Cryptocurrency Market Analysis for Beginners

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gingerbreadfork
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7 min read

The cryptocurrency markets can seem daunting as first, but you'll be surprised how quickly you can learn the basics of market analysis.

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Leveraging your knowledge of the crypto market can be helpful when planning your trades. What liquidity you want to have on hand, what size transactions you are open to accepting can be affected by your current sentiment towards the market. Suppose you're bearish on short-term bitcoin price. In that case, you may likely wish only to maintain holding smaller amounts of bitcoin liquidity for your trades or just commit to smaller trades, so the damage is minimal if the market does turn against you in the middle of a trade.

Trading Under Any Market Conditions

Unlike some forms of trading cryptocurrency, the market conditions don't have to affect you when trading crypto P2P significantly. While the always exciting bitcoin bull run can be a great time, there are always bearish times in the market to prepare yourself for.

If you aren't trading from cryptocurrency that you already hold and topping it up, or aren't someone like a miner that sells the crypto they produce from their mining operation, and there's a simple solution. Buying your cryptocurrency in response to trades on centralized exchanges or via whatever means you have at your disposal can avoid you having to deal with market movements over extended periods (with payment methods that don't require too long to clear). You don't have to be a bitcoin holder or cryptocurrency investor at all to be a P2P trader.

Sourcing your crypto for trades either at regular intervals or as soon as you accept a trade can not just make your expected margins more predictable. Still, it can also ensure that you can trade no matter what the market is doing or whether it is going up or down.

You can even use P2P trading as a way to reduce your exposure to bitcoin or another cryptocurrency to essentially short a cryptocurrency without leverage and while still making a profit. Bear or bull, it doesn't matter when trading P2P.

Technical Analysis

While some traders consider technical analysis not much better than witchcraft, others value it highly and incorporate it into their trading process. As a P2P trader, it's absolutely not something you need to understand to be a vendor, but you may find it helpful to gauge market conditions if you hold some crypto over longer timeframes.

At its core, technical analysis is just an approach to analyze trends using things like volume, support and resistance, and other popular indicators like Bollinger bands or RSI. There's no "right" way to do technical analysis, and what works best will vary depending on who you are talking to at any given time.

If someone ever suggests that you need to understand technical analysis to trade bitcoin, that's simply not the case, especially if you trade P2P. However, there's nothing wrong with using all the data at your disposal to make an informed decision, so you may find learning the basics of technical analysis can help you better understand what those around you may be doing and allow you to better respond as a vendor to the needs of your customers as the market cycles through various stages.

Fundamental Analysis

Another type of market analysis you may have heard of is fundamental analysis. As a vendor, fundamental analysis doesn't have a significant bearing on you at all, especially if you're trading bitcoin, which has a strong history and a proven market value. Fundamental analysis is a process of looking into the various information available about a cryptocurrency to determine how realistic its current market share is and where it could go in the future based on its potential.

Fundamental analysis can help you as a vendor when you are exploring alternative cryptocurrencies to offer for trade. If you are considering adding a token or coin you aren't familiar with to your trading rotation, you may want to have a little understanding of the project. Looking at their goals, how active the project is in the various aspects (development, community, general progress), and exploring any other additional information you have available to you, can help you determine your potential risk in trading and holding the crypto in question. If a project was to collapse while you were holding some of the tokens or coins, you could potentially be out of pocket and potentially even unable to sell them in more extreme cases.

Liquidity & Volume

Understanding the basics of liquidity and volume can be helpful as a P2P trader. When you become a vendor, you may find yourself using centralized exchanges and other sources to acquire your cryptocurrency when selling if you aren't holding a stack that you trade back and forward. If you attempt to buy crypto from a low-volume exchange (or trading pair) with minimal orders on the books (low liquidity), you'll find slippage can occur, resulting in you paying more than the market price.

