$BTC 1. Basic Knowledge
I have listed all the things that newcomers need to know before, during, and after buying Bitcoin.
The table of contents is as follows:
Things to know before buying Bitcoin:
1. What is Digital Currency?
2. What is Bitcoin?
3. The Returns and Risks of Bitcoin;
4. Position Management.
Things to know before buying Bitcoin:
1. Where to buy?
2. Specific Steps for Purchase:
2.1 Fiat Currency Trading
2.2 Cryptocurrency Trading
2.3 Contract Trading
Things to know after buying Bitcoin:
1. When to sell?
2. Cryptocurrency News Websites
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Things to know before buying Bitcoin:
1. What is Digital Currency?
Digital currency is a type of currency developed and run by internet users based on public blockchain and computer encryption technology.
Bitcoin, Ethereum, etc., are cryptocurrencies among digital currencies, based on decentralized currency, different from the electronic currencies we commonly use such as WeChat, Alipay, and bank cards.
2. What is Bitcoin?
The concept of Bitcoin was first proposed by Satoshi Nakamoto on November 1, 2008, and officially came into existence on January 3, 2009.
Unlike other currencies, Bitcoin is not issued by any specific currency institution. It is generated through specific algorithms and extensive calculations, confirming and recording all transactions through a distributed database composed of numerous nodes and using cryptographic designs to ensure the security of all aspects of currency circulation. At the same time, Bitcoin's total supply is only 21 million, making it extremely scarce.
3. The Returns and Risks of Bitcoin;
At the beginning of 2011, Bitcoin's price was around $1. After a consecutive three-month surge, the price fell from $29.6 to $2.05, a drop of 93%;
In April 2013, Bitcoin peaked at $230, and then continued to decline, dropping to a low of $66.34, a decrease of 71.6%;
In the same year, the price of Bitcoin surged to $1,147, and then retreated. Over the next two or three years, the lowest price of Bitcoin dropped to $177, with a decline of 84.5%;
In December 2017, Bitcoin's price reached a peak of $19,798.68, and just as it was about to break through $20,000, it retreated, dropping to a low of $3,155 at the beginning of 2018, a decline of 84%;
In 2018, Bitcoin's lowest price was 3,155, and the highest price was 17,157 dollars;
In 2019, Bitcoin's lowest price was $3,353, and the highest price was $13,968;
In 2020, Bitcoin's lowest price was $3,728, and the highest price was $29,340.
In 2021, Bitcoin's lowest price was $27,850, and the highest price was $69,158.
This year, Bitcoin's lowest price was $32,914, and the highest price is currently around $48,130;
From historical prices, we can see the immense volatility of Bitcoin. Although it has risen from $1 to a peak of $69,158, an increase of tens of thousands of times, it is hard for most people to accept the discrepancies when their house fluctuates between a villa and a bungalow.
Although Bitcoin's market is steadily rising overall, no one can predict when it might experience another crash. Therefore, before purchasing, investors should not only look at Bitcoin's returns but also pay attention to its risks, arranging according to their risk tolerance.
4. Position Management.
Position management refers to the usage of funds during the investment process, which is the reasonable allocation of your invested capital, including position management and risk control.
For example, if you currently have a deposit of 100,000;
(1) Allocate 10% for daily expenses, which is for short-term consumption; (2) Allocate 20% as daily emergency funds for unexpected events, such as illness or hospitalization; (3) Allocate 40% for some principal-protecting investments to resist inflation with additional income, such as bonds, trusts, etc., which are stable income products; (4) Allocate 30% for high-risk investments using funds that do not affect normal life, so even if investments fail, it won't impact living standards.
The above is just a simple example. Everyone can allocate according to their own risk tolerance.
Borrowing or using all your funds for investment is considered irrational behavior and is highly inadvisable. Especially for new beginners, it is essential to understand one's limits. If all funds are invested in the market, it not only increases the risk of loss but can also impact the investor's mindset to some extent. Once the market declines, it is easy to become anxious or panic.
Things to know before buying Bitcoin:
1. Where to buy?
Currently, there are three well-known leading exchanges in China.
I previously organized some information about the pros and cons of the three major exchanges, and I can share it for free if you're interested.
I cannot stress enough, absolutely do not go to unknown small exchanges!!!!
There is always a risk of small exchanges running away or freezing your funds.
Major exchanges have guarantees regarding establishment time, number of users, and trading depth!!
Anyone who tells you that there are high returns on a certain platform should be blacklisted.
If a friend invites you to trade on a small exchange, that person is not your friend.
2. Specific Steps for Purchase:
2.1 Spot Trading
Spot trading simply refers to the transaction of buying coins with cash. It is further divided into fiat currency trading and cryptocurrency trading.
