1. Basic knowledge
I have listed all the necessary knowledge points to know before, during, and after purchasing Bitcoin.
The directory 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 when buying Bitcoin:
1. Where to buy?
2. Specific steps for purchasing:
2.1 Fiat trading
2.2 Currency-to-currency trading
2.3 Contract trading
Things to know after buying Bitcoin:
1. When to sell?
2. Cryptocurrency news websites
To prevent the article from getting lost, you can like + collect it before reading ~
Things to know before buying Bitcoin:
1. What is digital currency?
Digital currency is a currency developed and operated by netizens based on public blockchain, computer encryption, and other technologies, relying on the internet.
Bitcoin, Ethereum, and others are cryptocurrencies within digital currency, which are based on decentralized currencies, differing from the electronic currencies we commonly use like 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 emerged on January 3, 2009.
Unlike other currencies, Bitcoin is not issued by a specific currency authority; it is generated through specific algorithms and massive calculations. Bitcoin confirms and records all transaction behaviors through a distributed database composed of numerous nodes, using cryptographic designs to ensure the security of various aspects of currency circulation. At the same time, the total supply of Bitcoin is limited to 21 million, making it extremely scarce.
3. The returns and risks of Bitcoin;
In early 2011, Bitcoin's price hovered around 1 dollar, and after three months of soaring, it dropped from 29.6 dollars to 2.05 dollars, a decline of 93%;
In April 2013, Bitcoin peaked at 230 dollars, then continued to decline, dropping to a low of 66.34 dollars, a decline of 71.6%;
In the same year, the price of Bitcoin surged to 1,147 dollars, then fell back, and over the next two to three years, the lowest price of Bitcoin dropped to 177 dollars, a decline of 84.5%;
In December 2017, Bitcoin's price reached a maximum of 19,798.68 dollars and fell back just before breaking the 20,000 dollars mark. At the beginning of 2018, it fell to a low of 3,155 dollars, a decline of up to 84%;
In 2018, Bitcoin's lowest price was 3,155 dollars, and the highest price was 17,157 dollars;
In 2019, Bitcoin's lowest price was 3,353 dollars, and the highest price was 13,968 dollars;
In 2020, Bitcoin's lowest price was 3,728 dollars, and the highest price was 29,340 dollars.
In 2021, Bitcoin's lowest price was 27,850 dollars and the highest price was 69,158 dollars.
This year, Bitcoin's lowest price was 32,914 dollars, and the current highest price is 48,130 dollars;
From the historical prices, we can see the extreme volatility of Bitcoin. Although it rose from 1 dollar to a peak of 69,158 dollars, an increase of nearly ten thousand times, it is hard for most people to accept the fluctuations when their house swings between a villa and a bungalow.
Although from an overall perspective, the Bitcoin market is steadily rising, no one can predict when there will be another sharp drop. Therefore, investors should not only look at Bitcoin's returns before purchasing but also pay attention to Bitcoin's risks and arrange their investments according to their risk tolerance.
4. Position management.
The so-called position management refers to the use of money in our investment process, which is the rational allocation of your invested funds, including position management and risk control.
For example, if your current savings are 100,000;
(1) 10% reserved for daily expenses, which is short-term consumption; (2) 20% as emergency funds for unforeseen events, such as hospitalization due to illness; (3) 40% can be used for some principal-protecting and appreciation investments, providing additional income to resist inflation based on guaranteed principal, such as bonds, trusts, etc., stable yield products; (4) 30% for high-risk investments using funds that do not affect normal life, even if the investment fails, it will not affect life.
The above is just a simple example; everyone can allocate according to their risk tolerance.
Borrowing money or putting all your funds into investment are irrational behaviors and are very undesirable. Especially for beginners, it is essential to understand one's capabilities. If all funds are invested in the market, it will not only increase the risk of loss but also affect the investor's mentality to some extent. Once the market starts to decline, it is easy to become anxious or panic.
Things to know when buying Bitcoin:
1. Where to buy?
Currently, there are three well-known leading exchanges in the country.
I have previously organized some materials regarding the pros, cons, and differences among the three major exchanges, which I can share for free if interested.
I cannot emphasize enough, do not trade in unknown small exchanges!!!!
