3.1.1.1 Candlestick Patterns

Candlestick charts are frequently used in technical analysis. They offer a graphic representation of price changes over a given period. Different candlestick patterns can indicate market trends, reversals, or indecision. Some examples include doji, hammers, and shooting stars.

3.1.1.2 Support and Resistance Levels

Support levels are the price ranges where an asset typically attracts buying interest, preventing further fall. On the other hand, resistance levels are regions where selling interest often manifests, stopping the price from rising. These levels can help you set entry and exit points.

3.1.1.3 Moving Averages

Moving averages make price data over a certain period more consistent, thereby making it easier to identify trends. The two main types include simple moving averages (SMA) and exponential moving averages (EMA). Traders usually use crossovers between different moving averages to know when to buy and sell.

3.1.2 Oscillators and Momentum Indicators

3.1.2.1 Relative Strength Index (RSI)
rsi indicator

The RSI gauges how quickly and frequently prices change. It ranges from 0 to 100, and values below 30 suggest that an asset is oversold, while values above 70 suggest that an asset is overbought, respectively.

3.1.2.2 Moving Average Convergence Divergence (MACD)

The MACD indicator combines two moving averages. It can be used to determine potential trends and trend reversals. Traders usually look for crossovers between the MACD line and its signal line when making trading decisions.

3.1.3 Chart Patterns

3.1.3.1 Head and Shoulders
Head and Shoulders

This pattern suggests that the trend may be about to reverse. It consists of three peaks, the highest of which is the middle peak. An inverse head and shoulders pattern suggests a bullish reversal.

3.1.3.2 Double Tops and Bottoms
Screenshot_2-14.jpg

These patterns serve as warning signs of a possible trend reversal. While a double bottom is a bullish pattern, a double top is bearish.

4. Conclusion

Although crypto trading offers incredible opportunities for financial diversification, there are also inherent risks..

You may also wish to review our other blogs, where we cover a broad range of relevant topics for beginners, intermediate, and advanced traders. As the popular saying goes in the crypto world, always do your own research (DYOR) and be cautious. 

As ever, our materials are provided for educational purposes and should not be considered as financial advice. 

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Disclaimer: This material is for informational purposes only, and is not intended to provide legal, tax, financial, or investment advice. Past performance is not necessarily indicative of the future nor a reliable indicator of the likely performance of any investment. Recipients should consult their own advisors before making these types of decisions. One Trading has no responsibility or liability for any decision made or any other acts or omissions in connection with Recipient’s use of this material. 
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