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  • What is Cryptocurrency?
    Cryptocurrency is a word almost all of us have probably heard recently. In all parts of the world, cryptocurrency is becoming popularized, conversed, and expanded upon. However, with all the talk surrounding cryptocurrency, it can be very difficult to block out the noise and see through the smoke. Everyone and their brother has an opinion, however we aim to drown out opinion and focus on the facts. Let's dive deeper into what a cryptocurrency is. A Cryptocurrency is a digital asset that enables interaction with decentralized applications. You will often hear the "Bitcoin will replace fiat and governments" narrative is shoved in people's faces. While living in a cyberpunk-utopian world controlled by technology could be kinda cool, the truth is that banks and governments are not going away, and neither are traditional software and assets. We should not approach this as a comparison between traditional currencies and cryptocurrencies, but rather analyze decentralized apps and compare them to current software systems. While they do show promise of significant innovation in the financial space, comparing crypto to fiat currencies will not help us understand what's really going on. So, cryptocurrencies are digital assets that enable interaction with decentralized applications. What the hell does that mean? Let's take a look at some other assets to get a better understanding. > Government bonds serve governments > Corporate equities serve corporations > Mortages serve the property owners > Cryptocurrency serves decentralized applications Okay, so what is a decentralized application? A decentralized application (dapp) is a new type of organization and new type of software. It is radically different from the types of organizations and software that we are used to in today's society, in that they are decentralized - or have no central authority figure. Why is this such a big deal? Well, almost every type of busineses or organinzation we have today relies on the old software model. Reinventing this in an open and communicable way could change the way a lot of things work and run in our everyday life. For the financial side of things, let's take a look back at some recent events to get a better understanding. The year is 2008, the peak of the financial crisis. The burst of the housing bubble, causing US real estate backed securities to plummet in price, damaging economies and financial institutions around the world. A devistating economic collapse, caused by overleveraged banks and hedgefunds. On 10/31/2008, location unknown, an anonymous person or persons publish a whitepaper explaining a newly created technology, one that enabled people to make electronic payments without a trusted third party authority figure like Paypal, the Federal Reserve, or your local bank. This technology, published under the pseudoname "Satoshi Nakamoto" had the potential to remove reliance on the institutions that had failed us, and move our trust into technology. What Satoshi had created was a decentralized application for making payments, and the first decentralized application ever proposed. This paper was titled Bitcoin. How could that work? How could I send you money without a bank or payment processor confirming that I sent the money and that you received it? Sure, you may have the data that I sent, but data needs validation in order to become truth. In the paper Satoshi proposed a solution to this: create a peer to peer (P2P) network and make it public. Both the sender and receiver announce the transaction on a public ledger. Announce the specific funds that will be sent, and cryptographically sign the announcement with the same key that's linked to these funds so that it's clear they are yours. Alright, that solves our first problem, but presents us with another one. How do we make sure that nobody is allowed to spend the same funds twice? How do we guarantee that if someone attempts to spend the same funds twice, that only one transaction will go through? Well, we could have an intermediary timestamp the transactions and only allow the first to go through. However, this would put us back at square one, requiring a third party authority figure (like a bank) to validate the transactions. What we could do, Satoshi proposed, is let entities compete to be the "timestamper." We cannot remove the need for one. However, we can remove designating one beforehand and/or using the same timestamper for every new batch of transactions. So, is that it? No, we still need a way to incentivize these timestampers. Reward them with an asset. We will call this asset "Bitcoin." Next, we will call these entities competing for the right to timestamp and earn a reward "miners." We will assure that anyone who wants to join this contest is able to, by making the network and the code open-source. Now, we need some sort of contest for these "miners" to compete in, in order to earn the timestamp and to collect their reward. This contest requires miners to find a long and complex number generated by the network. This