Small exchanges carry the risk of running away with or freezing your funds at any time.
Large exchanges guarantee in terms of establishment time, user numbers, and trading depth!!
Anyone who says that going to a particular platform guarantees high returns should be blocked.
If a friend invites you to trade on a small exchange, that person is not your friend.
2. Specific steps for purchasing:
2.1 Spot trading
Spot trading simply means buying coins with money. It is further divided into fiat trading and currency-to-currency trading.
2.1.1 Fiat trading
Fiat currency refers to legal tender, such as RMB, USD, GBP, etc. Fiat trading refers to transactions between legal tender and digital currency, such as directly using RMB to buy Bitcoin.
We can directly purchase digital currency using RMB in the quick purchase area of the exchange.
The advantage of quick coin purchase is convenience; the downside is that there are not many types of digital currencies that can be traded directly with fiat currency, only some mainstream currencies like Bitcoin (BTC), Ethereum (ETH), or Tether (USDT).
2.1.2 Currency-to-currency trading
Currency-to-currency trading refers to using digital currency to buy another type of digital currency without involving fiat currency as a transfer or settlement. For example, purchasing ETH with USDT will create the trading pair ETH/USDT. USDT is referred to as the quoting currency, and ETH is called the trading currency, using USDT to define the price of ETH.
The types of digital currencies available in the quick trading area are limited; if we want to purchase digital currencies not available in the quick area, we need to first buy stablecoins and then use stablecoins to buy 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 particular asset. Stablecoins can be seen as a type of digital currency with 'stable value' that serves as an intermediary between the world of digital currency and fiat currency. 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, with 1USDT = 1 dollar, and users can exchange USDT for USD at a 1:1 ratio at any time.
2.2 Contract trading
Spot trading is the transaction between fiat currency and digital currency. Contract trading, also known as futures contracts, refers to one's views on the price changes of currencies in the market, such as whether you believe Bitcoin will rise or fall in price over a certain period.
In contract trading, if you believe the price of the currency will rise, you buy the contract, which is called going long; if you believe the price of the currency will fall, you buy the contract, which is called going short.
In contract trading, profits can be made whether the currency price rises or falls through going long or short. However, in the spot market, we can only profit by buying currencies and hoping their prices will rise. There is also a concept called leverage in contracts. When placing an order in a contract, traders only need to pay a small amount as a financial guarantee for fulfilling the contract based on a certain ratio, allowing participation in contract trading. For example, if you want to buy a 6,000 dollar BTC contract with 10x leverage, you only need to pay 600 dollars in BTC. Margin trading is basically leverage trading. In cryptocurrency futures trading, the trading currency is used as the margin.
Things to know after buying Bitcoin:
1. When to sell?
Those who can buy are apprentices, but those who can sell are masters.
I once bought LINK for 10,000 dollars, and my profit was supposed to double, but in the end, due to not having a clear target, I ended up selling after giving back half of the profit. If the selling target is set poorly, what may initially show a profit on the books could eventually lead to a loss.
1. Set profit-taking and stop-loss target price levels.
Before beginners buy digital currency, they can set three price points: the buying point, the profit-taking point, and the stop-loss point.
However, at least one must understand resistance and support.
2. News
While we can certainly research and accumulate knowledge on our own, the experiences of those who have come before us or the pitfalls they have encountered can lead to faster growth. It is often said that reading history makes one wise! The same applies in the cryptocurrency market; typically, when we analyze market trends, we combine both news and technical aspects.
Take the recent market as an example, regulatory authorities have frequently intervened, and global crypto assets have suffered heavy losses, causing prices to plunge. Under this extreme negative sentiment, the future market outlook for cryptocurrencies is not optimistic. This is a relatively intuitive impact of the news.
In addition, the most basic things that need to be known include the price of the currency, circulation, total supply, current market value, trading volume in the past 24 hours, etc. Secondly, it includes the hash rate of the currency, the number of active addresses, block size, Google search index, and fear-greed index. Additionally, the net inflow and outflow of funds for the currency, as well as the long-short position ratios on trading platforms, these data can be used as references for predicting short-term price fluctuations.
Many information platforms can find this data. The ones that people are more familiar with might include Coin World, CoinMarketCap, Chain News, etc.
