How to Trade Bitcoin – Learn Bitcoin Trading
Trading Bitcoin, profitably, has been somewhat of a challenge for many crypto traders, especially beginner traders. To become successful at cryptocurrency trading, one has to garner a healthy amount of knowledge or experience. All that is required is the dedication to become well versed in cryptocurrency, which will invariably help you grow your trading prowess and become a profitable trader.
In this article, we cover the basics of trading Bitcoin, the adoption of healthy trading habits, pitfalls to avoid, Bitcoin CFDs, and every other necessary trading information you will need. Regardless of whether you’re a beginner trader or a professional trader, this article will be more than valuable for you.
Introduction to Bitcoin Trading
Bitcoin trading, simply put, is buying into Bitcoin positions for a relatively short period with the primary aim of making a profit at the sale. Bitcoin trading involves analyzing trends and charts to get an idea of what the market is doing at that moment and predicting what it will do in the next.
Mainly, there are two primary modes for analyzing the Bitcoin market; fundamental analysis and technical analysis; we’ll come to this later.
Why Bitcoin is Valuable
Bitcoin is an investment vehicle that provides an effective means of transferring funds through the internet at lightning speed and is governed by a decentralized network with transparent regulations, thus serving as a suitable replacement for traditional fiat, which makes it a good Store of Value.
In today’s economy, for a currency to indeed be characterized as successful, it has to comply with three main qualities:
- It must be free from all control by governments or authorities.
- Borders must not bind it so that it can travel freely to any location on earth.
- It must be apolitical, meaning it doesn’t favor certain groups or individuals.
All these qualities are inherent in Bitcoin. The crypto giant, which was the world’s first digital currency, derives its value from being the very first currency that cannot be manipulated and is readily available to anyone willing to purchase.
Bitcoin is free from oppression, control, and hyperinflation. It also has a limited supply of 21 million tokens to safeguard against inflation and sustain its value.
In truth, any currency governed by a central bank is not credible considering the big picture. Governments have made it so that their nations’ currency can be manipulated at will. Fiat has become less and less valuable since it was removed from the gold standard.
All the numerous flaws plaguing the fiat monetary system cannot be found on Bitcoin, which makes it superior to fiat.
Bitcoin Trading vs. Investing
In the global markets, Bitcoin included, there are generally two kinds of people involved: traders and investors. Understanding the difference between the two will help you in becoming a better Bitcoin trader/ investor.
“Investing” in Bitcoin involves buying and holding Bitcoin for the long term in hopes or expectations that the value will increase over time. Investors also invest in Bitcoin out of the belief of the technology or team. This class of actors is popularly known as HODLers in the Bitcoin community.
Bitcoin traders, on the other, trade Bitcoin in the short term, for quick profits. Traders, unlike investors, see Bitcoin as an opportunity to make profits. In some cases, they don’t even care for the technology behind it or the team.
That said, some people trade and invest, at the same time, in Bitcoin. Also, traders should be careful when trading as the CFD market is highly volatile and sudden changes in the market could lead to the loss of the invested capital.
Bitcoin trading has been on the rise in recent times due to various reasons.
Firstly, Bitcoin is extremely volatile. This means that you can make a decent profit in a short period if you correctly predict the next price movement. Furthermore, the Bitcoin market is open 24/7 all year round. This allows for more time to trade Bitcoin whenever you see fit.
Finally, Bitcoin’s decentralized nature and its ease of entry make it very appealing as a trading tool for many.
Bitcoin Trading Methods
There’s no arguing that the primary purpose for trading Bitcoin is to make a profit. There are several methods to achieve this aim in the cryptocurrency market. Explained below are the trading methods involved in Bitcoin trading:
1- Day trading: Day trading, as the name suggests, consists in executing and completing trades within a day. Day traders spend the bulk of their time in front of their screens, analyzing charts and price movement. Day traders always make sure they close all open trades on the same day it was opened.
2- Scalping: Scalping is the attempt of scrapping tiny profits off tiny price movements multiple times to generate substantial profit. Scalping is an extreme short-term trading strategy and is based on the precept that it alleviates the risks involved in trading. Scalpers can conduct hundreds of trades in a single day. However, this trading method has its inherent risks and disadvantages and requires experience and expertise to carry out.
3- Swing trading: Swing trading is a more passive trading approach that takes advantage of the natural swings of price cycles. Swing trading involves identifying market trends, entering and riding the trend, and exiting only when the trend has ended.
