Bitcoin Trading | Step by Step Guide
Bitcoin trading is like trading any other item on the stock exchange. The general rule is to buy low and sell high, and thus we will make a profit. Unlike trading bitcoin or any other cryptocurrency, investing means long-term holding; trading is different; today, there is already an entire industry focused on studying the exchange rates, drawing diagrams, and analysis. The most common methods are fundamental analysis technical analysis.
For a successful (bitcoin) trade, it takes time, and, of course, we need to invest money. The process itself is not complicated. We need to register on an exchange, deposit money, and start opening the desired positions. Of course, in reality, this is much more complex and involves many small details.
Bitcoin Trading – The First Step
The first step – and at the same time a significant one – is choosing the proper exchange where we want to trade bitcoin or other cryptocurrencies. You don’t have to worry; we will provide you with all the information you need to make the right choice. One of the largest, cheapest, safest, and most popular stock exchanges globally is Binance; it can be accessed globally and provides a simple and easy-to-use interface for trading bitcoin or other cryptocurrencies.
Next on, we will be taking a look at the following topics:
- Bitcoin Trading vs. Investing
- Bitcoin Trading: Methods
- Fundamental vs. Technical Analysis
- Bitcoin trading Terms
- The most common mistakes when trading bitcoin
- Bitcoin Trading – Copy Trading – Passive Income
- Bitcoin Trading – Conclusion
Bitcoin Trading vs. Investing
If we look at this from an investment perspective, we have to buy bitcoin and wait for the price to rise. This is usually the attitude of those who think long term. We find this attitude more frequently among those who believe in the basic technology and ideology behind investing.
Instead, trading is different – some people prefer to buy/sell currencies over a short-term period and take advantage of the price difference.
The popularity of BTC has grown considerably lately for several reasons. Given that it has high volatility, through a well-planned entry, a high profit can be obtained. Unlike traditional markets, cryptocurrency exchanges operate seven days a week continuously. In addition, bitcoin trading is largely unregulated, and there are many opportunities to enter the market quickly and easily, without any additional bureaucracy.
Bitcoin Trading: Methods
Everyone wants to make a profit, and there are many ways to do this.
Daytrading
As its name suggests, it means intraday trading – so we close positions during the same day we open them and make a profit on the short-term movements of the price.
Scalping
A day trading in which traders act even in the case of minor rate increases. In this way, they reduce (theoretically) the risk because the gains on the positions appear much faster, often in a few minutes—those who practice scalping open dozens or even hundreds of positions daily.
Swing trading
Based on exchange rate cycles. Traders try to identify the beginning of the course movements and then open positions. When the movement stops, they make a profit. In many cases, the process can take weeks or even months.
Fundamental vs. Technical Analysis
Can the movements of the exchange rate be predicted?
No one knows precisely what will happen in the future. But traders try to determine trends and patterns. No trader can always win all their transactions, but a positive balance can be achieved in the long run.
Fundamental analysis
Involves trying to predict, using macroeconomic factors, in which direction the price may evolve. Many aspects are taken into account – industry news, developments, regulations we can expect, etc. If, for example, the news spreads that BTC will be banned in China, it will be considered one that might indicate a decline.
Technical analysis
Works with the help of market statistics. It monitors exchange rate movements and other trading values, such as volume. Try to identify trends and deduce from them what we can expect. Her basic idea is that no matter what happens in the world, the course always lives on its own, and if we observe it we can predict the probability of its movements.
Which Trading Method is Better?
As we previously mentioned, no one can know precisely what will happen in the future. We may be right or wrong both fundamentally and technically; there is no guarantee that everything will happen exactly as we want. Maybe it would be best to consider all the options when trading.
Bitcoin Trading Terms
As with stock trading, bitcoin traders use specific terms that we need to learn. Let’s see which are the most common!
Exchanges, markets, brokers
Stock exchanges are those online platforms where sellers and buyers meet and trade with each other. In the traditional sense of the word, this is what trading means. In some exchanges, the service provider – the broker – is the one who sells to you, usually with a higher commission.
Order book
This is a list that presents us the sellers and buyers, along with their offers. The purchase offer represents the price that the buyer is willing to pay in coins. The sale offering is the amount that the seller wants to get. The market price is where the two lists meet.
