Cryptocurrency tycoons tell you how to make money, while I share my experiences of losing money to teach you how to avoid pitfalls and scams.
The following 15 points help beginners quickly understand cryptocurrency knowledge
Essential terminology explanations that you must know when entering the cryptocurrency space (must-read for beginners)
1. What is fiat currency? Fiat currency refers to legal tender issued by a country and government, backed solely by government credit, such as the RMB, USD, etc.
2. What does Token mean? Token is usually translated as 'token'. Token is one of the essential concepts in blockchain, more commonly known as 'cryptocurrency'. However, in the professional 'chain circle', a more accurate translation is 'token', representing a proof of rights on the blockchain rather than currency. In traditional value systems, only things that can be recorded in a ledger can be exchanged and circulated. Hence, bookkeeping is the foundation of wealth generation. However, in the real world, most things cannot be quantified, and the things that can be recorded are extremely limited. However, 'Token' can. The magic of this is that Token can represent real assets and virtual digital assets, allowing them to be recorded digitally.
3. What does airdrop mean? Airdrop is currently a very popular cryptocurrency marketing method. To provide potential investors and cryptocurrency enthusiasts with information about tokens, the token team frequently distributes unknown tokens to the accounts of cryptocurrency participants in proportion to their existing token holdings. To receive more airdrops, one must purchase more tokens, which is a very effective marketing approach.
4. What is candy? Various digital currencies that are newly issued during the ICO phase are distributed for free to users. This is a way for the issuing party of a virtual currency project to generate hype and publicity for the project itself.
5. What does breaking the issue price mean? The issue price refers to the price at which a digital currency is issued, and breaking the issue price means that a certain digital currency has fallen below its issue price.
6. What does private placement mean? It is a way to invest in cryptocurrency projects and is the best way for cryptocurrency project founders to raise funds for platform operations. Private placement refers to raising funds privately as opposed to public offering, selling stocks (cryptocurrencies) to a small, qualified group of investors without going through the public market.
7. What does ICO mean? Initial Coin Offering, derived from the concept of Initial Public Offering (IPO) in the stock market, is a financing behavior where blockchain projects exchange their own issued virtual currencies for commonly used virtual currencies in the market.
8. What are the current trading platforms in the cryptocurrency space? Binance, etc. 1. Basic characteristics of virtual currency trading: (1) Trading hours: 7*24 hours, open all year round. (2) No price limits: Virtual currency trading has no price limit restrictions, while stocks have price limit restrictions. For example, on May 28, Bitcoin's single-day increase exceeded 20%. (3) Trading unit: The minimum purchase is 0.0001 BTC (approximately 0.6 yuan), with no minimum purchase requirement like stocks (100 shares). (4) Anytime trading: This is T+0 trading, while stocks are T+1 trading. This means that when you buy stocks, you can only sell them on the next trading day. However, virtual currencies can be sold on the same day they are bought. (5) No time restriction on withdrawals and cashing out: You can withdraw and cash out at any time, with high liquidity.
9. What is a wallet? Simply put, it is like a personal bank card. If you are not comfortable storing virtual currencies on trading platforms, you can store them in your personal wallet. There are various types of wallets: some are specific for a single currency, like a wallet that only stores EOS, while others can store multiple types of currencies, like TP Wallet, which is more versatile.
10. Bullish / Bearish Various messages that stimulate price increases are referred to as bullish. Conversely, news that causes the price to drop is referred to as bearish, such as when a trading platform is hacked and coins are stolen, or negative information from the government.
11. Public Chain / Private Chain / Consortium Chain A public chain refers to a blockchain where anyone can participate in transactions and obtain valid confirmations. Most current blockchain systems belong to public chains, such as Bitcoin and Ethereum. Public chains are suitable for applications where everyone can join and maintain them, such as mutual insurance. A private chain refers to a blockchain where writing permissions are limited to a specific organization or individuals. Reading permissions can be externally released or restricted to any extent. Developing enterprise-level applications based on private chains helps businesses achieve on-chain operations, and the unalterable nature of on-chain information enhances the enterprise's social credibility, boosting investor and investment institution confidence in the enterprise. A consortium chain refers to a blockchain where the consensus mechanism is jointly controlled by several institutions. The credit mechanism within is maintained collaboratively by these institutions. The legitimacy of all transactions needs to be confirmed by a majority or all institutions to be written into the blockchain as legitimate block records. Imagine in the financial sector, a consortium of several socially credible financial institutions forms a blockchain alliance, where each institution operates a mining node, representing all participants' consensus rights and maintaining the blockchain's normal growth and operation.
