Tips, Tricks, and Guides

DataDash’s In-Depth Guide to Swing-Trading Cryptocurrencies

CoinMarketCap and Nicholas Merten of DataDash have launched a series on the strategies for trading and investing in cryptocurrencies. Nicholas’ guides into the core fundamentals of trading and investing aim to help you understand the world of cryptocurrency better and, whether you’re a novice or seasoned trader, gain the confidence to apply the concepts discussed in the series!

Merten is an experienced cryptocurrency trader who’s currently running the DataDash YouTube channel. As of publication, the channel has over 300,000 subscribers and is one of the most popular channels covering cryptocurrencies on YouTube. Merten himself has had eight years of trading experience, trading stocks, futures and commodities before discovering the world of cryptocurrencies.

Watch the next DataDash videos and follow along with our written guides as you enter the world of crypto trading!


Module 1: Basics and Price Charts

In Module 1, we will be discussing the following:

What Are Cryptocurrencies

Cryptocurrencies are basically an entirely new asset class that is unlike any other. There are huge differences between cryptocurrencies and traditional fiat money. Before cryptocurrencies existed, all of the money that is circulated around the world was controlled by governments or central banks. Every single dollar you own is given its value by a central bank. Even if the money existed in electronic accounts online, you needed to trust a third party (in this case, your bank) to ensure that the funds are stored properly.

The invention of Bitcoin (BTC) changed all of that. BTC is a decentralized asset, which means that no one party had control over it; it is censorship-resistant, which means that you can transfer your BTC to anyone in the world without worry of it being blocked. Essentially, the invention of BTC gave people the right to own their own money without needing the approval or oversight of a central bank or government. To find out more about cryptocurrencies, please click here.

The Difference Between Trading and Investing

Even though both these acts involve the buying of an asset and the subsequent selling of it, the largest difference between the two is a factor of time. Investing in an asset usually involves you putting your money into an asset and holding that asset for a very long time — usually five to 10 years.

Trading is usually the act of buying and selling an asset in a relatively shorter timeframe. Trades can last from seconds to hours and days, depending on the strategy employed. Hence, when trading, more decisions are required to be made (as compared to investing), and not everyone is suitable for trading. The stress of making these decisions can add up, and it is perfectly fine for those that cannot handle this stress to stick to investing instead.

Investing in cryptocurrencies is not a bad idea. The price of bitcoin has been appreciating for the past 10 years, and investing in it has definitely not been a bad idea for the vast majority. However, in this series, we will focus less on investing strategies and more on trading-related strategies.

Day-Trading vs. Swing-Trading

There are two main forms of trading — day-trading and swing-trading. Day-trading usually refers to a style of trading where the trader opens and closes his position intra-day. The entire duration of his trades would usually be in minutes or hours. Day-traders usually do not hold overnight positions.

Swing-trading usually refers to trades that last from days to weeks. Successful swing-traders recognize trends and trade with the trend. There is less pressure and stress in swing-trading as the frequency of decision making is a lot lower than day-trading.

In day-trading, as the frequency of trading is much higher, the amount in commissions you pay will also be a lot higher than a swing-trader pays. If left unchecked, commissions paid could be the difference between a profitable trader and an unprofitable one. As a result of higher commissions, more pressure to perform and a higher frequency of decision making, the success rate of day-traders is a lot lower than that of swing-traders.

Do be aware of the pros and cons of day-trading versus swing-trading before deciding to go down a select path. While it is possible to make money trading either style, this guide recommends beginners to take the approach of swing-trading before attempting day-trading strategies.

How to Read a Price Chart

The above shows a chart from the charting platform TradingView.com. There are seven main components to be aware of when viewing any price chart.

1.      Symbol Select

Symbol selection is made here. You can choose to view any supported asset class or symbol by typing in the correct symbol code here. The chart above is set to BTCUSD pair from Bitstamp.

2.      Timeframe Select

Changing the timeframe of the chart is done here. The chart above is set to 1D. This means that every candlestick you see on the chart represents the price action for one day. You could select many different timeframes, from one minute to one month.  This selection allows you to get a better overview of what the markets did in the past day or what they did for the past five years. Controlling the timeframe is also key in performing multi-timeframe analysis.

3.      Drawing Tools

Drawing tools allow you to draw trendlines, Fibonacci retracements and extensions, or simply notate the chart that you are currently viewing. This could be very important in conducting price analysis, and it allows you to share with your friends what you are seeing in the markets.

4.      Main Window Pane

The main window pane usually contains the price chart of the selected symbol. There are many types of charts available, from bars to candlesticks to line charts. Bars and candlesticks are recommended as it shows the open, high, low and close of the market at the given timeframe.

5.      2nd Window Pane

The 2nd window pane is usually reserved for indicators. The chart above shows the volume indicator, which is the amount of volume transacted for the given timeframe. Other indicators like RSI, stochastics and MACD would appear in the alternate window panes. You could choose to have multiple window panes on your chart, but more may not be merrier as things could get messy!

6.      X-Axis (Time)

The X-axis reflects the scale of time of the price chart. In the chart above, it shows the price of BTCUSD from June 2019 to October 2019. While time is the default setting for most price charts, other settings do exist — volume, ticks, etc.

7.      Y-Axis (Price)

The Y-axis reflects the price of the asset charted. It is normally linear, but you can choose to have the chart plotted on a logarithmic scale. This plotting might be more appropriate when charting the long term price action of an asset like BTCUSD.

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. 

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

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