Cryptocurrency Trading… for Dum-dums?
By: Ty Walls
Tags: Ethereum, Guides And Tutorials, Bitcoin, Investing, Cryptocurrency Trading

Choose your coin target

After you’ve settled on an exchange or two, you’ll want to choose an asset to trade. There are thousands of tradable crypto assets, but here’s a shortlist of currently interesting options:

Bitcoin (BTC)

First up, the original decentralized cryptocurrency, Bitcoin (BTC). It has performed admirably since its inception in 2009. People often tout Bitcoin as a digital gold, which if true, would make it a safe-haven asset in times of crisis, as well as decouple it from the stock market. Whether that narrative is true or not remains to be seen, but it seems a little doubtful. Bitcoin is certainly much more volatile than gold. And one could argue that Bitcoin was coupled to the stock market as soon as institutional investors began to trade it.

Some potential downsides to Bitcoin include the lack of privacy discussed previously, and that much of the the network’s mining power is centralized in a single country.

If you’re considering a long-term investment in Bitcoin (being a Hodler in crypto-speak), take a hard look at its performance over the last ten years. Once it shot off parabolically to $20,000 USD, but most of the time it’s maintained a hard ceiling of resistance near $10,000 USD. If you look at the order books for the BTC-USD trading pair, you’ll see a massive sell wall around the $10K level and above. It’s currently around $9,500 USD.

Ethereum (ETH)

Next up is Ethereum’s coin, Ether. Whereas Bitcoin is essentially “just” money, Ethereum is more like a big decentralized computer in the sky allowing you to manage any asset through a mechanism called smart contracts. You could even do something like stick your will on the Ethereum blockchain and have it automatically distribute your digital assets to your heirs in the event of your untimely bucket kicking.

Photo by Thought Catalog on Unsplash

If that still sound “meh”, another buzzword powered by Ethereum smart contracts is DeFi, or decentralized finance. Imagine a world without banks, where you can send and receive assets anywhere in the world at super low fees. Family in the Philippines? — No more international wire transfer price gouging!

Ethereum does have some downsides. A distributed blockchain is hard to get right, and… there have been hacks️ over the years, resulting in stolen Ether and lost confidence. The other big downside is… s.l.😮.w.n.e.s.s… The Ethereum blockchain supports about 15 transactions per second. Compare that to Visa’s often cited ~50,000/sec and you can see the dilemma. Ethereum 2.0 is supposed to speed things up.

Historically, ETH’s price action has been tightly coupled to Bitcoin. BTC goes up, ETH goes up, etc. However, with all that Ethereum has to offer, and the number of projects being built on top of it, many feel it’s currently undervalued and may eventually decouple itself from Bitcoin. While Bitcoin may be near its ceiling, Ethereum may be near its floor. It’s trading around $230 per coin.

Cardano (ADA)

Cardano is another one to watch. They are a bunch of smart people going for ‘Ethereum done right’, and done right, right from the get-go. If Ethereum 2.0 blunders, Cardano may step in to save the day.

Ripple (XRP)

You’ll hear a lot about Ripple, but you should probably stay away. It’s controlled by one company, and they often seem to be in legal trouble.

Monero (XMR)

If you’re worried about the privacy issues with other cryptocurrencies, Monero has privacy built-in. Their buzzword is fungibility, wherein one unit of Monero looks the same as any other, similar to gold — If you melt down one gold coin to create another, no one would ever know, barring some future quantum tagging technique. I suppose you could say that Monero is even more fungible than cash, as even dollar bills have serial numbers.

Unfortunately, Monero’s touted untraceability makes it the coin of choice for criminals. On one hand, this lends Monero a strange kind of “horn” effect legitimacy. But on the other hand, it could eventually find itself on the wrong side of government regulators.

Monero price action tends to be pegged to Bitcoin. Lately its price has been oddly stable, for a cryptocurrency. Like Ethereum, Monero also appears presently under valued at around $65 USD per coin.

Basic Attention Token (BAT)

The Basic Attention Token is key to a highly provocative strategy to fix creepy online advertising by anonymously and less invasively linking content publishers, advertisers, and consumers. It’s closely linked to the privacy-focused Brave web browser, which pays you (in BAT) to view online ads.

Interestingly, BAT is one of the only crypto projects with a real, already-happening, business model, a model that could very well be the future of online advertising. If you’re an advertiser or content producer, it’s time to jump on the Brave train.

🏁 Interesting Tidbit: BAT is yet another blockchain project built on top of Ethereum. Others of note include LINK and Tezos. With so much being built on Ethereum, you can see why some folks are getting bullish for Ether.