isn't like guessing the 3 digit code to a safe. No, this number is thousands of digits long and extremely hard to find. In fact, it's so hard to find that it requires an enormous amount of processing power and electricity to solve. So why the extreme and complex competition just to mark a timestamp on a transaction? Because we need to be assured that the people competing for this timestamp have incurred real financial cost. That way, if they do win the competition, find the number, and become the chosen timestamper for a set of transactions, they won't use that power to do bad things, for example blocking transactions if they don't like where you're sending it. Instead, they will use that power to scan transactions, block attempts of people trying to spend the same money twice, make sure that all rules are followed, and timestamp the group of transactions to the network. Of course they will, the system is set up and coded to reward this behavior. For doing all this work (hence Proof of Work) they will be rewarded with some newly mined Bitcoin and the transaction fees paid by the sender (in bitcoin). These miners do what is required of them because it is in their own economic self-interest to do so. Don't forget, the people who operate these miners are just like you and I. They have bills and expenses to pay. So, what do they do? They sell these bitcoin on the open market. Now the bitcoin are in circulation, and anybody with access to the internet can purchase them. That's it. The problem with needing a third party entity to verify transactions has been solved. Not only have we solved that, but what replaces it is a completely open and accessible market to anybody in the world. Okay, so that's Bitcoin in a nutshell. However, as I'm sure you know, there are many other cryptocurrencies around these days. 2008 is long gone, and while Bitcoin does reign as the king, other developers and intellectuals are constantly working to innovate and build upon this amazing ecosystem that Satoshi presented. Let's take a look at another popular cryptocurrency, Ethereum, to explore this idea. Earlier, we touched on what a decentralized application is, and why it has the potential to be so revolutionary. Ethereum can be thought of as a decentralized application, to create decentralized applications on. If you had an amazing idea for a business, ethereum essentially gives you the foundational software/network to build this on. Rather than trying to create your own dapp from scratch, like Bitcoin, you can build a dapp on the ethereum network. Ethereum also presents the idea of smart contracts, which is something that would take an article of it's own to explain. There are an ever expanding amount of use cases for technology that is being used within the crypto space. It only begins with the financial and payment processing networks. Data management and storage, supply chain issues, smart contracts, and the list goes on. Cryptocurrency has been an extremely volatile speculative asset, and it's rewarded some of it's investors over the years quite well. However, the technology behind these assets is something that has the potential to be the innovation of a lifetime. Please feel free to browse the rest of these articles, and always continue to learn new things. If you have any questions regarding this article, or anything else, please reach out to us in our Discord Channel.
  • Frequently used terms in Crypto Trading
    Altcoin - Shortened version of "Alternative coin", an altcoin is essentially any cryptocurrency other than Bitcoin Ask - A limit order to sell at higher than the current price Bid - A limit order to buy at lower than the current price Bear - To be bearish, or to believe price will go down Bull - To be bullish, or to believe price will go up Blockchain - A blockchain, in simple terms, is a record (composed in blocks) of transactions of a cryptocurrency. This record is spread across thousands of computers (nodes), is unchangeable, and has no central role of authority Circulating Supply - Coins that are held by people, or available to the people, are part of the circulating supply. Any coins that are locked or unable to be bought/sold are not included in the circulating supply Cold Storage - Coins that are held in cold storage are not connected to the internet, increasing security and privacy, but decreasing ease of creating transactions DYOR - Acronym for "do your own research" often used in the context of "do your own research before making any investment" Decentralized - To be decentralized means to not have any central governing authority, and desicions are spread out amongst many independent entities FOMO - Acronym for "Fear of missing out", commonly used in the context of taking a bad trade for fear of missing out on large profit FUD - Acronym for "fear, uncertainty, doubt" spreading FUD is attempting to fearmonger or create negative emotions Genesis Block - The first block ever mined on the Bitcoin blockchain Hash Rate - The rate a computer can turn a set of information into a set of letters and numbers HODL - "hold on for dear life", hodler of an asset