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Bitcoin Trading Guide for Beginners
By: Ofir Beigel | Last updated: 1/1/20
This post covers the basics of Bitcoin trading. It will help you get familiar with basic terms, understand different ways to “read” the market and its trend, make a trading plan and to learn how to execute that plan on Bitcoin exchanges.
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)
That’s Bitcoin trading in a nutshell. If you want a really detailed explanation keep on reading. :
Don’t Like to Read? Watch Our Video Guide Instead:
1. Bitcoin Trading vs. Investing
The first thing we want to do before we dive deep into the subject is understand what Bitcoin trading is, and how is it different from investing in Bitcoin.
When people invest in Bitcoin, it usually means that they are buying Bitcoin for the long term. In other words, they believe that the price will ultimately rise, regardless of the ups and down 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 HODL the currency for the long run (HODL is a popular term in the Bitcoin community that was actually born out of a typo of the word “hold”—in an old 2020 post in the BitcoinTalk forum).
Bitcoin traders, on the other hand, buy and sell Bitcoin in the short term, whenever they think a profit can be made. Unlike investors, traders view Bitcoin as an instrument for making profits. Sometimes, they don’t even bother to study the technology or the ideology behind the product they’re trading.
Having said that, people can trade Bitcoin and still care about it, and many people out there invest and trade at the same time. As for the sudden rise in popularity of Bitcoin (and several altcoins) trading – there are a few reasons for that.
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First, bitcoin is very volatile. In other words, you can make a nice profit if you manage to correctly anticipate the market. Second, Unlike traditional markets, Bitcoin trading is open 24/7.
Most traditional markets, such as stocks and commodities, have an opening and closing time. With Bitcoin, you can buy and sell whenever you please.
Finally, Bitcoin’s relatively unregulated landscape makes it relatively easy to start trading—without the need for long identity-verification processes.
While all traders want the same thing, they practice different methods to get it. Let’s review some examples of popular trading types:
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.
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.
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.
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 the want to trade, for that matter) – fundamental analysis and technical 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.
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.
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.
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 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 orders 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.
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.
Lets you set a specific price that you want to sell at in the future, in case the price drops dramatically. This type of order is useful for minimizing losses.
It’s basically an order that tells the trading platform the following: If the price drops by a certain percentage or to a certain point, I will sell my Bitcoins at the preset price, so I will lose as little money as possible. A stop-loss order acts like a market order.
In other words, once the stop price is reached, the market will start selling your coins at any price until the order is fulfilled.
Maker and Taker fees
Other terms that you may encounter when trading are maker fees and taker fees. Personally, I still find this model to be one of the more confusing ones, but let’s try to break it down.
Exchanges want to encourage people to trade. In other words, they want to “make a market.” Therefore, whenever you create a new order that can’t be matched by any existing buyer or seller, i.e. a limit order, you’re basically a market maker, and you will usually have lower fees.
Meanwhile, a market taker places orders that are instantly fulfilled, i.e. market orders, since there was already a market maker in place to match their requests. Takers remove business from the exchange, so they usually have higher fees than makers, who add orders to the exchange’s order book.
For example, perhaps you put a limit order in to buy one Bitcoin at $10,000 (at most), but the lowest seller is only willing to sell at $11,000. Then you’ve just created a new market for sellers who want to sell at $10,000.
So whenever you place a buy order below the market price or a sell order above the market price, you become a market maker.
Using that same example, perhaps you place a limit order to buy one Bitcoin at $12,000 (at most), and the lowest seller is selling one Bitcoin at $11,000. Then your order will be instantly fulfilled. You will be removing orders from the exchange’s order book, so you’re considered a market taker.
Now that you’re familiar with the main trading terms, it’s time for a short intro into reading price graphs.
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.
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 2020, 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.
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.
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.
7. Frequently Asked Questions
How do I trade Bitcoin?
In order to trade Bitcoins you’ll need to do the following:
- Open an account on a Bitcoin exchange (listed below)
- Verify your identity
- Deposit money to your account
- Open your first position on the exchange (i.e. buy or short sell)
Is day trading a good way to make money?
Day trading is just one method out of many you can choose for trading. Other examples include swing trading or scalping.
While many people will argue day trading is a good way to make money, more than 90% of people quit day trading in the first 3 months.
Any type of trading strategy can work as long as you’re consistent and are willing to put in the time and effort to learn how to be better than other traders out there.
