"How to Trade Cryptocurrencies" - secrets of making money on new instruments

The future has already arrived. Even grandmothers on park benches discuss the Bitcoin rate. Even lawmakers reluctantly admit that cryptocurrencies have finally entered the economy. But how do you make money on them? It is too late to mine, and investments are extremely volatile. The answer is simple: trading, the only way to make money on cryptocurrency both when it rises and when it falls.

It is traders who can make millions on cryptocurrency swings at any rate, whether high or low.

And at the webinar "How to Trade Cryptocurrencies" we will dot all the i's, sort out the pros and cons of the new instruments from a trading perspective, and also discuss important nuances that are not usually written about in the news.

Below you will find a short text version of the webinar.

In general, cryptocurrencies can be viewed as an analogue of electronic money, the same as Yandex.Money, WebMoney, or PayPal. The significant difference is the Blockchain technology that underlies all cryptocurrencies.

The easiest way to notice the difference is by example. Say, what happens when you send your grandmother 100 rubles by bank transfer? First, the money goes to the bank's account, then the record goes to the server. If something happens to the bank's server at that moment (force majeure), the money will disappear. From one bank's server, the money is redirected to another bank's server. Again, if something goes wrong during this operation, the money may be lost while the transaction is being executed.

Blockchain is an analogue of a digital notary, where there is no single central server (a single point of failure), as in the case of traditional electronic wallets. In essence, blockchain stands for a chain of blocks, where each block participates in confirming a transaction. In the Bitcoin network, all transactions are irreversible (cannot be changed after the fact), and each network participant stores the full history of all transactions.

Bitcoin is the very first and most vivid representative of cryptocurrency based on blockchain technology. Here we can draw an analogy with the US dollar as the main conversion instrument. On many services, Bitcoin is the default cryptocurrency, meaning that other cryptocurrencies are automatically converted into Bitcoin.

As for security, we can say that the technology provides transaction transparency, since information about transfers between wallets is open to everyone, but it does not provide full anonymity. If desired, greater anonymity can be achieved with the help of special mixers (servers for obscuring transactions) and other methods that hide the physical address of the wallet user.

Actually, no one has any questions about why the rate is rising. At the very least, the technology itself is of interest to investors and, in general, people like being independent of governments.

But let us start with the fact that the amount of Bitcoin in circulation is limited, and according to estimated calculations, the main part of the coins will be mined by 2034. If you believe in blockchain technology, then until that time it definitely makes sense to hold investments, but you need to be ready for sharp swings of 30-50% of the rate.

One of the main advantages of trading cryptocurrencies is their huge volatility. Since we are talking about trading rather than investing, a strategy for making money on Bitcoin may very well include short positions. In fact, Bitcoin can also be sold, and you can make money on that too.

The fact that the bubble will burst is inevitable. It is quite possible that this process has already begun. After the bubble bursts, the rate will fall sharply. But since a huge amount of infrastructure has been created (companies, exchanges, services, exchangers, and so on), even if the rate remains low for some time, cryptocurrencies will remain, stabilize, and eventually return to growth.

The same thing happened during the dot-com crash in the 2000s, when huge amounts of money were invested in the internet without really understanding what it actually was. Nevertheless, despite the burst bubble, an enormous infrastructure was created, the internet is now everywhere, and the richest people work precisely in the IT sphere.

Mining is the process of producing new blocks while processing transactions. That is, you give part of your own computing power to support the distributed network, and as a reward you receive a certain amount of cryptocurrency. Home mining no longer has any economic benefit unless you are going to do it on an industrial scale.

In general, the time for investing in Bitcoin itself has also passed. But given the current rate, if the situation stabilizes now and the currency shows any signals of moving upward, you have a good opportunity to invest in Bitcoin at a favorable price. You need to invest for the long term, while being ready for 30%-50% fluctuations and huge drawdowns.

The launch of an official Bitcoin option is expected soon, in connection with which one can prepare for strong growth due to the arrival of hedge funds and other large institutions. Thus, LedgerX LLC is going to open the possibility of trading a BTCUSD option with expiries from one month to six. In general, trading is conducted even without an official instrument, but once they appear, market activity should be expected.

A very strong rate increase already took place after Japan recognized Bitcoin as an official means of payment. Accordingly, when other countries follow the same practice, a similar market reaction should be expected.

In August there was a Bitcoin fork, that is, its split into Bitcoin and Bitcoin Cash, which also provoked a rise in the rate. Another fork is expected in November, so another upswing should be expected before this event.

Trading is the best way to make money on cryptocurrencies, because we can earn even when the rate is falling. When investors panic, traders stay calm. One of the main advantages, as we have already discussed, is strong volatility. Those very thousands of percent that everyone dreams of when they come to forex can be achieved on ordinary instruments only with large leverage. Here, all of this is available with moderate risks.

