1. Basic Knowledge
This book lists all the things that need to be known before, during, and after buying Bitcoin for beginners.
The directory is as follows:
Things to Know Before Buying Bitcoin:
1. What is Digital Currency?
2. What is Bitcoin?
3. Bitcoin's Returns and Risks;
4. Position Management.
Things to Know While 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 currency developed and operated by internet users based on public blockchain and computer encryption technologies.
Bitcoin, Ethereum, etc. are cryptocurrencies within digital currencies, based on decentralized currency, distinct from electronic currencies such as WeChat, Alipay, and bank cards that we use daily.
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 a specific currency institution. Instead, it is generated through a specific algorithm and extensive calculations. Bitcoin confirms and records all transactions using a distributed database composed of numerous nodes and employs cryptographic design to ensure the security of all aspects of currency circulation. At the same time, the total supply of Bitcoin is only 21 million, making it highly scarce.
3. Bitcoin's Returns and Risks;
At the beginning of 2011, Bitcoin's price was around $1. After three months of skyrocketing, its price fell from $29.6 to $2.05, a drop of 93%;
In April 2013, Bitcoin peaked at $230 and then continued to decline, hitting a low of $66.34, a drop of 71.6%;
In the same year, Bitcoin's price peaked at $1147, then fell back, and in the next two to three years, the lowest price of Bitcoin dropped to $177, a drop of 84.5%;
In December 2017, Bitcoin's price reached a peak of $19798.68 and fell back just before breaking the $20,000 mark, dropping to a low of $3155 in early 2018, with a decline of 84%;
The lowest price of Bitcoin in 2018 was $3155, and the highest price was $17157;
In 2019, Bitcoin's lowest price was $3353, and the highest price was $13968;
In 2020, Bitcoin's lowest price was $3728, and the highest price was $29340.
In 2021, Bitcoin's lowest price was $27850, and the highest price was $69158.
This year, Bitcoin's lowest price was $32914, with the current highest price at $48130;
From historical prices, we can see the extreme volatility of Bitcoin. Although it rose from $1 to a peak of $69158, a staggering increase, it’s hard for most people to accept the fluctuations between a villa and a bungalow.
Even though Bitcoin's market has been steadily rising overall, no one can predict when it might experience another sharp decline. Therefore, investors should not focus solely on Bitcoin's returns when purchasing but should also pay attention to its risks and arrange according to their risk tolerance.
4. Position Management.
Position management refers to the use of money in our investment process, which is the rational allocation of invested funds, including position management and risk control.
For example, your current savings amount to $100,000;
(1) 10% for daily expenses, which is short-term consumption; (2) 20% as emergency money for unforeseen events, such as illness or hospitalization; (3) 40% can be used for capital-preserving investments that yield extra income to resist inflation, such as bonds, trusts, etc., which are stable income products; (4) 30% for high-risk investments using funds that won't affect normal living, meaning even if the investment fails, it won't impact your life.
The above is just a simple example; you can allocate according to your risk tolerance.
Borrowing or using all your funds for investment is considered irrational behavior and is highly inadvisable. Especially for beginners, it is crucial to understand the principle of acting within one's means. Investing all funds in the market not only increases the risk of losses but also can significantly impact the investor's mindset. If the market starts to decline, it can easily lead to anxiety and panic.
Things to Know While Buying Bitcoin:
1. Where to Buy?
Currently, there are three well-known leading exchanges in the country.
I previously organized some materials about the pros and cons and differences of the three major exchanges, which I can share for free if anyone is interested.
I emphasize repeatedly, do not go to unknown small exchanges!!!!
Small exchanges carry the risk of running away or freezing your funds at any time.
Large exchanges provide guarantees in terms of establishment time, number of users, and trading depth!!
Anyone who tells you that going to a certain platform guarantees high returns should be blacklisted.
If a friend urges 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 buying cryptocurrencies with money. It is divided into fiat 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 transactions between fiat currency and digital currency, such as directly using RMB to purchase Bitcoin.
We can directly buy digital currencies with RMB in the quick buying area of the exchange.
The advantage of quick buying is convenience; the disadvantage is that there aren't many digital currencies that can be directly traded with fiat currency, only a few mainstream currencies like Bitcoin (BTC), Ethereum (ETH), or Tether (USDT).