But is BAT a good investment or trading choice? Good question. For it to rise in price, people have to “HODL” BAT for a while instead of just cashing out.

Choose entry and exit points

Once you decide what you want to trade, don’t just rush out and starting buying. You need to plan your trade, decide when you want to enter the trade (buy), and when you want to get out (sell).

Go to a site like TradingView and check out the price history. Bittrex is also nice. Figure out how to play with the time intervals. Set it to 1 day, 3 days, 1 week… Notice the price action. On some coins you’ll see a single parabolic pump and dump rise and fall, followed by a bunch of nothing. Realize that the price will probably never go that high again. Even if it did, it’s unlikely that you would be able to sell at the top.

The price of a trading pair at any moment in time is a result of mass psychology, not due to a quasi-sentient line on a chart

You’ll see all sorts of technical analysis write ups with cool-looking arrows, Fibonacci levels, and ascending and descending channels. For the most part, I think these analyses take pattern recognition too far and are the equivalent of modern tea leaf reading. Their power comes not from the patterns themselves, but from those that believe in them and trade accordingly. The price of a trading pair at any moment in time is a result of mass psychology, not due to a quasi-sentient line on a chart. If enough traders recognize a head and shoulders pattern on a chart and believe that the price is about to dump, what do you think will they do?

Photo by Chris Liverani on Unsplash

Metrics that are useful, and also easy to spot, are support and resistance levels. Support levels are prices where the price tends to reverse upward after a declining trend. This is often a good place to buy. Resistance levels are the opposite, prices where the price tends to get “rejected” downward when it tries to rise past it — a good place to sell.

Here too, support and resistance levels are useful primarily because enough traders know about and use them. When a market is flooded with new retail traders who don’t respect the charts, anything can happen.

The order books can also give you a clue as to support and resistance levels. For example, see BTC-USD on Coinbase Pro and look at the chart with the green and red hills to the left and right of “Mid Market Price.” That is a visual representation of the limit buys and sells currently on the books. Today, I see that the green hill gets much steeper around $8,500, indicating a good support, and the red hill gets steeper around $10,000, indicating strong resistance. But… Don’t forget mass psychology and the endless game of Rock, Paper, Scissors. Shrewd whales can place limit orders with no intention to execute.

The order book is a good example of a “leading” indicator that may help you to predict where the price is going. Most indicators are “trailing” indicators, because they can only show you where the price has been, not necessarily where it’s going. Even a one-minute old candlestick is still one-minute old data. When you see a car driving down your street, you know where it’s been because, well, you saw it. You can even use this historical information to predict where it’s going, since most cars traveling down your street continue until they reach the stop sign. However, the car could still do a U-turn, decide to park in someone’s driveway, or even spin doughnuts in your lawn.

Here are a few technical indicators they may help you execute your trades:

Candlestick charts visualize the tension between buyers (bulls) and sellers (bears), who “won” in a given time period, and how strong was their victory?

visualize the tension between buyers (bulls) and sellers (bears), who “won” in a given time period, and how strong was their victory? Volume indicators like VWAP help filter out high frequency bot trading, which is typically low volume.

indicators like VWAP help filter out high frequency bot trading, which is typically low volume. Relative Strength Index (RSI) is a momentum indicator that may indicate when the asset is either “overbought” — the price seems too high and may drop — or “oversold” — the price is too low and you should consider buying.

is a momentum indicator that may indicate when the asset is either “overbought” — the price seems too high and may drop — or “oversold” — the price is too low and you should consider buying. MACD is moving average indicator you may find useful.

Depending on how long you’re willing to wait, place a limit buy near a support level and be patient. Once it’s yours, place a limit sell near a promising resistance level.

But what happens if the price breaks through your chosen support level and goes down instead of up? You could be patient and wait for it to rebound, or consider placing a stop loss. On many exchanges it isn’t possible to set both a limit sell and a stop loss, so sometimes only long-term investors set stop losses in order to preserve unrealized profits.

You may be able to set up simultaneous sell/stop loss orders with the help of paid subscription apps like 3commas or TrailingCrypto. Just be careful not to give them too many permissions when you’re setting up your API keys.

Conclusion: It depends

OK, so I’m tired of writing about crypto. But as to your question, should you trade crypto?

It’s up to you, my fishy friend. Paddle softly, and with an abundance of caution.

Me, instead of investing in crypto, I’m thinking of investing in a snuggly heather hoodie with two bold words on it accented in salmon tones: “It. Depends.” The next time someone asks me if they should invest in crypto, I’ll just point, and wink. $50 well spent.