We covered a lot of ground about Bitcoin trading, but I have to warn you: The majority of people who start trading Bitcoin stop after a short while, mostly because they don’t successfully make any money.
Here’s my opinion, If you want to be successful at trading, you’ll have to put in a significant amount of time and money to acquire the relevant skills, just like any other venture. If you want to get into trading just to make a quick buck, then perhaps it’s better to just avoid trading altogether.
There’s no such thing as quick, easy money—without a risk or downside at the other end. However, if you’re committed to learning how to become a professional Bitcoin trader, take a look at our resource section below. These resources will help you get the best possible tools and continue your education.
You may still have some questions. If so, just leave them in the comment section below.
- Cointelligence Academy – An A to Z trading course by Cointelligence and Mati Greenspan
- Algorithmic trading and technical analysis – Everything about technical analysis and programming trading bots. No prior knowledge needed
- TradeView – The most popular trading software around
- Coinigy – Another Bitcoin trading software
The following sites are suited for Bitcoin trading:
5 Easy Steps For Bitcoin Trading For Profit and Beginners
Bitcoin trading can be extremely profitable for professionals or beginners. The market is new, highly fragmented with huge spreads. Arbitrage and margin trading are widely available. Therefore, many people can make money trading bitcoins.
Bitcoin’s history of bubbles and volatility has perhaps done more to bring in new users and investors than any other aspect of the crpytocurrency.
Each bitcoin bubble creates hype that puts Bitcoin’s name in the news. The media attention causes more to become interested, and the price rises until the hype fades.
Each time Bitcoin’s price rises, new investors and speculators want their share of profits. Because Bitcoin is global and easy to send anywhere, trading bitcoin is simple.
Compared to other financial instruments, Bitcoin trading has very little barrier to entry. If you already own bitcoins, you can start trading almost instantly. In many cases, verification isn’t even required in order to trade.
If you are interested in trading Bitcoin then there are many online trading companies offering this product usually as a contract for difference or CFD.
Avatrade offers 20 to 1 leverage and good trading conditions on its Bitcoin CFD trading program.
Why Trade Bitcoin?
Before we show you how to trade Bitcoin, it’s important to understand why Bitcoin trading is both exciting and unique.
Bitcoin Is Global
Bitcoin isn’t fiat currency, meaning its price isn’t directly related to the economy or policies of any single country. Throughout its history, Bitcoin’s price has reacted to a wide range of events, from China’s devaluation of the Yuan to Greek capital controls.
General economic uncertainty and panic has driven some of Bitcoin’s past price increases. Some claim, for example, that Cyprus’s capital controls brought attention to Bitcoin and caused the price to rise during the 2020 bubble.
Bitcoin Trades 24/7
Unlike stock markets, there are no official Bitcoin exchanges. Instead, there are hundreds of exchanges around the world that operate 24/7. Because there is no official Bitcoin exchange, there is also no official Bitcoin price. This can create arbitrage opportunities, but most of the time exchanges stay within the same general price range.
Bitcoin is Volatile
Bitcoin is known for its rapid and frequent price movements. Looking at this daily chart from the CoinDesk BPI, it’s easy to spot multiple days with swings of 5% or more:
Bitcoin’s volatility creates exciting opportunities for traders who can reap quick benefits at anytime.
Find an Exchange
As mentioned earlier, there is no official Bitcoin exchange. Users have many choices and should consider the following factors when deciding on an exchange:
Regulation & Trust – Is the exchange trustworthy? Could the exchange run away with customer funds?
Location – If you must deposit fiat currency, and exchange that accepts payments from your country is required.
Fees – What percent of each trade is charged?
Liquidity – Large traders will need a Bitcoin exchange with high liquidity and good market depth.
Based on the factors above, the following exchanges dominate the Bitcoin exchange market:
Bitfinex – Bitfinex is the world’s #1 Bitcoin exchange in terms of USD trading volume, with about 25,000 BTC traded per day. Customers can trade with no verification if cryptocurrency is used as the deposit method.
Bitstamp – Bitstamp was founded in 2020 making it one of Bitcoin’s oldest exchanges. It’s currently the world’s second largest exchange based on USD volume, with a little under 10,000 BTC traded per day.
OKCoin – Bitcoin exchange based in China but trades in USD.
Coinbase – Coinbase Exchange was the first regulated Bitcoin exchange in the United States. With about 8,000 BTC traded daily, it’s the world’s 4 th largest exchange based on USD volume.
