Crypto Trading Reference Manual
Glossary of Key Terms
Blockchain: Decentralized ledger recording all transactions across nodes.
Cryptocurrency: Digital currency using cryptography and blockchain, independent of central banks.
Altcoin: Any cryptocurrency other than Bitcoin (e.g. Ethereum, Litecoin).
Exchange: Platform for buying, selling and trading crypto. Examples: Binance, Coinbase, Kraken.
Market Cap: Total value of a crypto (price × circulating supply).
Volatility: Rapid, significant price swings common in crypto markets.
Liquidity: Ease of buying/selling an asset without big price change.
Order Book: List of current buy/sell orders (bids/asks) on an exchange.
Market Order: Buy/sell at the current best price available.
Limit Order: Set a specific price to buy or sell; executes only when market reaches it.
Stop-Loss Order: Automatic sell order at a predetermined price to limit losses.
Take-Profit Order: Automatic sell at a target profit price.
Position: A trader’s open investment (long or short) in an asset.
Long (Buy): Expect price to rise; profit if it does.
Short (Sell): Expect price to fall; profit by selling high and buying back lower.
Leverage: Borrowed funds to amplify position size (increases risk and reward).
Spread: Difference between highest bid and lowest ask.
Candlestick Chart: Price chart showing open, high, low, close (OHLC) for each period.
Support Level: Price area where buying interest is strong enough to halt a decline.
Resistance Level: Price area where selling pressure is strong enough to cap rallies.
Trend: Direction of market movement. An uptrend makes higher highs/lows; a downtrend makes lower highs/lows.
Bull Market: Prolonged rising prices and positive sentiment.
Bear Market: Prolonged falling prices and negative sentiment.
FOMO: “Fear Of Missing Out”; rush to buy based on hype.
FUD: “Fear, Uncertainty, Doubt”; negative news causing panic selling.
HODL: Intentionally holding crypto through volatility (long-term strategy).
Technical Analysis (TA) Tools & Concepts
Candlestick Charts: Fundamental chart type showing each period’s OHLC price. Traders read candlestick shapes (e.g. engulfing, hammer) for signals.
Moving Averages (MA): Average price over N periods (simple EMA); smooths data to show trend. A rising MA indicates uptrend; a falling MA indicates downtrend. Golden Cross: Short-term MA crossing above long-term MA (bullish signal). Death Cross: Opposite (bearish).
Relative Strength Index (RSI): Oscillator (0–100) of recent price gains vs losses. Above 70 signals overbought (price extended); below 30 signals oversold (potential buy). Can show divergences with price (bearish/bullish divergence).
MACD (Moving Average Convergence Divergence): Trend momentum indicator using two EMAs and histogram. Crossovers of MACD line and signal line generate buy/sell signals; histogram crossing midline also signals trend shifts.
Bollinger Bands: Overlay of MA plus upper/lower bands at ±2 standard deviations. Bands widen (high volatility) or squeeze (low volatility). Price touching outer band suggests overbought/oversold extremes. Traders watch “Bollinger Squeeze” breakouts or double-tops/bottoms at bands.
Volume: Key indicator of market activity. Rising volume on breakouts or trend moves confirms strength; fading volume warns of exhaustion.
Support & Resistance: Identify horizontal levels or trendlines where price has repeatedly stopped. Traders often buy near support and sell near resistance or watch for breakouts. These levels form the basis of many trading signals (e.g. breakout above resistance).
Trendlines: Diagonal lines connecting successive lows in an uptrend or highs in a downtrend. They show the slope of a trend and can act as dynamic support/resistance.
Chart Patterns (Quick Reference)
Head & Shoulders (Reversal): Three peaks; middle (“head”) higher than shoulders. Signals a bullish-to-bearish reversal. Inverse head & shoulders (troughs) signals bearish-to-bullish reversal.
Double Top/Bottom (Reversal): Two similar peaks (double top) after an advance signals bearish reversal; two similar troughs (double bottom) after decline signals bullish reversal.
Triangles (Continuation/Breakout):
Ascending: Flat resistance (horizontal top) and rising support (diagonal). Bullish; often breaks upward.
Descending: Flat support (horizontal bottom) and falling resistance (diagonal). Bearish; often breaks downward.
Symmetrical: Converging trendlines (both diagonal). Neutral; breakout usually follows preceding trend. Confirmation requires a decisive move through either trendline.
Flags & Pennants (Continuation): After a sharp move (flagpole), price consolidates in a small channel (flag) or tiny triangle (pennant), then breaks out in the same direction. Bullish flag/pennant follows uptrends; bearish follows downtrends.
Cup & Handle (Continuation): U-shaped “cup” trough followed by a smaller down-sloping “handle”. Seen as a bullish continuation pattern; breakout above handle’s top signals entry.
