A Comprehensive Step-By-Step Guide to Trading Bitcoin

Bitcoin gold coins

Last Updated on 2 years by

This article was composed to deliver the complete basics of Bitcoin trading. It helps the reader understand common Bitcoin jargon, how to monitor and interpret market activities, and how to make and execute trading strategies.

The ‘golden rule’ of trading any asset class is “buy-low, sell-high.” Unlike investing, which involves buying and holding Bitcoin for long periods, trading involves the consistent presence in the market, reading price actions and executing several trades over time.

Bitcoin Trading vs. Investing

Before we go any further, let’s get a good understanding of what trading Bitcoin is and how it differs from investing.

Usually, people who ‘invest’ in Bitcoin do so intending to hold it for the long-term. This means that they have a strong conviction that the overall trajectory of that asset is up regardless of what rises and falls that instrument might witness along the way. People invest in Bitcoin because they have faith in the technology behind it, the team, or the overall ideology guiding Bitcoin.

Bitcoin investing is popularly known as HODLing in the cryptocurrency community. This phrase was gotten from a typo of the word ‘hold’ in 2013.

Bitcoin traders, however, buy and sell the crypto whenever they analyze the market and identify profit-making opportunities. Bitcoin traders, unlike investors, are mostly not concerned with the technology or ideology behind it, they view Bitcoin as a tool for realizing profits.

That said, there are still lots of people who trade Bitcoin and still care for the core fundamentals. Some people trade and invest in Bitcoin at the same time.

Bitcoin is known to have experienced a rapid rise in popularity and there are a few reasons for that.

Firstly, Bitcoin is a very volatile trading instrument meaning that one could realize substantial profits from accurately predicting the market.

Secondly, unlike other markets, the crypto market is open for trading 24/7. Most global markets have open and close times. Bitcoin allows its traders to trade whenever they feel like.

Finally, the relatively unregulated nature of Bitcoin makes it easy for traders to come on board, without any long or arduous registration process.

Trading Methods

While every trader is after the goal of making profits, they take different approaches to achieve that goal. Here are some of the popular trading methods involved in Bitcoin trading:

1- Day trading

This approach involves executing and closing multiple trades in a day to profit from minor price movements. Day traders spend a good deal of time in front of their screens and usually never hold any trade for more than a day.

2- Scalping

This approach is slightly like the day trading as trades are executed and closed in a day. However, this strategy involves a larger amount of trade execution compared
to day trading. It involves scraping off tiny bits of profits from short-term price action. Trades in this approach are executed and closed between 1 to 5 minutes. Scalpers are known to take hundreds of trades in a single day as a way to accumulate substantial profit.

3- Swing trading

This trading strategy is a fine blend of long-term trading and day trading. It involves taking advantage of the natural swing cycle of Bitcoin. Swing traders look for developing trends and ride the trend until it fades to realize profits. Profits generated from swing trading are usually larger compared to the other trading approaches. This method involves holding trades from anything from a few days to a few months until the expected result is achieved.

Analysis Methods

To start with, there’s no single person or entity that can correctly predict what the price of Bitcoin would be at any given time. However, traders have discovered several practices of observing price action, market sentiment, and historic events which can help them make “intelligent guesses” to what the price is likely to do next and align themselves in a way to make profits.

Trading is not about winning every single trade, which in reality is impossible, it is about maximizing your wins and minimizing your losses thereby giving you an overall profitable standing.

In observing and analyzing Bitcoin, there are two general methods traders follow: fundamental and technical analysis.

Fundamental analysis

This market analysis approach is concerned with looking at the “big picture.” It evaluates the fundamental issues surrounding Bitcoin like news headlines,
developments in the network, global view of the crypto, and other global factors that could affect the price of any asset class like war, disease outbreaks, world power elections, sanctions and embargoes, and so on.
This analysis method looks at the overall value of Bitcoin and relevant external events that could impact this instrument.

Technical analysis

This analysis method is concerned with the statistics of the market like price action, market sentiment, and trading volume. It focuses on identifying patterns and trends and uses the data to predict what the price is likely to do next.

Technical analysis is uninterested with what might be happening globally (fundamentals) and believe that price action is all that is necessary to make predictions and projections.

Which Analysis Method is Better?

Technical and fundamental analysis both have different benefits, purposes, and information sources, as such, it is impossible to place one over the other as superior. That said, every diligent trader should always mix both analysis methods in their trading to better guarantee their success as traders.

Understanding Some Common Bitcoin Trading Jargon

Now, let’s identify and understand some technical jargon usually encountered with Bitcoin trading

Trading Platforms vs. Brokers vs. Marketplaces

A Bitcoin trading platform is an online site where buyers and sellers are matched

with appropriate counterparts automatically. Trading platforms are also known as exchanges.

A Bitcoin broker is different from a trading platform. Brokers sell Bitcoin to you directly and in most cases, at a higher fee compared to trading platforms.

Finally, a Bitcoin marketplace is a platform where buyers and sellers can communicate with each other in real-time and make trading agreements.

