Want to get started with Bitcoin trading but don’t know where to start from? Well, we have you covered as today’s post has everything you need to know about trading bitcoin. But before we give you all the details, here is a little background on bitcoin trading.
For those new to bitcoin trading, it will interest you to know that Bitcoin trading entails speculating on bitcoin’s price. Even though this involves buying bitcoin via an exchange, hoping that the value increases over time, crypto traders are exploring derivatives as a way of speculating on both rising and falling prices. This helps them to make the most of bitcoin’s volatility.
After reading today’s post, you should be able to take a position on the price of bitcoin via financial instruments like CFDs. With CFDs, it’s possible to take advantage of price movements in either direction, without ever needing to have bitcoin in your wallet. Cool right? We thought so too. Also, this option means that you don’t need to worry about the security of bitcoins being traded.
What are the important steps for trading bitcoin?
Now that you know what bitcoin trading entails, it’s time to run you through all of the important steps for trading bitcoin. To break things down, we have listed all the steps below:
- Know what moves bitcoin’s price
- Choose a bitcoin trading strategy and style
- Define how you want your bitcoin exposure
- Choose whether to go long or short
- Clearly define your stops and limits
- Keep an eye on your trade
- Choose when you would like to take profit or cut losses.
Knowing what moves bitcoin price
To get your own slice of the cake when trading Bitcoin, you need to know some of the factors that influence bitcoin’s price. Here, check out some of them:
Bitcoin supply: Bitcoin’s current circulating supply is pegged at 21 million. By 2040, we expect Bitcoin’s supply to be fully diluted. Thanks to its deflationary status, we expect the price of Bitcoin to continue to increase, especially as demand rises.
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Bad press: Any breaking news that has to do with Bitcoin security, its longevity, its value, and more can take a negative hit on Bitcoin’s price.
Integration: Bitcoin’s public profile benefits a lot from its integration on new payment platforms and banking frameworks. Any time there is news about this, there is bound to be an increase in demand. And you’ll agree that when there is an increase in demand for Bitcoin, the price rises sharply.
Notable events: News on regulations, security breaches, and macroeconomic bitcoin announcements always have a significant effect on Bitcoin’s price. More so, updates or rumors about speeding up the bitcoin network also drive up its price.
Choose a bitcoin trading strategy and style
When it comes to bitcoin trading styles and strategies, there are several options you can explore to increase your chances of success. Here is a list of popular bitcoin trading styles and strategies you should know:
- Day trading
- Trend trading
- Bitcoin hedging
- HODL ( buy and hold)
Bitcoin day trading strategy
The Bitcoin day trading strategy simply means opening a bitcoin position and closing that position within a day. This simply means you won’t be holding any of your bitcoin open trades overnight. With Bitcoin day trading strategies, you won’t incur overnight funding charges on your Bitcoin trades. For traders looking to take advantage of Bitcoin’s short-time price movements, this is the strategy you should be exploring. Also, thanks to the volatility in Bitcoin’s price, you’ll make a significant profit with this strategy.
Bitcoin trend trading strategy
This is another popular trading strategy for trading Bitcoin. Like the first strategy we explored, this strategy also delivers a remarkable success rate if mastered. This strategy entails opening a position that matches the current market trend. For instance, if the market is generally bullish, all you need to do is open a long position. And if it is bearish, you take a short position. Once you notice the trend slowing or showing signs of reversing, it’s time to close your position and open a new one that matches the new trend. Simple right? Well, that’s because the strategy isn’t complicated.
Bitcoin hedging strategy
This is among the safest strategies for trading bitcoin. By hedging your positions, what you’re simply doing is mitigating your exposure to risk. Let’s break things down so you get exactly what we mean. Let’s say you have a trade already running, all you need to do is open a counter trade to the existing trade. This strategy is super important for traders worried that the market may move against them. For instance, say you have some bitcoin in your wallet and you’re worried about an impending sell-off, what you can do is simply open a short position to take advantage of the short-term drop via CFDs.
So if the market price falls, you can make gains from your short position on CFDs. Pretty simple you’ll agree.
HODL Bitcoin trading strategy
The HODL bitcoin trading strategy is arguably one of the simplest strategies that can be deployed for trading the number one digital asset by market cap. This strategy entails buying and holding Bitcoin.
The HODL strategy is derived from the misspelling of the word “hold”: on popular crypto forums. The term simply stands for, “hold on for dear life”
That said, taking the phrase literally would amount to shooting yourself on the foot, and here is why. From our years of experience, we know that you should only buy and hold bitcoin if you expect a positive outcome in the long term. So if your trading strategies and research show that it’s time to sell, it won’t be a good idea to hold. At this point, taking your profit or selling some of your bitcoin will be the smart thing to do.
Define how you want your bitcoin exposure
Decided on a trading strategy to take yet? Well, it’s time to follow up with how you intend to get some bitcoin exposure. Thankfully, there are a number of options you can explore. Read on for some top options.