Slippage can be brutal if you aren't careful. It can throw your margins off entirely and result in you struggling to profit on a trade. However, avoiding this is relatively easy if you understand the basics. When trading on an order-book style exchange, you can visibly see the activity, and you can typically view the history of trades in real-time and see all the public orders waiting for matches. If you are buying bitcoin and using an established exchange, you are unlikely to deal with many issues buying moderate-sized amounts of bitcoin at any time. However, if you require significant amounts, you can mitigate the problems associated with slippage by splitting your order over a few exchanges. Having a few accounts can help you deal with large orders and take advantage of the price variation or spread between the different exchanges. It will usually be pretty tight with more liquid exchanges for large cryptos like bitcoin, but even a small percentage can add up to more profit for you.

When trading newer or less liquid cryptocurrencies, placing limit orders rather than market orders can help you get a predictable price. However, if the price moves against your order and doesn't fill, you won't have the crypto you need immediately. Market orders that fill immediately will often be preferable, but try and look at how far down the order-book your order will go until it is filled to understand better the price you can expect to get.

Trading Pairs

Trading pairs are essential to understand when sourcing your cryptocurrency outside of your P2P marketplace. While you can buy from other vendors, many vendors choose to buy their cryptocurrency from other sources like centralized order-book style exchanges.

A trading pair includes two different currencies or assets that are traded against each other. Just like when trading forex, you could be looking at AUD/USD, USD/GBP, and so forth. You'll see similar pairs regularly in crypto, for example, ETH/BTC or XMR/ETH. What trading pairs do is show you the value of one asset in another. If you were looking at ETH/BTC, you'd be looking at the value of ETH in BTC or using the same pair to establish the reverse value of BTC in ETH. If ethereum were trading at 10% of bitcoin's price, you would see the value of 0.1BTC per ETH on a BTC/ETH pair.

One of the most valuable ways to exploit trading pairs as a vendor is to simplify your trades and reduce unnecessary transactions or exchanges. If you need some ethereum but you only had some monero laying around, you could find an XMR/ETH pair and sell your monero for ethereum, just as you could trade between ethereum and bitcoin on an ETH/BTC pair if you needed to convert one to the other.

Another valuable part of using trading pairs is when liquidity is lacking. Suppose you are trying to trade a less active asset. In that case, you may find that it's dominantly traded on one pair, even if it's available on two or more on various cryptocurrency exchanges. If you were to trade on the less popular pair, your order may cause slippage due to low volume and affect the price you can complete a buy or sell order. Many cryptos can be found trading against both ethereum and bitcoin, but sometimes you may find one with a lot more activity than the other. In this case, understanding how to use different trading pairs can help save you money and retain your profitability as a P2P vendor.

Using trading pairs effectively can help you offer more cryptocurrency options on P2P exchanges like LocalCoinSwap that support multiple cryptocurrency choices. If you primarily hold bitcoin, for example, but would also like to trade ethereum when requested, you could simply swap some bitcoin for ethereum as needed.

Supply & Demand

When you are at the grocery store, paying someone for a service of some kind, or buying or selling just about anything, supply and demand play a significant part in not just what you pay but how hard it is to get. While some payment methods come with issues that result in traders demanding higher premiums (like the chargeback risk associated with PayPal), some can command a higher premium simply due to rarity or availability. If it's common for traders to want a specific payment method (especially one that isn't available in all regions) and you are the only vendor offering it, you control the supply and have the ability to name your price. Of course, if your margin exceeds what people with demand are willing to pay, it will affect your ability to secure trades, but it's worth being aware of when looking for trading opportunities.

A good vendor will be able to look for gaps in service and help fill those to expand their business and increase their revenue. Providing rare payment methods, or even just cryptocurrency to regions with high demand and not enough supply can be hugely beneficial not only for you as a vendor but also for those you are serving. Access to cryptocurrency can change lives in extreme circumstances, and being a great vendor that helps provide for the demands of your customers can make for great business for you as well.

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