Bitcoin continues to grow in popularity after an entire decade of being around. The current price is $28,000, the market capitalization is $538 billion, and the trading volumes are healthy. In this post, we are going to go through the basics of how to trade Bitcoin and give you some tips and outline some of the most common mistakes you are likely to make in your journey. This article is for starters, amateurs, and pro traders who want to understand how to start trading Bitcoin and how they can profit in the short term, medium -term or long term.
Continue reading if you want to understand and find a blueprint for how do you trade Bitcoin.
How to Trade Bitcoins for Beginners?
What is Bitcoin Trading? Bitcoin trading involves buying and selling Bitcoin for profit. You can long or short Bitcoin. That is, you can bet on the price of Bitcoin to increase by going long or to decrease by going short. This means you do not always have to buy a digital asset like Bitcoin when the price is down and sell it when the price goes high.
In fact, there are many methods for trading Bitcoin and making profits. In this article, we are going to discuss the best methods and teach you how to trade Bitcoin like a pro. If you are wondering how to start Bitcoin trading and succeed, keep reading.
Buying and selling is the most popular method. We then have Bitcoin derivatives, which are split into four subcategories, forward contracts, futures contracts, swap contracts, and options contracts.
Equip yourself with market information, price movements, and overall performance of the cryptocurrency market to become a pro-Bitcoin trader. Additionally, traders need to understand the risks of trading the crypto market. Remember, Bitcoin is highly volatile; at no time will the price remain solid and stable. For traders, volatility is more of a Bitcoin feature than a bug. Rapid price swings are a risk if they move against your expectations but highly profitable if they execute a successful trade.
Finally, take into account the regulation of Bitcoin within your jurisdiction. Some countries have permanently banned crypto trading, and engaging in Bitcoin could land you in big trouble. Besides, changes in jurisdiction could easily have an impact on the price of Bitcoin, and this is important for your trade execution. We understand how much you are asking yourself the same question, “How do I trade Bitcoin?” In the next section, we want you to learn how to start trading Bitcoin as a beginner.
How to Start Trading Bitcoin?
Pick a suitable cryptocurrency exchange – Research a list of the best cryptocurrency exchanges and pick the most suitable one depending on its proof of reserves, security, privacy features, 2-factor authentication, dedicated 24/7 customer support, KYC, and AML approval. Some Bitcoin-friendly crypto trading exchanges include Binance, CoinDCX, Coinbase, and WazirX.
Create an account on the exchange, verify your identity, and deposit funds – A good crypto exchange will need to validate your identity to satisfy Know-your-Customer (KYC) and Anti-money laundering requirements. The next step is depositing funds into your crypto wallet; if the funds are not in Bitcoin – convert them to BTC. There are various methods for depositing funds into a cryptocurrency exchange via Peer to Peer (P2P), bank deposits, or electronic transfer.
Determine how much Bitcoin you intend to trade and build a strategy – Setup asset management and risk management plan to influence the direction of your trading business. You also need to determine how much Bitcoin you require to get started with trading. Remember, in crypto, one trades what one can only afford to lose.
Execute your trade by buying some Bitcoin and beginning your trading journey. Work with your pre-designed trading strategy, and remember to conduct prior technical and fundamental analysis. This will help easily forecast the price action of Bitcoin depending on various micro and macro-economic factors. Also, check out crypto news aggregators like CryptoPanic to track down important news stories shaping the Bitcoin industry.
Don’t store your crypto profits on the exchange – It is a good practice to avoid storing your cryptocurrencies on the exchange wallet. Cold wallets (offline) are the industry standard for safekeeping your crypto. Being offline means there is no possible way for hackers or malware to come into contact with your holdings. Check out various hardware wallets and choose a suitable one with good security features, privacy, and committed customer support.
Bitcoin Trading vs. Investing
Bitcoin trading and Bitcoin investing are two sides of one coin. They are different but with a common goal of making a profit from Bitcoin.
Investing in crypto or Bitcoin, in this case, involves buying the digital asset and holding it in the medium and long term. The expectation is that the price will go up. A good example of this could be Jack, who bought Bitcoin at $16K in November 2022 and sold it in March 2023 at $28K (Medium-term). However, a long-term approach to Bitcoin investing could be someone who bought Bitcoin at $3000 in 2017 and sold it in 2021 at $65K. Along the road to $65K or to an all-time high, there are so many ups and downs regarding the price of a coin, its technology, and its growth. But long-term Bitcoin investors are betting their optimism on the technology architecture of the coin, the team behind it, its community of both users and developers, as well as its backing ideology. Traders do not have to believe in the ideology of Bitcoin; however, they need to grasp the technology behind it to understand market patterns. Meanwhile, it is possible to invest and trade free BTC at the same time. There is no problem with that as long you are strict with your investment goals and trading strategy.
