Actively trading cryptocurrencies is a very intensive task. Not only does it require knowledge of market trends and indicators, but there is also some vocabulary to take into account. All of these terms are relevant to any cryptocurrency trader today or in the future.
Table Of Contents
Getting In The Groove
For those who pursue the option to trade cryptocurrencies, it is pertinent to have the right vocabulary at hand. This is especially true for those who rely on external data sources or even trading signals projected by others. Many traders use particular abbreviations or language which may not make sense at first.
More importantly, some of the terms can apply to developments affecting the asset you may be trading. If something occurs to the network or an exchange where this asset is available, it is crucial to be “in the know” about the situation at all times. Incident-related updates tend to use the same abbreviations and terminology.
AML (Anti-Money Laundering)
Cryptocurrency exchanges and trading platforms need to adhere to stringent regulatory measures. One of those requirements is introducing Anti-Money Laundering procedures. Doing so will prevent criminals, hackers, and other culprits from laundering illegally obtained money through these exchanges and trading platforms.
As criminals often aim to conceal the origin of their money, cryptocurrencies are gaining popularity. It is up to exchanges, trading platforms, and even banks to closely monitor these transfers and flag them if necessary. Laundering money through Bitcoin and altcoins has now become virtually impossible.
AML procedures do not target traders, yet it is crucial to be aware of this procedure regardless.
ATH (All-Time High)
One of the euphoric events a cryptocurrency trader can witness is when the trading asset reaches a new all-time high (ATH). A new all-time high price will yield profits for traders who deploy the correct trading strategies. For example, Bitcoin set a new all-time high on January 3, 2021, by surpassing $34,600 for the first time.
An extra benefit of a new all-time high is how everyone who purchased that asset is in profit. It did not matter when one bought the asset in question, yet individual gains may differ significantly.
For traders, it is crucial to remember that all-time highs will not occur regularly. A price target is often reached after months, if not years, of seeing an asset struggle to achieve a higher value. Simultaneously, an ATH is exciting, as it usually means there is no immediate price resistance ahead. Once an all-time high occurs, the price can keep trending higher by a significant margin.
How high the price can go will often depend on the overall trading volume accompanying the uptrend. An increase in volume can also signal a potential trend reversal; thus, it remains pertinent to analyze one’s trading strategy and market indicators accordingly.
ATL (All-Time Low)
When an asset reaches the all-time low, it is far less exciting than noting an all-time high. Seeing an investment plummet to its lowest value recorded to date is never fun, yet it can create an excellent buying opportunity. Assuming the project has good fundamentals, a reputable team, and a plan, an all-time low can signal a critically pivotal point.
During situations like these, remaining vigilant is advised. After all, there is no historical price data below the current all-time low; thus, the market can continue to swing either way. Buying the asset during this price trend is risky, mainly if no proper market analysis occurs. Following an all-time low, consulting one’s favorite trading indicators can help one make an educated decision on whether to invest.
DYOR (Do Your Own Research)
All cryptocurrency traders will agree that conducting one’s own research leads to smarter decisions. The term “DYOR” or “Do Your Own Research” is a creed to live by, especially when dealing with these volatile markets. There is no reason to follow anyone else’s advice or analysis. Making money requires putting in time and effort to DYOR.
Different methods are available to do your own research. A combination of technical analysis and trading indicators will often provide the foundation for a new trading strategy. Drawing one’s conclusions from these findings will often yield the best results. There is no wrong or right opinion on a market, as long as one has their research to back up that outlook.
FOMO (Fear Of Missing Out)
One of the biggest pitfalls all cryptocurrency traders need to be mindful of is FOMO or Fear of Missing Out. It is a compelling emotion that will often lead to terrible trading decisions and portfolio losses. If enough people suffer from this emotion simultaneously, the market can go parabolic in relatively quick succession.
It is not uncommon to see FOMO materialize after an asset records a new all-time high. Trading cryptocurrencies is all about making money and entering the right markets at the most reasonable time. When a different market performs better than one’s current investment, it is often tempting to hop from one asset to the next in search of quick profits.
Not giving in to FOMO – regardless of how the markets evolve – is a crucial aspect of becoming a successful cryptocurrency trader,
FUD (Fear, Uncertainty, Doubt)
In the cryptocurrency world, FUD is an often overutilized terminology. It is only normal for people to express doubts about a project or an asset’s price. By merely posing those questions, fans of the project will often claim that person is trying to spread FUD (fear, uncertainty, Doubt) to bring the price down.
That said, some people willingly spread misinformation about projects to attempt to crash the price. Such a method is not uncommon among traders, as everyone wants to buy cheap and sell at a much higher value. Distinguishing FUD from genuine questions or concerns is challenging, yet one shouldn’t always assume the worst. Always DYOR when someone attempts to point out something.
Trading cryptocurrencies is often about making as much money as possible in the shortest amount of time. However, that is not the only way to make a profit. Investing in an asset for the long-term and holding onto it can often yield lucrative returns as well – assuming the DYOR aspect points out there are solid fundamentals and prospects.
When it comes to Bitcoin, traders and enthusiasts will often advise HODL. It signifies a method of “buying and holding” Bitcoin for more extended periods. This also means traders will need to remain steadfast if the price swings erratically. It is the complete opposite of short-term trading and may not work out for most cryptocurrencies.
For exchanges and other trading platforms, complying with regulatory requirements is paramount. They have to handle the AML requirements but also introduce a KYC procedure. Know-Your-Customer is a procedure designed to verify a user’s identity, further minimizing the risk of money laundering or other illegal activities.
Not all cryptocurrency enthusiasts and traders are comfortable with KYC procedures. It erodes the user’s privacy and puts them in the crosshairs of local governments and tax agencies. KYC verification has become the norm in all financial markets, even those outside of the realm of cryptocurrency.
ROI (Return on Investment)
When traders enter a market position, they effectively invest in a particular asset. The goal then becomes to achieve a return on that investment, either by day trading or HODLing. The higher the ROI (Return On Investment) is, the bigger one’s profit. Achieving an ROI can take anywhere from hours to years, depending on the underlying market.
To calculate the ROI, we use this simple formula:
Return On Investment = (Current asset value – Original Cost) / Original Cost
The value of this equation should be higher than zero. For example, if the ROI is 0.25, a trader is up by 25% from their initial position. It remains crucial to deduct any trading fees from this outcome to reflect how much money has been appropriately earned.
Depending on one’s risk appetite, the ROI can be much smaller or bigger for every trade. One option is to take smaller profits quicker to minimize one’s risk. On the other hand, the HODL strategy can often increase one’s ROI exponentially.
It is not uncommon for exchanges, DeFi platforms, or even cryptocurrency networks to face issues, hacks, theft, or other mishaps. Every time such an incident takes place, it can impact the profit potential for traders. Knowing that funds are SAFU (safe and accounted for) is crucial. The term SAFU originates from a meme created by Bizonacci.