Hi there! Today i’d like to cover the basics of bitcoin trading! We will get acquainted with common terms, will try to foresee the trends of bitcoin market, develop trade plan and last but not least we will try to stick to that plan! I will also mention some trading mistakes that you must avoid.
Sadly, but everyone admits that money today become a meaning of life for almost everyone. Both fiat currencies and cryptocurrencies. Today, lots of people try to enter the market, mine bitcoins, invest in bitcoins etc. And I suppose that you are one of them if you are reading my blog. I will help you to avoid some common mistakes during your cryptocurrency voyage. But always remember – past experience does not guarantee future gains. Just be attentive, learn something new everyday and the probability of becoming successful bitcoin trader will increase.
Today, you will come across many cryptocurrencies (Bitcoin, Ethereum, Darcoin, Litecoin etc.). All of them have the same structure, but the devil is always in the detail. Bitcoin (or BTC) is the most widely used one, and I suggest you to start you cryptocurrency investments with BTC, as it is the most solid cryptocurrency. If you are a newbie, read carefully, as I will introduce you to basic bitcoin literacy below.
The beginning of my way
Personally, I began online trading 5 years ago, and it took me almost a year to become a trader, and another year to become a successful one. There was a risk. And the risk paid off, I left my dayjob and make a living by trading Bitcoins online. I have plenty of free time to improve and develop myself, to travel around the world and, what is the most important, I am completely independent and free now and I don’t have to think about money anymore.
I started online trading not for the sake of money if you ask me, I was just a cryptocurrency enthusiast. But today it doesn’t matter at all, even if you know nothing about blockchain and cryptocurrencies, I’ll teach you to become an online trader. Of course, you need to understand, that my success does not guarantee that you will have the same outcome. Trading is very individual and someone might lose. Learn, try – all in your hands.
How to start trading bitcoin?
There are two ways of BTC trade:
- Investment. You can buy cryptocurrency on exchanges and store it in your crypto wallet. Thus, you yourself will own Bitcoin. This is considered a long-term investment, as you are waiting for the price to rise significantly in order to sell crypto coins.
- CFD trading. You can trade a Contract For Difference (CFD) on a specific cryptocurrency and speculate on the difference in bitcoin price. In this case you do not need a wallet as you do not physically own the cryptocurrency. A CFD is a financial instrument that is a contract, usually between a broker and an investor, when one party agrees to pay the other the cost difference of the security, which is usually called the buy / sell spread. You can hold a long position (assuming that the price of Bitcoin will rise) or a short position (assuming that the price of Bitcoin will fall). This is considered a short-term investment, since CFDs are usually used in short time frames.
Now you need to decide which way suits you best.
Bitcoin Trading vs Bitcoin Investment
Today, most bitcoin owners use BTC to purchase goods online. Even BTC creators claim that you can profit by trading bitcoins online since the exchange rates are extremely alternating. Mass consciousness still believes in a myth that BTC is illegal, because it is decentralized and lies beyond the government control. So be sure, that investing in bitcoins is a risk. On the other hand, no pain – no gain, you remember?
You must also remember that every time someone is investing in bitcoin – it is meant to be long-term. Simply speaking, people are always waiting the price to rise on the long term basis, regardless of daily downs and ups.
But if you are a CFD bitcoin trader – you will buy and sell bitcoin every single day, making or loosing profits of aforementioned currency’s down and ups. Or you can invest and trade simultaneously – no one can prohibit that. Also you must know, that you can sell and buy bitcoin whenever you want, since bitcoin markets don’t have opening and closing time – they are available 24/7 except for one hour on Sundays.
So, if you prefer to take ownership over the traded good and earn money slowly, this option is for you. And for start you need to get to know more about bitcoin wallets and the ways of buying bitcoins.
Contract for Difference
If you want to jump start your bitcoin CFD trading journey, here is the list of sites that are great for such type of bitcoin trading:
But you need to know, that each site, offering CFD services, warns: between 74-89% of retail investor accounts lose money when trading CFDs. So, you should consider whether you can afford to take the high risk of losing your money.
Types of bitcoin trading
Well, there are several ways to achieve the goal and claim your profits.
- Day trading: quick type of trading for fast guys. Day trading basically means making multiple deals during the day and profiting or loosing from short-term price changes. Day traders spend all their time in front of several display screens and they usually close all their deals by the end of a day.
- Scalping: just like it sounds! Like a surgeon with his scalpel, scalp-traders just make or lose some profits on very small value changes. Scalp-trading is very, very short-term, and the profits are small, but so are the risks. Good scalper can make hundreds of trades in a day. But check with your provider to see if they allow scalping.
- Swing trading: just like it sounds again! Swing traders try to predict next up/down trend shift. They usually hold it till the last moment, selling or buying btc on the top of the current trend. The profits are usually extremely high, but so are the risks. Swing trading is for professionals only.
Fundamental analysis versus Technical analysis
Bitcoin price trends can not be predicted, but they can be understood. Basically no one can predict future. Anyway, you will see some obvious patterns and rules after some time spent trading. This will allow you to make some long-term moves.
Fundamental analysis is a way to predict btc price by finding it’s dependencies from the whole bunch of factors, including bitcoin industry, new bitcoin technical developments, world governments cryptocurrency regulations etc.
Technical analysis is way to predict bitcoin price by making a research on bitcoin market statistics like price changes, trend movements and volume of btc traded.
Which is better? My answer will be simple – none. They are like yin and yang. Like two sides of a single coin. You must use both technical and fundamental analysis to understand them, be sure that you don’t miss anything and make your own choice if needed.