Kraken – Kraken is the #1 exchange in terms of EUR trading volume at
6,000 BTC per day. It’s currently a top-15 exchange in terms of USD volume.
Bitcoin Trading in China
Global Bitcoin trading data shows that a very large percent of the global price trading volume comes from China. It’s important to understand that the Chinese exchanges lead the market, while the exchanges above simply follow China’s lead.
The main reason China dominates Bitcoin trading is because financial regulations in China are less strict than in other countries. Therefor, Chinese exchanges can offer leverage, lending, and futures options that exchanges in other countries can’t. Additionally, Chinese exchanges charge no fees so bots are free to trade back and forth to create volume.
If you’d like to learn more about Bitcoin trading in China, this video from Bitmain’s Jihan Wu provides additional insight.
How to Trade Bitcoin
Kraken will be used as an example for this guide. The process and basic principles remain the same across all exchanges.
First, create an account on Kraken by clicking the black sign up box in the right corner:
You’ll have to confirm your account via email. Once your account is confirmed and you’ve logged in, you must verify your personal information. All Bitcoin exchanges require varying levels of verification as required by AML and KYC laws. Below you can find the first three verification levels:
Once your account is verified, head over to the “funding” tab. You should see something similar to the screenshot below. Select your funding method from the left side:
Kraken offers many deposit methods, which are listed here:
EUR SEPA Deposit (Free) – EEA countries only
EUR Bank Wire Deposit (€5) – EEA countries only
USD Bank Wire Deposit (Free until 3/1/2020, then $5 USD) – US only
USD SEPA and SWIFT Deposit (0.19%, $20 minimum)
GBP SEPA and SWIFT Deposit (0.19%, £10 minimum)
JPY Bank deposit (Free, ¥5,000 deposit minimum) – Japan only
CAD Interac Deposit (Free until 3/1/2020, then 1%, $10 CAD fee minimum, $5,000 CAD deposit maximum)
CAD EFT Deposit (Free until 3/1/2020, then 1%, $10 CAD fee minimum, $50 CAD fee maximum, $10,000 CAD deposit maximum)
Deposits made using the traditional banking system will take anywhere from one to three days. Bitcoin deposits require six confirmations, which is about one hour.
Now, navigate to the “Trade” tab. Using the black bar at the top of the page, you can switch trading pairs. In this example we’ll use XBT/USD. We want to buy bitcoins, so let’s put in an order. Navigate to the “New Order” tab.
Let’s say I’ve deposited $300 into my account with a USD bank wire. In the example below, I’ve submitted an order to buy 0.5 bitcoins (XBT) at a price of $370 per bitcoin.
Check the black bar at the top, and you’ll notice that the last trade price was $383.17.
Why submit an order to buy at $370 per bitcoin (XBT) and not $383.17? One may submit an order lower than the current price if one expects the price of Bitcoin to fall. In this case, since my order is lower than other offers in the orderbook, I won’t receive my order for 0.5 bitcoin immediately. Placing an order at a specified price is called a _limit order._ Before placing an order, be sure to check the orderbook for your trading pair.
In the example orderbook below, you can see that the highest buy offer is for $382.5 per bitcoin, while the lowest sell order is at $384.07 per bitcoin.
Using the order form there’s also an option for “Market”.
A market order in this case would submit a buy order for XBT at the price of the lowest available sell order. Using the orderbook above, a market order for 0.5 XBT would purchase 0.5 XBT at $384.07 per XBT. If selling bitcoins, a market order would sell bitcoins for the highest available price based on the current buy orderbook—in this case $382.5.
Bitcoin trading is exciting because of Bitcoin’s price movements, global nature, and 24/7 trading. It’s important, however, to understand the many risks that come with trading Bitcoin.
Leaving Money on an Exchange
Perhaps one of the most famous events in Bitcoin’s history is the collapse of Mt. Gox. In Bitcoin’s early days, Gox was the largest Bitcoin exchange and the easiest way to buy bitcoins. Customers from all over the world were happy to wire money to Mt. Gox’s Japanese bank account just to get their hands on some bitcoins.
Many users forgot one of the most important features of Bitcoin—controlling your own money—and left more than 800,000 bitcoins in Gox accounts. In February 2020, Gox halted withdrawals and customers were unable to withdrawal their funds. The company’s CEO claimed that the majority of bitcoins were lost due to a bug in the Bitcoin software. Customers still have not received any of their funds from Gox accounts.
