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TRADING GUIDE
« TRADING THE DECENTRALIZATION OF THE FINANCIAL SYSTEM »
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«Trading the Decentralization of the Financial System»
CRYPTOCURRENCY TRADING GUIDE
« TRADING THE DECENTRALIZATION OF THE FINANCIAL SYSTEM »
- TABLE OF CONTENTS -
PREFACE
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CHAPTER-5: TRADING PLATFORMS.........................................................................
- Online Cryptocurrency Platforms
- MT4/MT5 Platforms
- CFD Accounts
APPENDIX
- Trading Orders
- Website Resources
REFERENCES
BIBLIOGRAPHY
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PREFACE:
Since 2009, cryptocurrencies have changed the rules of the global financial game. A
decade ago, the issue, exchange, and use of digital money without the intervention
of a centralized bank was a dream for the financial industry. That dream came true
faster than anyone could have predicted. The global penetration of the World Wide
Web works as an accelerator to the acceptance of every new technology that aims to
serve the emerging needs of people. This is the ultimate goal of every technology, to
better meet the needs of people, and nothing else matters.
Nevertheless, from a trader’s point of view, price matters, and this ebook includes a
wide variety of useful resources and tips in order to help traders understand the
behavior of the cryptocurrency market and explain the extreme fluctuations of
cryptocurrency asset prices.
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Graph-1: Currency is only the top of Iceberg
As in the case of every other major revolution, there are many scammers in the
crypto industry, who are trying to take advantage of the lack of regulation and make
money by deceiving the public. The World Wide Web includes a great variety of
website resources and especially forums (APPENDIX) that may help cryptocurrency
traders to avoid these scammers.
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Chapter-1: Introduction to Cryptocurrencies
The New Decentralized Financial Era
Bitcoin is the first decentralized peer-to-peer payment network. The first ever Bitcoin
started in a cryptography mailing list sent by the nickname Satoshi Nakamoto in
2009. This is the short history of cryptocurrencies:
□ 1983:
The American cryptographer David Chaum conceived an anonymous
cryptographic electronic money called eCash
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□ 1995:
The implementation of Digicash, an early form of cryptographic electronic
payment requiring user software and encrypted keys in order to withdraw
notes from a bank
□ 1996:
Laurie Law, Susan Sabett, and Jerry Solinas (NSA Cryptology Division)
published a paper entitled “How to Make a Mint: the Cryptography of
Anonymous Electronic Cash”, describing a Cryptocurrency system
□ 1998:
Wei Dai published a description of "b-money", an anonymous, distributed
electronic cash system
□ 2009:
Bitcoin creation by Satoshi Nakamoto (nickname) using a SHA-256
cryptographic hash function as its proof-of-work scheme
□ 2011:
The release of Litecoin, using for the first time scrypt instead of a SHA-256
cryptographic hash function
□ 2012:
The official release of Ripple (Ryan Fugger conceived Ripple in 2004)
□ 2013:
Mastercoin is the world’s first initial coin offering (ICO). In November, the
world's first Bitcoin ATM opens
□ 2014:
The world’s largest exchange ‘Mt Gox’ declares bankruptcy. Due to a
vulnerability in the protocol, 6% of all circulated Bitcoins were stolen from the
“cold storage” of Mt Gox
□ 2015:
The release of Ethereum (proposed by Vitalik Buterin), a revolutionary
platform that attracted immediately hundreds of cryptocurrency developers
□ 2017:
The cryptocurrency prices are booming in astronomical levels. The total
market capitalization of cryptocurrencies exceeds for the first time 100 billion
US Dollars. The global financial and monetary system will never be the same
again
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Cryptocurrency FAQ
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Initial Coin Offerings (ICOs)
An Initial Coin Offering is the introduction of a new altcoin in the cryptocurrency
ecosystem. It is the same as an IPO for stocks. The world’s first ICO was held by
Mastercoin in July 2013.
Bitcoin Mining
Bitcoin mining refers to the process of verifying all Bitcoin transactions and include
them in a public ledger (Blockchain). Mining is a completely decentralized process
with miners operating in all over the world.
Miners get new Bitcoins as a reward for their efforts. As more miners join a network,
mining becomes increasingly less profitable. Note, that NOT every digital currency
requires mining and miners.
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What are Smart Contracts?
Smart contracts are small self-executed programs that aim to facilitate the exchange
of anything of value on the internet. Smart contracts offer maximum security, as
they operate exclusively on the blockchain. That means they can eliminate any
external interference by performing 100% as they were originally programmed.
Is Bitcoin Anonymous?
Bitcoin is not anonymous, as a public ledger records all transactions. There are other
anonymous crypto-coins such as:
Monero
Z.cash
Dash
Komodo
Zcoin
ZenCash
PIVX, and
Verge
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What Influences the Price of Cryptocurrencies?
These are all major factors affecting directly/indirectly the demand and the supply
for a particular cryptocurrency asset:
I. INTERNAL FACTORS
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Chapter-2: Storing Cryptocurrencies
Cryptocurrency Wallets & Taxation
Cryptocurrencies can be stored in three (3) major types of wallets (online, software,
and hardware wallets).
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Types of Cryptocurrency Wallets
Different types of crypto wallets offer different layers of protection. The most secure
method of storing cryptocurrencies is a hardware wallet. These are all the types of
crypto wallets:
(i) PC-Based Software Wallets
(ii) Smartphone-Based Wallets (use the phone’s camera to scan QR codes)
(iii) Online Wallets in Central Servers (require online accounts)
(iv) Hardware Wallets
Online and software wallets are free but offer limited security. On the other hand, a
good hardware wallet costs about $100 and offers much better security. These are
the dominant hardware wallets today:
TREZOR which costs $110 (Bitcoin, Ethereum, Dash, Zcash)
NANO-S which costs $99 (Bitcoin, Litecoin, Ethereum, Dash, Dogecoin, Zcash,
Stratis)
KEEPKEY which costs $129 (Bitcoin, Litecoin, Ethereum, Dash, Dogecoin,
Namecoin, Testnet)
Image: The three hardware wallets in the same order (as mentioned before)
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Cryptocurrency Taxation
The classification of cryptocurrency assets and the taxation of gains depend entirely
on the country of residence. In Europe, most countries are waiting for a common EU
legislation towards cryptocurrency taxation.
