Crypto Guide for Beginners

Types of Cryptocurrency

There are different types of cryptocurrencies which are classified into the following groups:

Cryptocurrencies

These coins have been created on their blockchain with a native digital currency. For example, Ether (ETH) is a cryptocurrency based on the Ethereum blockchain. You may also hear of the term 'altcoin', which essentially refers to any other blockchain-based cryptocurrency that is not Bitcoin; it is short-hand for an 'alternative to Bitcoin'.

Tokens

Tokens are built on an existing blockchain as programmable assets. Outside of the blockchain network, these contracts can be leveraged to establish the ownership of assets. Tokens can also be sent, received, and used to represent value units for money, digital assets, coins, etc.

Stablecoins

Stablecoins' value is pegged to various fiat currencies, for example, USD, or even assets such as gold. They aim to provide an alternative to the high volatility observed with popular cryptocurrencies.

How is cryptocurrency formed?

Firstly, cryptocurrency is formed through a process known as mining, which requires computer processing power to solve very complex mathematical problems to earn rewards in crypto. Do note that this process can cost a lot of money for the initial equipment, electricity bills, and renting physical premises or cloud services to host.

What is a Blockchain in Cryptocurrency?

The initial thought of blockchain may seem overly sophisticated. However, the core function and purpose of it is simple.

You can look at it as a database, collecting data saved on a computer system in digital format. Then there is distributed ledger technology (DLT), a decentralised database that various network participants administer. 

Popular cryptocurrencies such as Bitcoin and Ethereum are built on blockchain technology. These blockchains, for the likes of Bitcoin and Ethereum, are constantly evolving and growing, with new blocks being added to the chain, dramatically increasing the ledger's security.

Now, just like other assets, cryptocurrencies do rise and fall in value, which can be down to various reasons. So if you want to participate in the market one way or another, it is worth being aware of the different influencing factors to help position yourself better.

Here is an example of a cryptocurrency transaction and its flow via the blockchain:

Tom wants to buy something from Kristina using Bitcoin to pay.

He uses his private key, which is needed to create a signature for spending Bitcoin, it proves ownership of the funds in the transaction.

The block is then broadcasted to all the mining nodes within the Bitcoin network.

Tom's transaction request is then added into a “block” with other transactions on the blockchain.

Tom's transaction is then validated by the network of nodes, by the use of algorithms via a process known as mining.

The first miner to successfully validate the new block added to the blockchain portion of the Bitcoin as a reward.

Kristina receives her Bitcoins from Tom.

The block is added to the blockchain, and the transaction is now complete. It is permanent and is unalterable.

Buying and holding

Another common approach would be buying and holding cryptocurrencies for a long-form as an investment. Typically, investors could look at the top cryptocurrencies by market cap via rankings on coinmarketcap.com. Exploring the larger and more established coins may be a good option, given their size, which could offer better stability.

The idea, of course, when investing to capture long-term growth, would be looking for opportunities when the price retreats after rising, coming back to key areas of support.

Trading

A common and popular route to get involved in the crypto market is trading. Many people are exploring trading via Cryptocurrency CFDs. This may appeal to traders because there is no need to open an account with a crypto exchange or require a crypto wallet to trade.

This type of trading is known as derivatives, it allows for the speculation of a chosen cryptocurrency's price movements, and traders do not need to own the underlying tokens. You have daily possibilities in the crypto market, with the opportunity to make a profit when either the market is rising, or when the market is falling.

Even if you are a crypto hodler and your physical portfolio has been on the decline, you can hedge that downside, by choosing to trade and profit from the falling market. You can potentially turn those falls into large gains.

Getting started with cryptocurrency trading

Now, let's take a deeper look at some of the benefits of trading cryptocurrencies:

No restriction on trading hours:
a 24/7 market

One of the unique aspects of the cryptocurrency market is that it does not have a definite trading period. It means you can trade 24 hours a day, seven days a week, with the possibility to generate profit any time you want.

However, as with any other asset you are trading, conducting research and planning to trade at the best time is essential.

Very accessible:
Low starting capital requirements

Margin trading cryptocurrencies does not require much upfront capital, you can start trading with as low as $100.

Profit regardless of direction:
Buying or selling

A really appealing aspect of crypto trading is it does not matter whether the market is rising or falling, you have the ability to profit in either direction.

Faster transaction times:
Improved liquidity

The cryptocurrency market is continuing to grow, and so is the liquidity. Measured by speed and how easily a cryptocurrency can be converted into cash without impacting the market price.

It is an integral part of trading because it facilitates better pricing and faster transaction times. Moreover, it is better for higher accuracy when performing charting technical analysis.