2.1.2 Cryptocurrency Trading
Cryptocurrency trading refers to using one cryptocurrency to purchase another, without involving any fiat currency transfer or settlement in between. For example, using USDT to buy ETH will create the ETH/USDT trading pair. USDT is referred to as the quote currency, while ETH is the trading currency, using USDT as the quote to define the price of ETH.
In the quick trading area, the variety of digital currencies is limited. If we want to purchase digital currencies outside the quick area, we first need to buy stablecoins and then use those stablecoins to purchase other digital currencies.
The most widely used stablecoin is USDT.
Stablecoins, as the name suggests, are cryptocurrencies that maintain a stable exchange ratio with a certain underlying asset. Stablecoins can be viewed as a type of digital currency with 'stable value' that acts as an intermediary connecting the world of digital currency and fiat currency. The most widely used stablecoin is USDT (Tether). Tether (USDT) is a token launched by Tether company based on the stable value of the US dollar (USD), with 1 USDT = 1 USD, allowing users to exchange USDT for USD at a 1:1 ratio at any time.
2.2 Contract Trading
Spot trading refers to transactions between fiat currency and digital currency. Unlike contract trading, also known as futures contracts, it refers to views on changes in the prices of cryptocurrencies in the market, such as whether you believe 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, called going long; if you believe the price will fall, you buy a contract, called 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 profit by buying the cryptocurrency and hoping its price rises. There is also a concept called leverage in contracts. When placing an order, traders only need to pay a small amount as a financial guarantee for fulfilling the contract based on the contract price, allowing them to participate in contract trading. For example, if you want to buy a $6000 BTC contract with 10x leverage, you only need to pay $600 in BTC. Margin trading is essentially leveraged trading. In cryptocurrency futures trading, the currency being traded serves as the margin.
Things to Know After Buying Bitcoin:
1. When to Sell?
Those who know how to buy are students; those who know how to sell are masters.
I once bought LINK for $10,000, and I was initially poised to double my profit. However, due to the lack of a clear target, I ended up selling after losing half of my profits. If the selling target is not well set, it’s very likely that what initially looks like a profit turns into a loss as you wait.
1. Set target points for profit-taking and stop-loss.
Newbies can set three points before purchasing digital currency: buying point, profit-taking point, and stop-loss point.
However, the minimum requirement is at least to understand pressure and support.
2. News Aspect
We can certainly research knowledge-based topics and accumulate foundational knowledge. However, the experiences of those who came before or the pitfalls they encountered can lead to faster growth. It's often said that studying history makes one wise, and the same applies in the crypto space. Typically, when assessing market trends, we combine news and technical analysis.
Taking the recent market situation as an example, regulatory authorities are frequently intervening, and global crypto assets are suffering severe blows, with prices plummeting. In such extremely negative conditions, the market outlook for crypto is not optimistic. This is a relatively direct impact from the news.
In addition, the basic things to know include the price of the cryptocurrency, circulation, total supply, current market value, trading volume in the past 24 hours, etc. Then there are the cryptocurrency's hash rate, the number of active addresses, block size, Google search index, and fear and greed index. Lastly, the net flow of funds in and out of the cryptocurrency, as well as the long and short position ratios on trading platforms, can be used as references for predicting short-term price fluctuations.
Many information platforms can check these data. The ones you might be familiar with are Coin World, Feixiaohao, Chain News, and so on.
Besides, I have also organized some materials that can be freely shared with everyone!
1. Crypto Forums
2. Foreign Information
3. Must-See Websites in the Crypto Space
4. Chinese Information Websites
5. Trading-related Websites
How to see newly issued digital currencies as soon as possible?
3. Technical Aspects
Everything should not be considered in isolation; news is just one way to judge, and indicators are also a method of assessment. Therefore, it is essential to combine both news and technical analysis to evaluate the current market trend, without having an overly narrow perspective!
Of course, there are many technical indicators, and I cannot cover them all in one article.
Here I will illustrate one of the precise buying and selling indicators in the crypto space — KDJ.
1. What is KDJ?
The KDJ indicator, also known as the stochastic indicator, reflects the strength of price trends and dynamics of overbought and oversold conditions by incorporating concepts of fast and slow moving averages, calculating the price fluctuations among the highest, lowest, and closing prices over a certain period.