In the United States, the gain derived from a Bitcoin investment is taxed as
“Property”. Cryptocurrencies can be classified as business, investment, or
personal property. These are some basic tips:
-Τhe best option for the American traders, is to buy and hold crypto for more
than one year (taxes are much lower for over 1 year investment)
-When you sell a cryptocurrency with a significant profit, keep your money in
US Dollars. Do not convert from one cryptocurrency to another
In the United Kingdom, cryptocurrency money is considered ‘Private Money’
and no tax is paid if the capital gains don’t exceed the £11,300 threshold (this
is valid for personal income under £100,000)
In Germany, cryptocurrency money is classified as ‘Private Money’, the same
way as foreign currencies, and enjoy tax benefits. If owned more than 1 year
NO capital gain tax will be paid (if you own crypto for less than 1 year a
progressive tax may apply)
In Russia, citizens are expected to pay 13% on their crypto-related incomes
In Australia, crypto is classified as ‘Property’, and there is a capital gain tax
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In Canada, cryptocurrencies are classified as ‘Commodities’, and there is a
capital gain tax
In Korea, crypto trading is still tax-free but there is a timeframe for the
introduction of a crypto tax law
In China, cryptocurrencies are classified as ‘Virtual Commodities’ and there is
no tax yet
In Japan, cryptocurrencies are classified as a ‘Method of Payment’ and there
is a capital gain tax
In Brazil, cryptocurrencies are classified as ‘Capital Assets’ and there is a 15%
capital gain tax
Income from coin mining is taxable in many countries (note that the mining
expenses are deductible in the taxable year).
Coin miners must report their income from mining at the market value of the
coin at the time it is received
In the US, coin mining is taxable by the IRS only if the rewards emerging
from coin mining exceeds $400 in any tax year
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Crypto Tax Heavens
There are many countries where there is no tax on capital gains from cryptocurrency
transactions. These are some tax heavens around the world:
Europe (Denmark, Switzerland, Italy, Cyprus, Serbia, Belarus, and Slovenia)
Asia (Singapore and Hong-Kong)
Oceania (New Zeeland)
Other (Barbados, Mauritius)
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Chapter-3: Promising Crypto Projects
Evaluating Cryptocurrencies & Promising Projects
In the first part, you will find some key tips on how to evaluate cryptocurrency
assets. In the second part, you will find basic information and the total supply of
some important crypto assets.
Evaluating Cryptocurrencies
Evaluating cryptocurrencies is almost the same as evaluating stocks. The key number
to take into consideration is the Market Capitalization derived from Price times the
Total Supply of coins (NOT from the Circulating Supply). If you want to evaluate a
cryptocurrency project like a professional investor, you always need to consider the
Total Capitalization.
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Keep that figure in mind because you will need it later.
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variety of alternative methods, such as DCF (Discounted Cash-Flows), P/E
(Price/Earnings), P/S (Price/Sales), P/Bv (Price/Book Value), Dividends Method, and
a great variety of empirical methods.
If I learned anything of value, it is that the best way to estimate the ‘fair price’ of
any project is by using empirical metrics. It may sound strange, but the best financial
analysts in the world use empirical metrics to look far ahead of the market.
Accountants can easily manipulate accounting data, but it is very difficult for anyone
to manipulate empirical data. In addition, most people do not use empirical data, and
that means you can look ahead of the market.
-Empirical metrics can serve as a tiebreaker in your decision-making process.
The Volume/Capitalization Ratio can be used for comparing the volume activity of
multiple crypto coins:
□ Ratio = (Volume/Market Capitalization) %
-The greater the ratio, the better
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An easy way to compare crypto based on empirical data is by creating a table that
includes the empirical performance of a variety of cryptocurrencies and compare
them in respect to their capitalization.
VOLUME /
CRYPTO TOTAL SUPPLY MARKET CAP 24H VOLUME MARKET CAP
($) ($) (%)
Notes:
- The table consists the 10 largest cryptocurrencies, in terms of market
capitalization (Data: CoinMarketCap)
- For this time only, it would be better to calculate Market Capitalizations
based on Circulating Supply, and not on Total Supply
- The above table includes 24-hour volume data, but it would be wiser to use
average volume data from a 30-day period, in your own tables
For example, check the current Alexa ranking of a project’s website, and compare it
with the ranking 12 months ago, and then 6 months ago. This way you can get an
idea about the growing interest of the public for a cryptocurrency project.
- Keep in mind that there are ways scammers can manipulate Alexa rankings
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(c) Google Keyword Planner or Similar SEO Tools
Use enquiries such as ‘Buy Ethereum’ or ‘Ripple Exchange’ to estimate the public
interest for specific coins.
- How many enquires are made for particular keywords including this project?
The interest of people for a particular project will be obvious in the social media.
These are some important social media channels for that job:
- Twitter
- Facebook
- Reddit
- Telegram
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Promising Cryptocurrency Projects
These are some important cryptocurrency projects (most of them are platforms):
Ripple (XRP)
■ Official Website: https://Ripple.com/
■ General Info/Technology:
Ryan Fugger conceived Ripple in 2004, the intent was to create a decentralized
network empowering individuals and communities to create their own money. In its
current form, Ripple is a payment network designed to be used by international
banks. Currently, the organization partner with more than 100 banks worldwide. The
project aims to connect exchanges, banks, and corporations via the RippleNet to
provide a global payment system. According to Ripple: “In a world where three billion
people are connected online, cars drive themselves and appliances can communicate,
global payments are still stuck in the disco era...”