Bitcoin Trading Methods
There are various methods for trading Bitcoin. While these methods are different, they are all paths to profiting from cryptocurrency. Let us go through the most common ones, Day Trading, Bitcoin Scalping, and Swing Trading.
As the name suggests, day trading involves executing trades throughout the day and making a profit from short-term price movements. At the end of the day, the trader closes their trade, counts their profit, and returns the next day. If you have been asking yourself can I buy and sell Bitcoins the same day, day trading is your answer.
Scalping is a form of trading where someone attempts to reap huge profits from small price movements. Scalpers want to make hundreds of trades in a day and focus on extremely short-term trades using a dozen amounts of money. These traders believe making small profits throughout the day and swing trading limits the amount of profit that can be made in a day.
Swing trading involves taking advantage of price swings. The trader spots the beginning of a trend, executes the trade, and waits for the price to move. Once the swing is over, the trader closes the trade and moves on to another swing. The more successful swings one achieves, the more profit one makes. A peculiar difference between day traders and swing traders is the former spends more time in front of a computer screen, while the latter want to spend minimal time observing market trends.
Can You Buy and Sell Bitcoin Daily?
Yes. You can buy and sell Bitcoin for profit daily. The most important thing is conducting technical and fundamental analysis, following a trading plan, and researching the market.
Analysis Methods: How Does Bitcoin Trading Work with Different Methods of Price Analysis?
No one can predict the price movement of Bitcoin. However, it is possible to determine how the market patterns could play out using past trends and price action. This process is called Technical Analysis. On the other hand, we have fundamental analysis, which is a loose contract for technical analysis. Fundamental analysis is going through an asset’s current numbers, checking the figures, and asking yourself whether those numbers make sense. This evaluation enables traders to determine the intrinsic value of an asset.
Fundamental Analysis for Bitcoin Trading
For example, a fundamental analysis approach to Bitcoin would involve evaluating the industry, tracking down news and events surrounding the asset, upgrades and technical development shaping the asset, crypto regulations across the globe as well as any newsworthy stuff that’s happening. Fundament analysts aim to evaluate Bitcoin’s value by ignoring its price and assessing its value as a technology. Let’s say the United States suddenly bans Bitcoin, the price will basically drop.
Technical Analysis for Bitcoin Trading
Technical analysts, on the other hand, will look at a price chart, study market statistics, evaluate historical performance, and study trading volumes. These steps enable them to understand the market, spot trading opportunities, price trends, and swings based on what they deduce from past price action. Technical analysis makes a basic assumption. The price patterns and movements will repeat themselves despite what is happening in the industry and in the world. Using technical analysis is more like using numbers to tell a story from the past and using that story to visualize the future.
Technical Analysis vs. Fundamental Analysis: Which Method is Better for Trading Bitcoin?
It is easy to use fundamental analysis and make a pretty correct conclusion based on the true value of a technology. However, the true value of technology does not necessarily reflect the performance of that technology or even the price of an asset. On the other hand, not all past market patterns will repeat themselves, and, therefore, there is no guarantee that the forecast will turn out as expected. That’s why we recommend a blend of both methods of analysis to position your predictions closer to price action. A combination of both methods has a high chance of delivering the best results.
Bitcoin’s Stock-to-Flow Model
Bitcoin currently has a circulating supply of 19,339,493 BTC. The current rate of fresh market supply of Bitcoins is 900 per day. This means the market will require over 50 years to replace the 19 million BTC that are already circulating across the market. Note Bitcoin’s maximum supply is 21 million coins. The Stock-to-flow model uses a combination of Bitcoin’s historical price data and supply metrics to determine the future of the coin. PlanB formalized and published the Stock-to-Flow ratio (PlanB is a well-known experienced institutional trader).
Does Stock-to-Flow Bitcoin Model Work?
The model is convenient to use when forecasting the price of a cryptocurrency. This is because it’s easy for Bitcoin to align approximately with rough estimates. However, the price of Bitcoin has historically veered away from the model’s estimations in moments of boom and bust. Nonetheless, the model is an amazing feature for determining BTC’s baseline and using that as a guide. Assuming Bitcoin’s actual price is higher than the price estimation, the model denotes a good sell signal. However, the model denotes a buy indicator when the actual price falls below the model price.
Bitcoin Trading Terms
In this section, we are going to cover some basic terms in the Bitcoin trading glossary. They are important for starters looking to understand how to trade Bitcoin.