2.1.1 Fiat Currency Trading
Fiat currency refers to legal tender, such as RMB, USD, GBP, etc. Fiat currency trading refers to exchanges between fiat currency and digital currency, such as directly using RMB to purchase Bitcoin.
We can directly purchase digital currencies with RMB in the quick buy area of the exchange.
The advantages of quick coin buying are convenience and speed; the downside is that there are not many types of digital currencies available for direct fiat trading, only some mainstream currencies like Bitcoin (BTC), Ethereum (ETH), or Tether (USDT).
2.1.2 Cryptocurrency Trading
Cryptocurrency trading refers to using one type of digital currency to purchase another, without involving fiat currency in the transfer or settlement. For example, buying ETH with USDT will form the ETH/USDT trading pair. USDT is referred to as the quote currency, while ETH is called the trading currency, with USDT defining the price of ETH.
The types of digital currencies in the quick trading area are limited. If we want to purchase digital currencies outside the quick area, we need to first buy stablecoins and then use stablecoins to purchase other digital currencies.
The most widely used stablecoin currently is USDT.
Stablecoins, as the name suggests, are cryptocurrencies that maintain a stable exchange ratio with a certain underlying asset. Stablecoins can be seen as a type of digital currency with 'stable value', serving as a bridge between the digital currency world and the fiat currency world. The most widely used stablecoin currently is USDT (Tether). USDT is a token based on the stable value currency US dollar (USD) launched by Tether, where 1 USDT equals 1 dollar, and users can exchange USDT for USD at a 1:1 ratio anytime.
2.2 Contract Trading
Spot trading refers to the exchange between fiat currency and digital currency. Unlike contract trading, it is also called futures contracts. It refers to one's opinion on the price changes of cryptocurrencies in the market, such as whether you think Bitcoin's price will rise or fall in the future.
In contract trading, if you believe the price of the cryptocurrency will rise, you buy a contract, referred to as going long; if you believe the price will fall, you buy a contract, referred to as going short.
In contract trading, regardless of whether the cryptocurrency price rises or falls, profits can be made by going long or short. However, in the spot market, we can only make a profit by buying cryptocurrencies and hoping their prices will rise. There is also a concept called leverage in contracts. When placing a contract order, traders only need to pay a small amount of capital as a financial guarantee for fulfilling the contract based on the contract price and a certain ratio, allowing them to participate in the buying and selling of contracts. For example, if you want to buy a $6,000 BTC contract with 10x leverage, you only need to pay $600 in BTC. Margin trading is basically leveraged trading. In cryptocurrency futures trading, the trading cryptocurrency serves as margin.
Things to know after buying Bitcoin:
1. When to sell?
Those who know how to buy are apprentices, while those who know how to sell are the masters.
I once bought LINK with 10,000, and while the profit was supposed to double, I ended up selling after losing half of the profit due to not having clear targets. If the selling targets are not set well, it is very likely that the account that initially shows a profit will end up showing a loss as you wait.
1. Set profit-taking and stop-loss target points
Newcomers can set three points before buying digital currency: the buying point, the profit-taking point, and the stop-loss point.
However, at the very least, you should be able to understand support and resistance.
2. News Aspect
Of course, we can study knowledge-based topics ourselves and accumulate foundational knowledge. However, the experiences or pitfalls encountered by those who have gone before can facilitate faster growth; as they say, reading history makes one wise! The same applies in the cryptocurrency circle; typically, when we judge market trends, we combine both news and technical analysis.
Taking the recent market conditions as an example, regulatory bodies frequently intervened, and global crypto assets suffered heavy hits, with prices plummeting. Under such extreme negative conditions, the future market of cryptocurrencies is not optimistic. This is a relatively straightforward example of the impact of news.
Moreover, basic information such as the price of the cryptocurrency, circulation, total supply, current market value, trading volume in the past 24 hours, etc., needs to be known. Additionally, the cryptocurrency's hash rate, the number of active addresses, block size, Google search index, and fear-greed index. Furthermore, the net inflow and outflow of funds for the cryptocurrency, as well as the long-short holding ratios on trading platforms, can serve as references for short-term price fluctuation predictions.
Many information platforms can access this data. The well-known ones include CoinWorld, CoinMarketCap, ChainNews, etc.
In addition, I have organized some materials that can be shared for free with everyone!
1. Cryptocurrency Forums
2. Foreign Information
3. Must-See Websites in the Cryptocurrency Circle
4. Chinese Information Websites
5. Websites Related to Trading
How to see newly launched digital currencies in real-time?
3. Technical Analysis
Everything cannot be considered in isolation; the news aspect is just one method of evaluation, and indicators are another method of evaluation. Therefore, the news and technical aspects must be combined to evaluate the current market trend, and perspectives should not be too narrow!