Market price
When we talk about the exchange rate, we refer to the price at which the last transaction took place on that platform. This is an essential aspect because, unlike the dollar, the BTC does not have a central, worldwide valid exchange rate. It may differ from one exchange/country to another, depending on how much bitcoin costs on those different platforms. Users of one exchange can accept and trade at different prices than in the case of another exchange.
Along with the exchange rate, we must mention another indicator that signals the highest and lowest price during a trading day.
Volume, traffic
How much does bitcoin change owners in a certain period? The volume indicates this. Based on this, traders can realize how strong a trend is. If the volume is large, the movement is significant. If, for example, we are in a strong upward trend, the upward movement always takes place at a large volume, but if we encounter a decrease, a correction, the volume will likely be a smaller one. When there is a sudden change in the exchange rate, it is worth first looking at the driving is behind the new direction. Is it a reversal of the trend or just a correction?
Market order
The transaction takes place at the current price, but this price depends very much on the depth of the market so that the total quantity can consist of several transactions made at different prices. For example, if the traffic on a stock exchange is low and you want to buy 5 bitcoins, it may be necessary to accept ten sale offers in the order book for this amount to exist. And the tenth offer may have a completely different price than the first. A market order executes the transaction immediately up to the specified value, regardless of price. Make sure you use it carefully!
Stop-loss
This order establishes an exchange rate at which it sells our position. Through it we can avoid having to sell at a meager price. We use this type of order mainly to prevent losses. If the price falls below a certain level, the platform will sell the coins at the market price. In this way, the losses will be reduced to a minimum.
Maker and taker fee, commissions
This means the trading fee; maker and taker differ only in who is the one who accepts the price proposed by the other in the transaction. The exchanges wish to encourage traders to participate in the market actively and introduce their prices in the order book. Thus someone becomes a maker, and his commission is lower.
If you accept someone else’s offer by placing a market order, you will become a taker, and you may pay a higher commission.
Exchange rate charts (Charts)
The charts outlined by price movements are beneficial to analysts – it is worth getting acquainted with them and realizing what we see.
Japanese candles
This is the most classic view – a red or green column with a line at the top and one at the bottom. It shows us if the price has risen or decreased in a certain period and the top and bottom price level. If it is green, it means the price went up. The bottom of the thick section represents the opening price, the top the closing price, the top of the line at the top shows us the highest price the coin has reached within that period, and the bottom line indicates the lowest price level. In case of a decrease, when the candle is red, it works the other way around – the upper part of the thick part is the opening price, and the lower part is the closing price.
The bull market, bear market
Terms are also taken from the classic stock exchange; “bull” refers to an upward trend, and “bear” to a descending one. In the case of the bull market, we will usually see a lot of green candles, and when the red ones start to dominate, it means that the market is becoming bearish.
Resistance and support
The price has a cyclical movement, often within a set range. For example, we have often seen the price start at 50,000 and stop at 60,000, failing to break the resistance and quickly retreating to 45-50,000. Here, 45,000 serves as support; there are many offers to buy at this level, and many traders consider it a good price. For it to decrease, a lot of sellers have to enter the market. 60,000 represents resistance, where many traders have placed sell orders or decided to sell.
The general opinion is that the more the price tests a certain level, the stronger it will become support or resistance.
In most cases, these levels are round figures, being rather psychological thresholds and not some determined by data.
After the price reached and exceeded the $20,000 level set many years ago in December, the resistance was, in order, 30k, 40k, 50k, and now 60k. Many people think that over this price, BTC is already too expensive.
The most common mistakes when trading bitcoin and cryptocurrencies
Bitcoin trading is risky, and mistakes cost money. It is best to avoid obvious traps.
Never risk more than you can afford to lose without problems!
The worst situation is when you lose all your money on the stock market. It’s not a good idea to trade with all of your savings! Determine an amount that will not affect your entire budget! If you lose that money, it will indeed bother you, but you aren’t at the risk of losing your total capital.
Don’t trade without a plan!
It’s good to know precisely why you open a particular position and what profit you want to make through it! Use stop-losses to determine exactly which point your position will close in case it goes down!
