Effective Bitcoin Trading in Five Steps

Rather than starting to invest in Bitcoin, trading Bitcoin can be even more profitable than investing alone. Trading Bitcoin involves taking full advantage of the asset’s signature notorious volatility, by buying and selling each wild price swing, or through longing or going short Bitcoin on margin trading platforms using leverage.

Trading does come with added risks beyond investing alone and requires some time to learn, skill, patience, and capital to get started.

Bitcoin Trading in 5 Steps

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This guide will teach you all about cryptocurrencies like Bitcoin, Ethereum, and Litecoin, along with how to make money day trading them. For now, here’s how to get started with Bitcoin trading in five simple steps:

• Step 1: Learn More About Bitcoin
• Step 2: Choose The Way To Trade Bitcoin
• Step 3: Choose A Bitcoin Trading Strategy
• Step 4: Learn How To Make Your Capital Grow Faster
• Step 5: Start To Trade Bitcoin

Step 1: What You Need To Know About Bitcoin: The First Ever Cryptocurrency

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Bitcoin is a financial asset unlike anything before it, making it exhaustive to research and fully grasp. Because it is such a complex system and nothing else similar exists, the emerging technology is often intimidating or confusing for newcomers.

For now, Bitcoin remains a speculative asset that is ideal for trading rather than the replacement for fiat currency many believers and early supporters expect it to eventually become.

We’ll do our best to explain what Bitcoin is, why you should trade it over investing, what factors impact Bitcoin price, how to read its price charts, and much more.

What Is Bitcoin? Satoshi Nakamoto’s Vision For The Future Of Money

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Bitcoin is the first ever cryptocurrency designed by Satoshi Nakamoto in the wake of the 2008 economic recession. Back then the housing market crumbled resulting in unprecedented bank bailouts.

To serve as a solution to rapidly growing monetary mismanagement, Bitcoin was designed to operate without a need for a central authority or trusted third-party or government entity. It allows users to take back control and be their own bank account.

Bitcoin is both a cryptocurrency and a blockchain protocol by the same name. BTC is the ticker symbol Bitcoin uses, as well as XBT. The Bitcoin supply is limited, hard-capped at just 21 million BTC.

Using the Bitcoin network, users can send bitcoins BTC to and from other addresses and wallets on the Bitcoin network. The network itself is powered by a process called proof-of-work.  Miners are issued a block reward incentive of BTC in exchange for operating energy-hungry machinery in order to generate hash power that keeps Bitcoin churning.

Bitcoin operates through a process called “proof-of-work.” Proof-of-work, which takes place through Bitcoin mining, keeps the whole network in operation, provides additional security, and much more.

The leading cryptocurrency by market cap shares many similarities with gold, earning itself the moniker of digital gold. The asset is said to have potential as a safe haven asset and hedge against inflation. However, Bitcoin only exists on the internet, giving it benefits beyond what gold in terms of storage alone. Not having a physical form also allows Bitcoin to be easily moved, while gold stays locked away in vaults.

Bitcoin could very well some day replace all fiat money, and become the new global reserve currency. It’s because of all this promise and potential that price predictions reach as high as $100,000 USD to $1 million per BTC. If these prices happen, it would push the Bitcoin market cap beyond that of golds.

Why Trade Bitcoin? How Trading Beats Investing In BTC

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Bitcoin trading involves exchanging the crypto asset for fiat currencies or altcoins, in an attempt to profit from the price fluctuations that take place in between each buy or sell order. People trade cryptocurrencies to earn more fiat currency, increase their crypto holdings, or to prevent capital loss during crypto market downturns.

Trading cryptocurrencies can be extremely profitable, but comes with larger risks than investing alone. Because cryptocurrencies are speculative assets, they often experience wild, volatile price swings. For investors this can be tough to stomach but for traders, it makes for exciting opportunities around every corner.

Traders attempt to profit from each peak and trough, and any intraday volatility in between. Each day, with how volatile Bitcoin and other cryptocurrencies are there could be dozens of setups that traders can take advantage of.

What Moves Bitcoin Price?

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There are many important factors that influence Bitcoin price, these include:

• Speculation and Hype: Bitcoin and altcoins are speculative assets with use cases that don’t yet exist. White papers point to future uses in a world where these assets thrive, but right now they’re primarily driven by hype in terms of valuations. That’s why the very same assets that were trading at $20,000, $1400, and $3 are now trading at $9,000, $250, and 20 cents. Because once the hype of the crypto bubble ended, the bubble burst and valuations came back to reality.
• Supply and Demand: Supply and demand also impacted lower prices. The more assets being sold (supply) versus assets being bought (demand) is how prices fall. Bitcoin’s supply is hard capped, and along with mining make the dynamics of supply and demand in the crypto market unusual compared to other assets.
• News and Events: Certain breaking news or situations, such as new technology debuts, partnerships, or even hacks can send prices flying in one direction or another. Key events such as elections, seasonality, or product releases can also have an impact.
• Regulation and Adoption: Nothing can have a stronger influence on crypto than regulation and adoption. In the short term, regulatory changes could cause an enormous collapse due to demonetization. But long term adoption could bring BTC prices to astronomical predictions.

How To Read Bitcoin Price Charts

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Bitcoin price charts utilize the same candlesticks or chart types used in traditional markets like stocks and forex trading. The same technical analysis strategies, patterns, tools, and indicators are used in Bitcoin trading.

BTC is most often traded against USD but is also traded against other cryptocurrencies. It also exists in its derivative form as XBT.

How To Analyze Bitcoin’s Price

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There are many ways to analyze Bitcoin price action.

