Want to earn some extra cash by trading bitcoin? Then you need to make sure that you understand the fundamentals of becoming a successful trader. Many traders acknowledged with traditional financial markets have also found that success when trading bitcoin, but there are also plenty of trading novices who don’t understand what they’re getting themselves into. Although you don’t need to have a degree or take a course to be a successful trader, it makes sense to understand the building blocks of long-term trading profits (Read more: “Top-5 Rules for Successful Trading“).
Let’s take a look at some key concepts you need to understand to wrap your head around trading.
Support and Resistance
If you’re going to be a successful trader in any market, then you need to know about support and resistance. These are two long-term extremes on any asset. The support is the price level where it seems that traders are willing to buy an asset, while the area of resistance is almost like a ceiling on how high the price can go over the short term. If you’re able to identify the support and resistance levels of a particular asset, especially a commodity like bitcoin, then you should be able to figure out the right times to buy or sell.
It’s especially important to think about areas of support in bitcoin during a price crash. The price of bitcoin has been rather volatile over the course of its young life, and knowing the price level where a large number of traders will decide to buy the digital currency can be valuable when deciding to pull the trigger on your own buy order. In many cases, that area of support can end up being the point where the crash stops.
Many traders are able to turn a profit by simply buying in areas of support and selling once the point of resistance has been met.
Moving Averages Crossover
Another basic trading strategy to look at when you’re coming up with your game plan is the moving averages crossover. This is one of the most basic signals that traders look for in any market, and a price that is dipping below or rising above a 20-day moving price average could be a sign of a larger price trend. The 20-day moving average is simply the average price of a given asset over the past 20 days, so a deviation away from that price could be a sign that something has changed with the fundamentals of the asset. It is often placed on candlestick graphs of the current asset price, which allows you to see the exact moment when the price is crossing above or below the moving average.
A crossover is often seen as an even more powerful indicator of what is about to come when it is two different moving averages crossing rather than the current price of the asset. For example, a trader may have their graph set to display both the 15 and 50-day moving averages of an asset on a chart. If the 15-day moving average crosses upwards over the 50-day moving average, then many traders would be looking at that as a rather bullish indicator. The same argument would apply in a bearish sense if the 15-day moving average were dipping below the 50-day moving average.
Traders like to use these sorts technical analysis because they can remove some of the emotions from the equation. Removing yourself from your emotions and looking at the facts is the best way to make sure that you don’t make any huge mistakes during your trading activities.
Combine These Two Techniques
Once you have mastered the concepts of support, resistance, and moving averages crossovers, then you should also think about combining the techniques into one plan of action. For example, if you know that the area of support for bitcoin has been around $300 over the past few months, then you may want to look for a crossover of moving averages when the price is around that level. The same concept would also apply if the price were around the area of resistance and about to reverse (Read more: “Trading styles”. Coming up with your strategy is a huge part of being a successful trader, so don’t hesitate to experiment with your combinations.