Of course, there are many technical indicators, and I can't cover them all in one article.
Let me give an example of one of the precise buy and sell indicators in the cryptocurrency world - KDJ.
1. What is KDJ?
The KDJ indicator, also known as the stochastic indicator, reflects the strength of price trends and overbought/oversold dynamics by introducing the concepts of fast and slow moving averages to calculate the price fluctuations between the highest, lowest, and closing prices over a certain period.
2. How to Understand the KDJ Indicator?
In general trading software charts, the yellow K line represents the fast indicator, the white D line represents the slow indicator, and the red line is the J line. In terms of sensitivity, the J value is the strongest, followed by K, and the D value is the slowest. In terms of safety, the J value is the weakest, followed by K, and the D value is the most stable.
Specifically, the calculation principle of KDJ is based on the highest price, lowest price, and the closing price of the last calculation cycle during a specific period (often 9 days, 9 weeks, etc.), calculating the immature random value RSV of the last calculation cycle, and then calculating the K value, D value, and J value using the method of smoothing moving averages, drawing them into a curve chart to analyze price trends.
KDJ Indicator Calculation Formula
In China, the period for calculating the KDJ indicator is 9 days, with K and D values at 3 days. RSV(9) = (Today's closing price - Lowest price in 9 days) ÷ (Highest price in 9 days - Lowest price in 9 days) × 100 K(n) = (Today's RSV value + Previous day's K value) ÷ N D(n) = (Today's K value + Previous day's D value) ÷ N J = 3K - 2D
3. Application of KDJ Indicator
According to the values of KDJ, it can be divided into several areas: overbought area, oversold area, and hovering area. According to general standards, K, D, J values below 20 are oversold areas, indicating a buy signal; K, D, J values above 80 are overbought areas, indicating a sell signal; K, D, J values between 20-80 indicate a hovering area, suggesting to observe.
1. Generally speaking, a D-line crossing from below to above is a buy signal, while crossing from above to below is a sell signal. 2. K and D fluctuate within the range of 0-100, with 50 being the balance line. If in a bullish market, 50 is a support line for pullbacks; if in a bearish market, 50 is a resistance line for rebounds. 3. When the K line crosses above the D line at a low position, it's a buy signal; when the K line crosses below the D line at a high position, it's a sell signal. 4. When the K line enters above 90, it's an overbought area, below 10 it's an oversold area; when the D line enters above 80, it's an overbought area, below 20 it's an oversold area. Pay attention to grasping the timing of buying and selling.
I have organized some learning materials, which can be shared for free with those in need!
1. What are support and resistance? 2. What is a trend and how to judge it? 3. Dow Theory 4. Bollinger Bands 5. Elliott Wave Theory 6. Stochastic Index 7. Relative Strength Index
4. Classic Books
I will categorize book recommendations into three parts: learning the basic theories of digital currency, learning trading techniques, and learning investment psychology.
1. Basic Theories of Digital Currency
1. (How to Invest in Digital Currency) Author: Wang Bo / Zhou Zhaohui
This book is divided into three sections:
Basic Knowledge Section: To provide readers with a comprehensive understanding of digital currency concepts and the current situation over the past six years;
Investment and Trading Section: Introduces readers to all types and technical key points of participating in digital currency investments, especially how ordinary investors can choose trading platforms, complete account opening, recharge, buy and sell, and withdraw funds smoothly.
3. Investment Philosophy Section: Discusses the long-term investment of digital currencies as a wise choice from various aspects of human historical development and the digital currency ecosystem, regulation, and development.
Target Audience: Primarily conceptual, suitable for beginners who are not very familiar with digital currencies.
2. (Decoding Bitcoin) Authors: Liu Ning / Shen Dahai
This book is written by technical geeks and evangelists in the domestic Bitcoin field, and its professionalism and authority are unquestionable.
It comprehensively introduces the development history, basic concepts, monetary significance, characteristics, generation principles, operating mechanisms, acquisition methods, trading methods, circulation principles, attitudes and policies of governments around the world towards Bitcoin, as well as investment knowledge, principles, strategies, techniques, and risk avoidance related to Bitcoin from a professional perspective in an easy-to-understand manner.
2. Trading Techniques
1. (Technical Value Point Analysis) Author: Yang Bo
This book details dozens of technical indicators, elaborating on the principles, usages, and practical techniques of each indicator, striving to present the practical uses of each indicator from various angles and in a comprehensive manner. It can serve as a manual for investors to reference various indicators and also as a guide to improve investors' practical skills.
Additionally, I have drawn on years of accumulated experience to summarize and simplify the complex knowledge and methods of technical analysis, aiming to help readers master technical analysis in the shortest time and open the doors to profiting in the stock market.