2. How to Understand KDJ Indicator?
In general charting software, the yellow K line represents the fast indicator, the white D line represents the slow indicator, and the red is the J line. Typically, in terms of sensitivity, the J value is the strongest, followed by K, and D is the slowest. In terms of safety, the J value is the worst, K is next, and D 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 or 9 weeks) and the proportional relationships among these three, to calculate the last immature random value (RSV) for that cycle. Then, using the method of smooth moving averages, the K value, D value, and J value are calculated and plotted to analyze price trends.
KDJ Indicator Calculation Formula
In China, the cycle for calculating the KDJ indicator is set at 9 days, with K and D values set 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
Based on KDJ values, they can be divided into several zones: overbought zone, oversold zone, and hovering zone. According to general classification standards, K, D, and J values below 20 indicate an oversold zone, which is a buy signal; K, D, and J values above 80 indicate an overbought zone, which is a sell signal; K, D, and J values between 20-80 indicate a hovering zone, where observation is advised.
1. Generally, when the D line turns from below to above, it is a buy signal; when it turns from above to below, it is a sell signal. 2. KD fluctuates within a range of 0-100, with 50 as the balance line. If in a bullish market, 50 is the support line for pullbacks; if in a bearish market, 50 is the resistance line for rebounds. 3. The K line crossing above the D line from a low position is a buy signal, while the K line crossing below the D line from a high position is a sell signal. 4. A K line above 90 indicates an overbought area, while below 10 indicates an oversold area; a D line above 80 indicates an overbought area, while below 20 indicates an oversold area. It is advisable to pay attention to timing the buying and selling opportunities. …
I have organized some learning materials, which can be freely shared 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 Index
4. Classic Books
I will divide book recommendations into three parts: 1. Learning the basic theory of digital currency, 2. Learning trading techniques, 3. Learning investment psychology.
1. Basic Theory of Digital Currency
1. (How to Invest in Digital Currency) Authors: Wang Bo / Zhou Chaohui
This book is divided into three parts:
1. Basic Knowledge Section: To give readers a comprehensive understanding of the concepts of digital currency and the current state of its development over the past six years;
Investment and Trading Section II: Introduces all types and technical points of digital currency investment currently available, especially how ordinary investors can choose trading platforms, complete account opening, deposit, buy, sell, and withdraw smoothly.
3. Investment Philosophy Section: Discussing the wise choice of long-term investment in digital currency from various aspects, including the historical development of humanity, the digital currency ecosystem, regulation, and development.
Target Audience: Mainly conceptual, suitable for beginners who are not very familiar with digital currencies.
2. (Decrypting Bitcoin) Authors: Liu Ning / Shen Dahai
This book is authored by technical geeks and evangelists in the domestic Bitcoin field, and its professionalism and authority are beyond doubt.
It comprehensively introduces the development history, basic concepts, monetary significance, characteristics, generation principles, operational mechanisms, acquisition methods, trading methods, circulation principles of Bitcoin, and the attitudes and policies of governments around the world towards Bitcoin, as well as investment knowledge, principles, strategies, techniques, and risk avoidance related to Bitcoin.
2. Trading Techniques
1. (Technical Indicator Selling Point Analysis) Author: Yang Bo
This book provides a detailed introduction to dozens of technical indicators, thoroughly explaining the principles, uses, and practical techniques of each indicator, aiming to showcase each indicator's practical applications from various perspectives, serving both as a manual for investors to reference various indicators and as a teaching material to improve investors' practical skills.
Furthermore, the author has also summarized and consolidated complex technical analysis knowledge and methods based on years of experience, hoping to help readers grasp the principles of technical analysis in the shortest time and open the door to profits in the stock market.
Target Audience: This book starts with basic principles and gradually transitions to practical applications, supplemented with illustrations. This technical-focused classic is suitable for those who want to approach trading.
2. (New Interpretation of Japanese Candlestick Techniques) Author: Steve Nison
Introduction: The candlestick chart is the most popular and oldest form of technical analysis in Japan, originating before Western line charts and bar charts. The first part of this book details the basic knowledge of candlestick charts, candlestick chart patterns, and the overall technical aspects of the market, while the second part explains divergence indices and new price charts, including three-line breakout charts, brick charts, and key charts, thereby helping readers invest better.
