The modern crypto industry is a behemoth that has been valued at over $1 trillion and has millions of active participants across the globe. A population of such size often has inherent diversity meaning that not everyone understands how investments work in the first place. Knowing basics like profit and loss should be common. However, many in this domain don’t use the best cryptocurrency trading tools or other helpful instruments.
Let’s talk about the basics, how they apply to the cryptocurrency industry, and which crypto analysis software to use.
What is profit?
This term refers to the amount of value received from investments when all other relevant expenses are accounted for. For example, you may invest $100 thousand in stocks and they appreciated by 20% meaning that you now can sell them for $120 thousand. The difference should be considered profit, right?
You don’t need the best crypto analysis tools to understand that there are hidden costs and fees that are associated with any transaction. Financial institutions aren’t in favor of doing something for free. Whether you use leverage or buy assets with your own money, an exchange will subject you to fees, charges, commissions, and many other forms of small payments. These must be accounted for when calculating profit and loss.
A more “dictionary-friendly” description would be “the difference between the total amount earned and the amount spent”. Several most important potential expenses should be considered:
- The investment cost is the number of funds you use to make a purchase. In business, it means many expenses related to finding and educating staff, credit costs, and more. When it comes to financial markets, we primarily talk about fees and charges that an exchange imposes on its users for investing. Despite being quite small, they add up quickly.
- Exit fees are expenses related to withdrawing money. You may have all the profits in the world on paper, but, until you get them out, you are as good as broke. An exchange and your bank may charge extra for monetary transactions and cashing out.
- Taxation is often not taken into consideration. However, taxes can significantly reduce your effective earnings. A crypto market analysis tool that calculates profits may not even include taxation in calculations, since many nations do not have regulations or taxation models for cryptocurrencies and other forms of digital assets.
Using our example, we now must apply all these fees and charges to the amount of money we will be withdrawing. Let’s say that you have been charged 0.3% for purchasing and 5% for withdrawing. The calculations will be as follows:
- $100 thousand * 0.3% + $120 thousand * 5% = $6 300.
- $120 thousand — $100 thousand — $6 300 = $13 700.
The difference between our initial idea about how much we earned and what we take out is 31.5%. However, it is not all. In the crypto industry, we also have to think about the price of the asset we are using as an exchange medium. Most platforms do not allow users to use fiat money directly and instead offer stable coins like USDT (Tether). While their price is naturally tied to the USD, there could be fluctuations and discrepancies that could reduce the price of stables compared to fiat.
What is loss?
Any cryptocurrency analysis software with features like a profit-calculator has a loss calculation. If the result from our previous example comes out as negative, we have lost money. The same rules and expenses are used in calculations. Let’s say that we used the same exchange but instead of gaining 20% lost 20%.
Below is the math:
- $100 thousand * 0.3% + $80 thousand * 5% = $4 300.
- $80 thousand — $100 thousand — $4 300 = — $24 300.
Again, there is a distinct difference between what many naturally believe they lost and what happens.
Using free crypto charting tools
Prices change rapidly and often continuously, so understanding when to close a deal and make a profit is quite important. TradingView and similar platforms are designed to track the prices of various assets in real-time. Knowing the basics of technical analysis often helps to predict potential losses and profits by checking the amplitudes with which prices typically move in certain time frames.
For example, some coins may gain 20% during a day and lose 15% during the same time. It means that you have a chance of taking a 20% profit or 15% loss within a day. However, on a larger frame, there will be a bullish trend that may translate into much higher gains over time. Seeing such trends is often a good way to gage the potential of any given asset.
Technical indicators are used to make forecasts more detailed, informative, and reliable. There are different types of tools that you can use on TradingView. Let’s take a closer look at some of them:
- Moving averages are the most commonly used indicators that show median prices of assets across specific time frames creating a smooth curve overlaid on the chart. Using the indicator called 3MA yields even more data. Some of the best tools for crypto trading are these simple indicators widely employed by professionals and newcomers. 3 moving averages can predict trends quite reliably, but won’t show you the best moment to enter or exit the market.