Common Trading Strategies
Scalping: Ultra-short-term trading aiming for small profits from tiny price moves. Trades last seconds–minutes. Requires high-speed execution, deep liquidity, and strict discipline. Scalpers often use limit orders and scalping-specific indicators. Note: High fees or latency can erode scalps.
Day Trading: Opening and closing positions within the same day. Seeks to profit from intraday swings. Uses technical analysis and news; positions rarely held overnight to avoid gap risk.
Swing Trading: Holding positions for days–weeks to capture medium-term “swings” between support/resistance. Swing traders analyze trends and key levels (often using MAs, MACD, RSI) to enter near support and exit near resistance. Stop-loss and take-profit orders are set based on risk/reward (e.g. 2:1) to manage trades.
Trend-Following: Trade in the direction of established trends. Often use trend indicators (e.g. moving averages, ADX) to confirm trend strength. Traders buy in uptrends (e.g. when price and SMA align) and short in downtrends. Requires patience to let winners run and discipline to exit at trend reversals.
Breakout Trading: Enter trades when price breaks key support/resistance or chart pattern boundaries. For example, buying a coin when it breaks above a resistance line or triangle with high volume. A breakout strategy assumes price will continue in the breakout direction due to momentum. Risk: “false breakouts” can trap traders if price quickly reverses. Use confirmation (volume, retest of level) and stop-loss to mitigate.
Range Trading: Buy near support and sell near resistance in a sideways market. Works when no clear trend exists. Requires clearly defined range boundaries and tight risk controls (stop near opposite boundary).
Arbitrage: Exploit price differences across markets or exchanges for the same asset. Types include: Spatial (exchange) arbitrage (buy on one exchange, sell on another), Triangular arbitrage (exploit inefficiencies among three currency pairs), and Statistical arbitrage (algorithmic trading on statistical relationships). Arbitrage profits can be small per trade, so speed (low latency) and automation are critical.
HODLing/Long-Term Holding: Buy and hold for months/years, ignoring short-term volatility. Relies on faith in long-term adoption. Advantage: avoids emotional trading and capital gains taxes; Risk: wrong asset choice or long bear markets.
Risk Management Principles
Position Sizing: Determine how much capital to risk on each trade. A common rule is to risk a fixed percent of equity (often 1–2% per trade). For example, risking 1% of a $10,000 account means only $100 is at risk on a trade. Position size = (Account Risk ÷ (Entry price – Stop price)). This preserves capital through losing streaks.
Stop-Loss Orders: Always place a stop-loss to automatically exit a trade if it moves against you. A stop-loss locks in a maximum loss per trade. Choose stop levels based on volatility or technical levels (e.g. just below support for longs, above resistance for shorts). Never remove or widen a stop simply to “let a trade breathe.”
Risk/Reward Ratio: Define the reward (target profit) relative to risk (distance to stop). A typical aim is a ratio of at least 1:2 (risk $1 to make $2). The risk/reward ratio is calculated as (potential profit ÷ potential loss). For example, buying at $100 with stop at $90 (risk $10) and take-profit at $130 (gain $30) yields a 1:3 ratio. Committing to favorable ratios ensures overall profitability even if win-rate is moderate.
Diversification (Portfolio Balancing): Don’t put all funds in one asset or strategy. Spread capital across multiple coins, sectors, or uncorrelated strategies to mitigate single-point failures. For example, balance positions in Bitcoin, major altcoins (Ethereum), and perhaps yield or staking strategies. Avoid over-concentration: limit any one trade or asset to a small percentage of your total portfolio.
Regular Review and Rebalancing: Periodically assess open positions and portfolio allocation. Adjust positions or hedges as market conditions change. Lock in profits from big winners and cut losers according to plan.
Trading Psychology
Emotional Control: Recognize that fear and greed drive many mistakes. Fear can cause premature exits or panic selling, while greed can lead to chasing trades and overleveraging. Maintain discipline: stick to your trading plan and predefined rules even under stress.
Discipline & Consistency: Follow your strategy rules (entry, exit, sizing) without second-guessing. Avoid impulsive actions after losses or spur-of-the-moment trades on “hot tips.” Using checklists or trading journals can help enforce consistency and identify emotional biases.
Patience & Long-Term Perspective: Crypto markets are volatile. Successful trading often means waiting for high-probability setups rather than constant action. View each trade objectively, and understand that even correct strategies will have losing streaks. Treat losses as a cost of doing business. Build emotional resilience: “losses are learning opportunities”.
Avoid FOMO/FUD Traps: Decide trades based on analysis, not hype or panic. If you find yourself chasing a rapidly rising coin (FOMO) or panic-selling during a dip (FUD), step back. Waiting for confirmation and adhering to stop-loss prevents acting on emotions.
Use Automation (if needed): Tools like automated bots or dollar-cost averaging (DCA) can reduce emotional interference by executing trades systematically. For example, a DCA plan buys fixed amounts regularly, insulating against timing anxiety.
