3 Key Things About Bitcoin Trading for Those Just Starting Out

Bitcoin has hit a real purple patch this year and gone on to make newer and newer highs.

11:13 06 December 2021

Smashing through all the barriers in its way and clearing all the doubts surrounding the future of crypto. The breakneck rally of Bitcoin was a catalyst for many other cryptocurrencies in the broader market to climb up sharply and go into a rally of their own. Now this altered the narrative of cryptocurrencies in a spectacular fashion, giving their campaign to go mainstream a shot in the arm.

 

The unprecedented success of the crypto pack has made an indelible impression on the naysayers, who had written off the crypto story earlier. They reckon the crypto pack has done just enough to convince them to seriously consider putting a good amount of money into the market.

 

Although the crypto journey hitherto might look a lot like ‘a bubble waiting to burst’ to all those cynical people still sitting on the fence, the market seems to be largely convinced of cryptocurrencies as a new asset class. At least the traders think that way. The opportunity the crypto market brings to traders is lucrative and much better than what the traditional options like stocks, options and forex present. And, it reflects in the number of traders who are entering the market with a lot of hope and enthusiasm even at a time when the crypto market has been running hot for an extended period now.

 

If you can’t decide whether trading Bitcoin is meant for you or are looking for some advice to start trading on the right note, here are a few things to point you in the right direction.

 

Understanding things that make the Market Tick Over

 

Whether you’re putting all your money into buying Bitcoin or betting the market will fall, you need to learn a few basic things that can have an impact on market movement.

 

The supply of bitcoin is finite and capped at 21 million, which means the price could go surging up when there is more demand and lack of supply. Apart from the economics, there are quite a few other factors that can push up or bring down the price of Bitcoin.

 

For one, Bitcoin integration. Uptick in Bitcoin enabled payments indicates more businesses are going to be using it for operational , transactional or investment reasons. And that’s an encouraging sign that could drive up the market. On the contrary, any bad news or announcement concerning bitcoin’s security and viability will put a dampener on the market sentiment and result in the asset sliding down. News concerning a country’s anti crypto stance have shown to affect the markets in a big way.

 

Choosing a Trading Style

 

Hordes of traders may be operating in the crypto scene but they can be broadly classified into a few key categories based on their trading style.

 

First up is day trading, a style in which traders get into and get out of their positions on the same day. They look for opportunities to profit from the sudden, rapid price movements of an asset and keep their trades open only for a short while. They center their strategy around taking advantage of the volatility in the market and they enter into their trading positions when the market swings back and forth. This style completely eliminates the risk of having an overnight position in the market.

 

The second style of trading is trend trading, in which traders follow the uptrend or downtrend depending on where they think the market is headed. The idea is to catch a trend early on by opening a position at lower levels (for long) and at higher levels (for short) and keep holding that position for several weeks or months until the tide turns and the larger trend reverses completely. Some traders find it risky to hold positions for long, and instead choose to ride the swing on the way up (if they’re long) or ride the swing on its way down (if they’re short). They book profits and liquidate their positions as soon as the desired target levels are achieved.

 

The third and final category is called hedging. Trends in a market like bitcoin are often hard to predict, but you can still reduce your total exposure to the market by hedging. In simple terms, hedging is to assume an opposite position to the one you have open so you can lower your odds of capital drawdown in case the market goes against you.

 

For example, if you want to go long on Bitcoin but are a little circumspect that a correction is just around the corner, you could open a short position with derivatives called Contract for Differences (CFD). And when the market nosedives, the gains you make on the hedged short position with the CFD can offset the losses on your original long position on Bitcoin.

 

As you can see, each style of trading has its own share of pros and cons. Therefore, take time to figure out which style will align well with key things like your ability to take risk, risk appetite etc. Once you have that down, you can get to the real part.

 

What you Need to Trade Well

 

For any trader to be successful in the crypto market, having a solid trading plan and a good risk management strategy is important.

 

A sound trading plan outlines the steps to be taken ( going long or going short) and clearly identifies the levels at which the trade must be initiated and closed.

 

Similarly, a risk management strategy helps a trader identify stop loss and limits. By quantifying the exact levels of stop loss and limit levels, you’re making sure you’re not losing more money than you can really afford to.

 

After you have a trading plan mapped out and identified key price levels in terms of risk, go on and execute your trade with confidence. Most trading terminals or applications feature a range of indicators such as moving average, volume etc, and an array of tools including price action patterns and charts. Learn to use them so you can keep a tab on where the market is going next and determine whether the underlying market conditions are favourable enough for you to place a trade.

 

So there you have it. Trading in bitcoin might seem a little difficult when you’re just getting started. but making progress is still very much possible. Take the time to further your understanding of the key things that can make or break the market and develop the analytical skills required to find your edge in the market. Remember a trader’s profit is another trader’s loss. And you’re likely to make money on more trades when you find your edge.