In this article, we are going to talk about the basics of Bitcoin trading. We will talk about the basic terms, different ways to see its trends and read the market, making a plan and how to execute it.
Bitcoin trading means the purchase and sale of bitcoin. It is different than investing, as you do not require to hold the currency for a long time. In trading, you will try to predict the price movement by studying the industry.
There are two ways in which you can analyze the price movements – Technical analysis and fundamental analysis. To be good at trading, you need to invest money, time and effort.
To be a trader, you need to do the following:
Choose a bitcoin exchange and open an account.
Need to verify your identity.
After that need to deposit money in the account.
Now you can place your first trade on the exchange.
Investing Vs. Trading
First, you need to understand the trading and how is it different from investing in Bitcoin. Investing means that you are buying bitcoin for the long term in the hope that the price will rise and you can make a profit by selling it. Most of the people invest in the digital currency because they believe in the ideology, technology or the team behind it.
On the other hand, traders buy and sell the currency in the short term. They make a trade, whenever they think a profit can be made. They see it as an instrument for making profits. So, they do not take an interest in studying the ideology or the technology behind it. However, some people also take an interest in the trade as well as invest. Recently, people have taken a lot of interest in trading bitcoin in the hope they can make billions with bitcoin.
One of the main reasons is that this currency is volatile. If you can anticipate the price movement, you can make a nice profit. Moreover, bitcoin trading is available 24/7. On the other hand, traditional trades have an opening and closing time.
The main aim is to make a profit so the people practice different methods. These methods are as follows:
In this method, a person conducts multiple trades in a single day. They try to make profits from short-term price movements. For this, they have to spend the whole day staring at their computer screens. Moreover, the end-all of their trades by the end of each day.
Scalping is also like day trading and have become very popular latterly. In scalping, a trader tries to make very small profits on small price movements. Its main focus is on making short-term trades making small profits. Moreover, this method helps in lowering the risk.
The traders use this method to make a profit from a natural swing of price. For this, they first need to spot the beginning of a swing and then enter the trade. Unlike other methods, they hold on until the movement dies out. As they are looking at the big picture, so they do not need to start their computer screens.
Analysis Methods: Technical Vs. Fundamental
Can You Predict the Price Movement?
Well, it is not possible to predict the price movement of any Bitcoin. However, traders use certain methods, rules, and patterns to make a profit in the long run. I do not know any trader whose trades were profitable. The main aim is to see a positive balance in your account at the end of the day. There are two methods of analyzing bitcoins:
In this method, a trader predicts the price by studying market statistics such as trading volumes and price movements. Moreover, it tries to identify trends and patterns in the price. What is happening in the world does not matter as the price movements speak for themselves.
In this method, a person tries to predict the price movement by looking at the big picture. In the case of Bitcoin, the fundamental analysis evaluates news technical developments, Bitcoin’s industry, and regulations around the world which can affect the Bitcoin.
Using this data, a trader predicts what will happen to the price. For example, if a big country like China decides to ban Bitcoin then you will see a sudden drop in prices.
Which One is Better?
Both of these methods are not accurate in predicting the future. There is no guaranty that the graphs will behave like they did in the past. In short, there is no guaranty but a healthy mix of both methods can help you get food results.
Trading Platform vs. Brokers Vs. Marketplaces
Trading platforms are those which allow you to sell and buy the Bitcoin. A trading platform is different than a broker. Because the broker sells you bitcoin directly for a higher fees. On the other hand, marketplaces allow buyers and sellers to communicate with each other to complete the trade.
You can see order book on the trading platforms which list buy and sell orders. Sell orders are called to ask and buy orders are called bids.
Price of the Bitcoin
Whenever you ask for the price of the Bitcoin. It is the price that was last traded on the trading platform. There is a distinction as there is no global bitcoin price.
Volume means the number of Bitcoins that have been traded in a timeframe. Traders use this data to predict the price movements. High volume means the price is rising and low volume means the price is decreasing.
It allows a trader to buy and sell the bitcoin at a specific price. For example, you set a limit order to buy Bitcoins at $10,000 per coin. You end up buying 4 coins because no other seller was interested in buying at that price.
It allows a trader to set a selling price for the Bitcoin. If the price drops dramatically, then it will help in minimizing the loss.