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Bitcoin Trading – A Simple Guide for the Average Person

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As an informed investor, you need to have a firm understanding of the various Bitcoin trading strategies and terminology in use today. Every day the economy takes one step closer towards digitization. Consequently, everyday Bitcoin becomes a more critical component of the international financial system.

Importantly, Bitcoin trading can involve numerous strategies. To determine what type of trader best fits your lifestyle, you need to consider a few important factors. For example, what is your overall investment goal? Do you want to trade to gain more fiat, or more crypto, or both?

Bitcoin Trading vs. Investing

Remember, Bitcoin trading is different than investing in many ways. Primarily, Bitcoin traders don’t hold their crypto for long periods of time such as investors. In many instances, an investor could simply accumulate Bitcoin with no intention to ever sell their holdings. This strategy is known as HODL (hold on for dear Life).

Bitcoin Trading - Analysis via CoinMarketCap

Bitcoin Trading – Analysis via CoinMarketCapBitcoin Trading – Analysis via CoinMarketCap

HODLers utilize Bitcoin as a store-of-value rather than an “electronic cash system.” Additionally, HODLers accept Bitcoin’s volatility and instead focus on the long term profits and change this revolutionary currency brings to the market. It’s common for someone to HODL a certain amount of Bitcoin and trade with their other holdings.

How to Start Bitcoin Trading

As a Bitcoin trader, your main goal is to buy low and sell high. To accomplish this task, you will need to polish up on your market analysis skills. Nobody can determine the future movements of the market. However, there are several indicators that can help you to make an educated guess at future market movements.

There are two main types of market analysis – Technical and Fundamental. Depending on your investment approach, you may find one better suited to your strategy than the other. In technical analysis, you only look at Bitcoin’s price and volume. This information is enough for you to determine the emergence of any trends.

Technical analysis differs from fundamental analysis in a few key ways. For one, Fundamental analysis takes into account any factors that affect the value of the asset. Fundamental analysts research a broad spectrum of data to determine the intrinsic value of Bitcoin. This strategy could include taking into account recent news, volume, current price, community developments, as well as, possible legislation that could affect the market.

Bitcoin Trading Techniques

Each Bitcoin trading style can be suited to fit your overall investment goals. The main thing to understand is that you are not tied to one type of trading strategy. In fact, it’s a smart idea to practice all of these trading techniques to determine what fits you best. Here are the most common Bitcoin trading strategies in use today:

Day Trading

Day traders are among the most active trading class in the market. These investors conduct multiple trades in a day. These trades are based on short term price predictions. Most day traders use a combination of traditional and fundamental market analysis to reduce their risk exposure. Additionally, it’s common for day traders to close all trades at the end of the day

Scalping

You can think of scalping as day trading on steroids. These full-time traders make numerous trades based on micro price fluctuations throughout the day. Surprisingly. A scalper could make over 100 trades a day. The goal of all of this activity is to leverage profits while reducing exposure to risk. If done correctly, scalping can be an effective way to stack Satoshis little by little.

Swing Trading

Swing traders take a more patient approach to the market. These traders will monitor long term patterns in the market. Once they identify a pattern, they attempt to enter at the lowest point and sell at the highest. Importantly, swing traders are far less active than day traders or scalpers. It’s common for a swing trader to make one trade every couple weeks.

Bitcoin Trading Terminology

As an educated investor, you should have a firm understanding of the basic Bitcoin trading terminology in use today. Many of these terms are not exclusive to the cryptomarket. As such, you will also gain some valuable insight into the terminology of trading other asset classes as well.

Volume

The Bitcoin trading volume is the number of total Bitcoins traded within a given timeframe. You can use shifts in volume to identify a trends’ significance. Sharp changes in the volume represent a change in market momentum. Importantly, more trading volume doesn’t necessarily mean Bitcoin’s price is going up, it could also mean the exact opposite. The volume could be the result of a bunch of traders selling their holdings.