- Trading bitcoin derivatives
- Buying bitcoins via an exchange like Coinbase, Kraken, Binance, and others.
- Crypto 10 index
Trading Bitcoin derivatives
Trading bitcoin derivatives is one of the many ways you can get bitcoin exposure. For this option, instead of having bitcoin in your wallet, you only need to speculate on the price of bitcoin with CFDs. To this end, you should be able to take advantage of Bitcoin’s price fluctuations in either direction. For instance, if you think the price of Bitcoin will rise, you take a long position, and if you think the price will fall, you go short instead. Here are some advantages that come with trading Bitcoin derivatives”
- Leverage and margin: When trading CFDs, keep in mind that they are always traded with leverage. And this simply means that you have to put up a deposit, known as margin to get access to higher liquidity. With leverage and margin, you’re most likely to get your orders filled at your preferred price, even if you deal in large sizes
- Hedging: Derivatives allow you to hedge your positions. And in case you’re new to this, it would interest you to know that hedging your portfolio is a brilliant way to protect against market declines.
Buying Bitcoin via an exchange
Having shown you how to get bitcoin exposure via derivatives, it’s time to show you how anyone can buy Bitcoin through an exchange.
If you’re one of those people who prefer to buy and hold bitcoin until the price skyrockets, then buying through an exchange is a smart thing to do, and here is why. Buying Bitcoin via an exchange gives you direct ownership of the bitcoin. More so, it is a brilliant option for people who think the price will rise.
However, there are some issues that come with buying Bitcoin via an exchange, and here is it.
- Most Bitcoin exchanges aren’t properly regulated. Plus, they lack the capacity to swiftly respond to support requests.
- The machine engines along with servers deployed by most exchanges aren’t always reliable. While this can result in market suspension, it can also reduce execution accuracy.
- Bitcoin exchanges often impose fees and restrictions on funding and withdrawals. Also, signing up for an account could take days for the process to be complete.
Crypto 10 Index
Besides trading bitcoin derivatives and buying bitcoins from exchanges, another exciting way to get bitcoin exposure is through the Crypto 10 index. This option gives traders the opportunity to trade 10 major cryptocurrencies including the likes of Bitcoin, Ethereum, and more in one single trade. This index not only speculates on these digital assets but also keeps track of and mirrors the underlying market price of each of them.
Make up your mind whether to go long or short
When you trade financial derivatives, you can decide to take a long position, which involves buying, or a short position, which involves selling. Keep in mind that whatever position you decide to take depends on market sentiments. Going long means you expect the price of bitcoin to rise, on the contrary, shorting your position means you expect the price to drop.
Set precise stop limits
When it comes to risk management, stop limits are super important and there are several of them you can explore.
- When you opt for normal stops, your trades will close out at a precise level. While this works most of the time, you can sometimes experience slippages, especially if the market price changes quickly.
- Trailing stops helps lock in profits during favorable market movements. But like normal stops, this too is susceptible to slippage.
- Guaranteed stops: This option will close your position at a defined level, whether there is a slippage or not. And yes, guaranteed stops are free to set. Nevertheless, you’ll be charged a fee if the stop is triggered.
The exciting thing is that all these risk management tools are available on most trading platforms.
Open and monitor your trade
To execute a bitcoin trade, you’ll either need to buy if you’re optimistic that the price will rise. And if you think that the market would sell, you opt for a sell. Once you open a trade, you want to ensure you keep an eye out so you know if the market is going as planned or not.
Thanks to the technical indicators available on most trading platforms, you can easily predict where Bitcoin is headed next. Also, indicators are a brilliant way to monitor current market conditions, like market sentiment and volatility levels.
Close your position to take a profit or cut a loss
Closing your position is a smart thing to do if you want to take a profit or cut some of your losses. It is also the right thing to do if you think the market makes you uncomfortable. Your profits are mostly deposited into your trading account, while losses are deducted from your available balance.
Frequently asked questions
Can you make a profit trading Bitcoin?
While you can make a ton of profit trading bitcoin, the possibility of churning profits depends on your understanding of market analysis. Also, you need to stay updated on the underlying market conditions.
How exactly does bitcoin trading work?
Bitcoin trading simply entails taking a speculative position as per Bitcoins price movement by leveraging financial derivatives such as CFDs.
With financial derivatives, you can either go long if you predict that the price will increase or go short if you think the price will drop. Keep in mind that the accuracy of your predictions along with the size of the market determines your profit or loss.
How safe is bitcoin trading?
Due to the market volatility that comes with Bitcoin, trading this digital asset comes with some risk. That said, you can set up an account with some exchanges and take advantage of their risk management and educational tools. These tools include educational resources, in-platform stops, and limits. These tools give you control of your trading.
Is there a best time for trading bitcoin?
While the crypto market works 24 hours a day, seven days a week, some hours have increased volatility and liquidity. For instance, 12 pm UK time always sees increased volatility as both the UK and US markets are opening up for the day.