Greater market movements:
Increased volatility

Despite the cryptocurrency market being well in its infancy, there is much volatility and daily movement. Rapid intraday price fluctuations can provide a range of possibilities for traders to go long and short, but also, with that, comes increased risk. Therefore, conducting enough research and ensuring sufficient education before trading is vital.

Leveraged exposure: Higher trading power

Trading cryptocurrency CFDs is a leveraged product; it allows you to open a position on what's known as 'margin'. You can deposit a fraction of the total value of the trade, in other words, giving you access to gain more significant exposure to the cryptocurrency market while only needing to tie up a smaller amount of your capital.

When looking to trade cryptocurrencies, you will need to find a broker, one that is reliable, competitive, and offers a good platform.

Choosing a broker to trade crypto with

There are many providers in the market that offer similar trading conditions, however, it is important to take into consideration a few key factors before making a decision on who you will be trading with.

• Reliable — This is key in many different senses, from offering a stable service to being able to get in touch with them easily
• Security — You want to feel at ease that your trading account, funds, and data are all secure, with low risk of the platform being hacked
• Convenience — A provider that has a great platform and is easily accessible whether it is on your laptop, desktop, or via your phone app
• Competitive fees — Fair and reasonable fees are important, you want your trading to be cost-effective for maximum profitability
• Deposit and withdrawals — Having multiple methods for being able to get your funds on and off the platform, in addition to these processes being executed in a timely manner.

Here are some of the great features
that Libertex has to offer:

• Reliability & trustworthiness
  The Libertex brand has been serving clients for over 25 years
• Multiple awards
  The platform has won over 40 prestigious industry-recognized awards globally
• Wide product range
  70+ popular crypto CFDs to choose from, available 24 hours a day, seven days a week, and 300+ other assets including stocks, metals, forex, ETFs
• Accessibility
  You can access the platform via desktop, laptop or mobile, trade in good conditions whatever the device
• Competitive fees
  Libertex offers some of the best pricing on crypto CFDs in the market, to ensure you can maximise your earnings
• Advanced charting and risk management tools
  The platform offers solid tools to perform solid technical analysis and protect your trading capital
• Free cloud-miner
  By mining, you can earn cryptocurrency from your laptop, desktop, or mobile device
• Trading signals
  Receive high-quality ChatGPT-powered trading signals to boost your trading profits
• Educational articles
  Libertex offers short and informative educational articles, great for beginners. Taking you through things such as opening up your first trading account, placing trades with take profits, and stop losses
• Free 50K demo account
  You can practice and optimise your trading strategies with a free 50K demo account
• Intuitive platform
  A simplified platform which is packed with excellent features and tools, for all experience levels

Setting up a trading account

It is straightforward and takes a few minutes to set up a trading account with Libertex. Here are the steps required to access cryptocurrency CFD trading.

A wide range of deposit options is available, with simple processes for preparing your funds for trading on the platform.

Go to the Libertex website or download the app and click the signup button.

Enter your email address, password, and phone number, agree to the terms and click the signup button.

Make a deposit. In order to do this, simply navigate to the top right corner of the platform and find the green "Deposit" button on the right-hand side. Click or tap on this button and proceed to make a deposit using your preferred method. The platform offers a wide range of payment solutions, from bank cards and wallets to cryptocurrencies, ensuring ease and convenience when funding your account.

Moreover, when it comes to withdrawing your funds, the process is just as straightforward. With a few clicks, you can securely and quickly withdraw your money. Libertex provides plenty of payment solutions, ensuring a hassle-free experience when receiving your funds.

Enter your email address, password, and phone number, agree to the terms and click the signup button.

Security measures

Protecting yourself and your money should always be at the forefront of your mind, which is why whatever platform you decide to trade crypto CFDs with, it is crucial to secure your account — for example, setting two-factor authentication to minimise and prevent any possibility of your account being compromised.

Risks involved in crypto trading

We have covered much about the possibilities of trading crypto CFDs, but there are also risks to be aware of before getting started.

High-risk speculative products

As earlier mentioned, with CFD trading, you only need to deposit a smaller percentage of the value of a trade to open a position, which means that the profits and losses are based on the total value of the trade. Cryptocurrencies are volatile, and combining that with trading them on margin could lead to significant losses.

Charges could be more significant compared to other asset classes: Before trading, you should review all costs involved, as higher chargers may be observed with trading crypto CFD, which should be factored into profit/loss expectations.

Pricing variations

There could be large swings in the pricing of cryptocurrencies, which are used to determine the value of CFD positions.

