The Basics of Financial Asset Trading Page

What's in the word

The act of trading is as old as the history of human civilization itself; for centuries, humans' innate impulse to satisfy their needs and wants has brought them together in marketplaces for trade. There, people voluntarily exchange goods and services to mutually satisfy each other's needs and wants. This process is beneficial for both parties who willingly participate in these exchanges. Trading also allows people to profit from this voluntary practice, providing actors the impetus to interact in marketplaces.

With civilizational and technological advancements, this process has only grown complex. Modern communications and logistics have brought economic actors access to a global marketplace with an expanded range of products, services, and financial instruments to trade more conveniently and efficiently than ever before.

Navigating the Financial Markets

The contemporary financial markets offer buyers and sellers avenues to trade many financial instruments, including forex, commodities, stocks, and cryptocurrencies, among thousands of others. The primary aim here is profitmaking, which can involve several strategies to exploit market opportunities. This requires an in-depth understanding of various market forces driving price fluctuations, such as economic indicators, market sentiment, and global political happenings. Furthermore, analyzing historical data to recognize trends and patterns can also provide investors and traders insights into making accurate predictions and speculating on probable price movements.

Supply and Demand, the key drivers

Profiting from price movements of financial markets and assets demands either going long, allowing you to profit from a price increase, or shorting, enabling you to profit from a price drop from your initial position. The price difference in any instrument's value allows traders to make profits. This type of trading, enabling traders to leverage price positions and profit from price differences, is called Contract for Difference Trading (CFD). It requires creating an account on a trading platform and grants traders full exposure to a market without the need to buy the underlying asset being speculated on, which is termed "margin trading." At the root of asset price fluctuations such as cryptocurrencies lies the critical market forces of supply and demand, which drive the prices of assets either up or down. When the demand for a particular cryptocurrency is high, and the supply is low, meaning more buyers are chasing a smaller currency amount, the currency price rises. In contrast, when demand is low and the supply is high, fewer buyers are chasing a higher amount of currency, which leads to a price drop.

Charting trends and patterns

Exploiting the market to your advantage and making gains necessitates a high level of understanding of market forces driving cryptocurrency prices, as well as a comprehensive view of the trends and patterns governing price fluctuations. Recognizing various trends and patterns and charting them helps traders speculate on price actions in the market to achieve the best outcomes. The markets can be of two types, either bullish or bearish, the former having a positive price action (price rise), whereas the latter having a negative price action (price drop) on asset price; analyzing historical data of these trends can assist in forecasting price actions.

Charts represent a powerful tool for visualizing price movements over time as part of technical analysis (TA), delivering overview and visibility of historical data and trends to aid traders' speculation in the market. There are many types of charts, including:

Support and Resistance are charts showing the possible range of price movements, defining ceilings and floors for price actions representing barriers where a price rise is either resisted or a price drop is supported by sellers and buyers at each end.

Candlesticks

Candlestick charts are particularly insightful in illustrating price movements, with green sticks representing bullish and red sticks representing bearish trends. The candle body represents opening and closing price positions, whereas the wicks at each end show upward and downward movement ranges during a set period. The candlesticks can represent different timespans from a minute to days and more for which the price actions have been identified. By analyzing these candlestick patterns, traders can make informed decisions regarding price movements and identify and predict potential trends, reversals, and continuations.

Traders can use multiple charts and indicators to speculate in markets and take positions, providing them with the highest possible returns.

Cryptocurrency trading largely follows the same trading principles as other assets and can allow traders to rake in good returns, given their positions are guided by sound analysis.