ICO - Initial coin offering, the point at which a new coin becomes available to the public for buying/selling KYC - Know your customer, customer identification process required by some exchanges/brokerages Leverage - Increasing the amount of capital to invest through the use of margin. Essentially borrowing funds from a brokerage/exchange to take a trade, with the understanding that those funds will be returned to the exchange along with a fee. Please see our information on leverage trading in an article below Mining - The process of using computing power to solve a complex math problem, which adds a block to the blockchain and gives a reward to the miner Market Cap - Way to rank the size/value of an asset (number of available coins X latest price) Multisig - Requires more than one signature of approval before a transaction occurs, to assure that one person can not take the funds without approval of others P2P - Peer to Peer, the transfer of anything from one person to another without the need for a governing body Private Key - String of numbers/letters that are only known by the owner, used to send their crypto Portfolio - Combined investments made by an individual or group of people Support/Resistance - Levels of resistance and support in the price of an asset, often drawn on charts as horizontal levels or trend lines. Please see our information on drawing support/resistance in an article below Satoshi Nakamoto - The anonymous creator of Bitcoin, identity or identities highly speculated upon but entirely unknown Shitcoin - Derogatory term for a cryptocurrency TX - Short for transaction Utility Token - Coin not used as a store of value, but for access to a program or service. Similar to how a ticket is used to get into a movie Volatility - How quickly the price of an asset changes Volume - The amount of an asset being bought/sold in a specified amount of time Weak Hands - Having weak hands is being unable to hold an asset through times of volatility, or disregarding strategy and exiting a position out of fear for a larger loss Whale - Someone who has a large amount of an asset/capital
  • Fundamental Analysis vs Technical Analysis
    Fundamental and Technical Analysis are the two most commonly used methods of evaluating financial instruments. When it comes to the analysis you choose to use, there is no right or wrong. You simply have to understand what the analysis you've discovered means, why it's important, and how you're going to work it into your trading strategy. Fundamental Analysis is used in majority by long-term investors who want to better understand the intrinsic value of an asset or company. A combination of factors contribute to fundamental analysis including: supply and demand, valuation, innovation, and intelluctual property to name a few. Think of how the world has been ravaged by the Covid-19 pandemic, it would be a good time to own shares of a company that makes facemasks, right? Analysists look to determine whether an asset is undervalued or overvalued. They can then use this information to structure their investment strategy. In crypto, fundamental analysis can also call to the ever-growing field of data science and blockchain data called on chain metrics. These can often contain top wallets, hash rate, market cap, and many more. However, keep in mind that cryptocurrency is still in its baby stages, and much of the fundamental analysis that's broadcasted and repeated is compromised of complete speculation. A major goal of ours is to avoid that speculation, and analyze the facts. Technical Analysis approaches investing from a different perspective. The main belief behind technical analysis is that historical price action may be indicative of future price action. If you're new to investing, technical analysis may be hard to understand at first. Technical Analysts use chart patterns, technical indicators, mathematics, and a plethora of other resources to analyze price. Unfortunately, it's not as simple as picking a few resources and going to town. It's very important to sort through the tools you have, find what suits you best, and to understand what the information you're looking at means and why it's important. When trading cryptocurrency was first gaining traction in 2009-2011, a majority of traders were coming over from traditional Forex markets. These traders brought with them their strategies, which were almost entirely composed of technical analysis. This has stood the test of time, as technical analysis is the most popular form of analysis inside of cryptocurrency trading today. When it comes to the question of fundamental or technical analysis, why only choose one? Every investor can benefit from both types of analysis, as long as they are implemented with the right strategy and right mindset. Trading is a skillset, and should be practiced and refined as such. You should actively be looking for ways to improve upon your craft, however with all of the contrasting information out there this can feel like an impossible task. We look to help remove the noise, and enable you to unlock your potential.
  • What is leverage?