An Order Book

An order book contains comprehensive data on all the buy and sell orders carried out in the market and can be viewed on a trading platform. The buy orders are labeled as ‘bids’ while the sell orders are labeled as ‘asks’.

Bitcoin Price

This refers to the latest traded price of Bitcoin on a given exchange. Worth mentioning is that Bitcoin has no single globally followed price. The price of Bitcoin in major exchanges across different nations differ.


Volume represents the total number of Bitcoins that have been traded in a given period. A volume is an important tool for traders in evaluating the potency of a trend; larger volumes usually mean that a trend is substantial, while weaker volumes signify unimportant trends. So, if you observe your charts and there is a present prevailing trend with large volume indications, it is a good signal that the trend is a lasting and major one.

Volume can also be used to spot reversing trends or the emergence of one.

Market (or Instant) Order

This is an order set on a trading platform that can be promptly met at any desired price. Market orders are executed automatically and immediately. Once the set price is attained, the trading platform matches your order with suitable counterparts.

When an order is placed, it is likely to be responded to by many other traders with different price offers.

Say you place an order to buy 5 BTC. The trading platform will immediately scan through the market for the cheapest sell offers available and relay to you.

Once it amasses enough sellers to add up to 5 BTC, the order will be executed. However, there’s a tendency for you to overpay or undersell while using this order so you need to be cautious.

Limit Order

This order type allows you to set a precise price at which you want an action to be executed. The expected action could be to buy or sell when a certain price is achieved. However, limit orders might not get fully actualized as there might be insufficient buyers or sellers to meet your desired prerequisites.

Say you place a limit order to buy 5 BTC at $9,000 per coin. The platform might end up finding just 4 BTC sell offers at that price meaning you’ll be short on 1 BTC. The last BTC buy limit order, however, will get executed once the price reaches the $9,000 level again.

Stop-Loss Order

Stop-loss orders, as the name suggests, are market orders that let you set a limit to the level of loss you can make when you’re trading Bitcoin. It does this by automatically closing your trading position once that set price is attained thereby minimizing any further loss. A stop-loss acts somewhat like a market order as it begins selling off your coins, at any price, once your set level is reached until the order is met.

Maker and Taker fees

Another set of terms you might come across while trading Bitcoin is the maker and taker fees. This term can be confusing and is misunderstood by many.

Exchanges try to motivate people to trade, they want to “make a market.” So, when you place a new order that is difficult to match by existing buyers or sellers, through a limit order, you’re acting as a market maker and will usually be allowed lower fees.

Meanwhile, market takers place orders that are almost immediately met, through market orders, as there are always market makers available to complement their requirements. Takers reduce businesses from an exchange, that is why they have higher fees compared to makers who create more orders to an exchange’s order book.

Say you create a limit order to buy 1 BTC at $13,000 (maximum), however, the least seller is only ready to sell at $14,000, then you have established a new market for sellers who are looking to sell at $13,000.

That said, anytime you fix a buy order below the prevailing market price or sell order above the prevailing price, you automatically become a market maker.

Likewise, using the previous example, say you place a limit order to buy 1 BTC at $14,000, your order will find a counterpart almost immediately. This means you’re taking away orders from the exchange’s order book, automatically making you a market taker.

Analyzing Price Charts

Now that we’ve gotten familiar with some of the major technical jargon in Bitcoin trading, let’s go into a brief introduction to reading charts.

Japanese Candlestick

Probably the most used type of price chart, the Japanese Candlesticks were adopted from an archaic Japanese technical analysis practice used in trading rice in the 17th century.

Each ‘candle’ shows the opening, highest, lowest, and closing prices of an instrument at a particular time. This is why it is sometimes referred to as the OHLC chart.

With this charting method, the candle can either be green or red, which is an indication of whether the closing price of that particular time was higher or lower than the opening price.

If a candle is green, it simply means that the opening price was lower than the closing price, meaning that the overall price movement for that time was up. Likewise, if a candle is red, it means that the opening price was higher than the closing price, meaning that the overall price movement for that time was down.

Based on Candlesticks’ depictions, several green candles mean that the trend is up which is representative of a “bull” market, while several red candles mean that the trend is down which is a clear representation of a “bear” market.

Bull and Bear Markets

These phrases are used to depict the overall trend of a chart, whether it is upwards or downwards. They are named after these animals primarily because of the ways they attack.

Bulls thrust their horns up into the air, while bears swipe their paws downwards. So, these animals are used metaphorically to describe market movements: upwards means it’s a bull or bullish market and downwards means it’s a bear or bearish market.

Resistance and Support Levels

Most times, while examining market charts such as OHLC, there are certain areas where it seems as though the price cannot break above or below. For example, you might observe that every time Bitcoin reaches $14,000, it appears as though there is an invisible “ceiling” preventing it from rising any further.

On such an occasion, $14,000 can be regarded as a resistance level, which is a high level that price struggles to break. Resistance levels are usually formed as a result of several sell orders being executed at that certain price. This is why the price finds it difficult to break above those levels. Strong demand by sellers at the resistance level eases the uptrend.