Terms of bitcoin trading
Now let’s talk about the terms of bitcoin trading a little bit. You will face that terms on literally every bitcoin exchange or bitcoin market.
First of all – the order book. It is a complete list of all your trades (buy or sell orders) and it can be viewed on the exchange. Buy orders are usually called BIDS, since people are bidding to buy btc. Sell orders are called ASKS.
Bitcoin price is basically the price of bitcoin during the last trade on a current exchange. Basically there is not one global bitcoin price – it varies from one exchange to another.
Volume is literally the volume of the market. It is total number of all Bitcoins that have been traded during some period on a current exchange. One simple rule you must remember is that large trading volumes are always followed by significant trends, while weak trends are usually followed by low volumes.
Market order (or instant order) – is a kind of an order that can be instantly done at any price possible. You will only specify the amount of btc that you need to buy or sell for the exchange – and your order will be immediately executed.
Limit order is a kind of an order that will help you to sell or buy bitcoin at a specific price. Simply speaking it may not be fulfilled because there won’t be enough peers (be them buyers or sellers) that meet your price requirements.
Stop-loss order is a kind of an order that can be slightly customised. It will be automatically recalled if the price will go down and if there is any risk of losing the money for you.
Taker fee and maker fee is basically a fee that you will be charged when you will buy or sell bitcoin. Since bitcoin markets try to encourage people to invest in bitcoin they reduce their fee rates for people that literally make the market. In simple words, whenever a new order is created, if that order can not be matched by any seller or buyer – it creates the market. So the person that have placed that order is market maker. Fees for the makers are basically lower.
Price charts reading
You will also need some quick introduction into reading price charts to start bitcoin trading.
Japanese candlestick is kind of a graph that is widely used. Each candle shows the lowest, the highest, closing and opening prices for a certain period of time. Japanese candlesticks are sometimes referred to as OHLC graph (Open, High, Low, Close).
If the candle is green it means that the price is going up, or that the closing price was higher than the opening one. If the candle is red it means that the price is going down, or that the closing price was lower than the opening price.
When you see most of the candlesticks are green – know then that you are in a bull market. And all red candlesticks mean that you are in a bear market.
Bull or bear market graphs
Bulls and bears are used to display graph’s general trend. They are called after bulls or bears because of the way that animals attack their victims. Bull rises his horns in the air, while bear strikes downwards with it’s paws. If the trend is up – it is a bull market. If the trend is down – it is a bear market. Simple, isn’t it?
Support and resistance levels
Sometimes, after a long time upward trend, there is some short time price stagnation can be notices. E.g. the price was rising from $8000 to $17000 for a week, and then it stopped for a month at $17000 and can’t go any further. Here $1700 is called resistance level, it means it is the highest price up to date that can not be beaten. Is is an outcome of quite a bunch of sell orders for this price point.
On the contrary, support level is an evil twin of resistance level. If resistance level can be referred as a price “ceiling”, support level will be it’s “floor”. Support level will be followed by lots of buy orders for a current price. Basically, high demand follows the downtrend.
Things to avoid when trading bitcoins
Don’t, i repeat, don’t use your exchange’s wallet to keep all Bitcoins that you have earned already. Basically, every online market provides you with your personal bitcoin wallet right after submitting your profile. Nevertheless, keeping your money on your exchange wallet is very convenient, but, on the other hand, it gives your exchange a full access to your Bitcoins. Exchanges servers can be hacked, can be destroyed or just suffer some hardware malfunctions. So, ALWAYS transfer your money to your main storage wallet.
Conquer and divide
Or do not keep all your bitcoins in one place. And, preferably, use offline wallets to store your wealth. Online wallets can be hacked and hijacked. Storing your money on your PC is not reliable either, since hardware issues can make you poor. So, use offline wallets and always do backups. Always. Also, i don’t recommend just to accumulate money. Money must make money, so invest in everything that you want. It is better to invest into 10 startups and make a good profit in several years, than just to accumulate all your money in your wallet and lose them after a hardware problem.
Yes, BTC is volatile, and you must remember that when you invest in bitcoins. Same as USD, Euro and every other currency. Just be smart, be steady, and do not rush. I remember reading in the news 10 years ago that some dude just ordered a pizza for 1000 BTC. And i remember myself trembling when i bought my parents a 3 bedroom flat for 15 BTC just 3 years ago. Just don’t panic when you see that the price goes down. You’ll get used to it. So, don’t panic yourself, you should get into the habit of using other traders panicking.
Try to be loyal to your cryptocurrency of choice
Today, after tremendous success of BTC, there are new altcoins spawning on the market every single day. Just stick to the one you believe in. Personally, i prefer BTC, LTC and ETH – three of a perfect pair are more than enough for me. Just remember to keep some healthy skepticism when reading about some brand new altcoin in the news.
Always develop yourself
Just keep abreast. I hope that you have got plenty of useful information from me. Anyway, just be sure to check on the new info every single day. There are plenty of news digest sites and social network groups, that can provide you with the latest news about cryptocurrency situation. Information is a weapon, so be sure to use it.
I hope that i’ll help you to avoid these mistakes. Mea culpa, i mentioned them just because i have made that mistakes myself. God, i wish there was someone mentoring me back in the days. Stay in touch, i’ll give you lots of info in my next articles.
I encourage you to start your bitcoin trading journey today. It is a risky business, but it is definitely worth it. But remember, it is definitely not a place to make some quick money. If you have a strategy, a plan for you life – bitcoin trading is for you. The risk is high, so are the profits! All the best!