- RSI or Relative Strength Index is also often included in various strategies as a good indicator of trend reversals. While not the most reliable in the world, it is a good instrument providing essential information that helps traders form good ideas about the direction of the market.
- ADX or Average Directional Index shows the momentum of any trend. The formula is not overly complicated, but it still has some complexity. You don’t have to do any of the calculations and only look at the number. The directions of trends are DI+ (uptrend) and DI- (downtrend). When the indicator is over 20, it means that the movement is strong and won’t change.
Technical indicators are the bread and butter of any modern trader who wants to remain competitive. Yes, these are not predictions carved in stone and often yield wrong results. However, they are the best way to make more or less reliable forecasts. When you account for probabilities and risks, predictions become a little bit more dependable.
Making investment decisions without any ideas about the future of an asset is never a good idea. You can also gage the efficiency of any given strategy by comparing actual profit/loss to what you predicted.
Other crypto technical analysis tools
While we are on the topic of good TA indicators that can help predict profit and loss, let’s take a look at several good instruments that should be learned by someone who wants to better estimate the profitability of their investments.
- A stochastic Oscillator is an indicator that measures the current price to the range of multiple prices that were recorded over different periods. While it is used mostly to identify moments when an asset is oversold or overbought, it is also a good way to estimate which prices can repeat and which are the potential amplitudes. It is especially useful as a backtesting instrument that allows you to measure the possible outcomes of any investment.
- Aroon is a relatively fresh addition to the family of frequently used indicators. It is one of the best tools for crypto trading and offers a way to see the possibility of a trend change and identify potential highs and lows. Aroon is an easy-to-read graph that updates in real-time on your chart.
- VWAP stands for Volume Weighted Average Price and is a great tool for price prediction as it shows the average within a trading day based on volume and costs. It is a great indicator of value and trend strength.
These indicators can be used in conjunction with each other to ensure that you can make an informed decision and estimate potential profits to contemplate them against possible risks.
Why are cryptocurrency analysis tools important?
Looking at charts and learning how to gauge potential changes in prices over certain periods is a great skill that can significantly improve your trading capabilities. Without a firm grasp on the nuances of the market, you will often sell too early or buy too late making your potential profit smaller. When it comes to choosing the best crypto analysis website, it is close to impossible to make a good choice, since you need a multitude of instruments to be informed.
The whole idea is to see the full picture and never leave yourself with unrealized profit. For example, you may purchase an asset at $100 and sell it when the price reaches $120. However, after selling, you see how the price continues to go up breaking your most optimistic expectations. Were you to look at the chart with indicators, you would see that the trend was very strong and suggested that such a situation could occur with a high degree of confidence.
It is quite important to remember that you suffered neither loss nor profit until you close an order that you have placed on the exchange. As long as you hold on to your assets, any calculations you make are nothing but a very loose estimate.
Fast math makes it easier to gauge potential earnings, so you can use plenty of tools that automate calculations and allow you to make predictions very quickly.
Using a good cryptocurrency analysis tool
A profit calculator is a cryptocurrency analysis software that conducts calculations based on given inputs. There are very nice solutions out there that can be used to great effect. CryptoProfitCalculator and similar services offer you an opportunity to simplify any calculations related to profit/loss. A typical instrument of this category usually takes into account several factors:
- The currency with which you make a purchase. US dollars, Great Britain pounds, and Euros are the most commonly used currencies. Their value fluctuates and can directly affect the true value of your earnings.
- The cryptocurrency you are purchasing and selling. There are thousands of different coins and tokens traded on hundreds of platforms. BTC, DOGE, BNB, ETH, and many others.
- The order size or investment. It can be calculated in units if you like to make a good prediction based on the amount that you plan to purchase.
- Initial and selling price of an asset in your preferred fiat currency.
- Investment fees are small commissions charged by exchanges for entering the market. Usually, they range between 0.3% and 1% depending on which exchange you use.
- An exit fee is a commission taken by the exchange for selling an asset. Some exchanges do not have it and put the weight entirely on the shoulders of buyers.
