Basic Terms of Cryptocurrency

Terms of Cryptocurrency

In this blog, we define some basic terms of cryptocurrency you might read that describe you the actual technology behind cryptocurrencies. It is the most important because, if you can’t understand it, then everything else won’t matter.

Basic Terms of How to Trade Cryptocurrency

Cryptocurrency

Exchanges

All cryptocurrency exchanges are not built equal. Different exchanges let you buy and sell the different types of cryptocurrencies; different exchanges set the different prices for their listed cryptocurrencies, and the different exchanges have the various volumes of trades happening on them, which changes how simple it is to buy or sell cryptocurrency efficiently.

Bid Price

For a given asset the bid price is the maximum price that anyone is willing to pay for that asset. You can think about this as the “demand” side of “supply and demand.”

Ask Price

For a given asset the ask price is the minimum price for which anyone is willing to sell that asset. You can think about this as the “demand” side of “supply and demand.”

Bid-Ask Spread

The difference between the bid price and ask price for a given asset is called bid-ask spread. Spread is the profit that market makers get by buying and selling the asset of the investors on behalf. As an asset’s liquidity increases, this spread is decreased correspondingly.

Volatility

Volatility is the size of changes in an asset’s value over the time. If an asset’s value frequently fluctuates to a high degree — that is, if it’s highly volatile,  then it is typically thought to be a proportionately the high-risk investment. The high volatility of Bitcoin is one reason why some have been skeptical of Bitcoin’s capacity to act as a store of value.

Fear of Missing Out

Fear of missing out is modern slang for a timeless, irrational behavior: worrying that you are missing out on the good opportunity and therefore jumping into an investment. In the cryptocurrency space, otherwise tricky influxes of buyers have been attributed to fear.

Buy the Dips

Buy the dips is a proverb reflecting the philosophy that one should buy a cryptocurrency when its price has decreased, with the expectation that it will bounce back ultimately. Be fearful when others are greedy, and greedy when others are fearful.

Bull Trap

A bull trap is a wrong signal that a cryptocurrency’s price is about to rise when it is actually about to drop. It gets its name from the fact that it ends up trapping the bullish traders in bad trades.

Example: Bull trap is when a cryptocurrency looks like it is about to break through the resistance level but subsequently fails to do so.

Bear Trap

A bear trap is the opposite of a bull trap: It’s a wrong signal that a cryptocurrency’s price is about to drop when it is actually about to rise. It can trick bearish investors into the shorting the cryptocurrency or selling off their position in it.

It often happens when it appears as if a cryptocurrency is about to break through the support level, but the support level ends up holding instead.

Bull Trend

A bull trend is a long-term, upward trend in all the cryptocurrency market. How different person specifically define it varies, but it is typically on the order of days or weeks rather than months or years, and it’s associated with the indicators like a positively sloped moving average.

Bear Trend

A bear trend is a long-term drop in all the cryptocurrency market. “Long-term” means at least a few months and is represented by indicators like a negatively sloped moving average.

Moving Average

A moving average (MA) is a method used in technical analysis to smooth out the smaller fluctuations in asset price: It is an average price of an asset over a number of periods of a given length. Moving averages come in different types, but the most common types are the exponential moving average, which defines the average price of an asset while giving more weight to the recent prices, and the simple moving average, which defines the average price of an asset without any bias time.

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