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A beginner's guide to Bitcoin trading


Staff member
Nov 26, 2020
This post covers the basics of Bitcoin trading. It will help you become familiar with the basic terms, understand the different ways of "reading" the market and its trends, draw up a trading plan, and learn how to execute that plan on the Bitcoin exchanges.

Trading Summary Bitcoin trading is all about buying low and selling high. Unlike investing, which means holding bitcoins for a long time, trading deals are about trying to predict price movements by studying the industry in general and price charts in particular.
There are two main methods that people use to analyze the price of Bitcoin - fundamental analysis and technical analysis. Successful trading takes a lot of time, money and effort before you can actually succeed in it.

To trade Bitcoin, you need to do the following:

  1. Open an account with a bitcoin exchange (e.g. CEX.io, eToro, Bitstamp)
  2. Verify your identity
  3. Deposit money into your account
  4. Open your first position on the exchange (for example, buy or short)
In short, it is Bitcoin trading. If you need a really detailed explanation, keep reading.

1. Bitcoin Trading versus Investing
The first thing we want to do before diving into the subject is to understand what Bitcoin trading is and how it differs from investing in Bitcoin.
When people invest in bitcoins, it usually means that they are buying bitcoins for the long term. In other words, they believe that the price will eventually rise, regardless of the ups and downs that occur along the way. Usually people invest in Bitcoin because they believe in the technology, ideology, or team behind the currency.
Bitcoin investors tend to hold the currency in the long run (HODL is a popular term in the bitcoin community that was actually born out of a typo in the word “hold” - in an old 2013 post on the BitcoinTalk forum ).
Bitcoin traders, on the other hand, buy and sell bitcoin in the short term when they think they can make a profit. Unlike investors, traders see Bitcoin as a tool for making a profit. Sometimes they don't even bother learning about the technology or ideology of the product they are selling.
That being said, people can trade bitcoin and still take care of it, and many people invest and trade at the same time. When it comes to the sudden rise in popularity of trading bitcoin (and multiple altcoins), there are several reasons.
First, Bitcoin is highly volatile. In other words, you can make good profits if you manage to predict the market correctly. Secondly, unlike traditional markets, bitcoin trading is open 24/7.
Most traditional markets, such as stocks and commodities, have open and close times. With Bitcoin, you can buy and sell whenever you want.
Finally, Bitcoin's relatively unregulated landscape makes trading relatively easy - without the need for lengthy identity verification processes.

2. Trading Methods
While all traders want the same thing, they practice different methods to get it. Let's look at a few examples of popular types of trading:

Day Trading
This method involves making several trades during the day and trying to profit from short-term price movements. Day traders spend a lot of time staring at computer screens and they usually just close all of their trades by the end of each day.

This day trading strategy has become popular lately. Scalping tries to make substantial profits on small price changes and is often referred to as "making a penny in front of the rink."
Scalping is focused on extremely short-term trading and is based on the idea that making a small profit limits risks many times over and creates benefits for traders. Scalpers can make dozens or even hundreds of trades in one day.

Swing Trading
This type of trading attempts to exploit natural fluctuations in price cycles. Swing traders try to spot the start of a certain price movement and then enter a trade. They hold on until the movement dies down and take profits.
Swing traders try to see the big picture without looking at their computer screen. For example, swing traders can open a trade position and keep it open for weeks or even months until they achieve the desired result.

3. Methods of analysis: fundamental and technical.

Can I Predict Bitcoin Price Movement?

The short answer is that no one can predict exactly what will happen to the price of bitcoins. However, some traders have identified certain patterns, methods and rules that allow them to make profits in the long term. No one makes exceptionally profitable trades, but the idea is this: at the end of the day, you should see a positive balance, even if you have suffered some losses in the process.
People follow two main methodologies when they analyze bitcoins (or whatever they want to trade, for that matter) - fundamental analysis and technical analysis.