    While most traders have heard the term leverage, few know what it actually means. Leverage is essentially borrowing funds from the exchange or brokerage you're using, in order to enter a trade while risking less capital than the size of the position. For a very basic example: Say you're entering a position sized at $100, but you're using 5x leverage. You'll only be putting up $20 of your own capital, while borrowing the $100 from your exchange. Once the position is closed, the borrowed capital is returned to the exchange, and you keep the difference as profit (or loss.) As you can imagine, using leverage can greatly increase the amount of profit on your winning trades. However, it can also greatly increase the size of losses you take on losing trades. Let's dive a little deeper on what exactly leverage trading is. Your margin percentage is the % of the position you're entering, expressed as capital required to take the position. If your margin percentage is 20%, and your position size is $10,000, then the amount of capital you are required to put up as margin is $10,000 x .2 = $2,000. This would be considered as using 5x leverage. Now, let's say price were to go 10% in your favor and the position was closed. Your profit on this position would be $1,000 (excluding fees.) Wait, I risked $2,000 and price went 10% in my favor, shouldn't my profit only be $200? Not quite. Your position size was $10,000, so price moving 10% would put the value of your position at $11,000. Upon closing the trade, the borrowed $10,000 is returned to the exchange, your $2000 is returned to you (since the position was not closed for a loss,) and the $1000 is credited to you as profit. If only it were that simple. If we take that same scenario, however price moved to a 10% loss before the position was closed, you would wind up losing $1000 of your original $2000 margin. If that wasn't frightening enough, when trading with leverage you also have to keep in mind your liquidation level. Your liquidation level is the amount that a position must go in the negative in order for all positions to be closed automatically, at market price. This is a fail-safe mechanisim put in place to protect both the trader and the exchange from incurring large losses. When trading with leverage, we spoke about how you're essentially borrowing from the exchange. Liquidation protocol prevents the trader from losing more capital than they have, and mitigates potential losses for the exchange that is lending the funds. Liquidation levels vary largely based on the exchange, your maintenance margin, and your initial margin. Now, our view is that far too many traders look at being liquidated as just part of the game. That all or nothing mindset is very detrimental to the success of traders all around the world. Chances are, if your positions are being liquidated, there is a critical error in your trading or risk management strategy. As you can see, leverage trading is a double-sided sword. However, that is not to say that leverage should not be used at all. There are many instances where leverage can and SHOULD be used. Deciding if/how much leverage to apply has no right or wrong answer. This depends on your trading strategy, your risk management implementations, and your experience, as well as many other factors. Leverage can be a spectacular tool if used properly, and a dangerous liability if used incorrectly. If you have any questions on trading with leverage please contact us in our Discord Channel.
  • Support and Resistance
    Support/Resistance (S/R) is one of the most basic, as well as one of the most used strategies in trading. However, every trader seemingly has their own definition of how to draw S/R lines correctly. First, let's cover the basics. In the image above, the white line represents the price of an asset. As you can see, when the price of an asset is hitting resistance, price reverses down. When price is hitting support, price reverses upward. As you can imagine, these levels are created over time as the price of an asset moves. The basic outline of a common S/R trading strategy is to buy when price reaches support, and sell when price reaches resistance. However, this is a lot easier said than done. Let's dive a little deeper into finding S/R levels. Support and Resistance levels are not to be thought of as an exact price, but rather a price range. Take a look at this support range on the BTC/USD 1 hour chart. As you can see, although price did not respect the exact support line drawn, it did respect the support range. If a trader had taken their entire position at the expected support line, they may have been stopped out or exited their trade. If a trader had scaled into their position with multiple bids throughout the support range, this would have become a profitable trade. Side note: This pattern shown is a typical support trade formation classified as a "double bottom" where price rebounds from a support range once, then tests the support range again and subsequently returns to the trend direction. Keep in mind, the more times a support or resistance level is tested and respected, the stronger it is. We will cover double bottoms, along with other S/R trade setups in a seperate article. While S/R is a simple concept to understand, it is a much more difficult concept to trade successfully. Understanding where support and resistance lies, when it has been broken, and when to trade S/R are all of equal importance, not to mention risk management, position sizing, and take profit levels. Nonetheless, understanding S/R is a great tool to use when building a personal trading strategy. If you have more questions about Support and Resistance, please reach out in our Discord Channel.