Swing traders can hold trades for weeks, months, and even a few years until they achieve the desired outcome.
Fundamental and Technical Analysis Methods
There is no “holy grail” in trading Bitcoin that guarantees a loss-free trading system. Every trader, no matter how experienced, witnesses trading losses at one point or the other. The goal, however, is to have your trading balance in the positive no matter how many losing trades you may have accrued.
There are two general techniques involved in analyzing the global markets, Bitcoin inclusive. They are fundamental analysis and technical analysis.
Fundamental analysis: Involves predicting market movements by evaluating news and events happening with Bitcoin. Macroeconomics are also important factors when carrying out fundamental analysis on Bitcoin.
This analysis method is not concerned with what price may be doing at that moment but is concerned, instead, with outside factors and how they could influence the price.
Technical analysis: This involves the thorough study of the technicalities included in Bitcoin trading. It requires reading and understanding charts, graphs, momentum indicators, oscillators, volume, volatility, and price action to predict the next possible movement of the price.
Trading Bitcoin CFDs
The recent increase in the rage for Bitcoin has caused exchanges to increase the access to the global markets they offer their customers. Particularly, a good number of providers have begun delivering “Contracts for Difference” services on popular cryptocurrencies.
A CFD is an arrangement based on an underlying asset, probably a share, index, commodity or currency pair. Trading CFDs allows you to take advantage of an asset by making speculations on that asset to make a profit (losses could also occur), without having to own that asset at any time.
In CFD trading, every point move the price makes in your selected direction translates as a profit for you according to the number of units you traded. Likewise, in a scenario where the price goes in the opposite direction of your selection, you make a loss.
CFD was initially limited to stocks, currencies, commodities, and indexes. However, it is now available for Bitcoin pairs and crypto-fiat pairs.
How Does Bitcoin CFD work?
One of the most remarkable features of trading CFDs is the ability to make a profit by either buying or selling a CFD. Since you don’t own the underlying asset, you are not restricted to just buying that asset, and you could sell it if you feel it is headed for a drop in price.
One important concept you have to comprehend before going into CFD trading is “Leverage.” Leverage can be very advantageous and detrimental at the same time.
To open a CFD trade, you will be required to deposit a small percentage (10%, 2%, or even less) of the trade’s total worth. This is generally known as a “margin requirement.”
For example, assume you open a trade worth $5,000 with a margin requirement of 2%, it means that you need just $100 to make this trade.
Here’s where it gets interesting. Your profit expectation is not based on your $100 deposit but instead, on the $5,000 original worth.
Leveraging allows you to reap more benefits with so little (losses could also occur). However, it also amplifies your losses, meaning that there is the possibility of losing more than you deposited for the trade. This risk tendency should be your major concern when trading CFDs.
Even though CFDs trading may seem more daunting than traditional Bitcoin trading, they help you avoid the security-associated risks that come with trading those securities. They also offer the opportunity to make profits in both rising and crashing market situations. However, this advantage comes with a heightened amount of risk.
Pros of Bitcoin CFDs
Listed below are the advantages of trading Bitcoin CFDs:
- Margin trading allows for increased profit potential.
- You can trade Bitcoin without having to own it.
- You don’t need to have accounts on exchanges or own crypto wallets.
- You can make a profit in both bullish and bearish markets.
- CFD providers tend to provide better customer support.
Cons of Bitcoin CFDs
- Greater exposure to margin calls.
- You can lose more than you deposit.
- Not convenient to hold for a prolonged period.
- Heightened volatility.
- It is also speculative.
Common Bitcoin Trading Mistakes
If you’ve read up to this point, you should have gotten a feel for how Bitcoin trading works, and you should be ready to test your newly acquired knowledge in the field. However, you need to keep it in mind that trading Bitcoin is a precarious business, and mistakes can be very costly.
Explained below are some common mistakes traders make. Let’s hope you learn from this and avoid making these mistakes yourself. Professional traders can also make a point or two from these warnings.
#1 Mistake – Risking more than you can afford to lose: This is probably the worst mistake you can make as a trader. As explained previously, losses are made once in a while. Every trade you take has a possibility of going against you, so if you’re risking more than you can afford, you’re setting yourself up for s loss… and a margin call.
Also, trading more than you can afford to lose affects you psychologically, which could cause you to make terrible trading decisions.