Support levels work the same way as resistance, just reverse. They appear to be an invisible “floor” preventing the price from dropping any further. Support levels are as a result of many buy orders getting triggered at that price. Strong demand by buyers at the support level eases the downtrend.

Normally, the more times the price gets stuck at a support or resistance level, the more powerful that level is considered to be.

One common occurrence is for support and resistance levels to be found at round numbers; 14,000, 17,000, 20,000, etc. This is because many unseasoned traders always carry out trading orders at round-number levels, thereby giving these levels strong barrier properties.

Psychology also plays a huge role in the creation of support and resistance levels. One such example is this, before 2017, many people felt it was outrageous to pay $1,000 for 1 BTC which gave that price point a strong resistance property. After that price was broken, a new psychological resistance level took its place: $10,000.

Common Trading Mistakes

If you’ve read this far, you should have gotten a fairly comprehensive idea of what is necessary before you can go into the world of Bitcoin trading and gain real- world experience. However, worth mentioning is the fact that trading can be very risky and mistakes in this sector cost money.

As mentioned earlier, successful traders are not those without losses (which we have established to be impossible), rather, those who adequately minimize their losses and maximize their gains.

One sure way to do this is by following your set rules and avoiding certain mistakes. Some of these mistakes include:

1- Mistake #1: Risking above what you can afford to lose on a trade

One of the most common mistakes inexperienced traders make is to stake more than they can afford to lose on a trade. Ensure that you’re risking only what you can afford to lose. Before taking any trade, ask yourself what the effect of losing what you’re about to stake would be on the trading account should the trade go against you. If it is too big a risk, then you shouldn’t be taking that trade. This is because whenever you take a trade, it can go wrong, hence why you should only risk what you can afford to lose.

Also, trading with an amount you’re not comfortable with losing can cause you to make terrible trading decisions.

One good way to handle this problem is to never risk more than 2% of your total trading portfolio on any single trade.

2- Mistake #2: Trading without a plan

Another mistake unseasoned traders make is that they start trading without having a clear definition of what their goals, objectives, and rules are. They do not create a
plan. To be a successful trader, you need to have preset rules and plans. Before going into any trade, you need to define what your entry and exit points are. Define your risk threshold before trading.

3- Mistake #3: Leaving your funds on an exchange

One basic rule every crypto trader must have in mind at all times is: Never leave your fund on an exchange you’re currently not trading with. Leaving your fund on an exchange is not ideal as you don’t have full control of it. If the exchange in question goes offline, experiences a power outage, gets hacked, or goes out of business, you may wind up losing your funds permanently.

Always move funds you’re currently not using to your Bitcoin wallet for better security and safety.

4- Mistake #4: Being a slave to your emotions

In the world of trading, 2 basic emotions tend to govern the actions and decisions of many traders: fear and greed.

Fear can come in the form of closing a trade quite early probably because of news you came across, or a ‘hint’ from a friend, or you got scared after a sudden drop in price (which could end up getting corrected).

The other ruling emotion is greed, which is also a result of fear: the fear of missing out on an opportunity. Greed makes traders jump on a trade they don’t want to miss
out on without even carrying out any prior analysis. So they could jump into a rally too soon, or even hold off closing an open trade out of greed.

Always try to keep your emotions at bay while trading no matter what. One promising way to ensure this is by always following your set plan regardless of what the market might be doing.

5- Mistake #5: Not learning the lesson

Notwithstanding whether you failed or won a trade, there’s always a lesson to be learned. Always examine the activities leading up to, as well as after a trade, making sure to stay attentive to whatever lesson could be learned from it.

It is not always about the money you make or lose, but also about the insight to be gained which can significantly help you make better decisions in the future and become a better trader.

Frequently Asked Questions (FAQs)

How do I trade Bitcoin?

To trade Bitcoin, you need to observe the following procedure:

  1. Open a trading account on a Bitcoin supported exchange.
  2. Verify your identity and provide other relevant information.
  3. Make a cash deposit into your account.
  4. Open your first buy or sell position.

Is day trading a good way to make money?

Day trading is just one of several Bitcoin trading methods. Other methods include swing trading and scalping.

However, it is imperative to know that statistically, about 90% of people that go into trading quit in the first 3 months.

With that, whatever method you decide to go with, make sure you uphold the best trading practices and follow your set rules to help give you a better chance of succeeding in this market.

Final Note

This article has covered a great deal of necessary Bitcoin trading information, however, to sound as a note of warning, the bulk of people who venture into trading go bust or quit after just a few months.

To be among the winning or successful few, you need to devote a substantial amount of time and money to fully attain the necessary skills. If you enter the world of Bitcoin trading intending to make quick bucks, then I’d advise that you stay away altogether.

Every business line comes with their different inherent risks and Bitcoin trading is no different. Stay committed to the process and assuredly, with time, you’ll begin to see the beauty of it all.

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