Bitcoin trading can be like a newly discovered planet to the rookies thinking of starting a new career in trading bitcoin. On that planet, putting everything in place to work excellently can be a daunting task.
You need the right tools and information to navigate through your newly discovered planet. In this write-up, you will learn how to trade bitcoin, essential trading strategies to use as an edge over the market, and risk management strategy.
What is Bitcoin Trading?
Bitcoin trading is a goldmine for most people since its introduction to the financial world. In a nutshell, bitcoin trading involves the speculation of the price movement of a cryptocurrency or asset. In other words, you are anticipating bitcoin price to move in a particular direction. Crypto traders use derivatives to speculate price movement – upward or downward to take profit from their speculation.
Trading with an exchange, you can open a position on bitcoin price with financial derivatives such as CFDs. CFDs are complex instruments to trade but allow you to take advantage of the bitcoin price movement in whatever direction it goes without owning the coin. It means you don’t have to own the security or coin to trade it.
You can see bitcoin trading like buying a financial asset and watch the price fall or rise. Then you choose whether to sell or hold it at a particular time. You can liken trading bitcoin to spot trading a currency pair. However, when you decide to trade bitcoin, make sure to use a regulated cryptocurrency exchange.
Why Bitcoin Trading?
Understanding what bitcoin trading is is just a step to the crypto market. You need to know that the bitcoin market attracts numerous investors because of its high volatility, which offers profit and loss potentials.
To avoid losing money rapidly due to volatility, you should consider a proper risk management strategy to safeguard your capital. Besides that, the provider you should consider must offer flexibility when trading bitcoin.
How to Trade Bitcoin
If you have ever had issues with how to trade bitcoin, you will better understand the market and take the high risk without losing money rapidly because of ignorance. First, you must see bitcoin trading as a real business and ensure to treat it in such a manner. Here is how to trade bitcoin as a beginner without being scammed by many fraudsters in the cryptocurrency market.
Register with a Licensed Cryptocurrency Exchange
Subsequently, there is a high risk of losing money; it is paramount to register with a regulated and licensed cryptocurrency exchange that offers transparency. Look for a regulated broker authorized to provide CFD services. CFDs are complex instruments to trade. In case you would like to start investing in bitcoin or wish to grow your bitcoin investment, we provide you with a conducive environment.
Understand factors that affect bitcoin’s price
To short the bubble or surging opportunity, you need to understand what influences bitcoin’s price in the market. Here are a few things that affect bitcoin’s price.
- Bad press – Breaking news that talks about bitcoin security, longevity, and value have a negative impact on the overall market price of bitcoin.
- Bitcoin supply – Currently, bitcoin’s total supply is capped at 21 million; according to statistics, it is expected to be exhausted before 2140. The supply also affects bitcoin price if the demand for bitcoin increases.
- Key events – Security breaches, regulation changes, and macroeconomic news on bitcoin influence bitcoin price. Any agreement between users in speeding the network also pushes the price upward.
- Integration – The public profile of bitcoin depends on its integration into new banking frameworks and payment systems. Once the integration is completed successfully, bitcoin’s price will rise since its demand will increase.
Choose the Cryptocurrency to Trade
After understanding what influences the market, you need to strategize in your trading. To begin, you need to choose the cryptocurrency to trade. Today, we have over a thousand digital currencies to trade, and it is hard to monitor everything about them. Therefore, the wise thing to do is select two to five cryptocurrency that you will keep on your watchlist.
Start Trading crypto CFDs
After choosing the cryptocurrency to trade and other strategies you want to use, you can start your trading. You can place your orders in your cryptocurrency CFD trading. Here, you can decide to click on buy or sell and put the market price and margin. Remember, you need to open an account with a broker that allows crypto CFDs trading to start trading bitcoin.
Ways to Trade Bitcoin
There are several ways to get exposure to bitcoin that you need to know. In this section, we will explore three ways to trade bitcoin.
Trading Bitcoin Derivatives
When you trade bitcoin derivatives, you speculate on the bitcoin’s price rather than owing the digital coin outrightly. With this, you can open a position as the price of bitcoin rise or falls. If you take this route to trade bitcoin, here are a few benefits in trading bitcoin derivatives.
- Hedging – When you short with bitcoin derivatives, you hedge your investment and protect your portfolio
- Deep liquidity – The bitcoin market is highly liquid; your orders get filled at your price even if you use large sizes.
