The Fundamentals of Trading

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What is trading ?

When people hear about trading they often link it to the stock market and where they can park their savings for a higher dividend and save for their retirement. But that has nothing to do with trading itself, we call that investing. In this course we will be focussing on the fundamentals of trading and in specific trading Bitcoin and cryptocurrencies.

Trading is to actively buy and sell stocks to make profit. Most traders buy and hold their stocks to sell it at a later point and sometimes they hold it for a long time, even months to years before they sell it. But there are more types of trading and especially more types which carry more opportunity of making profits. So in this course we call a trader who is holding longer then a couple of months a investor. We will be focussing on trading in shorter periods of time and those traders can be separated into two segments :
– A Daytrader
– A Swingtrader 

Day trading is like it’s name. Trading within a 24 hour time period. Day traders buy and selling stocks or cryptocurrencies within a 24 hour period.

Swing trading is trading within a longer period of time. A swing trader can hold his position for a couple of days to sometimes even a month.

It is important to explore what kind of trading fits you. The good thing about trading is that most markets are open 24 hours a day and that you can build your skills next to a regular job. Especially within the cryptocurrency space as there is a lot of action and the markets are always 24 hours a day open.

Accumulation and distribution

It doesn’t matter what kind of trader you are you always would need to focus on accumulation and distribution. With accumulation we mean opening positions. With distribution we mean closing positions. In the following example you see the Bitcoin chart. The green circles are our accumulation points and the red circles are our distribution points.

Bitcoin chart
Bitcoin chart

The whole point with trading is setting entry and exit levels, accumulate and distribute. At the green circles we buy Bitcoin and in the red circles we sell Bitcoin. The charts are moving in cycles and therefor there is always volatility. With volatility there are opportunities to make profits by trading.

Trends

Trends defining the ways the market is moving. If the market is moving downwards there is a downtrend present. If the market is moving up we are seeing a uptrend. Trends are really important signals telling trader which way the market is going. Let’s have a look at a trend from the Bitcoin chart.

Bitcoin chart
bitcoin chart

The red line is representing the trend, in this case we are seeing a downtrend. The green lines showing movement upwards but it is not the underlying trend. Because even when we do see upwards movement the underlying trend still can be a downtrend which indicates that the bears are having the heavier hand.

Bear Market

A bear market is when the market is moving downwards. A ‘bearish’ trend is a trend that going downwards. So the price of the stocks in a bear market are decreasing.

Bull market

A bull market is when the market is moving upwards. A ‘bullish’ trend is showing an upwards trend. In a bull market there is a lot of confidence at the investors and the price of a certain stock or cryptocurrency is increasing.

Levels

When analyzing the charts traders always specify certain levels. These levels can indicate where the prices would bounce back up or down. Levels are a really important factor to determine when to open a trade and when to close a trade. The main levels we are dealing with are the support level and the resistance level.

Support level

The support level is the level we expect the price to reverse to the upside. When the price is touching this level there will be more buyers and the price will go back upwards.

Resistance level

The resistance level is the level we expect the price to reverse to the downside. When the price is touching this level there will be more sellers and that will make the price go downwards.

In the following image we can see a support and resistance level. The green line is the support line and the red line is the resistance line.

Bitcoin
Bitcoin chart

In this chart you can see that the price is touching the support level four times. Every time the price is touching that level it is reversing same as the resistance level. Every time the resistance level is touched by the price it reverses downwards.

Candle sticks

The price movement of a certain timeframe is visible in the chart through candle sticks.
Each candle represents a certain time frame e.g. 1 day, 4 hours. That depends on how you have set the settings of the chart. We have red and green candles.

Red candle

A red candle stick represent a downward price movement where the closing price is lower then the open or close price from the candle before.

Green candle

A green candle stick represents a upward price movement where the closing price is higher then the open or close price from the previous candle.

Candle sticks
Candle stick

Tradingview

To start trading you need certain software to view and analyse the charts and develop your trading strategy. The charting tool we are using and we strongly recommend any trader to use, actually we do think it’s a pre-condition to trading is Tradingview. Tradingview is the most professional trading tool and you need it to start trading.

 

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