Target Audience: The author systematically explains the core candlestick charts in a simple, popular, and thorough manner while integrating candlestick analysis with trading, market conditions, and practical experience. Such detailed and logical presentation is suitable for beginners.
3. (Chans Theory: Technical Theory Illustrated) Author: Baodike
This book is divided into 6 chapters, comprehensively analyzing the essence of Chans theory and dissecting its techniques. It includes specific operational steps and difficulty analysis, along with practical illustrations to help readers quickly grasp the theory.
The book's biggest feature is its illustrations. It includes lots of stock charts and diagrams, interpreting profound content in a visually engaging and readable manner.
Target Audience: This book first attracts readers' interest through rich images and then conveys the essence of the theory of 'chans' to help readers master its techniques. This content distribution from surface to depth is suitable for those wishing to transition from novice to skilled operator.
3. Investment Psychology
1. (Rich Dad Poor Dad) Author: Kiyosaki
I won't elaborate much on how famous this book is!
Main Content:
Kiyosaki has two dads: 'Poor Dad' is his biological father, a highly educated education official; 'Rich Dad' is the father of his good friend, a businessman who dropped out of high school but is skilled in investment and financial management.
The hardworking 'Poor Dad' lost his job, while 'Rich Dad' became one of the wealthiest people in Hawaii.
Kiyosaki resolutely pursued the footsteps of 'Rich Dad' and entered the business world, subsequently riding the express train to wealth. Kiyosaki uses his personal wealth story to showcase the starkly different perspectives on money and wealth between 'Poor Dad' and 'Rich Dad': the poor work for money, while the rich make money work for them!
Recommendation Reason: It's rare to find a book that isn't just a self-help book; the investment advice provided is significantly meaningful for practical operations. In addition to investment and financial 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. Most importantly, perhaps the reasoning errors of investors impact their investments and ultimately affect their wealth.
Recommendation Reason: Through reading, you can learn about many psychological biases that may affect investment decisions; understand how these biases influence investment decisions; see how these erroneous decisions can erode your wealth, etc.
I have organized some good books that can be freely shared with everyone.
1. Dow Theory and Practice 2. How to Interpret Gann Theory 3. Revealing Main Force Chip Distribution 4. Mastering Tonghuashun Formulas 5. Investment Psychology Analysis 6. Detailed Discussion on Volume and Price Relationship 7. Decoding Market Predictions and Practical Applications …
4. Trading Psychology
I often have people come to me expressing doubts that market makers are targeting the pockets of small retail investors like me. Otherwise, why does the price drop every time I buy and rise every time I sell? Why do my actions always seem to contradict market trends?
This question is actually very simple. Market makers utilize retail investors' trading psychology, such as chasing after rising prices and panic selling, to complete their stock accumulation, wash trading, price increase, and offloading. Therefore, as a newcomer to the crypto space, you must understand the following!
Gambler's Fallacy: The tendency to believe that the probability of future (events occurring) will be changed by past events.
Just as in trading, due to psychological factors, certain key prices will create resistance and support, forming similar patterns on charts. However, we must understand that history will repeat itself but will not simply repeat. Therefore, as investors, we must not gamble!
Loss Aversion: A strong preference for avoiding losses. In other words, not losing money is much more important than making money.
For a qualified trader, losing $100 and earning $1 should be viewed the same way. However, some people can accept not earning $100 but cannot accept losing $100, which is actually a manifestation of immature investment psychology!
Disposition Effect: cashing in profits early while letting losses persist.
For example, if you bought a cryptocurrency with a cost of 100, it initially keeps rising. But when the market turns bearish, it starts to drop again. Initially, you say you'll sell when it returns to 100, but the situation doesn't improve. Then you say you'll sell at 70, and after it drops, you say you'll sell at 50. In the end, you end up selling at 20!
Outcome Bias: Judging the quality of a decision solely based on its outcome without considering the quality of the decision itself.
For instance, the crypto circle experienced a black swan on May 19 last year, causing many people to start doubting themselves. However, Nassim Nicholas Taleb pointed out in his work (The Black Swan) the concept of 'narrative fallacy,' which describes how flawed past events affect our worldview and expectations for the future. Therefore, we often concoct strained explanations for past regrets and believe them to be true, thus deceiving ourselves.