Basic crypto terms you should know

Since its beginning in 2009, crypto trading has grown from a small community of enthusiasts into a huge, unique subculture. And as you know, each subculture develops its own language. The crypto community is not an exception. Therefore, every trader should be familiar with its professional slang and, in particular, basic trading terms.

Who are bulls and bears

Bulls and bears are common names for market players. Bulls are traders who expect to benefit from an increase in an asset price. They buy assets, keeping the uptrend going. When the price goes up, they sell their assets. The resulting difference is their profit.

On the contrary, bears are traders who believe that the market or asset will go down. They earn money by buying assets on margin, that is in debt.

For example, a bear borrowed one bitcoin and sold it for $50,000, hoping that the market will crash. When the forecast comes true and bitcoin drops sharply to $40,000, he/she buys bitcoin and returns it to the lender. The difference of $10,000 goes into his/her pocket.

Bulls and Bears create trends in the market. Depending on who dominates the market, the market can be bullish or bearish.

The market is bullish when there are more buyers than sellers and the prices increase. By buying assets, market players raise the price, just like a bull raises its victim with its horns.

The market is bearish when there are more sellers than buyers and prices start to fall. Bears are pushing the market further down and force prices to sag just like bears crush their prey with their paws.

What are trend lines

Trend lines are a tool that helps traders determine the current market trend, that is the direction of the market. There are three types of trends:

1. An uptrend or bullish trend. This trend shows that the price of cryptocurrency is rising. To identify an uptrend, you need to find a sequence of higher highs and higher lows on the chart. The line that connects the market lows is a trend line. It is also called a support line because when the price of an asset reaches this line, it receives support and grows up again.
2. Downtrend or bearish trend. As you may have already guessed, this trend indicates a fall in the price. To identify a downtrend, you need to find a sequence of lower highs and lower lows on the chart. The line that connects the highs is the bearish trend. It is also called a resistance line because when the price of an asset reaches this line, it meets resistance and falls down.
3. Sideways trend, or “flat”. It shows that there are almost no price changes over a given period. To determine a sideways trend, you need to find a period on the chart where there is no definite direction of price movement. In a sideways trend, the resistance line limits the price rise, and the support line does not allow prices to decline. When a sideways trend ends, the price breaks either the high or low, allowing some market players to make a solid profit.

Identifying trend lines is the perfect way to choose which position to enter: a short or a long one.

Long position vs. short position: key differences

Source: exmo.com

Long, or long position, refers to the purchase of an asset in order to sell it at a higher price. Bulls play long. The strategy is quite simple: you buy an asset and hold it until the price reaches its peak and then sell it before the price starts falling.

Short, or short position, is the bears’ favorite tactic. These traders hope for a drop in the asset price and borrow assets from a broker or exchange. Then they sell these assets and wait for the price to fall. When the price eventually falls down, these traders buy assets at a lower price and return them to the lender. The difference is their profit.

HODL and Bag Holder

Whenever traders say that they are hodling, it means that they are holding assets, and hoping for their future growth.

In fact, the word “HODL” was originally just a typo of the word “hold”. But this typo became very popular and is widely used today: “HODL” — “Hold on for dear life”

What is order book and order types

The order book is a list of all currently available buy and sell orders. An order book reflects the sentiment of the traders. This term is also called DOM, Depth of Market, level two, and open book. The order book has several zones:

• The red zone, also called Ask, displays sell orders. Ask is the price at which the seller is willing to sell a certain amount of the asset.
• The green zone, also called Bid, displays buy orders. Bid is the price at which the buyer is willing to buy a certain amount of the asset.
• The neutral zone is the market price zone, located within the spread. The spread is the difference between the Bid price and the Ask price of a currency pair.

The order book helps traders decide​​ when and which order to place.