Gox’s catastrophic collapse highlights the risk that any trader takes by leaving money on an exchange. Using a regulated Bitcoin exchange like Kraken can decrease your risk.
Your Capital is at Risk
Remember that as with any type of trading, your capital is at risk. New traders should start trading with small amounts or trade on paper to practice. Beginners should also learn Bitcoin trading strategies and understand market signals.
Bitcoin Trading Tools & Resources
Cryptowatch & Bitcoin Wisdom – Live price charts of all major Bitcoin exchanges.
Bitcoin Charts – More price charts to help you understand Bitcoin’s price history.
bitcoinmarkets – A Bitcoin trading sub-reddit. New users can ask questions and receive guidance on trading techniques and strategy.
TradingView – Trading community and a great resource for trading charts and ideas.
Learn How to Trade Bitcoin: [Most Comprehensive Quick Start Guide]
Let’s get started learning how to trade bitcoin!
Bitcoin trading is actually pretty straightforward once you get the hang of it. Being the premier cryptocurrency, it is pretty straightforward to buy and sell them as and when you want to. Bitcoin has a history of volatility which has brought in a lot of traders and media interest into the ecosystem.
How to Trade Bitcoin: Quick Start Guide
Every time Bitcoin’s price rises, new investors and speculators want their share of profits. It is extremely easy for anyone to trade Bitcoin as the barrier for entry is so low. So, how do you get your slice of the pie? What do you have to do to make sure that you are going to trade bitcoin in an efficient manner?
Well, this guide will help you make your trading decisions. So, before you get into the “how” let’s start with the “why.”
Why Should You Trade Bitcoin?
The reason why you should invest in Bitcoin, and cryptocurrencies in general, is because there is nothing quite like it. There are several features that makes Bitcoin trading both exciting and unique.
Bitcoin is Not Fiat
Bitcoin isn’t fiat currency, i.e., it is not under the control of one single government. So, instead of one single economy having a stranglehold over the price of the asset, Bitcoin’s price has reacted to a wide range of events.
Let’s look at some events over the last few years which has affected the price of Bitcoin.
UK’s decision to opt out of the European Union has caused quite a scene with their local economy. As a result of this, exchange giants Binance had stated that they have been “overwhelmed” by registrations for its new Jersey-based trading platform because of insane demand. Binance Jersey allows users to trade euros and British pounds with bitcoin and ethereum and access digital asset management services.
#2 India’s Demonetization
Demonetization was a move by Indian Prime Minister Narendra Modi which made the Rs. 500 and Rs. 1000 notes non-legal tender. Just 18 days after the demonetization declaration, Bitcoin’s price on Zebpay, one of India’s leading exchanges, went up from $757 to $1,020 (per bitcoin). Back then, BTC was trending for $770 in the US.
#3 Trump’s Election
Immediately after Trump’s victory, the markets started falling. Dow Jones, S&P 500 and Nasdaq were all plummeting. Quite similarly, Australian markets lost USD 30 billion. However, Bitcoin was a whole different story. Just before the election night, it went up to $740 due to problems encountered by the Mexican peso. After that, it went down to $705 and then went to $739 as soon as Trump got elected.
From all these three cases, we can make one simple and obvious conclusion. People have a tendency to invest in Bitcoin when faced with unstable markets and obstacles confronting fiat currencies
Bitcoin is open 24/7
Unlike stock markets, Bitcoin is open 24X7. The reason being stock markets are specific to the country they operate in and usually reflect the working hours of that country. Anyone can purchase bitcoin on most of the exchanges. There are hundreds of exchanges around the world that operate 24/7. Meaning you can trade bitcoin 24/7!
Bitcoin is Volatile
Bitcoin and cryptocurrencies, in general, are infamous for its rapid and frequent price movements. This volatility can help traders make an easy, quick buck.
How does Bitcoin work?
Before you invest in an asset, you should at least know how it works. We have covered the mechanics behind the crypto several times here in detail. However, for the uninitiated, we will give a brief overview. If you are already aware of the mechanics, then please skip to the next section.
Bitcoin was created by an unknown programmer who goes by the pseudonym “Satoshi Nakamoto.” Bitcoin is powered by blockchain technology.
The blockchain is a time-stamped series of an immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain). Ok, so what does that mean in simple terms?
