1. Basic Knowledge
List all the things that beginners need to know before, during, and after purchasing Bitcoin.
Things to know before buying Bitcoin:
What is digital currency?
Digital currency is like a special form of "money" in the internet world. It is not issued by banks, but runs online based on complex public blockchains and computer encryption technologies. Cryptocurrencies like Bitcoin and Ethereum are digital currencies that are not controlled by any specific institution, unlike electronic currencies we usually use in WeChat, Alipay, and bank cards, which are essentially digital forms of legal tender managed by banks and other institutions.
What is Bitcoin?
The concept of Bitcoin was initially proposed by Satoshi Nakamoto on November 1, 2008, and it 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 via extensive computations. Bitcoin confirms and records all transaction activities through a distributed database made up of numerous nodes and uses cryptographic designs to ensure the security of all aspects of currency circulation. Additionally, the total supply of Bitcoin is only 21 million, which makes it highly scarce, contributing to its attention.
The returns and risks of Bitcoin
At the beginning of 2011, Bitcoin's price was around $1. After three months of skyrocketing, it fell from $29.6 to $2.05, a drop of 93%;
In April 2013, Bitcoin's price soared to $230, and then continued to fall, dropping to a low of $66.34, a drop of 71.6%;
In the same year, Bitcoin's price peaked at $1,147, then fell back, and subsequently, in the next two to three years, the lowest price dropped to $177, a drop of 84.5%;
In December 2017, Bitcoin's price reached a maximum of $19,798.68, and just as it was about to break $20,000, it fell back. By early 2018, it had dropped to a low of $3,155, a drop of 84%;
The lowest price of Bitcoin in 2018 was $3,155, and the highest price was $17,157;
In 2019, the lowest price of Bitcoin was $3,353, and the highest price was $13,968;
The lowest price of Bitcoin in 2020 was $3,728, and the highest price was $29,340;
The lowest price of Bitcoin in 2021 was $27,850, and the highest price was $69,158;
This year's lowest price of Bitcoin is $32,914, and the current highest price is $48,130.
From historical prices, it can be seen that Bitcoin's volatility is extremely large. Although it rose from $1 to a maximum of $69,158, a rise of thousands of times, this kind of situation where prices fluctuate back and forth between villas and bungalows is difficult for most people to bear.
Bitcoin's price fluctuates greatly, partly because of its limited total supply, and the changes in market supply and demand have a significant impact; on the other hand, the policies and regulations of various countries can also influence its price. Some countries encourage trading while others restrict it, which can affect investor sentiment and, in turn, affect prices. Therefore, before purchasing, investors should not only look at returns but also pay attention to risks and arrange according to their own risk tolerance.
Position management
Position management is the use and reasonable allocation of funds in investment, including position arrangement and risk control.
For example, if you currently have $100,000 in savings:
(1) 10% reserved for daily expenses for short-term consumption; (2) 20% as emergency funds for unexpected situations like illness and hospitalization; (3) 40% can be invested in stable yield products such as bonds or trusts, which provide stable returns while protecting the principal against inflation; (4) 30% allocated for high-risk investments using funds that do not affect normal living, ensuring that even in failure, it does not impact one’s life.
This is just a simple example; everyone can allocate based on their own risk tolerance. In actual operations, do not invest 30% of high-risk investment funds all at once; enter the market in batches according to market conditions. Increase appropriately when the market is good, reduce or even temporarily refrain from investing when the market is poor. Moreover, never use emergency or daily expense money for investment out of greed.
Borrowing or investing all funds is not rational, especially for beginners who should act within their means. Investing all funds not only increases the risk of loss but also affects one's mindset, making it easy to feel anxious or panic when the market declines.
Buying Bitcoin must know:
Where to buy?
Currently, there are three well-known leading exchanges in the country.
I have organized the advantages and disadvantages of the three major exchanges and their differences, and can share them for free if interested.
Repeatedly emphasize, never go to unknown small exchanges! Small exchanges always carry the risk of running away or freezing funds.