12. Rebound / Consolidation / Correction A price rebound in the overall downward trend of digital currency is called a rebound, where the rebound magnitude is less than the decline. A correction is the opposite, where a temporary decline occurs in an overall upward trend of prices. Consolidation refers to a relatively stable overall coin price, with small fluctuations that do not vary significantly.
13. Leverage Leverage trading, as the name suggests, involves using a small amount of capital to make investments several times greater than the original funds, hoping to achieve a multiple return on investment or losses, similar to gambling.
14. Basic principles of virtual currency transactions
(1) Market Order Trading: Executing transactions at the current market price, which can ensure that investors' buy and sell orders are executed in a timely manner to a certain extent, but at the same time, investors cannot predict the transaction price before placing a market order, leading to a certain degree of uncertainty. Generally speaking, the more volatile the market is, the greater the price uncertainty risk of market orders.
(2) Limit Order Trading: Investors can set a buying price below the market price or a selling price above the market price. When the market price fluctuates to the set price, the transaction occurs. When the set price deviates significantly from the market price, it may result in failure to execute the order.
(3) Basic principles of transactions: The principle of 'price priority, time priority'. A higher buying price takes precedence over a lower buying price for transactions, while a lower selling price takes precedence over a higher selling price for transactions. When the commission prices are the same, the order with an earlier hanging time takes precedence over the one with a later hanging time.
15. Common professional terms explained during trading
【Turnover Rate】 Refers to the frequency at which a certain cryptocurrency is bought and sold in the market over a certain period, which is one of the main indicators to evaluate the liquidity of a cryptocurrency.
【Market Order】 This refers to transactions made at the current price. Market orders have transaction priority. If you complete the transaction faster, you can use market orders.
【Limit Order Trading】 This refers to buying or selling transactions at a specified price, also known as commission trading or order trading.
【Wash Trading】 This is a trading technique used by market makers. The specific operation method involves opening accounts on multiple exchanges at the same time and quoting trades back and forth between these exchanges to manipulate coin prices.
【Market Manipulation】 This is a means of market makers to intentionally lower prices. The specific method involves first raising the price and then profiting by selling. During this period, the main forces often intentionally place large sell orders to pressure the market, forcing low-price buyers to sell their cryptocurrencies to reduce the upward pressure, making it easier to raise prices.
【Market Protection】 When prices are sluggish and the popularity of a coin is low, large holders buy a lot of that coin to prevent its price from continuing to decline.
【Bull Market】 Refers to a market condition where prices are generally rising, with a sustained upward trend and optimistic outlook. (In the cryptocurrency space, this mainly refers to BTC's rise leading other mainstream coins and altcoins.)
【Bear Market】 This is the exact opposite of a bull market; it refers to a market condition where prices continue to decline, and market sentiment is low, resulting in a prolonged downward trend. (What you are currently experiencing is a bear market. During this phase, the most important thing is to survive. Then, further actions such as accumulating coins and bottom fishing can be considered.)
【Monkey Market】 I believe many people do not understand this, but it exists in the stock market. Why is it called a monkey market? Monkeys like to jump around, which corresponds to our market fluctuating up and down. In the monkey market phase, the market is not easy to grasp. (Today, mainstream coins might rise, and tomorrow they could fall, or some altcoins might rise while others plummet.)
【Main Uptrend】 Originating from wave theory, it refers to the longest-lasting wave during a price increase. This is also a common market condition in a bull market; catching the main uptrend means you earn big. The opposite trend is often referred to as the 'main downtrend'.
【Downward Trend】 The overall market shows a downward trend, but the trend often fluctuates with two days of rise and one day of decline, always giving hope yet consistently disappointing.
【Waterfall】 Refers to a sudden and significant drop in price, where several large bearish candles appear in a short period, resembling a waterfall flowing down, causing pain to those watching. It is also referred to as 'plummeting'.