Imagine a universal ledger that anyone can download and write into. Anybody who has a copy of that ledger can:
- Check the records that have been logged into the ledger.
- Check the time at which those records were logged.
- Cannot tamper with any of the previously made entries because the ledger is immutable. This property of “immutability” is one of the most important features of the blockchain and it gains it through cryptographic hash functions.
That is what Bitcoin gave to us, the first proper implementation of a technology that can act as an immutable and transparent ledger. This innovation gives us a system that is completely incorruptible and free from human corruption since each and every transaction made into the blockchain can be checked.
How Do Transactions Work?
One of the most valuable things about Bitcoin is that you don’t need to go through a bank to send a transaction. As the community likes to say “you are your own bank.” So, how do they manage to do that? Through public key cryptography.
Every Bitcoin user has a private key and a public address that are both mathematically derived from each other. So, how does it work? It is actually pretty straightforward. The public address is like your account number and the private key is like your PIN code When you receive Bitcoins, people will send it to your public address. You can then send your Bitcoins to anyone via your private key.
So, going by that explanation, we can make two observations:
- You should reveal your public address to everyone.
- You should never tell your private key to anyone.
It really is as simple as that.
This should give you a brief idea of what Bitcoin is and how it works. This is the reason why Bitcoin has become such a big deal. Now, let’s look into how we can get your hands on some, the first step to learning how to trade bitcoin!
Exchanges: The Gateway to Cryptos
The exchange serves as one of the most critical functions in the crypto ecosystem. It acts as a portal between the Fiat world and the crypto world. A cryptocurrency exchange is similar to a stock exchange, but with a focus on cryptocurrency tokens rather than stock trades. Put simply, a crypto exchange is a platform where customers can buy and sell cryptocurrency assets.
An exchange can be designed with certain goals:
- To make the process as beginner-friendly as possible.
- To offer competitive pricing.
- Provide a platform for experienced and professional crypto traders.
Broadly speaking, there are two forms of crypto exchanges:
- Fiat-to-crypto exchanges.
- Crypto-to-crypto exchanges.
Fiat to Crypto
Fiat to Crypto exchanges helps you buy Cryptocurrencies in exchange for Fiat money. These exchanges have been designed to be as beginner-friendly as possible. Kraken and Coinbase and Bitbuy are perfect examples of fiat-to-crypto exchanges. You can use BitBuy to directly buy Bitcoin, Bitcoin Cash, Ether, Ripple, and Litecoin.
Crypto to Crypto
These exchanges help you exchange certain cryptos like BTC, ETH, BCH, etc. for other cryptocurrencies. Binance is a fine example of a crypto-to-crypto exchange. These are the exchanges that are geared more towards the experienced traders than the beginners.
Crypto exchanges deal with an insane amount of money on a daily basis. In fact, check out how much the top 5 exchanges (ranked according to transaction volume in the last 24 hours) measure up:
Adding everything up, these five exchanges have had a staggering $9,544,591,940 worth of transaction volume in the last 24 hours! Alright, so that’s a lot of numbers. So, where exactly do you get started?
If you are Canadian then the answer is pretty straightforward. Bitbuy.
Bitbuy – The Premier Canadian Exchange
Bitbuy is a Canadian owned and operated digital currency platform. Founded in 2020, Bitbuy has consistently provided Canadians with a dependable and trustworthy platform to buy and sell their cryptocurrencies. As already explained, Bitbuy was a fiat-to-crypto exchange where you can deposit Canadian dollars directly onto their website, to be exchanged for digital currency. Their headquarters are located in Toronto, Ontario and their services are available for Canadian traders across the country.
Bitbuy’s Purchases and Payment Methods
Bitbuy.ca accepts the following payment methods:
- Bank wire
- Interac Online
- Interac e-Transfer
- Flexepin vouchers
- Express Interac e-Transfer
Another interesting feature of Bitbuy is that there are no fees for withdrawing your cryptocurrency. You can send your crypto to a private wallet, free of charge. This makes it ideal for long-term investors who want to hodl on to their cryptocurrency.
Your first-time purchases will be held for one to three business days for security reasons. If you have a verified account and have made more than three transactions on Bitbuy, your funds will be available in real-time.
Kraken – The Premier American Exchange
If you are American then the answer is pretty straightforward. Kraken
Kraken is a well established international cryptocurrency exchange, originally based out of San Francisco. Kraken allows users to fund their accounts in Canadian dollars and has several Canadian dollar trading pairs. Kraken operates a small office in Halifax, Nova Scotia, that handles their Canadian operations and support.