  • Divergence
    Divergence can be found by looking at the movement in price of an asset, and comparing that to the movement of an indicator. This can be done with any asset, and can be used with a platitude of different indicators. First, let's take a look at what a comparison between price and your indicator would look like without divergence. As you can see, the price action and the indicator reading look very similar. Price is making higher highs and the indicator is, too. Now, when the movement of price and your chosen tool begin to diverge, or seperate, then you haveDivergence. There are 4 main types of divergence that we will cover: standard bullish, standard bearish, hidden bullish and hidden bearish. Let's explore the 2 standards first. Standard Bullish Divergence is found when price is making a lower low, but your chosen indicator is making a higher low. Your indicator is showing that momentum is turning upward, and price generally follows momentum. This often occurs at the bottom of a bear trend, and would be classified as a buy signal. Standard Bearish Divergence is found when price makes a higher high, yet your indicator shows a lower high. This means that momentum is turning downward, and price action will often follow that momentum downward. This occurs at the top of a bull trend, and would be classified as a sell signal. Now that we've covered the 2 types of standard divergence, let's cross over to the dark side and explore the Hidden Divergences. Again, let's take a look at a photo example. Hidden Bullish Divergence is when price makes a higher low, yet the indicator shows a lower low. This indicates that momentum needed to retest the lows, and the bull trend is continuing. This would be considered a buy signal. Hidden Bearish Divergence is when price makes a lower high, yet the indicator shows a higher high. This shows that momentum is weakening, and the bear trend is continuing. This would be considered a sell signal. We hope that now you have a better understand of what divergence is and how to spot it. Keep in mind, that divergence is to be used as a tool, not as a trading strategy. It would be ill advised to enter a trade solely based on divergence, just like many other tools. Your trading strategy should be composed of multiple different tools and resources, along with backtesting, risk management, and a number of other things. You should never take trades based on a single indicator or tool. However, when combined with other elements, divergence can be a great factor in helping your strategy succeed. If you have any questions about divergence, please contact us in our Discord Channel.
  • Moving Averages
    Moving Averages (MA's) are a very commonly used indicator in technical analysis. They are used to find and graph the average prices of an asset over a period of time, in order to smooth out price action. In a volatile market like cryptocurrency, moving averages can help see the bigger picture and establish a trend. There are 2 types of MA's - Simple Moving Averages and Exponential Moving Averages. SMA's simply take the average price over the past X candles. EMA's, on the other hand, give more weight to recent price action. Let's analyze Simple Moving Averages to get a better understanding of the basics. Moving Averages take the average price over the past X number of candles, and plot that data on the chart. The larger the amount of data, the smoother the moving average will be, and the easier it will be to establish the trend. Let's take a look at a couple of moving averages. As we can see on the chart, the shorter the period of the MA, the quicker it reacts to fluctuations in price. This is evident when we look at the 20MA in comparison to the 200MA, the 20MA moves much faster and is much more volatile. When we look at the 200MA, it's much easier to see that the overall trend is bullish. How can we use MA's to filter our entries? There are many ways you can use MA to supplement your trading strategy. >Identifying trend: You can use moving averages to identify the overall trend. If the MA is moving up, and price is above MA, trend is bull. If MA is moving down, and price is below MA, trend is bear. You can also analyze multiple MA's to identify the trend. In a bull trend, shorter period MA's will be above longer period MA's. In a bear trend, shorter period MA's will be below longer period MA's. >Spotting impulse conditions: When multiple moving averages coil, or tighten, this is preindicating an impulsive move. When they break out, this indicates breakout and trend continuation or trend reversal. >Crossover: Moving Average crossovers are a simple way of spotting trend reversals. When the shorter period MA crosses upward through the longer period MA, this is classified as bullish. When shorter MA crosses down through longer MA, this is classified as bearish. Let's take a look at MA crosses. As shown on this chart, when the lower period MA crosses downward through the higher period MA (red arrow), this signifies a bearish trend reversal. When the lower period MA crosses upward through the higher period MA (green arrow), this signifies a bullish trend reversal. A moving average crossover can be used to identify where a current trend is ending, or where a new trend is beginning. While this -can- be used as a trade signal, we do not recommend taking trades solely based off of MA crossovers. When trading with Moving Averages, your 200 is your risk, your 50 is your efficiency, and your 20 is your scalper. 200SMA - Market accepted support. If price breaks this level, trend reversal is likely. 50SMA - This is your efficiency. The 50SMA is used to "double-dip", or to trade with the trend. 20MA - The scalper. This is used to trade short impulsive moves. Moving Averages have multiple use-cases, and every trader should have them in their arsenal. They are great for identifying current trend and trend reversals, and for filtering out the noise of volatility. -However- it is important to remember that Moving Averages are a lagging indicator. In traditional markets this lag is not a huge issue, but with the volatility of crypto markets this lag is detrimental to their effectiveness. Always keep this in mind when trading with moving averages. If you have any questions about Moving Averages, please reach out to us in our Discord Channel.