Also, classical technical analysis, textbook examples, and well-known patterns work very well on cryptocurrencies. Since the instruments are new, there are many inefficiencies on them that, for example, have not existed for 10 years on popular instruments like EURUSD. If you take some very simple strategy, such as trading the crossing of a moving average, then it will work terribly on the euro, but quite tolerably on cryptocurrencies.

The main currencies are Bitcoin, Litecoin, and Ethereum. Also, Monero, Dash, Ripple, Zcash, and Ethereum Classic can be counted among the major ones. Ethereum Classic has high growth potential in the event of a ban on Ethereum mining, which may happen as early as September-October of this year. I would advise buying Ethereum Classic at the first signs of growth. The main thing is do not get into unknown currencies.

But the situation with cryptocurrency exchanges is not very bright. Not long ago there were several major stories involving the closure of the MtGox and BTC-e exchanges, and the Chinese exchanges Bitcan and BTCC also ceased operations. Therefore, trading on crypto exchanges is a separate pleasure with high risk. It is much easier for ordinary traders to trade with forex brokers, because, like most people, traders do not need bitcoins themselves. The total costs in such an approach are often lower. At the same time, you get full-fledged MT4, lower risks of losing money, and many ways to deposit and withdraw money.

Since Bitcoin right now is for the most part a retail instrument, meaning there is not yet a large amount of institutional money there as in ordinary currencies, the strongest thing affecting the rate is news. For example, ICOs were banned in China (the initial issuance of coins on an exchange), and this directly affected the bitcoin rate. Also, the rate grew strongly after Japan recognized bitcoin. That means you need to follow the news.

Also, considering its closeness to the public, strategies aimed at crowd behavior work on cryptocurrencies. It should be taken into account that one large sale or purchase can easily move the market. That is, any sharp fluctuations may happen not only for fundamental reasons, but simply when a large player decides to enter or exit the market.

Fibonacci levels work excellently. Fibonacci is built on the basis of the golden ratio, meaning the foundation lies in the structure of the nature around us, in structural harmony. All of this is from the point of view of human perception, which is why pullbacks and rebounds happen from the levels, because the same people trade in the market.

If we zoom out the chart, we will see that the long-term trend on BTCUSD is still going upward, despite periodic strong declines. This is very clearly visible even over the relatively small period since May 2016.

Traditional horizontal levels work as well. But, of course, do not look for levels where there are none, use only the most obvious ones and watch round numbers, for example: 200, 300, 3000, 4000, and so on. At the same time, false breakouts of levels happen very often, so here you need to be extremely careful. If you do trade by levels, then use a hold above or below the level as confirmation. Nevertheless, a rebound from the level is always more likely than its breakout.

Also, note that if earlier there were many so-called pyramids operating under the pretext of forex trading, now the same thing is happening with the cryptocurrency market. One example is cloud mining services, most of which operate under a fraudulent scheme.

When there are no major news events in the market, the simplest purchases on a pullback to the average work well enough (necessarily with confirmation). The 21 average shows itself excellently. Trend lines can be included here as well. Also pay attention to gaps - they may remain unclosed, and this is quite normal. Considering the increased volatility, it is not worth fooling around with averaging, just as it is not worth getting into purchases at the highs.

One of the most promising strategies for Price Action lovers is pin bars. Pin bars work excellently on cryptocurrencies. But, of course, do not forget that a pin bar should always have some kind of support - a key level or a Fibonacci level. There are simply a lot of candles with long tails. A pattern characteristic of this market is several pin bars in a row. When you notice such a formation, you should expect some directional movement.

As a working TF, the best fit is the daily and H4. In general, do not forget about technical analysis, do not give in to emotions, and do not buy at the tops. For those who trade the long term, it is best to use a portfolio strategy, buying all three main currencies at once - Bitcoin, Litecoin, and Ethereum.

The recommended deposit, on average, is $1000. Leverage higher than 1:10 cannot be found anywhere yet; such leverage is available at AMarkets and Alpari. The minimum lot at AMarkets is 1, at Alpari it is 0.1, and 0.01 at FXOpen, but with 1:3 leverage.

To simplify risk calculations, at the end of the article you will find a link to a special indicator that displays on the chart the maximum number of lots for purchase, the minimum lot, the pip value, the size of the spread, and the swap. To launch it, drag the indicator onto the chart, click load, and select the attached set file.

The risks per trade are 2-3% maximum, as with other strategies. In any case, do not forget about money management. In general, 1:3 leverage will be enough for normal trading without overstating risks. But, of course, for a start it is best to test the strategy on a demo account, and only then move to a real account.

At the moment, cryptocurrencies are a very simple instrument for trading. This situation will continue for some time yet, possibly about a year, until big money comes to the market. That is, when trading becomes more centralized, many inefficiencies will disappear. Nevertheless, people still manage to lose, even when everything is greatly simplified. Therefore, your task is to use your advantage, but not lose vigilance in a rush of excitement.

Links mentioned during the webinar:

Respectfully, Pavel Vlasov TradeLikeaPro.ru