Let's now take a step into the more practical side of trading, learning about the different types of cryptocurrency charts and how to read them.

Reading Cryptocurrency Charts

Line chart

It could be a line chart, one of the most basic price charts. But instead, it is a single line that will connect all of the closing prices of a cryptocurrency for a specific time interval. They are simple to follow. However, the line chart may not be the best at telling traders much about each day's activity of the crypto they are trading. Nevertheless, it will help show trends and compare the closing period from one period to the next.

To select the line chart on the Libertex platform, choose the crypto CFD you wish to trade, then click on the line icon, located underneath the live asset price.

Bar chart

Another way to view chart price activity is via a bar chart. These can help traders view the price range of each period. They may increase or decrease in size from one bar to the next or over a range of formed bars. During high and low volatility periods, the bars will expand and contract.

To select the bar chart on the Libertex platform, choose the crypto CFD you wish to trade, then click on arrow icon located underneath the live asset price, then select bars.

Candlestick chart

A variation of the bar chart is a candlestick chart. Candles will help in providing a visual representation of bullish or bearish sentiment. These will usually have default colours applied, green and red. The green represents the buyers controlling that particular period, whereas the red represents the sellers.

Candlesticks have a body that gives trades the range between the opening and closing prices in a given period. The high and low prices are known as wicks or shadows.

Traders may like to use candlestick charts where they can provide insight into a trending market. For example, typically, in a bull market, there may be a cluster of green candlesticks, whereas, on the flip side, a cluster of more red candlesticks demonstrates a bear market.

To select the candlestick chart on the Libertex platform, choose the crypto CFD you wish to trade, then click on arrow icon located underneath the live asset price, then select bars.

Certain patterns and formations can be observed within a combination of candlesticks, which can be used as entry or exit signals for trades.

Uptrend

An uptrend is when the price moves higher; it creates higher highs and higher lows. There will typically be an uptrend line of support; the usual trajectory will be that once the noted support comes back, it will bounce back up to move even higher.

When the market moves within an uptrend, it allows traders to profit from rising prices. If you can identify higher swing highs and higher swing lows, then you can enter a buy trade in the uptrend, anticipating that it will continue within this structure.

The noted downtrend line will act as the resistance, while the lower lows will support. Typically, when moving within this pattern, if the price reaches the downtrend line, it will bounce to register even lower.

Do note that failing to make more new higher highs and higher lows may mean a change in trend. This could be a new signal to sell.

You can practise via the platform in identifying trends. Click on the crypto CFD you wish to trade, maximise the chart, and then select the trend line tool on the left of the chart. To draw an upward trendline, start from the most recent low point, and connect the trendline with the higher lows, as the price moves higher.

Downtrend

We just covered an uptrend, so now it makes sense to discuss its polar opposite, the downtrend.

A downtrend produces a series of consistently lower highs and lower lows, which create a downward pattern on the chart. There is a trend line that is pointing lower; it will connect two or more of these lower highs. A minimum of two are needed to validate a downtrend line.

The noted downtrend line will act as the resistance, while the lower lows will support. Typically, when moving within this pattern, if the price reaches the downtrend line, it will bounce to register even lower.

When a downtrend is identified, it allows traders to make a profit from falling prices. For example, you could place a short trade in anticipation that the trend will continue. Should the price fail to make more new lower highs and lower lows, it could signal a change in trend. This could be an indication to exit your short.

If you wish to draw a downward trendline click on the crypto CFD you wish to trade, maximise the chart, and then select the trend line tool on the left of the chart. To draw a downward trendline, start from the most recent high point, and connect the trendline with the lower highs, as the price moves lower.

Sideways trend

Horizontal price movement is essentially a sideways trend. It happens when the level of buyers and sellers is nearly equal. When the market is moving within a sideways trend, the price is in a narrow band, and there will not be any commitment to the upside or downside.

Typically this occurs when the market is going through a period of consolidation, ahead of the next committed price trend. Sideways trends are also commonly referred to as a horizontal trend or the market is range-bound.

Usually, the price will be bouncing off a key support area, before then rising to the key resistance area, it will continue until the range is broken.

If you wish to mark up your chart with a sideways trend, click on the crypto CFD you wish to trade, maximise the chart, and then select the horizontal line tool on the left of the chart. Draw a line at the upper part of the range where the price is finding resistance, and also at the bottom of the range where the price is finding support.

How to make trading decisions
(from charts to information sources)

Confidence plays a role in successful trades; it is an essential quality for traders because of how challenging the market can sometimes be. When you trade confidently, you will avoid being easily swayed by other market speculators and can make informed trading decisions.