Strong Pros:
(√) High speed of transaction (currently can handle 1,500 transactions per second,
but according to Ripple, that number can grow significantly in the future)
Strong Cons:
(x) It is a centralized/private network where the organization holds 70% of all XRPs
■ General Info/Technology:
-EOS partner with Bitfinex, Bitfinex has announced a new decentralized exchange
built on EOS technology
Strong Pros:
(√) Great speed (every second can handle more than 50,000 transactions)
Strong Cons:
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IOTA (MIOTA)
■ Official Website: https://www.IOTA.org/
■ General Info/Technology:
-IOTA funded via an Initial Coin Offering (about 1,340 Bitcoin were invested)
-The ‘Internet of Things’ is expected to be worth over $260 billion by 2020
Strong Pros:
(√) Currently can handle maximum 1,000 transactions per second ( that number can
grow to 1,500 in the near future)
Strong Cons:
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Ethereum (ETH)
■ Official Website: https://Ethereum.org/
■ General Info/Technology:
Ethereum is an extremely popular platform providing coders with all the essential
tools to build decentralized applications and self-executed smart contracts. The EVM
(Ethereum Virtual Machine) runs on the Ethereum network and enables coding any
program no matter the programming language. The Ether cryptocurrency (ETH) plays
the role of a payment system for programs to run in the Ethereum network. Ethereum
has introduced smart contracts to the world, an enormous innovation for the crypto
industry, but without predicting the need of scalability. Currently, the network’s dApps
are fully programmable but not fully scalable. Ethereum developers are working on
solving the scaling problem in future versions of the network.
□ Strong Pros:
(√) Most cryptocurrency projects are developing on top of Ethereum, and that fact
creates a constant demand for Ethers
Strong Cons:
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(x) Can only handle 15-20 transactions every second
(x) $0.76 cost per transaction (considerably higher than newer coins)
(x) No set block limit today (we cannot estimate the coin’s future capitalization)
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Stellar (XLM)
■ Official Website: https://www.Stellar.org/
■ General Info/Technology:
Strong Pros:
(√) Great technology (the network can handle 1,000-3,000 transactions per second)
Strong Cons:
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NEM (XEM)
■ Official Website: https://nem.io/
■ General Info/Technology:
Built from scratch in 2015, NEM aims to create a new decentralized and fully scalable
economy. NEM’s architecture includes several interesting innovations towards
achieving flexibility, customization, and scalability. Using ‘Smart Assets’, NEM
promises to offer exactly what the developer needs, whether that’s a Fintech system,
an ICO, a Logistics Application, Decentralized Authentication, or more. The NEM
blockchain's features are available through simple calls to an API Gateway Server and
this simplifies the creation of any application.
Strong Pros:
(√) Customize how you use the NEM blockchain via ‘Smart Assets’
(√) Enables businesses to build a vast variety of real world application uses
(√) Introducing “Namespace”, a system that can be used to create unique names and
subdomains like a domain name system
Strong Cons:
(x) Currently, most developers are skeptical switching to NEM (needs more users)
■ General Info/Technology:
Notes:
Strong Pros:
Strong Cons:
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NEO (NEO)
■ Official Website: https://Neo.org/
■ General Info/Technology:
Strong Pros:
Strong Cons:
(x) In the future, Neo may be forced to follow the strict Chinese legislation for the
crypto industry (that may be an obstacle for its future growth)
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TRON (TRX)
■ Official Website: https://Tron.network
■ General Info/Technology:
Strong Pros:
(√) Focused on creating a free global соntеnt еntеrtаіnmеnt and sharing system
Strong Cons:
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Bitcoin (BTC)
■ Official Website: https://Bitcoin.org
■ General Info/Technology:
Everybody knows Bitcoin and its popularity is comparable to Nike, Microsoft, and IBM.
Furthermore, there are more than 2,600 Bitcoin ATMs and more than 100,000
merchants worldwide accepting bitcoin. On the other hand, Bitcoin is built on obsolete
technology and that makes it slow and very expensive. According to crypto experts, in
the future, Bitcoin will play a role similar to ‘Gold’ in the traditional financial markets.
Meaning it will become an asset providing stability in the cryptocurrency market.
- Note that the total number of Bitcoins today is 16.996.250 BTC
- In total, 21 million Bitcoins can be mined (limit reached in 2140)
Strong Pros:
(√) 2,600 Bitcoin ATMs and acceptance by more than 100,000 merchants
(√) Very liquid asset, and that means you can trade Bitcoin in minimal spreads
(difference between Ask/Bid)
(√) Hundreds of crypto markets worldwide offering Bitcoin and exchange it for any
crypto or FIAT currency
Strong Cons:
(x) Obsolete Technology and low transaction speed (can only handle 4-7 transactions
every second when VISA can handle 40,000-50,000 transactions every second)
■ General Info/Technology:
Strong Pros:
(√) Popular among traders as one of the first digital currencies in the world
Strong Cons:
(x) Litecoin can handle only 56 transactions per second (much more than Bitcoin but
still poor performance)
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Chapter-4: Technical Analysis Theories
Key Technical Analysis Theories
Main Focus
Technical analysis focuses on two major issues:
1. What is the current price of a financial asset?
2. What is the history of price movements for this financial asset?
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4. Prices are moving in trends
5. Historic trends are usually repeating in the same patterns
6. Future price movement is more likely to follow the same direction of an already
established price trend
7. There is no particular timeframe when you trade the market (technical analysis
uses multiple timeframes)
These are some basic technical analysis theories that may help cryptocurrency
traders to understand and explain the behavior of the cryptocurrency market:
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1. The Elliott Wave Theory
«Exploring the Natural Order»
Ralph Nelson Elliott was a famous American investor (1871-1948) who studied and
wrote about the waving behavior of financial markets.