Large exchanges provide guarantees; after years of development, they have established a comprehensive security system to maximize the safety of users' funds. Moreover, they have many users, deep trading depth, and it is easy to buy and sell Bitcoin, avoiding situations where one cannot buy or sell as desired. The customer service team is also professional and can resolve issues promptly.
Anyone claiming high returns on a certain platform should be blacklisted. If a friend asks you to trade on a small exchange, that person is not your friend.
Specific steps for purchasing:
2.1 Spot trading
Spot trading simply means spending money to buy cryptocurrencies, divided into fiat currency trading and crypto-to-crypto trading.
2.1.1 Fiat currency trading
Fiat currency is the legal tender, such as RMB, USD, GBP, etc. Fiat currency trading is the trading between fiat currency and digital currency, such as directly using RMB to purchase Bitcoin.
We can directly purchase digital currency with RMB in the quick buy area of the exchange.
The advantage of quick buying is its convenience; the disadvantage is that there are not many types of digital currencies that can be traded directly with fiat currency, only mainstream currencies like Bitcoin (BTC), Ethereum (ETH), and Tether (USDT).
When choosing a merchant for fiat currency trading, check the merchant's reputation score, trading frequency, and completion rate, and try to choose merchants with high scores, many transactions, and high completion rates to reduce trading risks.
2.1.2 Crypto-to-crypto trading
Crypto-to-crypto trading is the purchase of one digital currency with another, without involving fiat currency transfer or settlement. For example, using USDT to buy ETH forms the ETH/USDT trading pair. USDT is the quoted currency, and ETH is the trading currency, using USDT to define the price of ETH.
In the quick trading area, the variety of digital currencies is limited. If you want to purchase currencies outside the quick area, you need to first buy stablecoins and then use stablecoins to purchase other digital currencies.
The most widely used stablecoin currently is USDT. A stablecoin is a cryptocurrency that maintains a stable exchange ratio with a certain underlying asset, having 'stable value', serving as an intermediary between the world of digital currencies and the world of fiat currencies. USDT (Tether) is a token based on the US dollar (USD) launched by Tether, with 1 USDT = 1 dollar, and users can exchange it 1:1 at any time.
2.2 Contract trading
Spot trading is the trading between fiat currency and digital currency. Contract trading, also known as futures contracts, is a view on the price changes of cryptocurrencies in the market, such as whether Bitcoin's price will rise or fall in the future.
In contract trading, if one believes the price of a cryptocurrency will rise, they buy a contract, known as going long; if they believe it will fall, they buy a contract, known as going short.
In contract trading, regardless of whether the cryptocurrency price rises or falls, one can profit by going long or going short, while in the spot market, one can only profit by buying and waiting for the price to rise. Contracts involve leverage concepts; when placing an order, traders only need to pay a small amount of funds as collateral based on a certain ratio of the contract price to participate in buying and selling. For instance, to buy a $6,000 BTC contract with 10x leverage, only $600 of BTC is required. Margin trading is essentially leveraged trading, and cryptocurrency futures trading uses the traded cryptocurrency as collateral.
The leverage in contract trading can amplify returns, but it also amplifies risks. Beginners should start with low leverage, such as 1-2 times leverage, and set a stop-loss; if the market trend is contrary to their judgment, they can stop loss in time to avoid significant losses.
Things to know after buying Bitcoin:
When to sell?
Those who can buy are apprentices; those who can sell are masters.
I once bought LINK for 10,000, and originally made a double profit, but due to not having a clear goal, I ended up selling only after half of my profit was given back. If the selling target is not set well, what could have been a profit may end up being a loss.
Set a target point for profit-taking and stop-loss.
Before beginners buy digital currencies, they can set three points: the buying point, the profit-taking point, and the stop-loss point. However, this requires at least the ability to understand support and resistance levels.