In addition, I have organized some materials that can also be shared for free!
1. Cryptocurrency Forum
2. Foreign news
3. Must-see websites in the cryptocurrency sphere
4. Chinese news websites
5. Trading-related websites
How to see newly launched digital currencies in real-time?
3. Technical analysis
Everything cannot be considered in isolation; the news is just one method of assessment, and indicators are also a method of assessment. The so-called news and technical analysis should be combined to evaluate the current market trends, and the perspective cannot be too one-sided!
Of course, there are many technical indicators, and I can't cover them all in one article.
Here I will give an example of one of the precise buy and sell indicators in the cryptocurrency market—KDJ.
1. What is KDJ?
The KDJ indicator, also known as the stochastic indicator, introduces the concept of fast and slow moving averages to calculate the price fluctuations between the highest, lowest, and closing prices over a certain period, reflecting the strength of price trends and the dynamics of overbought and oversold conditions.
2. How to understand the 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. Generally speaking, 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 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 period within a specific cycle (often 9 days, 9 weeks, etc.) and the proportional relationship among these three to calculate the last calculation period's immature random value RSV. Then, using the method of smoothing moving averages, K value, D value, and J value are calculated and plotted as a curve to analyze price trends.
Calculation formula of KDJ indicator
The cycle for calculating the KDJ indicator in China is 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 + yesterday's K value) ÷ N D(n) = (today's K value + yesterday's D value) ÷ N J = 3K - 2D
3. Application of the 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 classification standards, K, D, and J values below 20 indicate the oversold area, which is a buy signal; K, D, and J values above 80 indicate the overbought area, which is a sell signal; K, D, and J values between 20-80 indicate the hovering area, suggesting observation.
1. Generally speaking, 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 between 0-100, with 50 as the balance line. If in a bullish market, 50 is the support line for retracement; if in a bearish market, 50 is the resistance line for rebound. 3. When the K line crosses above the D line at a low level, it is a buy signal; when the K line crosses below the D line at a high level, it is a sell signal. 4. When the K line enters above 90, it is the overbought area; below 10 is the oversold area; when the D line enters above 80, it is the overbought area; below 20 is the oversold area. Care should be taken to grasp the timing of buying and selling.
I have organized some learning materials, which can be shared for free with friends in need!
1. What are resistance and support? 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
Book recommendations will be divided into three parts. One is the study of the fundamental theory of digital currency, the second is the study of trading techniques, and the third is the study of investment psychology.
1. Fundamental theory of digital currency
1. (How to Invest in Digital Currency) Authors: Wang Bo / Zhou Zhaohui
This book is divided into three sections:
Fundamental knowledge section: to help readers comprehensively understand the concept of digital currency and the status over the past six years;
2. Investment trading section: introduces all types and technical points involved in digital currency investment, especially how ordinary investors can select trading platforms, open accounts, recharge, buy, and withdraw smoothly to complete their investment transactions;
3. Investment philosophy section: discusses the long-term investment in digital currency as a wise choice from the perspective of human historical development, the digital currency ecosystem, regulation, and development at various levels.
Suitable for: Mainly oriented towards conceptual understanding, suitable for beginners who are not very familiar with digital currency.
2. (Decoding Bitcoin) Authors: Liu Ning / Shen Dahai
This book is written by technical geeks and evangelists in the Bitcoin field in the country, and its professionalism and authority are beyond doubt.
It comprehensively introduces the development history, basic concepts, monetary significance, characteristics, generation principles, operation mechanisms, acquisition methods, trading methods, circulation principles, and government attitudes and policies toward Bitcoin around the world, as well as investment knowledge, principles, strategies, techniques, and risk avoidance related to Bitcoin.
2. Trading techniques
1. (Technical Value Selling Point Analysis) Author: Yang Bo
This book provides a detailed introduction to dozens of technical indicators, explaining the principles, uses, and practical skills of each indicator in detail, aiming to showcase the practical uses of each indicator from various perspectives.
In addition, the author has summarized the complex technical analysis knowledge and methods based on years of experience, following a principle of gradually deepening, so that readers can master technical analysis in the shortest time and open the door to profits in the stock market.
