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5. How to trade Bitcoin ?

Understanding Bitcoin Trading Terms

Let’s continue to break down some of the confusing terms and statistics you’ll encounter on most of Bitcoin and crypto exchanges:

Trading Platforms vs. Brokers vs. Marketplaces

Bitcoin trading platform are online sites where buyers and sellers are automatically matched. Note that a trading platform is different from a Bitcoin broker, such as Coinmama. Unlike trading platforms, brokers sell you Bitcoin directly and usually for a higher fee. A trading platform is also different from a marketplace such as LocalBitcoins, where buyers and sellers communicate directly with each other, in order to complete a trade.

The Order Book

The complete list of buy orders and sell orders are listed in the market’s order book, which can be viewed on the trading platform. The buy orders are called bids, since people are bidding on the prices to buy Bitcoin. The sell orders are called asks, since they show the asking price that the sellers request.

Bitcoin Price

Whenever people refer to Bitcoin’s “price”, they are actually referring to the price of the last trade conducted on a specific trading platform. This important distinction occurs because, unlike US dollars for example, there is no single, global Bitcoin price that everyone follows. For instance, Bitcoin’s price in certain countries can be different from its price in the US, since the major exchanges in these countries include different trades. Note: Next to the price, you will sometimes also see the terms high and low. These terms refer to the highest and lowest Bitcoin prices in the last 24 hours.

Volume

Volume stands for the number of overall Bitcoins that have been traded in a given timeframe. Volume is used by traders to identify how significant a trend is; significant trends are usually accompanied by large trading volumes, while weak trends are accompanied by low volumes. For example, a healthy upward trend will be accompanied by high volumes when the price rises and low volumes when the price declines. If you are witnessing a sudden change of direction in the price, experts recommend checking how significant the trading volume is, in order to determine if it’s just a minor correction or the beginning of an opposite trend.

Market (or Instant) Order

This type of order can be set on a trading platform and it will be instantly fulfilled at any possible price. You only set the amount of Bitcoins you wish to buy or sell and order the exchange to execute it immediately. The trading platform then matches sellers or buyers to meet your order, respectfully. Once the order is placed, there is a good chance that your order will not be matched by a single buyer or seller, but rather by multiple people, at different prices. For example, let’s say you put a market order to buy five Bitcoins. The trading platform is now looking for the cheapest sellers available. The order will be completed once it accumulates enough sellers to hand over five Bitcoins. Depending on sellers availability, you might end up buying three Bitcoins at one price, and the other two at a higher price. In other words, in a market order, you don’t stop buying or selling Bitcoins until the amount requested is reached. With market orders, you may end up paying more or selling for less than you intended, so be careful.

Limit Order

It allows you to buy or sell Bitcoin at a specific price that you decide on. In other words, the order may not be entirely fulfilled, since there won’t be enough buyers or sellers to meet your requirements. Let’s say that you place a limit order to buy five Bitcoins at $10,000 per coin. Then you could end up only owning 4 Bitcoins because there were no other sellers willing to sell you the final Bitcoin at $10,000. The remaining order for 1 Bitcoin will stay there until the price hits $10,000 again, and the order will then be fulfilled.

Reading Price Charts

Now that you’re familiar with the main trading terms, it’s time for a short intro into reading price graphs.

Japanese Candlesticks

A very widely used type of price graph, Japanese candlesticks are based on an ancient Japanese method of technical analysis, used in trading rice in 1600’s. Each “candle” represents the opening, lowest, highest, and closing prices of the given time period. Due to that, Japanese Candlesticks are sometimes referred to as OHLC graph (Open, High, Low, Close). Depending on whether the candle is green or red, you can tell if the closing price of the timeframe was higher or lower than the opening price. If a candle is green, it means that the opening price was lower than the closing price, so the price went up overall during this timeframe. On the other hand, if the candle is red, it means that the opening price was higher than the closing price, so the price went down.