Fundamental analysis
Attempts to predict price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates the Bitcoin industry, currency news, Bitcoin technical developments (such as the Lightning Network), rules around the world, and any other news or issues that could affect Bitcoin's success.
This methodology looks at the value of Bitcoin as a technology (regardless of the current price) and the corresponding external forces in order to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis predicts a possible drop in prices.

Technical analysis
Attempts to predict price by studying market statistics such as past price movements and trading volumes. He tries to identify patterns and trends in price and, based on them, draw a conclusion about what will happen to the price in the future.
The basic assumption behind technical analysis is this: no matter what is currently happening in the world, price movements speak for themselves and tell some kind of story that helps you predict what will happen next.

So which methodology is best?
As I said in the previous chapter, no one can accurately predict the future. Fundamentally, a promising technological advance could end in failure, but technically, the schedule doesn't behave the way it used to.
The simple truth is that there are no guarantees for trading. However, the correct combination of both methodologies is likely to produce the best results.

4. Understanding the Terms of Bitcoin Trading
Let's continue to break down some of the confusing terms and statistics that you will come across on most bitcoin and crypto exchanges:

Trading platforms versus brokers versus trading platforms
The Bitcoin trading platform is online sites where buyers and sellers are automatically matched. Please note that the trading platform is different from a Bitcoin broker like Coinmama.
Unlike trading platforms, brokers sell you bitcoins directly and usually for a higher fee. A trading platform is also different from a marketplace like LocalBitcoins, where buyers and sellers talk directly to each other to complete a trade.

Order Book
A complete list of buy and sell orders is indicated in the market order book, which can be viewed on the trading platform. Purchase requisitions are called requisitions because people place bids on prices in order to buy bitcoin. Sell orders are called asks because they show the sell price that sellers are asking for.

Bitstamp Order Book

Bitcoin Price
When people talk about the “price” of Bitcoin, they are really referring to the price of the last trade made on a particular trading platform. This important difference occurs because, unlike, for example, US dollars, there is no single global price for bitcoin that everyone follows.
For example, the price of bitcoin in some countries may differ from its price in the United States, as the major exchanges in those countries involve different transactions.
Note. Sometimes the terms “high” and “low” are also found next to the price. These conditions refer to the highest and lowest bitcoin price in the last 24 hours.

Volume refers to the total number of bitcoins that have been traded over a given period of time. Volume is used by traders to determine the significance of a trend; significant trends are usually accompanied by high trading volumes, while weak trends are accompanied by low volumes.
For example, a healthy uptrend will be accompanied by high volumes when the price rises and low volumes when the price is declining.
If you see a sudden change in price direction, experts recommend checking how significant the trading volume is to determine if it is a minor correction or the beginning of an opposite trend.

Market (or Instant) Order
This type of order can be placed on the trading platform and will be instantly executed at any possible price. You just set the amount of bitcoins you want to buy or sell and order the exchange to execute immediately. The trading platform then matches sellers or buyers to respectfully fulfill your order.
After placing an order, chances are high that your order will not be completed by one buyer or seller, but by several people at different prices.
For example, let's say you place a market order to buy five bitcoins. The trading platform is now looking for the cheapest sellers.
The order will be executed when it has accumulated enough sellers to transfer five bitcoins. Depending on the availability of sellers, you might end up buying three bitcoins at one price and two others at a higher price.
In other words, in a market order, you don't stop buying or selling bitcoins until the requested amount is reached. With market orders, you may end up paying more or selling less than you planned, so be careful.

Limit Order
It allows you to buy or sell Bitcoins at a specific price that you choose. In other words, the order may not be fully completed as there are not enough buyers or sellers to meet your requirements.
Let's say you place a limit order to buy five bitcoins at $ 10,000 per coin. Then you could only get 4 bitcoins because there were no other sellers willing to sell you the last bitcoin at $ 10,000. The remaining order for 1 bitcoin will remain there until the price reaches $ 10,000 again, and then the order is executed.