#2 Mistake – Not following a plan: Some traders make the mistake of not having a precise course of action when trading. They don’t have any entry or exit plans.
To be a successful trader, it is imperative to have a pre-set stop-loss and take-profit area before entering any trade.
#3 Mistake – Keeping money on an exchange: Never leave money on an exchange you’re currently not engaged with. Moving your money on exchanges leaves you open to casualties. The transaction could get hacked, go offline, or go out of business entirely at any time, and if your fund is still on the exchange, you may never be able to recover it.
Instead of leaving your funds idling on an exchange, move it to your offline or online wallet to secure it.
#4 Mistake – Acting based on fear or greed: Two fundamental emotions can control the actions of traders; fear and greed. Anxiety could cause you to close out of a position, that would have been profitable, prematurely. Greed, on the other hand, causes traders to jump on a trade without performing proper market analysis because they don’t want to miss out on that opportunity.
There will always be more opportunities in the future, take your time, and evaluate before executing any trade. A repetition of such actions can lead to the total wipeout of your trading funds. One way to overcome the trap of our emotions in trading is by following our set plan religiously.
#5 Mistake – Not learning from experience: Regardless of whether you had a successful or losing trade, there is always a lesson to be learned. Keep a journal or recorder at hand, and document all your activities.
Should You Trade Bitcoin?
Here are eight reasons why you should, in fact, trade Bitcoin:
1- Bitcoin’s rules are permanent: Bitcoin’s set rule can never and will never be changed. The token distribution plan will go as scheduled, halving will occur when due, and every other set plan will be executed.
2- Bitcoin will become even more scarce: Because of how rapidly the adoption of Bitcoin is, it is sure to become more limited in the future. Scarcity is also a method Bitcoin utilizes in sustaining its value.
3- Bitcoin is transparent: Bitcoin is more transparent than the Federal Reserve or any other traditional currency.
4- Bitcoin cannot be censored: It cannot be censored even in strictly regulated countries like China, Brazil, and Russia, mainly because of its decentralized nature.
5- Transferring Bitcoin incur low charges: Unlike fiat, transferring Bitcoin across borders is unbelievably cheap.
6- Bitcoin regulation is becoming more developed: In its inception in 2009, Bitcoin was not regarded by any authority because it wasn’t considered to be valuable. However, nations are clamoring to control or regulate the entity, which is a clear sign of how expensive it is and is becoming.
7- Bitcoin creates the opportunity to make a profit: Profit can be made by trading the security or by merely holding it long enough for its value to increase.
8- Bitcoin is a better alternative to gold: It has become apparent that we’re now in a digital era, and digital currencies are the currency of the future, and gold, unfortunately, will be left in the past. Bitcoin is considered to be an even better Store of Value than gold.
Now that you’ve seen the pros of buying Bitcoin, It is also imperative to be aware of the possible downsides of buying Bitcoin. Here are some reasons to consider:
1- Bitcoin could suffer technical obsolescence: As the digital world advances, better alternatives to Bitcoin could arise, causing Bitcoin to become obsolete.
2- Bitcoin is still in its development phase: The stocks and bonds market has been around for over 300 years, which is a huge difference compared to Bitcoin’s tiny ten years in existence.
3- Bitcoin could be taken down by a coordinated government attack: If all the top economies of the world were to collectively crackdown on Bitcoin, there’s no telling what catastrophe it could spell for the cryptocurrency.
Frequently Asked Questions (FAQs)
Q- How do I trade Bitcoin?
A- To begin trading Bitcoin, you need to follow these simple steps:
1- Open an account with a Bitcoin-supported exchange.
2- Verify your identity.
3- Make a cash deposit into your live account.
4- Make your first trade.
Q- Is day trading a good way to make money?
A- Trading cryptocurrencies can be very profitable, and there are several trading methods to adopt.
While trading Bitcoin can be a sure way to make money, facts have it that 90% of people that go into trading quit in the first 3 months.
In my opinion, trading Bitcoin can be very challenging, and as stated in this article, the percentage of people who quit trading after the first few months is alarming. That said, to succeed in this intimidating market, you need to build your trading knowledge, skill, and experience.
Another note of warning goes to those who are looking to trade Bitcoin as a get-rich-quick scheme. Bitcoin doesn’t work like that, and it is advisable to stay away entirely from it if this is your expectation.