Common Mistakes & How to Avoid Them
Trading Without a Plan: Entering trades without clear criteria is like driving without a destination. Always define entry, stop-loss, and take-profit before trading. Having a written plan prevents impulsive decisions.
Ignoring Risk Management: Skipping stop-losses or risking too much capital invites ruin. Always cap risk per trade and diversify holdings. Remember: preserving capital is the priority; letting one loss wipe out gains means failure.
Emotional/Impulsive Trading: Acting on fear or greed (FOMO/FUD) often leads to buying high and selling low. Take a break when emotions run high. Using alerts and automated orders can enforce discipline.
Overleveraging: Using excessive margin amplifies both gains and losses. In volatile crypto, high leverage can liquidate accounts quickly. Only use leverage if you thoroughly understand the risks, and keep leverage ratios conservative.
Chasing Losses / Revenge Trading: Trying to immediately recover losses by trading bigger size is a fast track to catastrophe. Stop trading after a string of losses; review your strategy and regain a calm mindset first.
Overtrading: Taking too many trades or positions without clear edge raises costs (fees, spreads) and fatigue. Quality over quantity: wait for your best setups. Each extra trade only needs to succeed a few percentage points over 50% win-rate to be profitable.
Ignoring Fees & Slippage: High trading frequency or using expensive exchanges eats into profits. Always account for transaction fees, and set realistic price targets that justify the costs. In thin markets, large orders can move price (slippage), so trade sizes prudently.
Poor Security Practices: Failing to secure accounts, wallets or using unverified apps risks theft. Use hardware wallets for holdings, enable 2FA on exchanges, and trade only on reputable platforms.
Cheat Sheet: Patterns, Indicators, Setups
Head & Shoulders (Reversal): Three peaks (middle highest) signals trend top. Inverse version signals bottom. Entry/exit: short on neckline break after right shoulder.
Double Top/Bottom (Reversal): Two peaks/troughs at similar levels. Double top → bearish; double bottom → bullish. Confirm by break of the intervening support (for tops) or resistance (for bottoms).
Triangles (Continuation):
Ascending: Bullish (horizontal top, rising bottom). Buy on breakout above top line.
Descending: Bearish (horizontal bottom, falling top). Sell on breakdown below bottom line.
Symmetrical: Breakout direction decides trend. Trade direction of breakout (with volume confirmation).
Flags/Pennants (Continuation): Short consolidation after strong move. Trade breakout in direction of prior move. Ensure volume resumes at breakout.
Cup & Handle (Continuation): U-shape “cup” + smaller handle. Bullish; place entry above handle’s high.
RSI (Relative Strength Index): 0–100 momentum oscillator. >70 → overbought, possible sell; <30 → oversold, possible buy. Watch for bullish/bearish divergences.
MACD: Trend momentum via two EMAs. Bullish when MACD line crosses above signal line; bearish on cross below. Histogram crossing zero is a trend-shift alert.
Moving Averages: SMA/EMA smoothing of price. Price crossing above MA signals uptrend (and vice versa). MAs as dynamic support/resistance: e.g. price bouncing off 50-day MA.
Bollinger Bands: 20-period MA ±2σ. Price touching upper band = high; lower band = low. Bollinger Squeeze: narrow bands often precede big moves.
Support/Resistance: Key horizontal or trendline levels. Trade plan: buy near support / sell near resistance, or trade breakouts. Always confirm breaks (e.g. candle close beyond level).
Volume Patterns: Rising volume on move = strength; declining volume on pullback = healthy. Spike in volume often precedes or confirms breakouts.
Tools & Platforms
Crypto Exchanges: Platforms to trade and hold crypto. Major ones: Binance, Coinbase, Kraken, OKX, Bitstamp. Many offer mobile apps and advanced trading interfaces. Use reputable, regulated exchanges for security.
Charting & Screener: TradingView (web/mobile) for real-time charts, indicators and global screener. CoinMarketCap/CoinGecko for market data and basic screening. Crypto Screener apps (e.g. altFINS, CCTrader) show top movers by filters (volume spikes, RSI, etc). News aggregators (e.g. CryptoPanic) help track sentiment.
Trading Bots & Automation: Tools to automate strategies 24/7. Examples: 3Commas, Cryptohopper, Bitsgap, TradeSanta, WunderTrading, Pionex (exchange with built-in bots). Bots can run strategies (grid trading, arbitrage, DCA) and execute orders when signals trigger. Use only reputable bots and monitor them closely.
On-Chain Data & Analytics: Services that provide blockchain metrics and analytics. Glassnode, CryptoQuant, Santiment, Chainalysis offer on-chain indicators (e.g. MVRV, exchange flows). Dune Analytics and Coin Metrics for custom data dashboards. These tools help gauge market sentiment (e.g. whale activity, network health).
News & Research Platforms: Stay informed via CoinDesk, CoinTelegraph, Messari, The Block for news/analysis. Social media (Twitter, Telegram) and calendar (CoinMarketCal) track events. Always cross-check news and prioritize official sources.
