1. Basic Knowledge
I have listed all the things novice traders should know before, during, and after buying Bitcoin.
The directory is as follows:
Things to know before buying Bitcoin:
1. What is Digital Currency?
2. What is Bitcoin?
3. Returns and Risks of Bitcoin;
4. Position Management.
Things to know when buying Bitcoin:
1. Where to buy?
2. Specific steps to purchase:
2.1 Fiat Currency Trading
2.2 Coin-to-Coin Trading
2.3 Contract Trading
Things to know after buying Bitcoin:
1. When to sell?
2. Cryptocurrency Information Website
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Things to know before buying Bitcoin:
1. What is Digital Currency?
Digital currency is a currency based on public blockchain and computer encryption technologies, developed and operated by internet users themselves.
Bitcoin, Ethereum, etc., are cryptocurrencies within digital currencies, based on decentralized currency, differing from the electronic currencies we use daily like WeChat, Alipay, bank cards, etc.
2. What is Bitcoin?
The concept of Bitcoin was first 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; it is generated through a specific algorithm via substantial calculations. Bitcoin confirms and records all trading activities through a distributed database formed by numerous nodes, using cryptographic design to ensure the security of all links in currency circulation. Additionally, the total supply of Bitcoin is limited to 21 million, giving it a high degree of scarcity.
3. Returns and Risks of Bitcoin;
At the beginning of 2011, Bitcoin's price was around $1. After a continuous three-month surge, the price fell from $29.6 to $2.05, with a decline of 93%;
In April 2013, Bitcoin rose to a peak of $230, and then continued to fall, dropping to a low of $66.34, with a decline of 71.6%;
In the same year, the price of Bitcoin surged to $1147 before falling back, and in the following two to three years, the lowest price of Bitcoin dropped to $177, with a decline of 84.5%;
In December 2017, the price of Bitcoin reached a peak of $19798.68, and just before breaking $20000, it fell back down, dropping to a low of $3155 at the beginning of 2018, with a decline of 84%;
In 2018, the lowest price of Bitcoin was $3155, and the highest price was $17157;
In 2019, the lowest price of Bitcoin was $3353, and the highest price was $13968;
In 2020, the lowest price of Bitcoin was $3728, and the highest price was $29340.
In 2021, the lowest price of Bitcoin was $27850, and the highest price was $69158.
This year, the lowest price of Bitcoin was $32914, and the current highest price is $48130;
From historical prices, we can see Bitcoin's extreme volatility. Although it has risen from $1 to a peak of $69158, an increase of thousands of times, if your house fluctuates between a villa and a bungalow, most people would find it hard to accept the difference.
Although overall, the Bitcoin market is steadily rising, no one can predict when it will drop sharply again. Therefore, before purchasing, investors should not only focus on Bitcoin's returns but also pay attention to the risks associated with Bitcoin, arranging according to their risk tolerance.
4. Position Management.
Position management refers to the usage of money during our investment process, which is the reasonable allocation of your invested funds, including position management and risk control.
For example, if you currently have $100,000 in savings;
(1) 10% reserved for daily expenses, which is for short-term consumption; (2) 20% as emergency funds for unexpected events, such as illness or hospitalization; (3) 40% can be invested in low-risk, value-preserving investments that provide extra income against inflation, such as bonds, trusts, etc., which are stable income products; (4) 30% for high-risk investments using funds that do not affect normal life, meaning even if the investment fails, it will not affect your life.
The above is just a simple example; everyone can allocate based on their risk tolerance.
Borrowing or investing all your funds is considered an irrational behavior, which is highly undesirable. Especially for novice traders, it is crucial to act within your means. If all funds are put into the market, it not only increases the risk of losses but also affects the investor's mindset to a considerable extent. Once the market declines, it can easily lead to sleepless nights or anxiety.
Things to know when buying Bitcoin:
1. Where to buy?
Currently, there are three well-known leading exchanges in China.
I have previously compiled some information about the advantages, disadvantages, and differences of the three major exchanges, which I can share for free if interested.
I emphasize again and again, never go to unknown small exchanges!!!
Small exchanges always have the risk of running away or freezing your funds.
Major exchanges guarantee establishment time, user numbers, and trading depth!
Anyone who says you can get high returns by going to a certain platform should be blacklisted.
If a friend asks you to trade on a small exchange, that person is not your friend.
2. Specific steps to purchase:
2.1 Spot Trading
Simply put, spot trading is the transaction of spending money to buy coins, which can be divided into fiat currency trading and coin-to-coin trading.
2.1.1 Fiat Currency Trading
Fiat currency refers to legal tender such as RMB, USD, GBP, etc. Fiat currency trading is the exchange 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 coin buying is convenience; the downside is that there are not many kinds of digital currencies that can be traded directly with fiat money, only some mainstream currencies like Bitcoin (BTC), Ethereum (ETH), or Tether (USDT).