As Elliott said, what appears random and unrelated will actually trace out a
recognizable pattern once you learn what to look for. The Elliott Principle tries to
explain how people invest in the financial markets. Investor’s psychology is
constantly moving from extreme pessimism to extreme optimism in a natural order
that create a specific pattern. This is especially true as concerns cryptocurrencies.
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Elliott Wave Theory and Principles
Elliott focused on the behavior of Dow Jones Industrial and discovered that equity
prices change in a structural way, reflecting nature’s basic harmony.
The end of each wave is usually characterized by increased volume activity. That is
especially true when the whole impulsive phase is near completion at the end of
wave-5.
■ Best time to trade long during the impulsive phase is when wave-4 is near
completion. Risk-averse traders prefer to wait until wave-5 has moved above the
highest point of wave-3.
■ Best time to trade short during the corrective phase is after wave-C has fallen
below the lowest point of wave-A.
Elliott discerned nine degrees of waves. These are all the degrees from smallest to
largest:
i. Subminuette
ii. Minuette
iii. Minute
iv. Minor
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v. Intermediate
vi. Primary
vii. Cycle
viii. Supercycle
ix. Grand Supercycle
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2. The Six Phases of Market Trends (Dow Theory)
«What Starts with Greed Ends with Panic»
One of the leading theories in financial trading is Dow Theory. According to the Dow
Theory, the market trends are evolving in six phases. Three bullish market phases
and three bear market phases. That is the key difference between the Dow Theory
and the Elliott Wave theory which counts only five waves.
During the accumulation phase, the ‘smart money’ buys or sells an asset against the
general market sentiment. Therefore, demand from ‘smart money’ equals supply
from retail investors and prices tend to accumulate, remaining unchanged. During
this phase, the market usually ranges between a Master Support and Resistance
level. The volume activity is usually considerably limited.
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(ii) Public Participation (Phase-2)
As retail investors eventually start to follow the ‘smart money’, a strong trend is
forming. The previous range is abandoned, and a Trending Market emerges. This
phase continues until speculators decide to capitalize some of their profits. During
this phase, the volume activity and volatility is booming.
Excessive optimism and greed are moving prices to very high levels. As the market is
expensive in terms of fundamentals, the ‘smart money’ capitalizes most of its profits
by scaling back positions. Volume activity is very high, but volatility can be limited.
During this phase, we can witness the creation of extreme bubbles. For example,
during the Dot-Com bubble in the start of the millennium, Yahoo! P/E ratio exceeded
400.
This is the first phase of the new bear market. This phase is the exact opposite of
the accumulation phase-1 of a bull market. The smart money now aggressively sells
the market. Prices are falling but they don’t tank as many retail investors remain
optimistic regarding the master trend. During the first few days of phase-1, the
volume activity is booming. During this phase, usually the media advise investors to
hold their positions.
As retail investors realize that the business conditions are getting worse they want to
sell the market. The smart-money continues to sell, and remains long only on assets
with an exceptional long-term fundamental outlook. Prices are falling fast but panic is
not yet seen, as retail investors anticipate they will have better chances to sell the
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market. Volume activity is shrinking as there are many sellers and only a few buyers
(speculators).
This phase of the bear-market is characterized by pure panic. Everyone wants to exit
the market at any available price (sell-off). As cash becomes king, prices tank. The
media make things even worse as ‘blood in the street news’ sells a lot now.
The smart-money does not sell, during this phase. On the contrary, it opens
selectively long positions.
-In the 18th century, Baron Rothschild said: “Buy When There's Blood in The Streets”.
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3. Harmonic Patterns
«Seeking the Harmony in Price Movement»
Harmonic patterns are recognizable price patterns that use the alignment of exact
Fibonacci ratios to identify highly probable reversal points. Harmonic Patterns offer a
very high success rate»
Structure
Each harmonic pattern has two basic structures: the internal and the external
structure. Beginners and semi-advanced traders should better focus on the internal
structure.
(a) The internal structure refers to the ABCD formation and it’s obviously crucial in
signifying the existence of the pattern.
(b) The external structure describes the price action before and after the formation
of each pattern (pips, bars, candlesticks) and it can provide very useful information.
Chart-1: Applying Harmonic Patterns Recognition Software on BTCUSD (MT4 Daily chart)
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Six (6) Types of Harmonic Patterns
The following patterns are presented mainly for educational purposes. If you want to
learn how to trade the harmonic patterns with accuracy, you should better refer to
the book “Harmonic Trading, volume 1” by Scott M. Carney.
(1) Find the Fibonacci retracement tool which is available in almost all modern
trading platforms
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(2) By applying the Fibonacci retracement tool on AB, the BC retracement must
reach the 0.618 level
(2) By applying again the Fibonacci retracement tool on BC, the CD should ideally
reach the 1.618 level
The following reciprocal ratios may help to identify alternative AB=CD formations:
CD Retracement BC Projection
0.382 2.618
0.500 2.000
0.618 1.618
0.707 1.410
0.786 1.270
0.886 1.130
Tip: The projection of BC line should converge closely with the completion of the
AB=CD.
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(ii) Three-Drive Pattern
The 3-Drive pattern is similar to the AB=CD pattern, except the fact that it has 3 legs
and 2 retracements. AB=CD has 2 legs and 1 retracement. The 3-Drive Pattern is
also similar to the Elliott Wave formation, which is one of the basic formations of
technical analysis.
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(iii) The Gartley 222 Pattern
The Gartley 222 pattern was discovered by H.M. Gartley on page 222 of his book
“Profits in the Stock Market, 1935).
The Gartley 222 incorporates the classic ABCD formation with some extra features.