Trading Candlesticks

In the image above, the opening price of the green candle is the wide-bottom part of the candle, the closing price in the wide-top part on the candle, and the highest and lowest trades within this timeframe on both ends of the candle. When we’re in a bull market, most of the candlesticks will usually be green. If it’s a bear market, most of the candlesticks will be red.

Bull and Bear Markets

These terms are used to indicate the general trend of the graph, whether it’s going up or down. They are named after these animals because of the ways they attack their opponents. A bull thrusts its horns up into the air, while a bear swipes its paws downward. So these animals are metaphors for the movement of a market: if the trend is up, it’s a bull market. But if the trend is down, it’s a bear market.

Resistance and Support Levels

Often, when looking at market graphs such as OHCL it may seem as though Bitcoin’s price cannot break through certain highs or lows. For example, you can witness Bitcoin’s price go up to $10,000 and then  appear to hit a virtual “ceiling” and get stuck at that price for some time without breaking through it. In this scenario, $10,000 is the resistance level – a high price point Bitcoin is struggling to beat. The resistance level is the outcome of many sell orders being executed at this price point. That’s why the price fails to break through at that specific point. Support levels, in a sense, are the mirror image of resistance levels. They look like a “floor” Bitcoin’s price doesn’t seem to go below when the price drops . A support level will be accompanied by a lot of buy orders set at the level’s price. The high demand of a buyer at the support level cushions the downtrend. Historically, the more frequently the price has been unable to move beyond the support or resistance levels, the stronger these levels are considered. Interestingly, both resistance and support levels are usually set around round numbers e.g. 10,000, 15,000 etc. The reason for that is that many inexperienced traders tend to execute buy or sell orders at round price points, thus making them act as strong price barriers. Psychology also contributes a lot to support and resistance levels. For example, until 2017, it seemed expensive to pay $1,000 per Bitcoin, so there was a strong resistance level at $1,000. Once that level was breached, a new psychological resistance level was created: $10,000.

Common Trading Mistakes

Great, you made it this far, and by now you should have enough know-how to go out and get some field experience. However, it’s important to remember that trading is a risky business and that mistakes cost money. Let’s go over the most common mistakes that people make when they start trading—in the hopes that you’ll be able to avoid them.

Mistake #1 – Risking More than You Can Afford to Lose

The biggest mistake you can make is to risk more money than you can afford to lose. Take a look at the amount you feel comfortable with. Here’s the worst-case scenario: you’ll end up losing it all. If you find yourself trading above that amount, stop. You’re doing it wrong. Trading is a very risky business. If you invest more money than you’re comfortable with, it will affect how you trade, and it may cause you to make bad decisions.

Mistake #2 – Not Having a Plan

Another mistake people make when starting out with trading is not having an action plan that’s clear enough. In other words, they don’t know why they’re entering a specific trade, and more importantly, when they should exit that trade. So clear profit goals and stop-losses should be decided before starting the trade.

Mistake #3- Leaving Money on an Exchange

This is the most basic ground-rule for any crypto trader: NEVER leave your money on an exchange that you’re not currently trading with. If your money is sitting on the exchange, it means that you don’t have any control over it. If the exchange gets hacked, goes offline, or goes out of business, you may end up losing that money. Whenever you have money that isn’t needed in the short term for trading on an exchange, make sure to move it into your own Bitcoin wallet or bank account for safekeeping. There are useful tools that allows you to track your portfolio and make sure this doesn’t happen to you. Read here our full review to learn what are the best crypto portfolio tracker apps out there.

Mistake #4 – Giving into Fear or Greed

Two basic emotions tend to control the actions of many traders: fear and greed. Fear can appear in the form of prematurely closing your trade, because you read a disturbing news article, heard a rumor from a friend, or got scared by a sudden dip in the price (that may soon be corrected). The other major emotion, greed, is actually also based on fear: the fear of missing out. When you hear people telling you about the next big thing, or when market prices rise sharply, you don’t want to miss out on all the action. So you may get into a trade too soon, or even delay closing an open trade. Remember that in most cases, our emotions rule us. So never say, “This won’t happen to me.” Be aware of your natural tendency towards fear and greed, and make sure to stick to the plan that was laid before you started the trade.

