Bitcoin trading is simply the act of buying Bitcoins at low prices and selling at high prices. It differs from Bitcoin investing which involves holding Bitcoin for the long run in the hope that its price will rise with time. Bitcoin investors study the market and price graphs, their goal being to be able to predict movement in the price of this cryptocurrency.
If you would like to learn the basics of Bitcoin trading, make sure you read till the end. We will cover in this post Bitcoin trading methods, how you can analyze Bitcoin prices, and the steps to trading Bitcoin.
Bitcoin Trading Methods
Different Bitcoin traders employ different trading methods. Some popular trading methods employed by different traders are given below.
This method of trading involves running many trades throughout the day and attempting to profit from short-term movements in price. Day traders spend hours looking at their computer screens every day. At the end of each day, they usually close all their trades.
Trend trading is simply a method of trading that involves the trader taking a position that is in line with the current trend. For example, the trader will go long if the market is in a bullish trend and short if the market is in a bearish trend. You can learn about the bull and bear crypto markets here.
Swing trading is a method of trading in which the trader attempts to use the natural “swing” of the price cycles to his or her advantage. Swing traders attempt to spot the beginning of a particular price movement and join the trade then. These traders will hold on till the movement collapses and then take the profit.
Swing traders may not necessarily monitor their computer screens, but they always look at the big picture. For example, a swing trader can open a trading position and will hold it open until he or she reaches the desired result. This may take several weeks or even months.
Methods Used in Analyzing Bitcoins Prices
No one can be 100% certain of what will happen to Bitcoin prices in the future. However, experience has taught some traders that certain methods, patterns, and rules can be followed in other for them to make profit in the long run. Although, that you follow these patterns does not guarantee that you’ll make profit all the time.
The two main methods people follow when they analyze Bitcoins or cryptos in general are technical analysis and fundamental analysis. The fundamental analysis uses factors such as news, technical developments, regulations around the world, happenings in the industry, and any other issue that may affect the success of the cryptocurrency (in this case Bitcoin). It tries to predict the price of Bitcoin by looking at the big picture.
Technical analysis tries to predict the price of Bitcoin by studying market statistics like trading volumes and past price movements. It tries to identify trends and patterns in price, and use these trends and patterns to predict what will happen to the Bitcoin price in the future. To learn more about technical and fundamental analysis, click here.
How Do You Trade Bitcoins?
You can trade Bitcoins by following the steps below.
Step 1: Learn what moves Bitcoins price
Factors such as bad press, Bitcoin supply, key events, and Bitcoins integration into banking frameworks and new payment systems can have an impact on the prices of Bitcoin.
Step 2: Select a Bitcoin trading method or strategy
Day trading, trend trading, swing trading, HODL (or buy and hold), and Bitcoin hedging are some of the methods and strategies that can be used for trading Bitcoins.
Step 3: Select how you want to get exposure to Bitcoin
Buying Bitcoin through an exchange, trading Bitcoin derivatives, and Crypto 10 Index are few ways you can get exposure to Bitcoin.
Step 4: Decide on going long or short
Going long means that you expect a rise in the price of Bitcoin and going short means that you expect a fall in the price.
Step 5: Set stop and limit order
There is a place and time to use each of these order types. Understanding when to use them can help you manage risk.
Step 6: Open and monitor your trade
Open your Bitcoin trade by buying when you anticipate a rise in price and selling when you anticipate a fall. Once you have your trade open, do well to monitor the market to ensure it is moving in the direction you anticipated.
Step 7: Close your position to take a profit, or to cut a loss
Profits you make after closing your position will be paid directly to your trading account. If you record losses, they will be deducted from your trading account balance.