The Gartley pattern is formed by 5 pivot or swing points which can be visualized as:
‘M’ for bullish patterns
‘W’ for bearish patterns
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(iv) The Bat Pattern
The Bat pattern is considered a very reliable formation. A strong advantage when
trading the Bat pattern is that you can place a tight stop-loss. A tight stop-loss
means a great Reward/Risk ratio.
• The point B must be less than the 0.618 retracement of XA line, preferably the
50% or the 38.2% retracement of XA line
• The BC projection must be at least 1.618
• The point C ranges between 0.382 and 0.886
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(v) The Crab Pattern
The Crab is a harmonic 5-point formation. The completion of the pattern is confirmed
by the XA projection at 1.618.
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(vi) The Butterfly Pattern
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Chapter-5: Trading Platforms
Explaining Trading Platforms & CFDs Trading
This is some basic information regarding the use of electronic platforms and CFDs
when trading cryptocurrencies.
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Using Multiple Trading Platforms
Cryptocurrency traders can use a wide variety of trading platforms. They can use
web-based platforms offered by cryptocurrency exchanges, but also the more
advanced MT4 platform offered by CFD brokers.
The web-platforms offered by cryptocurrency exchanges are easy to use but offer
limited capabilities.
Here are some basic features of these platforms:
Free software
Web-based (no need to install)
Easy to use and to start trading
Offering internal wallets (note that online wallets are vulnerable to hacking)
Transfer easily coins to external wallets (software/hardware wallets)
Limited set of trading orders
Limited charting capabilities
Limited number of indicators
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MT4/MT5 Platforms
The series of MT4/MT5 electronic platforms from MetaQuotes are also free to use
and offer some advanced capabilities. In order to use a MT4 platform you need a
brokerage account with a CFD broker (also free). This is a little bit complicated and it
will be covered later. First, here are some basic features of MT4:
Free software (requires a Forex/CFD account)
Extended set of trading orders (APPENDIX)
Multiple timeframes
Extended charting capabilities
Built-in indicators
Automated trading capabilities
Includes a built-in programming language (MQL-4) and a compiler
Built-in historic tester (back-testing capabilities)
Demo/Practice mode
Includes separate mobile/tablet traders for iOs and Android
Trading cryptocurrency CFDs
Limited number of cryptocurrency assets
Complicated to use/trade
The following image presents an Ethereum candlestick chart on MT4. You can add
any commercial/custom indicator inside or below the chart.
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CFD Trading Platforms
MetaTrader is a free electronic platform. The only prerequisite to use MT4 is opening
a CFD account.
What is a CFD?
CFD means Contract for Difference and it is an OTC (over the counter) derivative
product that can be used for trading on any financial market, including
cryptocurrencies. When you open a CFD position, you mirror the market and gain or
lose money based on the price of the underlying asset.
Explaining CFDs
CFDs enable traders to easily trade a great variety of assets in tight spreads. While
other derivative instruments use complicated formulas to determine their current
values, CFD prices are identical to the underlying asset prices. That means if you buy
Ethereum using a CFD contract you will buy and sell it almost at the same price as
the current Ethereum price on a dominant exchange. That makes it extremely easy
to monitor your cryptocurrency positions.
Simply put, if the price of the underlying asset has risen between the time you have
opened your position and the time you have closed it, you have made a profit. If the
price of the underlying asset has fallen below, then you suffer a loss.
Usually, CFD brokers charge only spread and no trading commissions. Spread is the
difference between buyers and sellers (Bid/Ask prices). Here are some typical
spreads on popular crypto:
$15.0 on Bitcoin
$2.0 on Ethereum
$0.015 on Ripple
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Maintaining Cryptocurrency Positions Overnight
If you keep a CFD position after midnight, your position becomes the subject of
overnight charges (SWAP Rates). In general, when you go long on a cryptocurrency,
you are paying an overnight rate, and if you go short on a cryptocurrency, you
receive an overnight rate. In any case, before opening any position on a
cryptocurrency CFD, you should check the swap charges on the website of your CFD
broker or via the LiveChat service.
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Unattractive to long-term cryptocurrency investors wishing to go long
The use of leverage makes trading riskier
The trading spreads on instruments other than Bitcoin and Ethereum may be
considerably expensive
There are a lot of CFD scams (in order to avoid them focus on regulation and
headquarters country and NOT on bonuses)
Nowadays, most CFD brokers offer a basic cryptocurrency asset index. You can open
a demo account with a CFD broker, but a demo account is usually only active for a
limited time-period and provides limited functionality. The best option is to open a
real account and to deposit only $5. That way, you suffer no risk and your account
will remain active indefinitely. In order to open a real CFD account you need:
-Mobile phone verification
-ID verification
-Address verification
-Usually a $5 deposit (don’t deposit more unless you have fully understood CFDs)
The smartest thing for cryptocurrency traders is to combine the use of multiple
platforms.
→ Use the extended capabilities of MT4/MT5 for market analysis (advanced
charting capabilities and an unlimited number of indicators)
→ Use the online platform of your crypto exchange to trade the market
These are some regulated CFD brokers offering MT4 and a basic cryptocurrency
asset index (none of the following brokers accepts US trades).