Technicals

You can approach the market to make trading decisions in different ways. One of the most common is through technical analysis, which is a range of techniques to forecast future price movements, and will be based on historical price movements or patterns.

Different cryptocurrency trading styles

• Scalping — This trading style focuses on profiting from small price changes, making a fast profit, and quickly getting in and out of a trade. It would be typically done by looking at a lower time frame chart, such as 1-minute or 5-minute.
• Day trading involves buying and selling CFDs throughout a single day's trading, intending to profit from small price fluctuations.
• Swing trading — This would involve holding CFD positions for a few days to a week, looking for more significant price swings in the market.
• Position trading — A trader would typically hold positions for weeks or even months, based on following a long-term trend, looking at a daily to the monthly chart.

Cryptocurrency trading strategies

There are hundreds, if not thousands, of strategies; let's explore some of the popular ones that are very easy to apply, and are a great fit for beginners to try and make some profit.

Long-term strategies:
Buy & Hold strategy and crypto portfolios

In terms of these strategies they require you to buy and hold the cryptocurrencies, while you wait for their value to rise, then sell them at a later day for a profit.

The key selection criterion from the point of view of the investment attractiveness of cryptocurrencies is their capitalisation and rating. You will first need to visit a site that provides cryptocurrencies by the size of their market cap, such as coinmarketcap.com

Here are the steps and rules for this strategy in building out a portfolio:

Get the top 5 cryptocurrencies by capitalization, and allocate a certain percentage of your capital to them for long-term investment.

Obtain the top 10 cryptocurrencies by capitalisation, and also allocate another certain percentage of your capital for long- and medium-term investment.

Lastly, gather the next 30 cryptocurrencies that are in the top 40 in terms of capitalisation, and then use short-term trading strategies. Keep investment activity to a minimum.

For other cryptocurrencies, it is necessary to reduce the number of speculative trades to a minimum or consider exclusively short-term intraday speculation with strict restrictions on losses and the number of trades executed.

Of course there is a possibility of long-term growth in any of the altcoins, but when compared to any of the TOP 5 coins, the risks of investing in altcoins are significantly higher.

To form a well balanced portfolio you would also need to explore the ratio of the capitalisations, with the assets included in your portfolio to their volatility and profitability. This analysis helps evaluate their potential growth and risk.

Below is a simple crypto portfolio that you can consider: The share of the planned investment amount in each asset is calculated based on these factors:

46%

26%

28%

Portfolio example:

The recommended investment amount is 50% of the capital. For example, your deposit is 2000 USD and you plan to invest $1000 in the proposed portfolio. In this case, your portfolio will look like this:

USD 460
Multiplier: 5

USD 260
Multiplier: 5

USD 280
Multiplier: 5

It can be explored by allocating this 50% for physical crypto holdings within a portfolio, the other 50% can be used for active trading, with strategies we have proposed. 

It is advisable to invest in these instruments, regularly increasing positions during pullbacks and deep falls.

Mid and short terms strategies

The technical analysis rule of thumb is that price movements are subject to trends. A trend is the predominant price direction of an asset.

Trend trading increases the percentage of profitable trades, providing a good risk/reward ratio, which can be used in any market and timeframe.

To implement this strategy for the uptrend, go to the Libertex platform, select the crypto you wish to trade, maximise the chart, then select the trend line tool on the left-hand side. Draw a trend line from the most recent low to the next higher lower point.

You can then wait for the price to next come down to the supporting trend line and look to execute a buy position if it finds support again. In terms of a target, this would typically be in expectation the price produces another higher high within the trend.

To implement this strategy for the downtrend, go to the Libertex platform, select the crypto you wish to trade, maximise the chart, then select the trend line tool on the left-hand side. Draw a downward trend line from the most recent higher to the next lower high point.

You can then wait for the price to next come up to the resistance trend line and look to execute a sell position if it finds support again. In terms of a target, this would typically be in expectation the price produces another higher high within the trend.

Inverted Candlestick Combinations

Analysing Japanese candlesticks isn't just a fascinating process; it's also beneficial. Their various combinations can signal a trend reversal, for example. Moreover, this type of analysis can be used alone or with other methods.

Here are the most popular candlestick patterns that can indicate a trend reversal and serve as a signal to open a trade. Essentially, they are a set of candle formations with specific sequences.

Bullish reversal patterns of Japanese candlesticks:

Bearish reversal patterns of Japanese candlesticks:

Try to independently identify such patterns on cryptocurrency charts, and witness their simplicity.