Kraken has limited funding options compared to other Canadian exchanges. Currently, the only way to deposit Canadian dollars onto Kraken is by bank wire, meaning you will need to physically travel to your bank and process a wire transfer in order to use the service. Certainly not the most convenient funding method, but if you are willing to complete the process, Kraken is a good platform to use for advanced features.
Maybe their best feature, Kraken allows users to margin trade, meaning users can borrow funds to buy digital assets. This is an advanced tactic that can be tricky, but it can profitable if you know what you are doing.
Kraken also offers discounts to high volume traders, something not many other exchanges offer. Although Kraken offers some of the best feature sets and a selection of many altcoins, it suffers from a lack of popularity in Canada. Some of the CAD pairings that they offer have low trading volume, meaning if you are planning on buying a large amount, you may encounter price slippage and pay a higher price than you would have hoped for your digital currency. Kraken benefits from being a top international exchange and has good support as well as constant upgrades.
- Low Fees
- Margin trading
- Advanced trading platform with many features
- Limited funding options
- Low volume for Altcoin/CAD pairings
Ok, so how do I become a verified member?
The moment you become a verified member, you are entitled to use any payment method you want to fund your Bitbuy account. For verfiication, you will need to submit the required KYC details. The documents you must submit are:
- A color copy of your passport or driver’s license.
- A copy of a bank statement or utility bill showing your name and proof of address.
- A photo of yourself holding your government-issued ID.
- If the account is a business account, then additional documents proving the “authority to act on behalf of a corporation” should be submitted.
The entire verification process usually takes between one to three business days.
Customer support in Bitbuy
Bitbuy also has very prompt customer support. You can do the following to receive support on your query:
- Access the support section of the site and use the “Submit a request” button.
- Use the live chat support.
- Contact them via email or phone.
- If you live in Toronto then you can simply go to their office if needed.
How safe is Bitbuy?
Bitbuy is a division of First Ledger Corp, which is a Toronto based blockchain and digital currency company. They have stated that the exchange complies with all Canadian laws. They have also taken the following precautions to keep your data safe:
- Bitbuy uses Secure Socket Layer (SSL) technology to protect users.
- They also utilize two-factor authentication for additional security.
- Bitbuy.ca operates with a 95% cold storage reserve for all digital currencies held on the site and executes daily encrypted and distributed backups to avoid any implications or attacks.
Pros and Cons of Bitbuy
- Buy cryptocurrencies directly with Canadian dollars.
- Searches for competitive rates across multiple exchanges.
- Express Interac e-Transfer allows for two-hour funding
- Users can choose from several payment options.
- Bank Wire payment method allows for high deposit limits.
- Pre-purchase transaction pricing calculator.
- Allows for quick CAD withdrawals.
- It only offers BTC, BCH, ETH, XRP, and LTC.
If you are a Canadian citizen, then you can go to Bitbuy right now and create your own account to start trading. Click here to create your account.
How to Trade Bitcoin
There are a lot of ways that you can trade Bitcoin and cryptocurrencies and it is entirely dependent on what you want to gain from your investments and how much time are you willing to give to trading. As per IG , there are four main kinds of trading:
- Day trading
- Swing trading
- Passive trading
NOTE: Diagrams in this section have been taken from IG.
Day traders open and close their position within one single trading day.
This strategy works for traders who want to take advantage of short-term opportunities in the Bitcoin market which may come about in light of developing news or emerging patterns.
Swing traders catch trends in price movements the moment they form and hold onto it until the trend experiences a reversal. This strategy is great if you want to take advantage of market momentum.
Make several intra-day trades on minor price movements. If you are the kind of trader who would make several small frequent profits rather than wait for a big opportunity,
If you are a long-term holder or you want to just get into the crypto market and try out your hand then passive trading may be ideal for you. The idea is as straightforward as it is timeless. Wait for the price to drop to a certain level and buy-in. Wait for the price to go up to a certain level and buy out.
Unlike the other forms of trading, the time length between buying and selling can last for several days, weeks, months, and even years.
Fundamental Analysis vs Technical Analysis
The two most important tools to keep in mind while trading, are fundamental analysis and technical analysis.