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CFD BROKER FEATURES FUNDING ACCOUNTS
□ $100 minimum
■ Tight Spreads, low account (Dukascopy Open an Account with
Commissions Europe) Dukascopy and get 30%
■ JForex platform □ $5,000 minimum Rebate for the 1st month of
» DUKASCOPY ACCOUNTS ■ Auto-Trading account (Dukascopy trading:
■ FIX/API Trading Bank)
REGULATION: ■ PAMM Accounts ► Open an Account with
■ Includes Social FUND METHODS: this Dukascopy Link and
□ FINMA (Dukascopy Bank) Networking Credit/Debit Cards get 30% Rebate for the
■ Client funds are -Maestro
□ FCMC (Dukascopy Europe) 1st month of Trading
CORPORATE INFO: protected in the -VISA
Dukascopy Bank founded amount of CHF -Electron
Review Broker:
in 1998 and it is domiciled in 100'000 for Bank Wire
► Dukascopy Europe
Switzerland Dukascopy Bank
Review
Dukascopy Europe founded clients and in the
in 2011 and it is domiciled in amount of EUR 20'000
Latvia for Dukascopy Europe
clients
□ $5 minimum
■ CurreneX Account account HotForex offer free VPS
■ Wide Asset Index Hosting and many other
■ Popular v2 PAMM FUND METHODS: promotions:
» HOTFOREX ACCOUNTS accounts Credit Cards
■ MT4/MT5 Bank Wire ► Visit HotForex
REGULATION: ■ FIX/API Trading Skrill
□ CySEC, MiFID ■ Auto-Trading Neteller Review Broker:
World Finance Top 100 ■ Free VPS for all iDeal ► Review HotForex
Company traders holding more Union Pay
CORPORATE INFO: than $5,000 Sofort
HotForex founded ■ Multilingual Support TrustPay
in 2007 and it is domiciled in ■ Client funds are And More
Cyprus protected in the Methods
amount of EUR 20'000
□ $5 minimum
■ MT4/MT5 account Specialized in Eastern
■ Wide Asset Index Europeans and Asian Traders
■ Trading Contests FUND METHODS: by offering many promotions
» FBS ACCOUNTS and other Promotions Credit Cards including a $50 (Free) No-
■ $50 (Free) No- Bank Wire Deposit Bonus:
REGULATION: Deposit Bonus Skrill
□ CRFIN (No 009069697) ■ Multilingual Eastern- WebMoney ► Visit FBS
CORPORATE INFO: European and Asian PerfectMoney
FBS founded in 2009 and it Customer Support MoneyGram Review Broker:
is domiciled in Russia EgoPay ► Review FBS
Offices in many Asian OKPay
Counties More Methods
□ $5 minimum deposit
■ Wide Asset Index XM offer a $30 (Free) No-
■ FIX/API Trading FUND METHODS: Deposit Bonus:
■ MT4/MT5 Credit Cards
» XM GROUP ■ Auto-trading Skrill ► Visit XM
■ CFDs on Futures Liberty Reserve
REGULATION: ■ $30 (Free) No- Neteller Review Broker:
□ CySEC, ASIC, FCA UK Deposit Bonus Wire Bank ► XM Review
CORPORATE INFO: ■ Multilingual Support Transfer
XM founded in 2008 and it is ■ Client funds are And More
domiciled in Cyprus protected in the Methods
amount of EUR 20'000
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Chapter-6: Technical Indicators
Technical Analysis Indicators
Bitcoin trading is a risky business, as BTC price can move from +10% to -10% in 24
hours. Therefore, effective Bitcoin trading requires advanced trading skills and a
balanced money management system. This chapter aims to sharpen trader’s skills
and the next chapter to explain the basic principles of money management.
An indicator is a small code that plugs in a trading platform and helps traders to
determine the direction of the market or to identify overbought/oversold market
levels.
An indicator is NOT an independent predictive trading system. Indicators are useful
only as part of a complete trading system which also includes confirmation and
money management. Many Bitcoin traders have started using technical analysis
indicators such as the 100-day SMA and MACD.
Once you have downloaded the MT4 platform, you can create your own indicators to
analyze the cryptocurrency market at a glance. Moreover, you can set your indicators
to send you alarms on screen, via email or SMS.
The EA Builder Application (Free for Creating Indicators, Paid for Creating Robots)
EA Builder is an excellent free application that can help traders to create custom
indicators without requiring any programming skills. The application is free but you
have to create an account and confirm your email. There are no time limits for
creating free indicators.
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-Note that in order to create a fully automated trading robot you need to pay a one-
time fee ($97).
You can use the same app (EA Builder) to download already-built indicators for
MetaTrader-4 (MT4) and Tradestation platforms. These indicators are open to
modification and you can download them here:
» Download Free Indicators for MT4 or Tradestation
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Trading Cryptocurrencies Using MACD and MAs
MACD and Moving Averages (MAs) are two common technical analysis tools for
trading cryptocurrencies.
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MACD Divergences
More advanced traders trade also the MACD divergences. A MACD divergence is a
slope divergence, which occurs between the price slope and the MACD Histogram’s
slope. This divergence is an indication of a very probable price turnaround.
A moving average (MA) is a very common lagging technical analysis tool that can
help investors define the master trend of a financial asset. An MA can filter the
“market noise” derived from random price fluctuations. Bitcoin traders usually focus
on these SMAs:
25-day Simple Moving Average
50-day Simple Moving Average
100-day Simple Moving Average
200-day Simple Moving Average
We can use three (3) different MAs to identify the master trend. In the following
example, we will use three SMAs and two timeframes (D1 and H4).
3 SMAs (20, 50, and 100 periods)
D1 and H4 timeframes
(i) The Price and the SMAs must move all in the same direction (all up or all down)
(ii) The Price and the three SMAs must move in perfect order
(iii) The above conditions must be met in both D1 and H4 charts
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(↓) Bearish Trend
-If SMA (100) is above the SMA (50), and
SMA (50) is above SMA (20), and
SMA (20) is above the Current Price, then
the trend is Bearish (↓)
(-) No-Trend
-If all three moving averages are in random order then there is no clear trend
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Chapter-7: Money Management
The importance of an Effective Money Management System
Information and tips on how to formulate a simple and effective Money Management
System to trade cryptocurrencies.