An order is a request sent to a broker or exchange to sell or buy an asset. There are many types of orders, but the most popular are:

1. A market order, which is an order to buy or sell that is executed immediately at current market prices. The disadvantage of this order is that the final price of the transaction can differ significantly from the expected price, especially during high price fluctuations. To avoid this, many traders use a limit order.
2. A limit order is an order where you specify the exact price at which you are willing to buy or sell an asset. Unlike a market order, this one is executed only after the market price reaches the specified level.
3. A stop loss or simply a stop order. While often neglected by beginner traders, this order is, by all means, the best way to limit potential losses. A stop order works in exactly the same way as a limit order but in the opposite direction. Here, you always indicate a price that is worse than the current price, so that if you fail to predict the market movement, you can close the deal and fix your losses at a level that is acceptable for you.

As soon as the market price reaches your stop-loss price, a stop loss becomes a market order and your position is closed instantly at the current market price.

Whales and hamsters in crypto trading

Previously, we talked about bulls and bears but there are many other animals in the market jungles. Did you know, for example, what newcomers or simply inactive traders are called? They are hamsters! Hamsters are real panic makers who are ready to buy or sell cryptocurrency when there is only a slight change in trend.

And big market players who hold an impressive amount of assets and have immense trading experience are called whales. Such players can actually manipulate the market situation by buying and selling assets.

Inexperienced trader symptoms

Next, the following terms are what beginners need to get rid of to succeed in crypto trading: FAD or fear, uncertainty and doubt.

FOMO — Fear of missing out. This is when, for instance, the price of a coin rises, and you have the false feeling that it will soon grow further, so you buy at a high price.

Weak hand — is when an investor sells coins when only the first sign of a price fall appears.

Beginners should also never neglect risk management in order to guarantee maximum profit and minimum loss. Risk management in trading involves many aspects, including setting up stop orders, price alerts and much more.

Dump and pump

A pump is an artificial price rise that occurs when bulls are massively buying assets at relatively low prices. A dump, in its turn, is an artificial price cut that occurs when bears are massively selling their assets.

Technical analysis and fundamental analysis

To make profitable trades, you also need to have a thorough understanding of technical and fundamental analysis. Technical analysis is a set of tools and techniques that help traders predict future price changes based on similar price changes in the past. It includes all the analysis of price charts, chart patterns and much more.

Fundamental analysis is a method of evaluating the value of an asset where both quantitative and qualitative factors are considered.

When carrying out fundamental analysis, a trader examines the financial, technical and accounting reports of the blockchain and tries to find out the fair value of the coin.

There are a huge number of terms associated with technical and fundamental analysis. Now, we will talk a little about the most important of them. Let’s start with the market cycle. So, a market cycle is a broad term referring to trends or patterns that appear in different markets or business environments.

A moving average (MA) is a widely used technical indicator that helps determine the trend direction as well as the support and resistance zones. Simply put, a moving average is the average price of an asset over a given period.

The relative strength index is a momentum indicator used to measure the magnitude of recent price changes. It also helps to identify assets that are overbought or oversold.

The stochastic oscillator is a popular technical indicator that helps traders understand where one trend ends and another one begins. This indicator compares the closing price of an asset to a range of prices over a given period.

Altcoins and ICO

We all know that Bitcoin is the world’s first cryptocurrency, launched in 2009. But what is an altcoin? Altcoins are all other cryptocurrencies apart from Bitcoin. They all appeared with the aim to become a better version of Bitcoin. But while there are plenty of altcoins on the market these days, Bitcoin is still the most popular and expensive crypto coin.

Crypto traders also often use the term Initial Coin Offering (ICO). ICO is virtually an equivalent of the Initial Public Offering (IPO).

A company develops a new token and launches an ICO as a means to raise funds. Investors can take part in the offering and receive a new token issued by the company.

But before investing in any crypto project, do not forget to analyse its profitability. And a reputable market data site can help you with this. CoinMarketCap is one such source. It is undoubtedly one of the best resources for crypto asset analytics.

Another important aspect worth noticing when it comes to crypto is security. And one of the best ways to protect your account on the exchange is to use two-factor authentication.

Two-factor authentication generates a 6-digit code that is then sent to your mobile device. You have to enter this code to be able to log in to your account. This makes it almost impossible to hack your account, even if the attackers know the password.