- Leverage ad margin – You can trade bitcoin CFDs with leverage, which means you can put a small capital and open a large position.
Buying Bitcoin via an Exchange
You can buy bitcoin through an exchange using the buy and hold strategy. When you follow this method, you take direct ownership of the coin expecting the price to rise. However, there are a few challenges you would face if you buy bitcoin this way.
- Crypto exchanges usually impose restrictions and fees on funding and withdrawal from your account.
- The servers and engines on these bitcoin exchanges are not reliable.
- These exchanges lack adequate regulation, and infrastructures need to respond swiftly to address different requests.
Crypto 10 Index
If you don’t fancy the two methods mentioned above to trade bitcoin, you can trade bitcoin through the crypto 10 index. With this, you get exposure to the 10 major cryptocurrencies in the market. The index speculates on different cryptocurrencies, and you can closely track their price.
Bitcoin Trading Strategy
Today, you need a trading strategy to become a successful trader because trading bitcoin comes with a high risk. These trading strategies enable you to form your techniques into a coherent framework that you can follow. Through this, you can frequently monitor and improve your trading strategies.
You can’t afford to take the wrong direction when you have the compass in the right direction. A trading plan is your compass that guides your trading activities.
The plan enables you to alleviate any financial risk as it eliminates different unnecessary decisions. Although a trading plan is not compulsory, it can be all you need to become a successful trader.
Your trading strategy contains a comprehensive detail of what to do when you want to enter or exit a trade. This trading strategy might include the following:
- The asset you want to trade.
- The setup or analysis to take
- What indicators and tools to use?
- Triggers to your entry and exit points?
- What dictates your position sizing?
In building a trading strategy, you have to consider different analyses. The two main popular analyses are technical analysis and fundamental analysis. Each analysis uses different tools to trade the market through a trading platform.
Analyzing the Cryptocurrency Market
Besides keeping track of news events, you can use technical and fundamental analysis to get an idea of price direction.
Technical analysts look at data in the market because they believe history repeats itself in the charts. To predict rightly, they use past pricing trends, trading volume, and relevant data to determine price movement.
These analysts take a bigger picture approach to look at the market. Rather than using statistics, they focus on the intrinsic value of the asset. They follow news events to determine where price might move next.
Remember, each of these analyses represents a trading strategy or style. We cannot tell you which of these analyses is preferable since the crypto market is highly unpredictable.
Cryptocurrency Passive Investment Strategies
There are various investment opportunities available in trading digital assets. Passive investment strategies offer a more hand-offs method where management of the portfolio requires less attention and time.
Although there are differences between investment and trading strategies, trading strategies involve buying and selling of assets with the expectation of making profits.
Buy and Hold
You can take advantage of the buy and hold strategy to buy an asset planning to hold it for a prolonged period, notwithstanding market fluctuations.
Buy and hold is a passive trading strategy for long-term investments, especially when deciding to enter the market without considering time. The idea behind the buy and hold strategy is that the entry price or time won’t affect your investment in the long term.
Using this strategy, a trader depends on fundamental analysis without any consideration of technical indicators. With this strategy, you don’t have to monitor the performance of your investment frequently. However, you can watch them once in a while to check their performance.
Although bitcoin and cryptocurrencies have been around for over a decade, you can compare the HODL phenomenon as the buy and hold strategy. Nevertheless, cryptocurrencies or digital currencies are volatile and risky assets.
In as much as the buying and holding of bitcoin is a popular strategy many traders use, especially in the cryptocurrency industry, the buy and hold strategy won’t work for all cryptocurrencies.
Normally, index investment entails buying indices and ETFs in the traditional markets. Nevertheless, index investing is available in the crypto market; index investing is possible on decentralized Finance and centralized cryptocurrency exchanges. The concept behind crypto indexing is taking a collection or group of crypto assets and building a token, which tracks their collective performance.
The collection may comprise digital coins from similar sectors, such as utility tokens or privacy coins. Alternatively, it can be something different from utility tokens or privacy coins.
Bitcoin Trading – Risk Management Strategy
Trading bitcoin requires you to take the high risk necessary to trade. However, every risk comes with a reward; while there is a high risk of losing money rapidly due to leverage, the opportunity to take profit is also high.
Nevertheless, implementing a good risk management plan is essential if you want to trade long-term. To help first time traders, we will explore some vital bitcoin trading strategies to minimize your risk. Furthermore, you would find out about bitcoin investment strategies that you can implement.