Stop Loss
Allows you to set a specific price at which you want to sell in the future if the price drops sharply. This type of order is useful for minimizing losses.
Basically, this is an order that tells the trading platform that if the price drops by a certain percentage or to a certain level, I will sell my bitcoins at a predetermined price, so I will lose as little money as possible. A stop loss order acts like a market order.
In other words, as soon as the stop price is reached, the market will start selling your coins at any price until the order is executed.

Maker and Taker Fees
Other conditions you may encounter when trading are maker and taker fees. Personally, I still find this model one of the most confusing, but let's try to figure it out.
Exchanges want to get people to trade. In other words, they want to "create a market." Hence, whenever you create a new order that cannot be matched with any existing buyer or seller, i.e. a limit order, you are basically a market maker and you will generally have lower commissions.
Meanwhile, the market maker places orders that are instantaneous, that is, market orders, since the market maker already exists to satisfy their requests. Takers remove business from the exchange, so they usually have higher commissions than makers who add orders to the exchange's order book.
For example, perhaps you have placed a limit order to buy one bitcoin at $ 10,000 (maximum), but the cheapest seller is only willing to sell at $ 11,000. So you've just created a new marketplace for sellers looking to sell at $ 10,000.
Therefore, whenever you place an order to buy below the market price or an order to sell above the market price, you become a market maker.
Using the same example, perhaps you place a limit order to buy one bitcoin at $ 12,000 (maximum), and the cheapest seller sells one bitcoin at $ 11,000. Then your order will be executed instantly. You will be deleting orders from the exchange order book, so you are considered a market taker.

5. Reading price charts
Now that you are familiar with the basic trading terms, it's time to make a quick introduction to reading price charts.

Japanese candlesticks
Japanese candlesticks are a very widely used type of price chart based on the ancient Japanese technique of technical analysis that was used in rice trading in the 1600s.
Each "candlestick" represents the open, low, high, and close prices for a given period of time. In this regard, Japanese candlesticks are sometimes called the OHLC chart (open, high, low, close).
Depending on whether the candlestick is green or red, you can tell whether the timeframe's closing price was higher or lower than the opening price.
If the candlestick is green, it means that the opening price was lower than the closing price, so during this period the price as a whole rallied. On the other hand, if the candlestick is red, it means that the opening price was higher than the closing price, so the price went down.

Trading candles

In the image above, the open price of a green candle is the wide bottom of the candle, the close is the wide top of the candle, and the highest and lowest trades in that timeframe are at both ends of the candle. ...
When we are in a bull market, most of the candles are usually green. If it is a bear market, most of the candles will be red.

Bull and Bear Markets
These terms are used to refer to the general trend of a chart, whether it is going up or down. They are named after these animals because of the way they attack their opponents.
The bull raises the horns up, and the bear lowers the paws down. So these animals are metaphors for market movement: if the trend is up, it's a bull market. But if the trend is downtrend, it is a bear market.

Support and resistance levels
Often times, looking at market charts like OHCL, it can seem as though the price of Bitcoin is unable to break through certain highs or lows. For example, you might witness the Bitcoin price go up to $ 10,000 and then seem to hit a virtual ceiling and get stuck at that price for a while without breaking it.
In this scenario, $ 10,000 is the resistance level - a high price that Bitcoin is struggling to surpass. The resistance level is the result of many sell orders being executed at this price. This is why the price cannot break through at this particular moment.
Support levels are, in a sense, a mirror image of resistance levels. They look like "floor". Bitcoin's price doesn't seem to go lower when the price falls. The support level will be followed by many buy orders set at the level price. Strong buyer's demand at the support level softens the downtrend.
Historically, the more often the price cannot go beyond the support or resistance levels, the stronger these levels are considered.
Interestingly, both resistance and support levels are usually set around round numbers like 10,000, 15,000, etc. The reason for this is that many inexperienced traders tend to execute buy or sell orders at round prices. which makes them act as strong price barriers.
Psychology also contributes greatly to the determination of support and resistance levels. For example, until 2017 it seemed expensive to pay $ 1,000 for Bitcoin, so there was a strong resistance level at $ 1,000. Once this level was broken, a new level of psychological resistance was created: $ 10,000.