Here's an example from the daily candlestick chart of Bitcoin in December 2022.
Pattern: Shooting Star

Here's an example from the hourly candlestick chart of Ripple in April 2023.
Pattern: Morning Star

Let's take a look at a couple of examples of implementing candlestick patterns.

Hammer

On the chart select the candles icon, change the timeframe to a 15-minutes, and locate a hammer candlestick, it will have a small body and a long shadow. Once you have spotted one, it is time to act with a trade, place a sell position if the long shadow is above the body, and buy if it is below. Enter your trade amount and a stop loss, you can close the trade when a different colour candlestick appears on the chart.

Evening star

Here is another simple but effective candlestick pattern to use as a potential strategy, an evening star formation.

On the chart select the candles icon, change the timeframe to a 15-minutes, and locate an evening star candlestick. The formation itself consists of three candles: a large green candlestick, a small-bodied candle up in the middle, and a red candle.

Traders can enter a trade after the red candle, placing a stop loss above the small candle in the middle, and the trade can be closed when a green candle reappears.

The movement of any financial instrument obeys one simple rule: the longer the unidirectional movement in one direction or another continues, the more the price begins to gravitate toward a reversal in the opposite direction. 

This can be explained by a simple explanation: the longer and more the price rises, the more people will hold unrecorded profits in their hands, the stronger their fears of missing it will be, and they will be inclined to start realising it, thereby provoking a chain reaction of movement in the opposite direction.

We analysed the unidirectional movements of cryptocurrencies by the colour of the candles. We assumed and found statistical confirmation that after a series of same-coloured candles, the probability of forming a candle of the opposite colour will increase. However, and this was somewhat unexpected, our thesis proved itself across different timeframes and for other cryptocurrencies. The probability table is shown below.

How to use this strategy

It's simple. After the formation of five or more candles of the same colour in a row, open positions against the direction of movement dominating the market. Set a stop loss and take profit equal to the average candlestick size for this financial instrument.

Indicator-based trading

The crypto market is young and has not yet been flooded with robots, high-frequency algorithms, and market makers. This means that such simple strategies as moving average crossovers work well here.

The rules of the strategy are as follows: when a fast-moving average (with a shorter period) crosses a slow-moving average (with a large period) from the bottom up, you need to buy; if the fast-moving average crosses the slow-moving average from the top to bottom, sell.

Here are some classic examples:

Below are the results of backtests for five cryptocurrency pairs. All tests were carried out on the basis of the following trading conditions:

The moving average crossover strategy is certainly of interest, but its use can be difficult for those traders who do not have the opportunity to constantly be near the computer and follow the indicator signals.

Trading may not be for everyone, given potential time constraints or other commitments, fortunately, the Libertex platform offers something to accommodate this.

Don't have the time for trading?

One of the most popular services among crypto traders is chart signals. The basic principle for creating signals on a chart is following the trend after a correction. An algorithm built on trend indicators and oscillators is used for this.

Finding signals on a chart is easy. First, you will see an arrow indicator if a cryptocurrency has a signal available:

Find the signal on the chart

Assess the direction of the signal and the probability of it being triggered

Clicking the indicator lets the user see the signal's parameters, such as the signal's potential profitability and the probability of it being triggered:

Check the transaction's parameters and, if necessary, adjust them based on your own risk management levels

Assess the direction of the signal and the probability of it being triggered

After clicking 'Use signal', a window will open where you can enter a sell trade at the preset parameters.

Now, without managing your risk, trading can not be sustainable, so let’s take a dive into protecting your capital!

Risk management in crypto trading: How to survive in the cryptocurrency market

Risk management has to be correct at the forefront of any trader's mind regarding trading. It is imperative because it can help cut down losses and protect a trader's account from completely losing all the capital.

With risk management being considered, even if you generate substantial profits, it can all be recovered in just one or two bad trades. However, if the risk is successfully managed, it can increase the possibility of profitability and sustainability being a trader.

Let's now discuss some simple methods that can be used to protect your trading profits.

Stop loss

A basic yet effective risk management tool is a stop-loss, where a trader will set a certain level to close their respective trade automatically should the cryptocurrency price move unfavourably for them.

Take profit

On the other hand, a trader can also set a take-profit, which will automatically close at a desired price and be able to generate a profit on the trade.

Position Sizing

Position sizing is another key factor to consider within any risk management strategy. It refers to the size of a trader's position or the monetary amount they will trade. A trader will typically use position sizing to determine how many units of the particular crypto they will be trading. This can help them control their risk and maximise their returns.

We are now getting on to one of the most overlooked aspects of trading, psychology, specifically managing emotions.