  • Fibonacci Levels
    Fibonacci Retracement and Extension are a trading indicator based on the 13th century mathmatician Leonardo Fibonacci's discovery. This number sequence is found by starting with 0, then 1, then adding 0+1 to get 1 as the third number. Then, adding the 2nd and 3rd number (1+1) to get 2 as the 4th number. That sequence is continued 0,1,1,2,3,5,8,13,21,34,55... After the first few numbers in the sequence, if you compare any number -in- the sequence to the very next largest number in the sequence, the ratio is .618. > 21 / 34 = .618 and if you take any number and divide it by 1 space further, the ratio is .382 >21 / 55 = .382 This is known as Fibonacci's Sequence. Alright but you don't want to be a mathmatician do you? No, you want to be a trader, and you want to know how to use Fibonacci's sequence to analyze the market. Let's dive in. Fibonacci Retracement Levels: 0.236, 0.382, 0.5, 0.618, 0.764 Fibonacci retracement is a tool used to identify support/resistance levels within a trend. The idea is that when price makes a large move in a trend, it will retrace to a fib. level before reversing and continuing on the trend. To put the strategy simply: If trend is Bullish, the goal is to buy/long support at key Fib. Levels the goal is to sell/short resistance at key Fib. levels When you are drawing your Fib. retracement levels, if the trend is bullish you will draw from the swing low to the swing high. If the trend is bearish you will draw from the swing high to the swing low. Let's take a look at Fib. retracement levels in a bull trend. Once we establish that the trend is bullish, we then draw the Fib. levels from the swing low to the swing high. Remember, in a bull trend, we are looking to buy/long at fibonacci retracement levels. And, as we can see, price confirmed support at the 0.618 and continued higher. If you would have bought the support at this fib. level, it would have been a successful trade. Shazam! You're a Fibonacci Guru! Just kidding, not yet. Let's take a look at drawing Fib. retracement levels in a bear trend. Bear trend means we are drawing our fib. levels from the swing high to the swing low. Bear trend also means that we are selling at fib. levels as resistance. And, as we can see again, the strategy played out and this would've been a successful trade. Now, as we always state, no indicator or strategy is a sure-thing. If drawing fib. retracement levels were all it took to become a successful trader, then everyone would be doing it. However, with Fibonacci retracement being so commonly used, their support/resistance levels often become self-fulfilling prophecies. Once mastered, they are a great tool to add to the arsenal. Fibonacci Extension Levels: 0, 0.382, 0.618, 1.000, 1.382, 1.618 Fibonacci extension levels are a tool used to identify trend targets and profit-taking regions. These levels are essentially extensions of the existing fib. retracement levels you have already on your chart. Let's take the previous example of fib. retracement in a bear trend, and add fib extension levels for profit taking. This is done by clicking on the starting point (in this case the swing high) then by clicking the opposite swing, and lastly clicking on your .236. When we take a look at the fib. extensions, scaling out of your short position between the 1.0 and 1.618 would've been a great place to take profit. Now, it's not a guarantee that price will respect any of these levels, and it's not even a guarantee that price will make it to these levels. Still, it's a good idea to have these levels on your chart when trading with fibs, and to keep them in mind as a profit taking option. There is no "one size fits all" way to incorporate Fibonacci levels into your trading strategy. However, they are a great tool to utilize and add to the toolbox. If you have any questions about Fibonacci Levels, or anything else, please reach out to us in our Discord Channel.
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