This analysis looks at the big picture instead of price movements. When you are doing a fundamental analysis of a coin, you are looking at:
- The developer’s activity surrounding the coin. How many projects or positive developments is the project going through. Recently, Cardano’s value jumped by a significant amount after they released the mainnet version 1.5.
- The mainstream integration of the coin. Is some company or mainstream platform integrating the coin? If yes then that is going to significantly affect the price. Stellar XLM gained almost 50% in March 2020 after IBM announced the launch of World Wire, a model for cross border payments using the Stellar protocol.
- Significant world events can alter the price of the cryptocurrency as well as has been already discussed in this guide.
Keeping yourself up-to-date on all the current events is imperative for solid fundamental analysis.
Technical analysis is a tool, or method, used to predict the probable future price movement of a currency pair, cryptocurrency pair, or stock. It can be creative and dynamic which helps you gain a very deep perspective into the coin.
The core assumption behind Technical analysis is thus: 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.
You can read the first part of our two-part guide on technical analysis to gain more insight.
Bitcoin Trading: Common mistakes to avoid
#1 Having an itchy trading finger
Because of crypto’s volatility and the general public’s FOMO, people tend to overtrade. One thing you need to understand is that trading cryptocurrency is quite like gambling and isn’t an exact science. Don’t overplay your hand especially when you lack disposable income. Sure you can gain a lot but you can lose a lot as well.
#2 Blind Trading
Trading without any strategy is a fool’s errand. Take your time and do some research. Learn about the coins and learn about certain trading strategies. Learn about the exchanges and choose the one which will benefit you the most.
Also, people tend to invest in the same coins that their friends are investing in. While there is nothing in taking advice, you should combine advice with your own research.
#3 Giving in to emotions
Fear and greed are the two most common emotions when it comes to investors. Fear can cause you to not dive into a coin when it is ready or it can cause you to leave your trade prematurely. Conversely, greed can cause you to have blind and baseless faith in a particular coin or it may make you hold on to a trade way past its expiry trade. Do not give in to emotions, stay as rational as possible.
#4 Not learning from mistakes
It doesn’t matter whether you are a beginner or an expert, you will make mistakes. However, what separates the professional traders from the novices is the ability to learn and grow from those mistakes. If you misread a pattern the first time then that’s an honest mistake. If you misread the same pattern a second time then it is completely on you.
#5 Keeping your crypto in the exchange
Actually, this point provides a pretty awesome segue into our next section which is….
What are Cryptocurrency Wallets?
Every exchange has its own wallet, however, it is not the safest of options. If you plan on holding on to your crypto for a long time then you should look into cold wallets. The two kinds of cold wallets that we would recommend are hardware wallets and paper wallets.
Hardware wallets are physical devices where you can store your cryptocurrency. They come in a few forms but the most common is the USB stick style typified by the Nano Ledger series. Although many swear by them, hardware wallets are still prone to compromise. Firstly, you’re trusting that the company who made your wallet hasn’t logged all the private keys with a plan to raid wallets in the future. This applies to those bought from the company themselves, but particularly if a hardware wallet has been acquired second hand. Under no circumstances should anyone ever use a pre-owned hardware wallet.
Although loss or damage can spell disaster for the unprepared, hardware wallets can be restored. Therefore, it’s just as important to back up your hardware wallet, as it is your online hot wallets. You should keep restoration details in a safe place that only you, and anyone you plan to leave the money to know about. Remember, your restoration details open the wallet. Think very carefully about who (if anyone) you share them with. It’s also vitally important that you transfer all coins to a new wallet, should something unfortunate happen between you and anyone else who knows your private keys (spouse, etc.)
Here are some hardware wallets that you can use:
Paper wallets are an offline cold storage method of saving cryptocurrency. It includes printing out your public and private keys in a piece of paper which you then store and save in a secure place. The keys are printed in the form of QR codes which you can scan in the future for all your transactions. The reason why it is so safe is that it gives complete control to you, the user. You do not need to worry about the well-being of a piece of hardware, nor do you have to worry about hackers or any piece of malware. You just need to take care of a piece of paper.
You don’t need to pay any money to create paper wallets. This makes it an economically viable option. You can go to Wallet Generator to create your own Bitcoin paper wallet.
Conclusion: How To Trade Bitcoin
Whatever you have learned in this guide should help you get started with your trading. However, you will need to keep learning and to gain more and more knowledge. Having said that, you should be at least ready to make your first simple trade. So, why don’t you hop on to Bitbuy right now and trade bitcoin!
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