Profitable trading requires the existence of a complete trading system that is able to
answer two basic questions at any given time:
1. When to Trade (Time)
2. How Much to Trade (Money)
Money Management is all about time and money. ‘The right time to trade’ is part of
technical analysis, “How much to trade” is the job of Money Management.
Money management accounts for at least 50% of the long-term success of any
trader in any financial market. The absence of an effective money management
system can lead even experienced and very talented traders to suffer great losses.
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Portfolio Diversification
Anyone familiar with financial economics knows that portfolio diversification is the
golden rule of investing. “Don’t Put all your Eggs in the same Basket” can be
translated as “Don’t put all your Money is the Same Trading Opportunity”.
Portfolio Differentiation has proven to be the ideal method of investing in studies for
periods of 100 years and more. Therefore, we need to distribute our cryptocurrency
funds in many positions, as opposed to just a few.
Some crypto exchanges have started to offer capital leverage. Capital leverage
means opening a trade position by paying only a portion of its value, which is called
the ‘margin’. In other words, trading with more funds than you own.
It sounds like a great opportunity, but actually, high leverage is a great threat to any
portfolio. Because the more trading leverage you use the more risk you must accept,
and the more trading cost you must pay.
Higher leverage means accepting higher risk and paying higher transactional cost,
and therefore, trading leverage is more of a liability than an asset.
Where:
□ (P/L) = Profit to Loss Ratio, or else Potential Profit Pips / Potential Loss Pips
□ Spread is difference between Bid and Ask (in pips)
□ (R) = Risk Tolerance range between 1-100 and reflects the level of risk a
trader is able/willing to accept
The first component is the P/L ratio. Technical analysis can provide information
about what is the potential profit and loss each time we trade. For those who are
trading using ‘Support & Resistance’, the potential profit is the difference between
the Current Price and the First Major Resistance Level, and the Potential Loss is the
difference between the Current Price and the First Major Support Level.
Calculation:
■ Potential Profit = First Major Resistance – Current Price
■ Potential Loss = Current Price - First Major Support
For more advanced P/L calculations, we can use multiple support/resistance levels,
as follows:
-Averaging the three (3) Closest Major Support and Resistance Levels:
■ Potential Profit = (Average Price of the 3 Closest Major Resistance Levels) –
Current Price
■ Potential Loss = Current Price – (Average Price of the 3 Closest Major
Support Levels)
The second component of the formula is trading cost. Trading cost includes:
-Average Spread
-Commissions Charged
Calculation:
■ Calculation is simple as long as all cost sources are expressed in pips
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(iii) Personal Ability to Accept Risk
Risk is a very important investing factor, and unfortunately, it is not taken seriously
enough. In order to calculate your Risk Tolerance, you must take into consideration
several factors, for example:
The value of your portfolio
Your annual income
Your age and especially your trading experience
Your character
The likelihood that you will need to withdraw some money in the future
In general:
if you are a newbie trader use a Risk Tolerance Ratio = 0.1
if you are semi-advanced trader use a Risk Tolerance Ratio = 0.33
if you are an advanced trader use a Risk Tolerance Ratio = 0.67
if you are a professional trader use a Risk Tolerance Ratio = 1.0
Summary
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“Don’t Put all your Eggs in the same Basket” can be translated as “Don’t put
all your Money is the Same Trading Opportunity”
We should never invest more than 10% of our annual income on a single
investment
We should never trade (short-term) more than 1-2% of the value of our
portfolio
Trading leverage is very risky and expensive (as it widens both trading risk
and trading cost)
High trading leverage is more of a liability than an asset
The rate of leverage must be always in balance with (i) Profit/Loss Ratio, (ii)
Trading Cost, and (iii) Individual Risk Tolerance
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Chapter-8: Cryptocurrency Exchanges
Choosing Cryptocurrency Exchanges & List
About 50% of your overall success as a financial trader comes from your ability to
choose the right partners.
These are some key issues when choosing an exchange (every factor listed below is
important):
BASIC CONCEPTS
● Acceptance
-Does an exchange accept your country?
● Verification
-What are the requirements for verifying?
-What are the trading limits before/after verification?
● Deposit/Withdrawal Methods
-What are the available fund methods (Cards, Online Wallets, etc.)?
● Asset Index
-Which coins/tokens are available in the exchange?
SAFETY/RELIABILITY
● Safety of money
-Where is the headquarters base?
-How many years in the market?
● Online security
-Are the cryptocurrencies of clients stored into cold storage, as they should?
-In case of P2P transactions, is there an Escrow Service?
● Online reviews for this exchange
-What other people say about this exchange (Caution, 50% of all the reviews
you read are fake)?
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COMPETITIVENESS
● Transaction cost
-What are the transaction fees?
● Exchange rate
-What is the exchange rate for the crypto you need to buy?
-What is the ask/bid spread?
● Responsiveness of the Customer Service
-Is there a phone line and/or a live chat service available?
CRYPTOCURRENCY EXCHANGES
Cryptocurrency exchanges are common places to buy/sell Bitcoins and other digital
coins.
-Warning: Please be careful with your money
When sending funds to an exchange or other counterparty you are trusting that the
operator will not abscond with your bitcoins and that the operator maintains secure
systems that protect against internal or external theft. It is recommended that you
obtain the real-world identity of the operator and ensure that sufficient recourse is
available. Exchanging or storing significant funds with exchanges is not
recommended.
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CEXIO
Cexio offer a web-based platform and two (2) mobile apps for trading Bitcoin,
Ethereum, Ripple, Dash, ZCash, and Stellar.
LEGAL:
-MSB status in FinCEN (USA)
-Registered with the ICO (UK)
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LOCALBITCOINS
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LIVECOIN
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BITBAY
The BitBay platform is user-friendly and provides a full set of trade orders, including
stop-orders, and 'Fill-or-Kill' orders.