Mistake #5 – Not Learning the Lesson

Regardless of whether or not you made a successful trade, there’s always a lesson to be learned. No one manages to only make profitable trades, and no one gets to the point of making money without losing some money on the way. The important thing isn’t necessarily whether or not you made money. Rather, it’s whether you managed to gain some new insight into how to trade better next time.

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5. How to trade Bitcoin ?

Analysis Methods: Fundamental vs. Technical

Can I predict Bitcoin’s price movement?

The short answer is that no one can really predict what will happen to the price of Bitcoin. However, some traders have identified certain patterns, methods, and rules that allow them to make a profit in the long run. No one exclusively makes profitable trades, but here’s the idea: at the end of the day, you should see a positive balance, even though you suffered some losses along the way. People follow two main methodologies when they analyze Bitcoins (or anything else they want to trade, for that matter) – fundamental analysis and technical analysis.

Fundamental analysis

Tries to predict the price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates Bitcoin’s industry, news about the currency, technical developments of Bitcoin (such as the lightning network), regulations around the world, and any other news or issues that can affect the success of Bitcoin. This methodology looks at Bitcoin’s value as a technology (regardless of the current price) and at relevant outside forces, in order to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis will predict a probable price drop.

Technical analysis

Tries to predict the price by studying market statistics, such as past price movements and trading volumes. It tries to identify patterns and trends in the price, and based on these deduce what will happen to the price in the future. The core assumption behind technical analysis is this: regardless of what’s currently happening in the world, price movements speak for themselves and tell some sort of a story that helps you predict what will happen next.

So, which methodology is better?

Well, as I already said in the previous chapter, no one can accurately predict the future. From fundamental perspective, a promising technological achievement might end up as a flop, and from technical perspective, the graph just doesn’t behave as it did in the past. The simple truth is that there are no guarantees for any sort of trading. However, a healthy mix of both methodologies will probably yield the best results.

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5. How to trade Bitcoin ?

Trading Methods

While all traders want the same thing, they practice different methods to get it. Let’s review some examples of popular trading types:

Day trading

This method involves conducting multiple trades throughout 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.

Scalping

This day-trading strategy is becoming popular lately. Scalping attempts to make substantial profits on small price changes, and it’s often referred to as “picking up pennies in front of a steamroller.” Scalping focuses on extremely short-term trading, and it’s based on the idea that making small profits repeatedly limits risks and creates advantages for traders. Scalpers can make dozens—or even hundreds—of trades in one day.

Swing trading

This type of trade tries to take advantage of the natural “swing” of the price cycles. Swing traders try to spot the beginning of a specific price movement, and enter the trade then. They hold on until the movement dies out, and take the profit. Swing traders try to see the big picture without constantly monitoring their computer screen. For example, swing traders can open a trading position  and hold it open for weeks or even months until they reach the desired result.

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5. How to trade Bitcoin ?

Bitcoin Trading Summary

Bitcoin trading is the act of buying low and selling high. Unlike investing, which means holding Bitcoin for the long run, trading deals with trying to predict price movements by studying the industry as a whole and price graphs in particular. There are two main methods people use to analyze Bitcoin’s price – fundamental analysis and technical analysis. Successful trading requires a lot of time, money and effort before you can actually get good at it.

In order to trade Bitcoins you’ll need to do the following: Open an account on a Bitcoin exchange (e.g. CEX.io, eToro, Bitstamp) Verify your identity Deposit money to your account Open your first position on the exchange (i.e. buy or short sell)

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5. How to trade Bitcoin ?

Tip From A Pro

We’ve got top forex & crypto trader Ezekiel Chew, who makes 6 figures a trade and trains the bank traders behind the scenes, to share with us about crypto trading and what exactly it takes to be successful in it.

1. You’ve first got to learn how to read the charts. And one of the best ways to learn this is through price action; the technique that the majority of professional traders use. Once you have learned how to read the charts, you will know why the market is going up, down or sideways and then will you recognize which strategy to put into play in that direction.