6. Common Trading Mistakes
Great, you've come this far and by now you should have enough know-how to gain some practical experience. However, it is important to remember that trading is a risky business and mistakes cost money.
Let's take a look at the most common mistakes people make when they start trading, in the hope that you can avoid them.

Mistake # 1 - Risking More Than You Can Afford to Lose
The biggest mistake you can make is risking more money than you can afford to lose. Pay attention to the quantity that is convenient for you. Here's the worst-case scenario: you end up losing everything. If you find yourself trading above this amount, stop. You are doing it wrong.
Trading is a very risky business. Investing more money than you are comfortable with will affect your trading and may lead to poor decisions.

Mistake # 2 - Not having a plan
Another mistake that people who start trading make is not having a clear enough plan of action. In other words, they don't know why they are entering a particular trade, and more importantly, when they should exit that trade. Therefore, clear profit targets and stop losses must be determined prior to trading.

Mistake # 3 - Leaving Money on the Exchange
This is the most basic rule for any crypto trader: NEVER leave your money on an exchange that you are not currently trading on. If your money is on an exchange, it means that you have no control over it. If the exchange gets hacked, goes offline or stops working, you could lose this money.
Whenever you have money that you don't need in the short term to trade on an exchange, be sure to move it to your own Bitcoin wallet or bank account for safekeeping.

Mistake # 4 - Getting into fear or greed
The actions of many traders are usually controlled by two main emotions: fear and greed. Fear can manifest itself in the form of premature closure of your trade due to the fact that you have read disturbing news, heard a rumor from a friend, or were afraid of a sudden drop in price (which may soon be corrected).
Another important emotion, greed, is actually also based on fear: the fear of missing out. When you hear people talking to you about the next big event, or when market prices skyrocket, you don't want to miss it. Thus, you may enter a trade too early or even postpone the closing of an open trade.
Remember that most of the time we are driven by our emotions. Therefore, never say, "This will not happen to me." Remember your natural tendencies towards fear and greed, and be sure to stick to the plan that was developed before you started trading.

Mistake # 5 - Not Learning a Lesson
Whether or not you've made a successful deal, there is always a lesson to be learned. Nobody succeeds in making only profitable trades, and nobody gets to the point of making money without losing a little money.
It is not important whether you make money or not. Rather, the point is whether you got a fresh perspective on how best to trade next time.

7. Frequently Asked Questions

How to trade bitcoin?

To trade Bitcoin, you need to do the following:

  1. Open an account on the bitcoin exchange (see below)
  2. Verify your identity
  3. Deposit money into your account
  4. Open your first position on the exchange (for example, buy or short)

Is day trading a good way to make money?
Day trading is just one of the many methods you can choose to trade. Other examples include swing trading or scalping.
While many people will argue that day trading is a good way to make money, over 90% of people quit day trading in the first 3 months.
Any trading strategy can work if you are consistent and willing to put in the time and effort to learn how to be better than other traders.

8. Conclusion
We have covered a lot of questions about trading bitcoin, but I must warn you: most people who start trading bitcoin stop after a short time, mainly because they are unable to make money successfully.
Here's my opinion: if you want to be successful in trading, you, like in any other venture, will have to spend a significant amount of time and money acquiring the appropriate skills. If you are looking to trade in order to make quick money, then it may be best to avoid trading altogether.
There is no such thing as quick and easy money - without risk or disadvantage at the other end. However, if you are keen to learn how to become a professional bitcoin trader, take a look at our resources section below. These resources will help you get the best tools and keep learning.
You may still have questions. If so, just leave them in the comment section below
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