Some calculators may also include banking fees that some companies have. Any charges that your bank and payment system have should be calculated independently, but you must never ignore them. The total profit can change noticeably after you also apply fees for transferring money. Often, using a debit card and bank wire transfers is the cheapest option, but some payment systems have good relations with exchanges and offer free transfers.
Following the market
Using crypto technical analysis software to gage the current situation in the market is a good idea whenever you think about entering the market. However, you should also have realistic expectations and never buy/sell assets based on predictions that you get from unreliable sources or by making up numbers.
Calculators help you understand how much you can earn before leaving the market. Let’s say, you bought 5 ETH at $1500. Technical analysis indicators show that the uptrend is strong. By using other tools like support and resistance levels, stochastic, and others, you estimate that the price will reach $1700 within three days. On Coinbase, you have to pay up to 0.6% for creating liquidity and 0.4% for taking liquidity if you have an order of less than $10K.
Some quick math later, you will estimate that using a 0.6% fee, you will be earning $904 not accounting for banking and other possible charges. These numbers should be taken as a benchmark and offer a good way to determine whether you should leave the market. Using the best crypto analysis tools out there, you can check whether sudden changes in prices are just overreactions of traders or have an actual foundation.
What tools can improve your investment activities?
There are several great ways to trade without having to worry about profit/loss calculations. The first is to use the best website for crypto charts and have signals from it. TradingView is often considered a good choice. Then, use these signals to automate your trading activities.
Automation is a service from third-party vendors that offer scripting tools that allow users to create patterns executed automatically based on inputs from charting platforms like TradingView. Companies like WunderTrading offer a wide variety of different bots to ensure that you have a reliable trading routine free of anxiety and human error. It is, possibly, the best cryptocurrency software that has been ever made available to the public.
Bots have several important advantages:
They don’t have to sleep. This is important because you often enter the market when you are awake, but may miss the best moment to leave and sell due to being asleep. You may miss out on a perfect opportunity when resting, eating, or going out. Bots don’t do any of that.
- Bots are emotionless. Succumbing to anxiety and weariness makes trading almost impossible. You make way too many mistakes when worrying about profit and loss all the time. Machines are cold-hearted scripts that never make mistakes under pressure and just follow their instructions.
- Robots process information instantly. The sheer volume of data you have to analyze even with assistance from advanced technical indicators is simply impossible to go through without making any errors. Machines can do it effortlessly.
- Using calculators is still a good idea. You can use numbers from calculations to set up reasonable profit/loss settings for bots. Determining acceptable risks and target profit goals allows you to create better-performing scripts.
Reinvestment is a good strategy
When people make a profit, their initial impulse is to withdraw funds immediately. However, they should always think about potential losses. Even if you need money quickly, taking a cheap credit can be much more efficient than losing money on fees and transactions. Having enough liquidity on an exchange is a good way to ensure that you never miss out on an opportunity to earn more.
Finding the right balance between reinvesting and withdrawing is something that many investors struggle with. On one hand, it is hard to say that you earned something when you didn’t even withdraw funds from the platform on which you invest. On the other hand, the profits you make can further increase your potential gains allowing you to grow your portfolio exponentially.
If you are here for long-term results, holding onto assets and reinvesting any profits you made from active trading should be your main strategy. However, some people may be more inclined to make living from trading which is a valid idea if you have enough knowledge and sufficient personal wealth to earn enough money without using leverage.
Don’t make uninformed decisions!
The last point to make is that you need to be realistic about profit and loss. Researching coins before committing to a purchase is a must. If you see a cheap investment opportunity, you may jump on the hype train without thinking about the reasons why people promote it. Some coins just don’t have what it takes to reach certain prices. You will be left with calculations based on nothing but hype.
Losing a small amount of money is better than losing everything. Some people succumb to the sunken fallacy principle when investing. After losing a significant portion of their investments, they simply continue holding on to them believing that they will eventually bounce back. However, taking a loss is a much better solution in most cases!