2.1.2 Coin-to-Coin Trading
Coin-to-Coin trading refers to using digital currency to purchase another type of digital currency without involving fiat currency as an intermediary or settlement. For example, using USDT to purchase ETH forms the trading pair ETH/USDT. USDT is referred to as the quote currency, while ETH is called the transaction currency, using USDT to define the price of ETH.
The variety of digital currencies in the quick transaction area is limited. If we want to purchase digital currencies outside the quick area, we first need to buy stablecoins and then use stablecoins to buy other digital currencies.
The most widely used stablecoin currently is USDT.
Stablecoin, as the name suggests, is a cryptocurrency that maintains a stable exchange ratio with a specific underlying asset. Stablecoins can be seen as a type of digital currency with 'stable value,' serving as an intermediary between the world of digital currencies and fiat currencies. The most widely used stablecoin currently is USDT (Tether). Tether (USDT) is a token issued 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 is the exchange between fiat currency and digital currency. Unlike contract trading, it is also known as futures contracts. It refers to opinions about changes in the prices of cryptocurrencies in the market, such as whether you think the price of Bitcoin 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 one believes the price will fall, they buy a contract, known as going short.
In contract trading, one can profit by going long or short regardless of whether the price rises or falls, but in the spot market, we can only profit by buying the cryptocurrency and hoping its price rises.
Things to know after buying Bitcoin:
1. When to sell?
Those who can buy are disciples, and those who can sell are masters.
I once bought LINK with $10,000, initially expecting to double my profit, but due to a lack of clear targets, I ended up selling after giving back half my profit. If the selling target is poorly set, it is possible for what appears as profit on the account to turn into a loss as one waits.
1. Set profit and loss targets.
Novices can set three price points before buying digital currency: the buying price, the profit target, and the stop-loss price.
However, the minimum requirement is to understand support and resistance.
2. News Aspects
We can study knowledge-based topics and accumulate foundational knowledge ourselves. However, the experiences and pitfalls of those who have come before can help one grow faster. It is said that studying history makes one wise! The same applies in the cryptocurrency space; usually, when we judge market trends, we combine news and technical aspects.
Taking the recent market situation as an example, regulatory authorities have frequently intervened, causing global crypto assets to suffer significant blows, and prices have plummeted. Under such extreme negative conditions, the future market outlook for cryptocurrencies is not optimistic. This is a clear example of how news can influence the market.
Furthermore, it is essential to know the basic information such as the price of the coin, circulation, total supply, current market value, and trading volume in the last 24 hours. Secondly, one should consider the coin's computing power, the number of active addresses, block size, Google search index, and fear-greed index. In addition, the net inflow and outflow of the coin's funds, as well as the long-short holding ratio on trading platforms, can serve as references for predicting short-term price fluctuations.
How to see newly issued digital currencies at the first moment?
3. Technical Aspects
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 aspects must be combined to judge the current market trends; one's perspective cannot be too narrow!
Of course, there are many technical indicators, and I can't cover them all in one article.
Now I will provide an example of one of the precise buying and selling indicators in the cryptocurrency space—KDJ.
1. What is KDJ?
The KDJ indicator, also known as the stochastic indicator, reflects the strength of price trends and the dynamics of overbought/oversold situations by introducing the concepts of fast and slow moving averages and calculating the amplitude between the highest, lowest prices, and closing prices over a period of time.
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 line is the J line. In terms of sensitivity, J has the strongest value, followed by K, and D is the slowest. In terms of safety, J has the most risk, followed by K, and D is the most stable.
Specifically, the calculation principle of KDJ is to calculate the unrefined stochastic value RSV of the last calculation period based on the highest price, lowest price, and the closing price of the last calculation period that occurred within a specific cycle (usually 9 days, 9 weeks, etc.), and then calculate the K value, D value, and J value using the method of smoothing moving averages, and plot them to analyze price trends.
KDJ Indicator Calculation Formula
In China, the cycle for calculating the KDJ indicator is 9 days, with K value and D value calculated over 3 days. RSV(9) = (Today's closing price - Minimum price in 9 days) ÷ (Maximum price in 9 days - Minimum 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 the KDJ Indicator
According to the value of KDJ, it can be divided into several areas: Overbought area, Oversold area, and Hovering area. According to general classification standards, values K, D, and J below 20 constitute the oversold area, which is a buying signal; values K, D, and J above 80 constitute the overbought area, which is a selling signal; values K, D, and J between 20-80 constitute the hovering area, where one should wait and see.
1. Generally, when the D line crosses from below to above, it is a buy signal, and when it crosses from above to below, it is a sell signal. 2. KD fluctuates within the range of 0-100, with 50 being the balance line. If in a bullish market, 50 is the support line for retracements; if in a bearish market, 50 is the resistance line for rebounds. 3. When the K line crosses above the D line at low levels, it is a buy signal; when the K line crosses below the D line at high levels, 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. Be sure to grasp the timing for buying and selling...