Market (or Instant) Order

Market orders are orders that fill instantly. These orders are fulfilled at any possible price. Basically, when you place a market order, your exchange will fill the order with sellers who most closely match your price request. It’s common that your order will not be matched by a single buyer or seller, but rather by multiple people, at different prices.

To utilize a market order is simple. You just set the number of Bitcoins you wish to buy or sell and the advanced algorithms of your favorite trading platform do the rest. Your market trade is complete when there are enough transactions to fill your order. Market orders are great for when you need to sell or buy Bitcoin in a hurry. However, you can end up paying more or selling for less than you intended using this strategy.

Limit Order 

A limit order is more specific than a market order. Limit orders allow you to buy or sell at a specific price, and only at that price. Since this strategy is less flexible, you may find that your orders can remain unfulfilled. When this occurs, it means there weren’t enough sellers willing to pay your asking price at this time. Limit orders are great for making a precise purchase. They aren’t a great method to reduce risk because, in times of market volatility, you don’t want to be left holding your bag.

Stop-Loss Order

If you want to be a successful Bitcoin trader, you need to familiarize yourself with stop-loss orders. A stop-loss does exactly as the name implies “stop losses.” Stop losses allow you to determine a price in which you want to liquidate your assets via a market order. Savvy traders will adjust their stop loss throughout their trades to ensure that they lock in their profits.

Bitcoin Trading Platforms/Exchanges

Bitcoin trading platforms are more popular than ever. These online sites are where buyers and sellers can meet up and exchange Satoshis securely. Importantly, most trading platforms utilize a protocol to automatically match buyers and sellers. Bitcoin trading platforms are easy to join and navigate. As such, they are the most popular way to trade Bitcoin.

Broker

Bitcoin brokers work like exchanges but on a more personal level. Brokers allow buyers and sellers to communicate directly with each other. Unlike decentralized exchanges, Brokers will sell you Bitcoin directly and with more privacy measures. However, all of this added personalization and security comes at the cost of higher transaction fees.

Order Book via Coinbase PRO

Order Book via Coinbase PRO

Order Book

The Order Book is a complete list of all the buy orders and sell orders on the exchange. This real-time data metric allows you to better monitor market activity. In an order book, the buy orders are called “bids”, and the sell orders referred to as “asks.” Most exchanges keep the order book within the main trading window.

Whale

A Bitcoin whale is someone who has a large amount of Bitcoin holdings. These individuals hold incredible sway in the market. As such, it’s a smart idea to monitor their movements via whale monitoring platforms. For example, if you are notified a whale just moved 100 BTCs from cold storage to an exchange, it’s safe to assume they plan to liquidate these holdings in the coming days. This liquidation will result in price fluctuations.

Bitcoin Exchanges to Use

Bitcoin trading is an art that takes time to master. It’s important to locate reputable exchanges. Securities.io offer a list of the Top 5 Cryptocurrency Exchanges. You can read reviews on them but they ranked in this order:

  1. Binance (Referral ID: EE59L0QP for 10% cashback on all trading fees.)
  2. KuCoin
  3. Bittrex
  4. Poloniex (Referral Code: P44N7LQZ for 10% cashback on all trading fees.)
  5. Bitfinex

 

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Advertiser Disclosure: Securities.io is committed to rigorous editorial standards to provide our readers with accurate reviews and ratings. We may receive compensation when you click on links to products we reviewed.

ESMA: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Investment advice disclaimer: The information contained on this website is provided for educational purposes, and does not constitute investment advice.

Trading Risk Disclaimer: There is a very high degree of risk involved in trading securities. Trading in any type of financial product including forex, CFDs, stocks, and cryptocurrencies.

This risk is higher with Cryptocurrencies due to markets being decentralized and non-regulated. You should be aware that you may lose a significant portion of your portfolio.

Securities.io is not a registered broker, analyst, or investment advisor.