Spot trading types (by time period)
1. Swing Trading
In swing trading, traders also try to profit from market trends, but the time period usually spans a longer period, a few days to a few months.
Swing trading generally involves finding undervalued assets but likely to increase in value in the future. You can buy and sell the asset for a profit when the price rises. Or, you can try to find overvalued assets that will depreciate in value and sell some of them at a high price with the intention of re-buying them when prices fall.
Swing trading strategies are usually more beginner-friendly, mainly because they don't have the fast-paced pressure of day trading, and swing trading can be done at your discretion.
2. Position Trading
Position (or trend) trading is a long-term strategy. Traders buy assets and hold them for a long period (usually every month). Their goal is to sell it in the future at a higher price and eventually make a profit.
The fundamentals of position trading and long-term swing trading are different. Position traders are concerned with long-term trends and try to profit from the overall market direction, while swing traders usually try to predict "swing effects" that are not necessarily related to the general market trend.
Position traders generally favor fundamental analysis, purely because they prefer to trade for the long term and are therefore in a position to see fundamental events come to pass. However, they do not exclude technical analysis. Although position traders trade on the assumption that the trend will continue, the use of technical indicators can also alert them to the possibility of a trend reversal.
Like swing trading, position trading is a more desirable strategy for beginners. Due to the large time horizon, traders have ample opportunity to think things through.
3. Ultra-short term trading
Ultra-short trades have the shortest time horizon of all the strategies we have discussed. Traders buy and sell within minutes (or even seconds), trying to profit from small price fluctuations. In most cases, they use technical analysis to predict price movements and are flexible in using bid-ask spreads and other inefficient situations to gain. Due to the short period, the profit margin on ultra-short trades is usually less than 1%. Ultra-short term trading is effectively a numbers game. Over time, small profits add up to a substantial gain.
But ultra-short term trading trading strategies are not at all suitable for beginners. You must have in-depth knowledge of the market, the platform you are trading on, and technical analysis to succeed. However, for traders who are well prepared, it is possible to take advantage of short-term fluctuations to gain high returns as long as the waveform is judged correctly.
Fundamentals of Technical Analysis (I)
1. Long positions
Long position ("long") means to buy an asset that is expected to appreciate in value. Long positions are commonly used in derivatives or foreign exchange transactions, basically for all asset classes or market types. Buying an asset in the spot market with the expectation that the price will rise also constitutes a long position.
Going long on a financial product is the most common way to invest, especially for those just starting out. Long-term trading strategies such as buy and hold are based on the assumption that assets will appreciate in value. In this sense, buying and holding is a way to go long.
However, being long does not necessarily mean that the trader wants to profit from the price increase. Take the example of a leveraged token: BTCDOWN is inversely proportional to the price of bitcoin. If the price of Bitcoin goes up, the price of BTCDOWN will go down. Conversely, if the price of Bitcoin goes down, the price of BTCDOWN goes up. Taking a long position in BTCDOWN is the same as expecting the price of bitcoin to fall.
2. Short Positions
A short position ("short") is the sale of an asset that can be repurchased in the future at a lower price. Short positions are closely related to margin trading, as traders may short borrowed assets. However, shorting is also widely used in the derivatives market and can be accomplished by simply taking a spot position. So, how does shorting work?
Shorting in the spot market is simple: assume you hold bitcoin and expect the price to fall. You sell your bitcoins for USD, hoping to buy them back in the future at a lower price. This strategy of selling high and buying back in the future at a lower price is actually shorting bitcoin.
3. Order Book
The order book is a collection of currently unfilled orders, sorted by price. When you post an order that is not filled immediately, it goes into the order book. The order will remain in the order book until it is filled or cancelled by another order.
The order book will vary from platform to platform, but usually contains roughly the same information: you will see the number of orders at a specific price level.
In digital currency trading and online trading, orders in the order book are aggregated through a system of aggregation engines. This system ensures smooth execution of transactions and can be considered as the hub of all trading platforms. This system and the order book are at the heart of the electronic trading platform concept.
4. Order Book Depth
The order book depth (or market depth) is a visualization of the current open orders in the order book. It typically shows buy orders on one side and sell orders on the other, and displays their cumulative depth on a chart.
In a more conventional sense, order book depth can also indicate the amount of liquidity the order book can absorb. The greater the "depth" of the market, the more liquidity there is in the order book. A more liquid market can absorb a large number of orders without a significant impact on prices. However, if the market is illiquid, a large backlog of orders can have a significant impact on prices.
5. Bid-Ask Spreads
The bid-ask spread is the difference between the highest buy order (buy) and the lowest sell order (sell) in the market. It is the difference between the seller's highest bid and offer price and the buyer's lowest bid price. The bid-ask spread is a measure of market liquidity. The smaller the bid-ask spread, the more liquid the market is. The bid-ask spread can also be considered as a measure of supply and demand for a given asset. In this case, the seller represents the supply and the buyer represents the demand. When you place a market buy order, it will be executed at the lowest current bid price. Conversely, when you place a market sell order, it will be executed at the highest sell price.