Brokers, trading platforms, and marketplaces – Trading platforms allow traders to buy and sell crypto through automated match-making. Bitcoin brokers, on the other hand, are platforms or individuals who sell Bitcoin to customers at a higher price than the market price or at a fee. CoinMaMa is a good example of this. A marketplace is where different sellers and buyers create their profiles and execute trades with each other through peer-to-peer (P2P) trading.
Order books – An order book is a list of trading orders (buy and sell orders) on your trading platform’s order book. The booklists buy orders as bids because the platform has traders bidding to buy Bitcoin at a given price. In contrast, a sell order is listed as an ask, mainly because there are traders on the platform who are requesting Bitcoin at a given asking price.
Bitcoin price – the price of Bitcoin is different across different geographical locations and time frames and depending on what exchange you are trading on. There is a less popular form of trading known as arbitrage that takes advantage of these price differences across different platforms. For example, Bitcoin is trading at $28,900 on Exchange A and at $29,200 on Exchange B. You can take advantage of this price difference by buying on Exchange A and Selling Bitcoin on Exchange B at a profit. Meanwhile, each exchange just next to the order book outlines the highest and lowest price that a cryptocurrency has traded in the last 24 hours.
Volume – Trading volume is the amount of Bitcoin that individuals have traded within a given duration. Traders identify the significance of a price trend by analyzing volume metrics. For instance, you can point out a significant trend by identifying a large trading volume that has accompanied the trade. On the other hand, low volumes usually denote weak trends.
Market order or instant order – When you execute a market order, you are ordering the exchange platform to execute a buy or sell order instantly using the market price. In executing a market order, you need only input the Bitcoins you intend to buy or sell. Afterward, the exchange automatically matches your market order with another buyer or seller’s instant order. Since an exchange has thousands or even hundreds of thousands of traders executing orders at the same time, the exchange chooses a best-fit match depending on the lowest available price within your order.
Common Trading Mistakes
Investing more than what traders can afford to lose. It is an industry practice to only invest what you can afford to lose, just like any investment. Also, it is worth noting that cryptocurrencies have more risk due to the volatile nature of prices. The reason you need to invest a portion of your net worth is to avoid making bad decisions when executing your strategy.
Lacking a strategy – Do not start trading Bitcoin or any other asset without putting in place a good trading plan. Determine clear goals for your trading and the amount of profit you expect, and place strategic stop losses.
Storing your crypto on the Bitcoin exchange – As earlier mentioned, DON’T leave your money on an exchange. Exchanges are prone to hacks. Reduce the risk of losing your holdings to hackers by finding a suitable cold wallet and storing your crypto.
FOMO, or the Fear of Missing Out and FUD – The Fear of Missing, as well as Fear, Doubt and Uncertainty, are two phenomena that will set you up for failure. A sudden price dip, rumors, and disturbing events could easily lead to fear and make you close trades before the right time. This will negatively impact your trading strategy and most probably dip your profits.
Apart from fear, greed is also not good. Greed mostly results from FOMO, as you might hear people talking about this great technology called Bitcoin, and then you start trading out of fear of missing out. However, try as much as possible to also rely on your gut instincts but make sure you are well-versed with what you are doing, you have done enough research, and you have enough patience to carry on with trading.
Not learning, not researching, not conducting analysis – Traders need to sacrifice part of their time in learning, conducting analysis, and researching the Bitcoin market in order to become successful. You are definitely going to lose money, but you do not want the losses to find you unprepared. Researching the market and doing analysis allows you to make the right decisions, gives you confidence, and makes you understand the risks you are facing.
Take time to inform your strategy, adjust it when it does not work, interact with other traders, and find out what they are doing and not doing. You are going to become a great trader because we believe in everyone’s dream.
Frequently Asked Questions
How Do I Trade Bitcoin?
Create your account on a cryptocurrency exchange, load the account with funds, conduct analysis (both technical and fundamental analysis), read the news, study market patterns, study the volumes and execute your trade.
Can I Buy and Sell Bitcoin the Same Day?
Yes. You can trade Bitcoin at any time of the day. The market is open 24 hours a day, which means, unlike the stock market, which closes at the end of each business day, you buy and sell Bitcoin on the same day.
What Is Bitcoin Margin Trading?
Bitcoin margin trading refers to using borrowed funds to fund a trade. This means a trader can open a position on the margin trading dashboard without having the full amount of money in their Bitcoin margin trading wallet.
What Is Crypto Margin Trading?
Margin trading refers to the use of borrowed funds to pay for a trade. The key difference compared to spot trading, therefore, is that margin trading allows the trader to open a position without having to pay the full amount from their own pocket.