Bitcoin trading simply refers to when traders buy low and sell high. This is different from investing, where investors hold their Bitcoin for a considerable time, sometimes even years. Bitcoin trading involves studying the industry as a whole and predicting price movements in the short term based on specific factors. As a trader, you can analyze the Bitcoin price through two primary methods, technical analysis, and fundamental analysis. Starting to trade Bitcoin is relatively simple, but it takes time and patience to understand and become good at it.
So you have decided to take the plunge and purchase Bitcoin. However, it’s a good idea to go over a small checklist consisting of the following points before you start.
Decide beforehand how much Bitcoin you wish to purchase and stick to that number.
Storage is important. Once you have bought your Bitcoin, decide if you wish to hold your wallet in a hot wallet or a cold wallet.
Decide where you wish to purchase from. There are several options to consider here, such as exchanges, brokers, and from Peer-to-Peer exchanges.
To understand when is a good time to purchase Bitcoin or sell your Bitcoin, it is crucial to understand what factors could have an impact on the price of the asset.
Supply: Supply is key in determining the price of an asset, with an asset that is scarce likely having a higher price. In the case of Bitcoin, its supply is capped at 21 million and is expected to be exhausted by 2140. Bitcoin’s supply has been steadily declining since its inception, thanks to halving events that occur every four years. Halving usually heralds a significant jump in price because the supply of Bitcoin entering the market is reduced.
Demand: Bitcoin’s popularity has seen a considerable increase in recent years, with traders, institutional investors, multinational firms, and even countries buying up Bitcoin. A spike in demand will obviously result in a jump in prices. However, if demand drops, so will the price of the asset.
Rules And Regulations Around Bitcoin: With the staggering popularity of Bitcoin, there is an ongoing debate around how to define Bitcoin as an asset. As governments incorporate Bitcoin into the larger economy, it has become a legitimate asset class, with traders and investors following regulatory developments around Bitcoin closely. For example, in the US, rulings issued by the SEC have had a direct impact on the price of Bitcoin. The price of Bitcoin had surged to record highs in 2021 after the SEC allowed the trading of the first Bitcoin ETF, the ProShares Bitcoin Strategy ETF.
Soft/Hard Forks: Hard and soft forks could also change the perception of a cryptocurrency and its value. Bitcoin’s hard fork in 2017 was one such example when the creation of Bitcoin Cash led to significant volatility in the price of Bitcoin.
Every trader wants the exact same thing, making a profit. Luckily there are several strategies that they can employ to achieve their goal.
Day Trading: Day trading involves multiple trades spread throughout the day, with traders trying to maximize their profits from short-term price movements. Day trading allows traders to avoid overnight funding charges on their position and is ideal for those looking to make the most out of Bitcoin’s daily price volatility.
Scalping: A short-term trading strategy where traders look to make multiple short-term profits, with an aim to pocket a large sum at the end of the day.
Swing Trading: This strategy takes advantage of price cycles, with traders looking to spot the beginning of a specific price movement where they can enter the trade, hold their position until the price movement collapses, and exit with their profit.
Trend Trade: In Trend trading, traders align their strategy with the current market trend. If the market is bullish, then they go long, and if the market is bearish, then they go short.
HODL-ing: HODL or HOLD simply means buy and hold BTC. Traders and investors who employ this strategy usually have a positive outlook on the long-term price of Bitcoin.
Even the most experienced traders are prone to the odd mistake. As a beginner, it is always an advantage to know about common trading mistakes and try to avoid them.
Risking more than you should: This is one of the most common and biggest trading mistakes that a trader can make. Always trade with an amount that you are okay to lose. Trading is inherently risky, and if you invest more money than you can afford to lose, it could have a detrimental effect on your trading strategy, or worse, you could end up losing all that money.
Trading without a plan: Some people begin trading without a clear plan of action. It is essential to understand why you are entering a specific trade, which position you should enter at, and most importantly, when you should exit a particular trade.
Fear and greed: Fear and greed are two emotions that can negatively affect the outcome of trades. Traders could close a trade prematurely due to fear thanks to a specific news article or rumors. Greed could also drive traders to get into a trade too soon, assuming that market prices could rise or because they don’t want to miss out on the next “Bitcoin.”
Leaving Assets With An Exchange: If you are not trading with a particular exchange, you must absolutely not have any funds or assets stored with the exchange. You don’t have any control over assets sitting with an exchange and could stand to lose them to hackers. The exchange could also go out of business, and you could end up losing all your funds.
As a trader, there are several avenues through which you can acquire Bitcoin. The most convenient way to complete your acquisition is through a cryptocurrency exchange. Of course, there are several options, but if you are based in the Middle East, the best option for you is Rain. Rain is a completely secure trading platform fully regulated by the Central Bank of Bahrain (CBB). Getting started is simple, and you can create your account here and get started on your Bitcoin journey.
This guide touches upon some of the most important factors that a trader should consider when buying, selling, and trading Bitcoin. If you put in the work and time and acquire the relevant skills, you can succeed in trading.
Stay tuned for more informative articles on Bitcoin from Rain!
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