Newbie's Guide to Encryption Trading: A Complete Guide from Scratch

Trading vs Investing, which one do you choose?

Trading is short-term buying and selling, making quick money. Investing is long-term holding, waiting for growth. The former requires monitoring the market and analyzing technical aspects, while the latter just requires lying flat.

Traders profit from fluctuations, making 1-5% on a trade before running away. Investors wait for significant market movements, which may take years to double their investment. Both can make money; the key depends on your temperament and time.

The Two Major Analysis Methods in the Cryptocurrency Circle

Fundamental Analysis (FA): Study the project itself, market prospects, and team capabilities. Suitable for the stock market, but not very useful in the cryptocurrency space, as the price of coins mainly relies on speculation and narratives.

Technical Analysis (TA): Predicting the future by looking at historical price trends. It is very suitable for the crypto space, as the price of cryptocurrencies fluctuates dramatically, and technical analysis can capture these fluctuations.

The best approach: Use a combination of both. Use fundamentals to find projects and technical analysis to determine timing.

What is Spot Trading?

The simplest way to trade. You buy coins, and they are credited instantly. Want to exchange for another coin? Just swap in the trading pair, and it arrives in seconds. Unlike futures, which require waiting for the delivery date, spot trading is settled on the spot.

Margin Trading: Amplify Gains with Leverage (also amplifies losses)

Core Concept: Borrow money to expand the position. With 1000 yuan, borrow 1000 yuan, and you can operate a position of 2000 yuan (2x leverage). The gains double, and the losses also double.

Risk: If the market moves against you, your margin may be liquidated. The higher the leverage, the closer you are to the liquidation price. Beginners should avoid high leverage, as it is easy to get liquidated.

Futures and Perpetual Contracts

Futures: Contracts with an expiration date. Automatically settled upon expiration.

Perpetual Contracts: No expiration date. Positions can be held indefinitely. To prevent significant price divergence, there is a funding fee mechanism—long positions pay a small fee to short positions (or vice versa) to balance the price.

Long vs Short

Long: Buy, bet on price increase. The most common operation.

Short Selling: Selling with the bet that the price will drop. Borrowing coins to sell, then buying them back after the price drops to repay the debt, making a profit from the difference. High risk, requires experience.

Order Book and Liquidity

Order Book: The “glass cup” of the exchange, showing all current buy and sell orders.

Coins with good liquidity: Many orders, small price differences, large orders are easy to execute.

Low Liquidity Coins: Few orders, large spreads; your large order might push the price down (slippage).

Three Order Methods

Market Order: Executes immediately at the best available price, but the price is uncontrollable and can easily be affected by slippage.

Limit Order: An order that will only be executed at a specified price or better. Controllable but may never be executed.

Stop-loss order: Automatically sells when the price drops to a certain point, stopping the loss. The key is not to set it too tight.

Maker vs Taker

Maker: Your order has entered the order book, adding liquidity to the market, and the transaction fees are low.

Taker: Market order execution, directly taking others' orders from the order book, with higher fees.

Candlestick Charts and Trend Lines

Candlestick Chart: Each candlestick represents OHLC data (Open, High, Low, Close) for a specific time period (1 hour, 1 day, etc.). The chart helps to determine buying and selling pressure.

Trend Line: A line that connects price highs or lows. The more times it is tested, the more effective it is. Ascending trend lines and descending trend lines help you determine the main trend.

Support and Resistance

Support: The bottom of a price rebound, where buying pressure accumulates.

Resistance: The top where the price is blocked, a place where sell orders gather.

These two concepts are simple but super useful, and almost all technical analysis relies on them.

Overview of Mainstream Technical Indicators

RSI (Relative Strength Index): 0-100, >70 overbought, <30 oversold. Indicates the strength of momentum.

MACD: Look for the crossover of moving averages, with a golden cross as a buy signal and a death cross as a sell signal.

MA (Moving Average): A simple trend indicator. Price above MA = bullish, below = bearish.

Bollinger Bands (BB): Three lines frame the price. Price touching the upper band = overbought, touching the lower band = oversold.

VWAP: Volume Weighted Average Price. Price above VWAP = bullish, below = bearish. Traders like to use it to find prices with good liquidity.

Overview of Trading Strategies

Day Trading: Enter and exit on the same day. Requires constant monitoring of the market, suitable for those who have the time.

Swing Trading: Holding for a few days to a few months. It's a beginner-friendly option with less stress.

Position Trading: Long-term holding, possibly for several months to years. Focus on fundamentals, ignoring short-term fluctuations.

Scalping: Seconds-level trading, seizing a few points of fluctuation. It tests skills the most and is also the most dangerous.

“Buy and Hold” Strategy: The simplest - buy the coins, and then just hold them, believing they will increase in value in the long run.

Rules of Risk Management

Calculate the risk of each transaction: The loss on a single transaction should not exceed 1-2% of the account.

Always Set Stop Loss: Don't gamble. When the price reaches the stop loss point, sell automatically to stop the bleeding.

Diversified Holdings: Do not invest all your money in one coin. Multiple coins, multiple strategies, different time frames.

Use Leverage Sparingly: Leverage is a double-edged sword; beginners should avoid it.

The First Step from Scratch

1. Only trade with spare money: Don't borrow money, don't use living expenses.
2. Simulate Trading First: Practice with virtual funds to get a feel for it.
3. Small Amount Trial and Error: Real money is involved, starting from 100 to 1000 yuan.
4. Keep a transaction log: Record each transaction and summarize the win rate and issues.
5. Learn and Learn Again: Technical analysis, risk management, and psychological development are all very important.

Pitfalls to Avoid

Pump and Dump: Some people deliberately drive up the price of small coins and then collectively sell off to cut the profits of others. Don't trust the “insider information” in the group.

Paid Trading Communities: Most are just for harvesting retail investors. Good analysis is usually free.

Airdrop Trap: It's rare to have something fall from the sky. Is participating in an airdrop asking you to fill in personal information? Be careful not to get scammed.

Final Words

There is no quick-rich secret in trading. Most beginners will lose money. However, if you are willing to learn, manage risks, and execute strategies over the long term, it is possible to make money slowly. Start small and learn as you go.