Target Audience: This book starts with basic principles and gradually transitions to practical applications, accompanied by illustrations. This classic work, which leans towards technical aspects, employs a step-by-step approach suitable for those who want to engage in trading.
2. (New Interpretation of Japanese Candlestick Techniques) Author: Steve Nison
Introduction: Candlestick charts are the most popular and oldest form of technical analysis in Japan, originating before Western point and line charts and bar charts. The first part of this book details basic knowledge about candlestick charts, candlestick chart patterns, and the overall technical aspect of the market, while the second part discusses the differential index and new price charts, including three-line directional breakthrough charts, brick charts, and key charts, to help readers better invest.
Target Audience: The author systematically explains the core concepts of candlestick charts in a simple, accessible, and thorough manner, integrating candlestick analysis with trading, market conditions, and practical applications. Such detailed and logical content is suitable for beginners.
3. (The Theory of Chan in Zhang Cheng: Technical Theory Illustrated) Author: Baodike
This book is divided into 6 chapters, thoroughly analyzing the essence of Chan Theory in technical analysis and dissecting Chan Theory techniques. It includes specific operational steps and difficulty analysis, supported by practical charts to help readers quickly master Chan Theory from shallow to deep.
The biggest feature of this book is its illustrations. It includes numerous stock charts and diagrams, using a combination of text and images to interpret complex content, making the book full of interest and readability.
Target Audience: This book first attracts readers' interest through rich images, then conveys the essence of the theory of 'Zhang Cheng', helping readers master the techniques of 'Zhang Cheng'. This content distribution, from surface to depth, is suitable for those who want to transition from novice to expert.
3. Investment Psychology
1. (Rich Dad Poor Dad) Author: Kiyosaki
I won't elaborate on how famous this book is!
Main Content:
Kiyosaki had two fathers: 'poor dad' was his biological father, a highly educated education official; 'rich dad' was the father of his good friend, a businessman who was good at investment and finance despite not graduating from high school.
The lifelong hard-working 'poor dad' lost his job, while 'rich dad' became one of the wealthiest people in Hawaii.
Robert Kiyosaki resolutely followed in the footsteps of his 'rich dad', stepping into the business world, and thus boarded the express train to wealth. Kiyosaki showcases the vastly different perspectives on money and wealth between 'poor dad' and 'rich dad' through his personal wealth stories. The poor work for money, while the rich make money work for them!
Recommendation Reason: This is not a typical self-help book; the investment suggestions put forward are of significant practical importance; in addition to investment and wealth management, it also explores emotional elevation and the meaning of life.
2. (Investment Psychology) Author: John R. Nofsinger
After reading this book, you will recognize the value of traditional financial instruments. Perhaps most importantly, the reasoning errors of investors can affect their investments and ultimately impact their wealth.
Recommendation Reason: Through reading, you can learn about many psychological biases that may influence investment decisions; understand how these biases affect investment decisions; and see how these erroneous decisions can erode your wealth, etc.
I have organized some good books that can be shared for free with everyone.
1. Dow Theory and Practice 2. How to Interpret Gann Theory 3. Unveiling Main Force Chip Distribution 4. From Beginner to Master in Tonghuashun Formulas 5. Investment Psychology Analysis 6. Detailed Explanation of Volume-Price Relationship 7. Decoding and Practicing Market Predictions ...
4. Trading Psychology
I often hear people come to me expressing doubts that the market makers are targeting the small amounts of money in my pocket; otherwise, why does the market always go down when I buy and up when I sell? Why do my operations always contradict market trends?
This question is actually quite simple; market makers utilize the trading psychology of retail investors to complete their building positions, washing the market, driving up prices, and unloading. Therefore, as newcomers in the cryptocurrency circle, it is essential to understand the following!
Gambler's Fallacy: The tendency to believe that the probability of a future event (happening) will be altered by past events.
It's like in trading; due to psychological factors, at certain key prices, there will be resistance and support, leading to similar patterns on the charts. However, we must understand that history tends to repeat itself, but it does not repeat simply. Therefore, as investors, we cannot gamble!
Loss Aversion: The strong preference for avoiding losses. In other words, not losing money is far more important than making money.
For a qualified trader, losing 100 dollars and making 1 dollar should be the same. However, some people can accept not earning 100, but cannot accept losing 100 dollars, which is actually a sign of immature investment psychology!
Disposition Effect: Cashing out profits early while allowing losses to persist.
For example, you bought a cryptocurrency with a cost of 100, and it initially keeps rising. But when the market shifts from bullish to bearish, it starts falling. Initially, you said you would sell if it returned to 100, but the situation didn't improve. Then you said you would sell at 70, and later when it fell again, you said you would sell at 50. In the end, you sold at 20!
Outcome Bias: Judging the quality of a decision solely based on its outcome without considering the quality of the decision itself.
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