A friend bought a kind of digital currency and set a profit-taking point at a 50% increase, but when it increased by 40%, he thought it could still rise and did not sell. Later, the price plummeted, and not only did he not make a profit, but he also suffered a loss. This is a lesson in not strictly executing profit-taking and stop-loss.
2. News aspect
We can research knowledge-based content ourselves and accumulate foundational knowledge. However, learning from the experiences or lessons of predecessors can lead to faster growth; reading history makes one wise, and the same applies in the crypto space. Generally, when assessing market trends, one will combine the news aspect and technical aspects.
Just like recently, regulatory authorities have frequently taken action, and global crypto assets have been severely impacted, with prices plummeting. In such extremely bearish conditions, the outlook for the crypto market is not optimistic, which is the intuitive impact of news.
In addition, it is important to understand the cryptocurrency's price, circulation, total supply, current market value, and the trading volume over the past 24 hours, among other basic information. Additionally, factors such as the cryptocurrency's hash rate, number of active addresses, block size, Google search index, and fear and greed index. Furthermore, the net inflow and outflow of funds for the cryptocurrency, as well as the long and short position holding ratio on trading platforms, can serve as references for predicting short-term price fluctuations.
3. Technical aspect
One cannot consider issues in isolation; the news aspect and technical aspect must be combined to assess market trends, and the perspective cannot be too singular!
There are many technical indicators, and one article cannot cover them all. Below is an example of one of the precise buy and sell indicators in the crypto space — KDJ.
1. What is KDJ?
The KDJ indicator, also known as the stochastic indicator, calculates the amplitude between the highest, lowest, and closing prices over a certain period by introducing the concepts of fast and slow moving averages, reflecting the strength of price trends and the dynamics of overbought and oversold conditions.
2. How to understand the KDJ indicator?
In general market viewing software, 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 D is the slowest; in terms of safety, J is the weakest, K is next, and D is the most stable.
Specifically, the calculation principle of KDJ is to calculate the immature stochastic value RSV for the last calculation cycle based on the highest price, lowest price, and closing price of the last calculation cycle within a specific period (commonly 9 days, 9 weeks, etc.) and the ratio between these three. Then, using the method of smoothing moving averages, calculate the K value, D value, and J value, and plot them as a curve to analyze price trends.
The calculation formula of the KDJ indicator:
The period for calculating the KDJ indicator in China is 9 days, and the K value and D value are for 3 days.
RSV (9) = (Today's closing price - 9-day lowest price) ÷ (9-day highest price - 9-day lowest price) × 100
K(n) = (Today's RSV value + Yesterday's K value) ÷ N
D (n) = (Today's K value + Yesterday's D value) ÷ N
J = 3K - 2D
3. Application of KDJ Indicator
Based on the value of KDJ, it can be divided into overbought zone, oversold zone, and hovering zone. According to general standards, K, D, J below 20 is the oversold zone, which is a buy signal; above 80 is the overbought zone, which is a sell signal; between 20-80 is the hovering zone, advisable to observe.
Generally speaking, when the D line turns up from below, it is a buy signal; when it turns down from above, it is a sell signal.
KD fluctuates in the range of 0-100, with 50 being the balance line between bulls and bears. In a bullish market, 50 is the support line for pullbacks; in a bearish market, 50 is the resistance line for rebounds.
When the K line crosses above the D line at a low position, it is a buy signal; when the K line crosses below the D line at a high position, it is a sell signal.
When the K line enters above 90, it is in the overbought zone, and below 10, it is in the oversold zone; when the D line enters above 80, it is in the overbought zone, and below 20, it is in the oversold zone. Pay attention to grasping the timing for buying and selling.
When looking at the market, the KDJ indicator cannot be used alone; it can be combined with the MACD indicator. If the KDJ indicator shows overbought conditions, and the MACD indicator shows a top divergence, the sell signal is stronger. Moreover, the KDJ indicator's effectiveness varies with different time periods; look at the 5-minute, 15-minute charts for the short term, and daily and weekly charts for the long term.
Ming only does spot trading; the team still has positions available.#ETH #BTC