Suitable for: This book starts with the basic principles, gradually transitions to practical applications, and is accompanied by illustrations. This technical classic adopts a gradual and easy-to-understand approach, suitable for those who want to get into trading.
2. (New Interpretation of Japanese Candlestick Charting) 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 the basic knowledge of candlestick charts, candlestick combinations, and the overall technical analysis of the market. The second part explains the differential index and new price charts, including three-line direction breakthrough charts, brick charts, and key charts, to help readers better invest.
Suitable for: The author systematically explains the core candlestick chart in a simple, popular, and thorough manner, while integrating candlestick analysis with trading, market conditions, and practice. Such a detailed and logical presentation is suitable for beginners.
3. (Chan Theory: Technical Theory Diagram) Author: Baodike
This book is divided into 6 chapters, comprehensively analyzing the essence of Chan's technical theory, dissecting Chan's techniques. It includes specific operational steps and difficult points analysis, supplemented by practical charts to help readers quickly grasp Chan's theory from shallow to deep.
The biggest feature of this book is its illustrations. It includes a wealth of stock graphs and diagrams, interpreting profound content in a visually engaging and readable manner.
Suitable for: This book first engages readers with rich images to stimulate interest, then conveys the essence of Chan theory to help readers master Chan techniques. This content distribution, from surface to depth, is suitable for those looking to transition from novice to expert.
3. Investment psychology
1. (Rich Dad Poor Dad) Author: Kiyosaki
I won't say much about 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 did not graduate from high school but is skilled in investment and finance.
The hard-working 'Poor Dad' lost his job, while 'Rich Dad' became one of the richest people in Hawaii.
Kiyosaki resolutely followed in the footsteps of 'Rich Dad,' stepping into the business world and riding the fast track to wealth. Kiyosaki demonstrated through his personal wealth stories the starkly different views on money and wealth between 'Poor Dad' and 'Rich Dad': the poor work for money, while the rich make money work for themselves!
Recommendation: This is not just a feel-good book; the investment advice provided is of significant importance to practical operations. In addition to investment and finance, 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, investors' reasoning errors can affect their investments and ultimately impact their wealth.
Recommendation: Through reading, you can learn many psychological biases that may affect investment decisions; understand how these biases influence investment decisions; see how these erroneous decisions erode your wealth, etc.
I have organized some good books, which can be shared for free.
1. Dow Theory and Practice 2. Interpretation of Gann Theory 3. Revealing the Distribution of Main Force Chips 4. Mastering Tonghua Shun Formula from Beginner to Pro 5. Investment Psychology Analysis 6. Detailed Analysis of Volume and Price Relationship 7. Market Prediction Decoding and Practice …
4. Trading psychology
I often have people coming to me saying they suspect the market makers are targeting their small retail pockets; otherwise, why does the price drop every time they buy and rise every time they sell? Why does their operation always go against the market trend?
This question is actually quite simple; market makers utilize the trading psychology of retail investors, such as chasing highs and cutting losses, to complete their accumulation, washing, lifting, and unloading. Therefore, newcomers to the cryptocurrency market must understand the following!
Gambler's fallacy: the tendency to believe that the probability of future events (happening) will be altered by past events.
Just like in trading, due to human psychology, certain critical prices will create resistance and support, forming similar shapes on the chart. However, we must understand that history will repeat itself but will not simply repeat. Therefore, as investors, we should 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 dollars and earning 1 dollar should be seen as the same thing. However, there are always some people who can accept not earning 100 dollars but cannot accept losing 100 dollars; this is actually a sign of immature investment psychology!
Disposition effect: realizing profits early while allowing losses to continue.
For example, if you bought a currency with a cost of 100 and it initially kept rising. However, when the market shifts from bullish to bearish, it suddenly drops. Initially, you said you would sell when it returns to 100, but the situation didn't improve. Then you said you would sell at 70, and after further drops, you said you would sell at 50. As a result, 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 example, in the cryptocurrency market last year, there was a black swan event on May 19, leading many people to start doubting themselves. However, Nassim Taleb pointed out in his book 'The Black Swan' the concept of 'narrative fallacy,' which explains how flawed past events influence our worldview and expectations for the future. Therefore, we often fabricate strained explanations for past regrets and believe them to blind ourselves.
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