Risk only a small percentage of your capital
Firstly, risk management is not just a strategy but an attitude you should exhibit as a trader. The crypto market is more than telling someone to buy and sell bitcoin; you need to understand the market to a certain extent. Each trading position you open comes with a risk of losing money, and a single loss can be very costly.
Therefore, you need to be a wise trader who will only invest a small percentage of your investment. To avoid a costly down drop on your account, you should consider splitting your trades instead of putting all your funds in one basket.
Example of Risk Management
For example, your trading capital is 5 bitcoin, and you decide to trade BTCUSD during a bullish trend – you want to buy at a low price and sell at a higher price. Peradventure, you decide to risk 3% of your capital, which is about 0.15 BTC. Assuming in that trade, you decide to split your position into different parts.
It means you set a buy order with 20% of your 0.15BTC; once you observe that the market is moving towards your direction, you can open another buy position using 10% or 20%. You can continue using this pattern until you complete buying using the 0.15BTC.
Plan a timeframe to exit a trade
Before entering any trade, you should get a timeframe of when to stay in a trade. You need to set a timeframe to take profit or exit the trade. Professional traders usually leave their trade for a particular period to enable them to use the remaining capital for another trade.
If you have a risk management plan, it allows you to exit any trade when it is not favorable. However, some traders leave their trades open with their capital stuck in price movements that are ranging. With this, they can’t open a new position even when they notice a promising opportunity in the market.
Define your Risk-to-Reward Ratio
If you have learned how to trade bitcoin, you would know that trading bitcoin or any digital currency has three parts. These include the entry, exit, and stop-loss target; they help you determine your risk-to-reward ratio.
The risk-to-reward ratio allows you to choose your profit over your loss. In cryptocurrency trading, the reward should be higher than the risk of losing your capital.
Nevertheless, your profit is always a guess when you trade bitcoin. However, using technical analysis and fundamental analysis, you can set profit targets using a particular timeframe. To set take profit areas, you can use previous highs and resistance levels to see your risk-to-reward ratio.
Accept Losses when trading bitcoin
Losses are part of the game in trading bitcoin; you don’t need to fear losses because you can’t avoid them. However, you can minimize the high risk of losing more.
Importantly, you need to keep a calm attitude and understand one profit can cover your losses. Your ultimate priority is your winning to be more than you lose. As you take the high risk of trading bitcoin or crypto, endeavor to use a stop-loss.
We have seen the recent surge in bitcoin’s price as it got to 40k; bitcoin investment has become a serious business, traders and investors are looking for opportunities to grow their portfolio. It is not rocket science to recognize how the market works.
To begin, you need the right information and capital to kick-start your journey to unlimited profit. However, you cannot underestimate the importance of investing or trading bitcoin with a reputable online broker.
You can take advantage of the trading platform to actualize your dream. The platform contains everything you need to become a profitable and confident CFDs trader. Furthermore, we have trained professionals to guide and support you in your new-found venture.
Frequently Asked Questions (FAQ)
How do I start trading bitcoins?
To start trading bitcoin, you need to have a digital wallet through a cryptocurrency exchange. Furthermore, you have to learn price movements and trading volume of the coin. Additionally, you need a bitcoin strategy and style. In doing this, you can decide to be day trading or take the swing trading approach.
Then, choose your exposure to bitcoin whether to go short or long. Furthermore, set your stops and limits; finally, open your trade and monitor it. You can cut your loss if the trade goes against you or take your profit if you are satisfied.
Can you get rich by trading Bitcoin?
It is possible to get rich trading bitcoin because we have seen a lot of success stories. However, these successes come with a price – the risk of losing your capital. It is based on your ability to make the right decision since price movements are very volatile.
Notwithstanding, you can decide to follow the long-term or short-term strategy where you study bitcoin’s price to determine if to buy or sell your digital coin. The basic idea is to sell Bitcoin at a high price and buy once the price gets to a lower price, thereby making profits from these bitcoin price movements.
How does Bitcoin trading work?
To understand how to trade bitcoin, you need to know how bitcoin trading works. Bitcoin trading works by allowing a trader to take a speculative position on bitcoin’s price movement with financial derivatives such as CFDs.
You can go short with this, speculating that bitcoin’s price will fall, or go long speculating price to rise. How accurate your prediction is and the size of the market’s price movement will determine your loss or profit.