【Blowout】 The market is influenced by bearish factors and remains depressed for a long time. During this period, the market will be very suppressed. When bearish factors are exhausted or removed, the market will show explosive growth.
【Market Manipulation】 Large financial groups such as market makers or project parties manipulate the market through capital to create fluctuations, scaring out hesitant retail investors to achieve exorbitant profits.
【Accumulation】 Generally done through market manipulation, scaring out retail investors, and then the market maker will take over the coins sold by retail investors, increasing their holdings to achieve market control (such operations usually occur at low prices).
【Market Control】 Very simply, if I have a lot of money (holding a large proportion of circulating coins), I can easily manipulate the market to make prices rise or fall. The purpose is straightforward: to make more money and trap retail investors. 【Cutting Chives】 A portion of traders exit the market after losses, while a new group of novices enters, resembling chives being harvested repeatedly. The happiest are the market makers.
【Fake Signals】 Market makers use candlestick charts to create upward or downward trends, prompting us to buy or sell, achieving their goal of profiting off retail investors.
【Bullish】 Also called bullish news. It mainly uses news, often referring to good news. In the eyes of most people, bullish news will definitely lead to price increases, but this is not the case. Bullish and bearish news does not correlate proportionately with price increases; it only has a certain influence and can stimulate the market.
【Bearish】 This also refers to news, mostly indicating unfavorable news for the market. However, there is also a saying in the market: when bearish factors are exhausted, it becomes bullish.
【Inducing Buying】 After a long period of price consolidation, with a high likelihood of decline, most short sellers have sold their virtual currencies. Suddenly, the bears raise the price, enticing the bulls to think that the price will rise, leading to widespread buying. In the end, the bears suppress the price, trapping the bulls. 【Inducing Selling】 After bulls buy virtual currencies, they deliberately suppress the price, making the bears believe that the price will fall, leading them to sell, resulting in falling into the bulls' trap.
【Position】 This is very simple, it refers to the ratio of your account funds to the funds you use to buy coins.
【Full Position】 All account funds have been converted into coins. What you often refer to as 'fully invested' or 'all in' means a full position.
【Average Down】 For example, if you hold BTC and it drops, you buy some more BTC to lower your average cost.
【Increase Position】 If you hold BTC and are optimistic about BTC's development, then you buy more BTC while it is rising. 【Establish Position】 Also called opening a position. It refers to using account funds to buy a certain amount of a currency.
【Reduce Position】 Anticipating future risks, selling part of the held cryptocurrency.
【Locking Position】 Those who engage in futures leverage should understand this. It's simple: if you are doing EOS futures leverage and you bought a long position of 10,000, then opened a short position of 10,000. Think carefully about the position. 【Empty Position】 Not trading anymore, just watching the market. In the cryptocurrency space, this can be understood as having only USDT in your account, without any other coins. 【Light Position】 The funds used to buy coins occupy a small proportion of the total funds. 【Heavy Position】 The funds used to buy coins occupy a large proportion of the total funds. 【Half Position】 The funds used to buy coins occupy half of the total funds. 【Clear Position】 Not participating anymore, selling all coins, preparing to watch the market.
【Take Profit】 After obtaining a certain profit, sell all virtual currencies to secure the gains.
【Stop Loss】 After incurring losses to a certain extent, selling the held virtual currency to prevent further losses from expanding. 【Sideways Market】 The market fluctuates little, with rises and falls remaining within a certain range.
【Rebound】 The price of a cryptocurrency rises again after a decline due to technical support or capital intervention.
【Reversal】 When the price drops to a bottom, and there is no further decline, it turns from a downward trend to an upward trend. Commonly seen as a 'V-shaped reversal'. A rebound is the foundation of a reversal, where the magnitude of the reversal greatly exceeds that of the rebound. 【Arbitrage】 Simply put, it involves identifying price differences between platforms and profiting from those differences. When arbitraging, it is essential to pay attention to the speed of transferring coins, as delays can affect your earnings.
【Over-the-Counter Trading】 Many platforms also call it fiat currency trading. The platform acts as a guarantor, allowing merchants or individuals to directly trade with RMB, buying or selling their mainstream coins or USDT. The trading process is similar to certain e-commerce platforms (you know what I mean). 【Cutting Losses】 More politely called 'liquidation'. This is something some of you often do, selling even when prices drop, fearing further declines.