2. Trade with a proven trading strategy or a combination of strategies. A proven strategy is one that is comprehensively back-tested and has been shown to work consistently. It is only in this way that you will have the confidence to stick with it during the lull periods.

3. Have a solid trading system. One that is defined not only by the technical aspects but also the business behind trading; a proper structured trade that is in line with the overall trading plan that has been proven to work. In contrast to what most new traders think, trading is not just about strategies, but the system itself also contributes greatly to becoming a successful trader.

Most of all, Ezekiel has a famous trading mantra – “Win big, lose small” that he and his students abide by.

“Trading is all about having an edge in the game and knowing the mathematical probability behind each trade”. By winning big and losing small, a single win can potentially cover 3 or more losses. If you apply this methodology in the long run, you will be a winning trader.

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5. How to trade Bitcoin ?

Best Cryptocurrency Brokers

There are a ton of options when it comes to cryptocurrency brokerages. For new investors, Coinbase is a great option. Coinbase has a free cryptocurrency conversion feature where you can trade your crypto for any other token supported by Coinbase. 

Other crypto brokerages that are solid options for intermediate traders are eToro, Binance and Gemini. Robinhood also supports certain cryptos but the platform only supports trading for 5 altcoins.

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5. How to trade Bitcoin ?

Store your cryptocurrency.

If you’re actively trading your cryptocurrency, you’ll have to store your funds on the exchange to have access to them. If you’re buying your cryptocurrency to hold for the mid to long term, then you should get a cryptocurrency wallet.

Cryptocurrency wallets come as software wallets or hardware wallets. Both are secure, but hardware wallets offer the best security, as they store your crypto on a physical device, offline. Ledger is a great hardware wallet brand many investors trust to store their crypto assets on. If you’re looking for a software wallet, there are several options on iOS, Google Chrome and Android that are free to use.

One of the best software wallets available to cryptocurrency traders is ZenGo. The mobile wallet uses secure 3-factor authentication to protect your digital assets, offering comparable security to other wallets on the market. Plus, ZenGo lets you buy, sell and earn interest on digital assets directly from your wallet.

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5. How to trade Bitcoin ?

Consider automated crypto trading.

When you seek out a crypto trading strategy, you might try automated crypto trading with a platform like Coinrule. Trading bots enact a strategy that is intended to give you the best results given your investment goals. Because automated trading can provide you with a conservative, neutral, or aggressive method, you can make money quickly, hold your coins or diversify your portfolio.

You might also consider actively trading cryptocurrency on some platforms while using automated trading with others.

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5. How to trade Bitcoin ?

Choose a strategy.

There are a plethora of trading indicators to choose from, and most traders take multiple factors into consideration when buying and selling cryptocurrency. If you’re new to investing, you may want to consider purchasing a cryptocurrency trading course.

Asia Forex Mentor is a popular choice that can teach you how to invest in foreign currency along with other items—including cryptocurrency. The One Core Program has been featured by several financial information sites, and it is a favorite of Benzinga. Check out a review of the platform, consider signing up and change your approach to trading.

If you’re an experienced trader, you may already have a strategy you use to trade stocks. Stock trading strategies are also commonly used for cryptocurrencies. A personal favorite trading strategy that many traders use is Elliott Wave Theory. Elliott Wave Theory focuses on the psychology behind the market sentiment, so it works particularly well for speculative assets like cryptocurrencies. 

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5. How to trade Bitcoin ?

Pick a crypto to invest in.

Most active cryptocurrency traders allocate most of their capital to Bitcoin and Ethereum. These cryptos move more predictably than smaller altcoins, so trading with technical indicators can be easier. 

Many crypto traders allocate a portion of their capital to smaller altcoins. Although small mid-market cap cryptos are riskier than large-market cap cryptos, they offer higher upside potential. Many small altcoins have risen over 1,000% in a matter of months, making them attractive investments for risk-tolerant investors.