Steemit Crypto Academy Contest / S7W3 - Understanding Crypto Trading

What is cryptocurrency?

Cryptocurrency is a decentralized and decentralized medium of exchange that uses cryptographic functions for financial transactions [90]. Cryptocurrency uses blockchain technology to obtain characteristics such as decentralization, transparency, and immutability [187]. Above, we discussed how blockchain technology applies to cryptocurrencies.

In general, cryptocurrency security is not based on cryptography, nor on people, nor on trust. For example, Bitcoin uses a method called the "elliptic curve" to ensure that transactions involving Bitcoin are secure. Elliptic curve cryptography is a public key cryptography that relies on mathematics to ensure the security of transactions. When someone tries to brute force the encryption scheme above, they try 250 billion possibilities every second, and it takes a tenth of the age of the universe to find a matching value. When it comes to its use as a currency, a cryptocurrency has the same attributes as a currency. Its supply is controllable. Most cryptocurrencies limit the supply of tokens. For Bitcoin, the supply will decrease over time and will reach its final quantity around 2140. All cryptocurrencies control the supply of tokens through a time schedule encoded in the blockchain.

One of the most important characteristics of cryptocurrency is the absence of financial intermediaries. In contrast, if a bank's database is hacked or corrupted, the bank will rely solely on its backups to recover the lost or corrupted information. With cryptocurrency, even if part of the network is compromised, the rest can still properly verify transactions. Another important feature of cryptocurrency is that it is not governed by any central authority: the decentralized nature of the blockchain ensures that cryptocurrency is theoretically free from government control and interference.

As of December 20, 2019, there are 4950 cryptocurrencies and 20325 cryptocurrency markets; the market value is approximately $190 billion. Figure 4 shows historical data of global market capitalization and 24-hour trading volume. The total market value is calculated by adding the dollar market value of all cryptocurrencies. From the graph, we can observe how cryptocurrencies experienced exponential growth in 2017 and experienced a huge bubble burst in early 2018. There's signs of stabilization in the recent year in cryptocurrencies.

Explain your understanding on crypto currency trading and tell us what you understand by the word "trading"

Cryptocurrency trading

Definition:

Cryptocurrency trading is the act of buying and selling cryptocurrencies for profit.

The definition of cryptocurrency trading can be divided into three aspects: trading object, trading mode and trading strategy. The subject of cryptocurrency transactions is a traded asset, i.e. "cryptocurrency". The way cryptocurrency trading works depends on the trading methods of the cryptocurrency market, which can be divided into "contracts for difference (CFDs)" (a contract between two parties, usually called the "buyer" and the "seller", which stipulates that the buyer will be at the end of the position Pay the seller the difference between you and "buying and selling cryptocurrency via an exchange.

What are the trading principles to always keep in mind as a Crypto Trader and how can you build your own crypto trading strategy

Trading Principles

Plan your business plan and stick to it
it is observed that even when a trader plans, he adjusts the trading plan during the trading session. I advise traders to stick to the plan and always plan before the market starts. We strongly recommend understanding your trading style before placing a large % of your trading capital on a bet.

Learn to lose
As they say, "Lose the battle, win the war." It has been found that many traders end up holding a trade position, especially if it runs away from his plan and ends up being married to a losing trade. This leads to a situation where you try to justify bad trades. Remember, "Today's big loss was yesterday's small loss."

Define trading goals
As with any other business, the goal of trading should be very clear. Let alone the purpose of trading, many traders do not define a trade objective. Investors should define their reason for trading like some may want to buy a new house or car, pay off debt, park their funds etc. whatever the reason may be. Similarly, you need to define goals for each trade. Unless your purpose is to kill time or waste money, we recommend trading with clear goals.

Image by Gerd Altmann from Pixabay

Strategies

Cryptocurrency trading software system

The software trading system enables international transactions, processing customer accounts and information, receiving and executing trade instructions. A cryptocurrency trading system is a set of pre-programmed procedures that enable transactions between cryptocurrencies and fiat currencies and cryptocurrencies. The cryptocurrency trading system aims to overcome price manipulation, cybercriminal activities and transaction delays. When developing a cryptocurrency trading system, we must consider the capital market, underlying assets, investment plans and strategies.

Cryptocurrency Econometrics

Econometric methods use a combination of statistics and economic theory to estimate economic variables and predict their value. Other methods can be used, such as sentiment-based forecasts and predictions based on the classification of long-term and short-term fluctuations. Volatility prediction can be used to assess cryptocurrency price fluctuations, which is also valuable for valuing cryptocurrency-related derivatives.