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PAXFUL
Paxful offer the wider selection of payment methods in the market (300+ methods)
plus an escrow service for the maximum security of Bitcoin transactions.
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COINMAMA
Account Verification
To place an order at Coinmama, you need to have your account verified. Once you
get verified, you can buy in total up to 10,000 USD worth of bitcoin by using
credit/debit cards.
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BITMEX
Perpetual Contracts
The marketplace operates with Perpetual Contracts. A Perpetual Contract is a
product similar to a traditional Futures Contracts in how it trades but does not have
an expiry, so you can hold a position for as long as you like. Perpetual Contracts
trade like spot, tracking the underlying Index Price closely. Bitcoin trades are offered
in Spot and Futures trading options.
Be extremely careful if you decide to trade Perpetual Contracts and use trading
leverage (especially if you are a beginner).
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APPENDIX:
Trading Orders & Website Resources
Cryptocurrency traders can place classic market orders but also pending orders and
try to buy/sell crypto at best possible rates. These are the main orders for trading
crypto:
Market order: Buying/selling a cryptocurrency at the current market level.
The great advantage of a market order is the speed of execution, as you
execute your trade almost immediately. The great disadvantage is slippage,
and that means get a worst price that you expected. Executing market orders
in non-liquid assets may prove a bad idea. Especially as concerns volatile
sessions, slippage on order execution can grow significantly. In overall,
market orders are effective only for trading liquid assets and only if the
market conditions are not choppy.
Limit order: Placing an order for buying/selling a cryptocurrency in a specified
price. There are two outcomes: (i) it will be filled by someone else’s order at
this specified price, and (ii) it will stay unfilled. The advantage of a limit order
is the protection that it offers against slippage and choppy market conditions.
In overall, limit orders are ideal for volatile and non-liquid markets.
Stop-loss order: Placing an additional order to limit the potential loss. A stop-
loss order activates only if a specified price level has been reached. Once this
stop level has been reached, the position is automatically closed. Stop orders
can be used as a shield to limit the losses of a portfolio in case the market
moves in the unfavorable direction.
Take-profit order: Placing an additional order to guarantee profits. As in the
case of a stop-loss, a take-profit order activates only if a specified price level
has been reached. Once this take-profit level has been reached, the position
is automatically closed. This type of order aims to protect your profit when
the market is very volatile.
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(ii) Important Websites for Crypto Traders
□ Market Data:
https://coinmarketcap.com/
https://www.coingecko.com/en
□ Cryptocurrency News:
http://www.coindesk.com/
https://cointelegraph.com/
https://www.ccn.com/
□ Experts on Twitter:
https://twitter.com/VitalikButerin
https://twitter.com/brian_armstrong
https://twitter.com/rogerkver
https://twitter.com/dan_pantera
https://twitter.com/jgarzik
https://twitter.com/bobbyclee
https://twitter.com/ErikVoorhees
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□ Forums:
https://bitcointalk.org
□ Reddit Threads:
https://www.reddit.com/r/icocrypto/
https://www.reddit.com/r/CryptoCurrency/
https://www.reddit.com/r/crypto/
https://www.reddit.com/r/CryptoMarkets/
https://www.reddit.com/r/Bitcoin/
https://www.reddit.com/r/altcoin/
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REFERENCES
■ Bitcoin.org:
Bitcoin: A Peer-to-Peer Electronic Cash System
https://bitcoin.org/bitcoin.pdf
■ Coinmarketcap:
Compare the Market Capitalization of Cryptocurrencies
https://coinmarketcap.com/coins/views/market-cap-by-total-supply/
■ ExpertSignal.com:
Comparing Crypto Exchanges
http://expertsignal.com/index.php/cryptocurrencies/bitcoin-exchanges-
comparison
Cryptocurrencies -Frequently Asked Questions
http://expertsignal.com/index.php/cryptocurrencies/cryptocurrency-faq
■ HackerNoon.com:
Delegated Proof of Stake
https://hackernoon.com/explain-delegated-proof-of-stake-like-im-5-
888b2a74897d
■ Medium.com:
Cryptocurrency
https://medium.com/topic/cryptocurrency
■ TradingCenter.org:
Trading Leverage Formula
http://tradingcenter.org/index.php/menu-training/training-online/the-
leverage-formula
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■ Digital Coins (Official Websites):
Bitcoin.org
Ethereum.org
Ripple.com
Stellar.org
Neo.org
EOS.io
Tron.Network
Cardano.org
IOTA.org
Litecoin.com
■ SEC:
Initial Coin Offerings (ICOs)
https://www.sec.gov/ICO
■ Bloomberg:
Bitcoin Trading Signal
https://www.bloomberg.com/news/articles/2018-02-06/bitcoin-trading-
signal-that-returned-1-152-is-flashing-sell
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BIBLIOGRAPHY
(3) The Elliott Wave Principle: Key to Market Behavior {Robert Prechter}……………………………
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© George M. Protonotarios 2018
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CRYPTOCURRENCY TRADING GUIDE
«Trading the Decentralization of the Financial System»
COPYRIGHT INFORMATION
ALL RIGHTS RESERVED. No part of this eBook (including text, information, tables,
analysis, resources and images) may be copied, reproduced, mirrored or sold.
The information presented in this eBook represents the view of the author. Every
attempt has been made by the author to verify all information included in this eBook,
but there is no guarantee about the accuracy and the reliability of any information
presented in this eBook. This eBook is not intended for use as a source of financial or
investment advice. In addition, this eBook includes affiliate links.
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RISK WARNING
When sending funds to an exchange or other counterparty you are trusting that the
operator will not abscond with your bitcoins and that the operator maintains secure
systems that protect against internal or external theft. It is recommended that you
obtain the real-world identity of the operator and ensure that sufficient recourse is
available. Exchanging or storing significant funds with exchanges is not
recommended.
ExpertSignal.com
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