Build a strategy!
It is essential to trade based on a strategy. If you trade according to a calculated strategy, a predetermined entry, there are fewer errors and more chances of long-term profitability. This way you will know exactly that even a downtrend can also be part of your strategy since there is no 100% guaranteed strategy. If you follow your strategy, you can also make a profit with 40-50% (4-5 winning transactions out of 10).
Do not panic!
Many traders panic as soon as they see red candles or the market goes in the wrong direction. You don’t have to; it’s a natural thing. If you follow your strategy, you will know that you will be a winner in the long run. Don’t be afraid of price fluctuations as long as they fit into your strategy; every change has its costs and risks. If you missed an entry, do not panic, another will come – make your entry only if market conditions are favorable to your strategy.
Use Stop Loss (SL)
Never trade without SL! Stop Loss will protect you from more considerable “damage” if the market goes against you. As we said, no strategy is bulletproof, and many factors influence the exchange rate; it can happen when the price goes in the wrong direction. SL is intended to help us not close our position too much in the reds and protect our balance from an unsuccessful transaction. The market can go much further against you than you think.
Don’t keep all your money on the exchange!
Only store the amount of money you wish to trade within the crypto exchange. In reality, you don’t physically own the money you store on the exchanges. If the exchange is attacked or closed, you might lose your money.
Don’t be overwhelmed by emotions!
The biggest enemies of traders are fear and greed. Fear can make you close your position even if it does not fit your plan. Greed is similar, you know you should close the position and make a profit, but you don’t. You enter a transaction too quickly or close it too quickly or too late. There is a much better chance of making a mistake if you get overwhelmed by emotions, so always follow your plan!
Learn your lessons as you go!
Whether you have won or lost in a transaction, you can learn a lot. No one can always make only winning transactions. Even the most profitable traders have bad trades sometimes. The idea is that we can learn a lot in each transaction, what and how to do better next time.
Bitcoin Trading – Copy Trading – Passive Income
Bitcoin trading is not necessarily complicated. Even if you are not prepared, do not have enough time or experience, you can still get your share of the income offered by bitcoin trading. For this purpose, the Copy Trading platforms were created, ie those for copying transactions. Here you don’t need to do much, you are not the one who trades, but the actual professional traders registered on the platform. In this case, all you have to do is deposit your money/cryptocurrencies on the respective platform and choose the trader you want to follow / copy, and the rest works automatically. You can select several traders at once, so the profit/loss depends on only one trader.
This way, you don’t need skill or time, but you earn a passive income. It is ideal for those who do not have enough time, the necessary experience or want to obtain a passive income from bitcoin/cryptocurrency trading. Why is this method worth it? Simple – you will benefit from a part of your income, along with the platform. For example, 70% of the profit goes to you, and the remaining 30% goes to the trader and the platform operator.
Usually, on these platforms, the traders who register are the ones who have a well-established profitable strategy and want to obtain additional income in addition to the profits generated by their own trades. It should be noted that their strategies are not always perfect, so it’s important to note that significant decreases may occur at any time. Still, the good news is that if you don’t have enough experience, you can turn to those who already have a perspective/strategy.
There are many reports and statistics based on which you can decide who you want to copy. You can find traders who choose to risk and target monthly profits of hundreds of percent, as well as some who prefer to go safe and are satisfied with monthly profits of a few percent. You are the one who decides who you want to copy. It is important to mention that in this way, you put your trust in the trader you are looking for – if he wins, you will also benefit; if he loses, you will lose with him. The idea is to find the balance and choose a trader who brings you profit in the long run.
Bitcoin Trading – Conclusion
Most people give up bitcoin trading shortly after the start because they cannot earn quick money from this activity. If you want to be successful, you have to learn a lot, just like when you acquire any other skill. It takes money and a lot of time to learn the right steps. In case you intend to get rich quickly, avoid trading as much as possible. There is no money that you can get quickly and easily, but at the same time without risk.
If you decide to become a bitcoin trader, you can learn many interesting things, and with enough determination, you can become a professional trader.
Be persistent, develop your strategy, follow the market and learn not to let yourself be driven by emotions – and most importantly, don’t risk too much!
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