When using econometrics to study cryptocurrency transactions, researchers apply statistical models to time series data, such as the generalized autoregressive conditional heteroscedasticity (GARCH) and BEKK (named after Baba, Engle, Kraft, and Kroner, 1995) models for evaluating cryptocurrency volatility. A linear statistical model is a method of evaluating the linear relationship between price and explanatory variables. If there are multiple explanatory variables, we can use multiple linear models to simulate the linear relationship between the explanatory variables (independent variables) and the response variables (dependent variables). A linear statistical model commonly used in time series analysis is the autoregressive moving average (ARMA) model.

Explain how you can use Fundamental analysis to generate your own Crypto Trading Ideas

Using fundamental analysis, I gather the information needed to understand the broad market environment and which assets make sense to trade in that environment.

I will then dive deeper into the assets I intend to trade and develop a directional bias ("bullish or bearish") on their price and also determine whether or not there will be catalysts that will move the price in your favor.

During this process, you should do your initial crypto asset research through the project's white paper and official project updates.
This shouldn't be too hard to find as most legitimate crypto projects have official websites and/or forums along with various official communication channels such as social media (Twitter, Reddit), chat apps (Telegram, Discord) and blogs like Medium. or Substack.

At a minimum, crypto projects should demonstrate:

A unique solution to a real problem.
A clear plan that includes a timeline for how the solution will be built.
An experienced team of developers who are able to execute the roadmap.
Sound Tokenomics (the overall economics of a particular crypto-asset, such as how it will be allocated and distributed, how large a supply will be created, incentives to hold it, etc.)
After you have done your initial research, you can begin the process of regularly monitoring the project/token. You should perform routine checks of the aforementioned media channels (daily or weekly), as well as crypto news sites.

Don't know where to start looking? As with any major life question, Google search is your friend. Even a simple internet search can bring up news articles if there are any new ones that day.

Also, get an overview of broad crypto sentiment by viewing news and price action for two of the biggest crypto assets: Bitcoin (BTC) and Ether (ETH).

Price action in these two markets tends to heavily influence the rest of the crypto space, so it's good to see what these two crypto "blue chips" are doing.

Finally, be sure to look at top-level macro topics such as global growth and inflation outlooks, monetary and fiscal policy outlooks from global central banks, as well as consumer/business sentiment data to get a sense of overall market sentiment. Major geopolitical risks such as war or pandemics may also be worth mentioning.

Image by Mohamed Hassan from Pixabay

Explain how you can use Technical analysis when trading on Crypto

Technical analysis is a way to predict the future price of a cryptocurrency by looking at its past prices and trading activity. One way to do this is to look at charts that show price history and trade volume.

These charts can help you see patterns and trends that can help you decide when to buy or sell. Another way to use technical analysis is to use indicators that are based on mathematical calculations. These indicators can give you more information about the strength or weakness of a cryptocurrency, although technical analysis helps a lot in making decisions.

There are so many indicators that help us analyze market trends and by using them we can improve our trading and get better rewards. There are Relative Indices (RSI), Moving Averages and Bollinger Bands etc. These are some famous ones. Charts are other tools that help predict prices, charts are also of different types such as triangles, resistance breakouts and in addition to Elliot wave theory.

Explain the 3 key concepts of Risk Management every new Crypto Trader Should Know

• Invest only as much as you can afford to HODL

I don't invest to lose. I invest to make money. So I say invest only as much as you can afford HODL longer than you planned. The crypto market may go through an extended period of market correction. Some may take years or a few months. And these fixes can sometimes be profound.

Imagine losing 70% in a day, not because of a scam or project failure, but because of normal market movements. Call it whale manipulation whatever, these kinds of corrections happen even in big coins like Bitcoin. And you must be prepared to HODL in these hard times.

If you invest the money you need for your living expenses, you may be taking too much risk because your livelihood can easily be affected by the frequent irrational movements of crypto markets.

• React quickly when your original hypothesis turns out to be wrong

Don't suffer from escalated liabilities.

If the reasons you bought the coin or token no longer apply, or you find out you were completely wrong, or the project took a direction that no longer makes sense, sell the shitcoin and cut your losses.

Better to lose 50% than 99%.

In some cases, you can't even determine the status of the project. For example, I recently invested in KEBAB and everything was going well until strange things started happening with the project.

There were and still are signs of "strategic deception" everywhere, but no concrete evidence to make informed decisions.

In that case, it's okay to sell and wait for confirmation, regardless of how much you've already lost.

Over $3000 of my profit was wiped out by KEBAB's crash, but I still sold it just below my $4.99 buy price, cut my losses and waited for confirmation.

Better to lose 50% than 99%.

This is a nice contest for all steemians to participate, this contest serves as a lecture. I thank the organizers for organizing this contest.

I invite @mesola @tayyba1234 @negro-bby to participate