• Fundamental analysis differs in crypto from traditional assets, but technical analysis is exactly the same as trading forex and other markets.
• Technical analysis reviews price action in search of chart patterns, candlestick patterns, signals, setups and more.
• Technical analysis helps traders to potentially predict market movements before they occur, find trend lines, support, resistance, and more.
• Japanese candlesticks can form specific sequences or patterns that act as powerful signals also predicting future price movements.
• Trend lines can form chart patterns that resemble geometrical shapes. Common chart patterns include triangles, wedges, and more, and can lean bullish or bearish.

Many helpful technical indicators and oscillators can be used for buy and sell signals from. The most popular trading indicators used in Bitcoin trading include the Bollinger Bands, RSI, Parabolic SAR, MACD and more. Detailed strategies using these tools are available below

Fundamental analysis uses a combination of qualitative and quantitative analysis to research the underlying value of Bitcoin and other assets.

Quantitative analysis looks at statistical data metrics measurable by performance. In crypto, this primarily analyzes mining metrics or on-chain analytics like transaction volume and hash rate.

Because mining is so essential to Bitcoin network health, a number of Bitcoin fundamental analysis tools exist as technical indicators that can be added to price charts. This includes hash rate, energy value, and cost of production.

Qualitative analysis calls for instinct-based but informed decisions about things like executive teams or business categories. In crypto, focusing on investing in DeFi assets because of the potential APY fueling the industry’s rapid growth, for example, is this type of analysis. It’s based on a gut call related to data.

Researching an asset’s whitepaper, community, dev team, and more is also vital to fundamental analysis in crypto.

Step 2: How Bitcoin Trading Works

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Bitcoin trading is a simple process. Buy Bitcoin at a low price and then sell it at a higher price. Rinse and repeat. However there are several ways to trade Bitcoin and other crypto assets that will be outlined in the section ahead.

Different Ways To Trade Bitcoin For Profits

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There is more than one way to trade Bitcoin. Here are the most common ways:

Spot Trading: Spot trading involves buying and selling actual assets in an attempt to extract a return from the price fluctuation in between each order type. The aforementioned buying low and selling high is the primary strategy.
Derivatives Trading: Bitcoin derivatives however allow different types of contracts based on Bitcoin’s price. These types of contracts include futures, options, and CFDs, or contracts for difference. Derivatives let traders long and short Bitcoin to profit whichever way the market turns and not just be tied to profiting just from rising prices. Long and short positions also allow for more strategic positioning, such as hedge positions to protect capital.

Bitcoin Trading Terms

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We have created a miniature glossary focusing only on Bitcoin trading related terms for you to become familiar with:

• Bitcoin: A new form of digital currency protected by cryptography for anonymity and security.
• Long: A contract betting the price of an asset will rise.
• Short: A contract betting the price of an asset will fall.
• Leverage: A tool to amplify returns by using margin as collateral.
• CFD: Contract for difference, an agreement between two parties where the difference in price at open and close determines if profits or losses are made.
• Hedge: Opening a long and short at the same time as part of a strategy.
• Stop Loss: A risk management strategy that triggers a buy or sell order when a specified price is reached.
• Market Price: The price of an asset at the very moment, agreed upon by buyers and sellers.
• Scalping: Rapidly entering trades in and out for smaller, faster gains.
• Swing trading: Larger time frame trades across broader market movements.
• Support: Support levels are where a large cluster of orders exist, where the price of an asset could bounce.
• Resistance: Resistance levels are where a large cluster of orders exist, where the price of an asset could be rejected.

Step 3: Common and Profitable Bitcoin Trading Strategies

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Nearly infinite trading strategies are possible and can be profitable. Finding the right one for you that provides regular success is most critical.

Here are some of the most popular and commonly used Bitcoin trading strategies:

Relative Strength Index Bitcoin Trading Strategy

The Relative Strength Index is a technical analysis indicator that measures the strength of a trend and signals if an asset is oversold and overbought. It tells traders when the tide is turning on a trend.

An RSI reading of over 70 says an asset is overbought while under 30 says its oversold.  The more powerful the movement or trend, the higher or lower the reading that’s possible.

A short can be opened when Bitcoin price reaches overbought conditions or a long position can be opened when the asset becomes oversold is an ideal trading strategy.  The below example demonstrates this strategy in action. The first two signals are accompanied by a divergence between price action and the indicator, signalling a reversal.

MACD Bitcoin Trading Strategy

Like the RSI, the MACD, which stands for moving average convergence divergence, signals when assets are oversold or overbought. But it does so through a different mechanism. When the two moving averages diverge, an asset is oversold.

However when the two moving averages cross over, it can act as a long or a short signal. In the below chart, MACD crossovers are used to signal when to take a long or a short position.  The trade can be closed on the opposite signal.

Bollinger Bands Bitcoin Trading Strategy

Bollinger Bands widen and tighten to visualize relative volatility in an asset. The tool consists of a moving average and two standard deviations.

Passing through the middle line can act as a signal to short or long Bitcoin. In the below example, you can see exactly how this works.

Parabolic SAR Bitcoin Trading Strategy

Parabolic SAR is one of the most reliable and proven indicators. However, it supplies conservative and often late short or long signals. The Parabolic SAR which stands for stop and reverse, signals when and where a reversal takes place.

Dots appear above and below price action depicting bullish or bearish price action. When price touches the SAR dots, a reversal is under way. But because price had to rise or fall to touch the SAR dots, the reversal technically already took place but is now confirmed. This is why it is so successful and considered conservative.

The tool’s lagging effect, however, makes it great for setting a trailing stop loss that moves up or down with each SAR dot.

In the below example, you can see when and where reversals take place in Bitcoin.

Step 4:  How To Make Your Capital Grow Faster

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Trading is all about growing capital and protecting wealth from risk and loss. The goal is always to grow capital at the fastest rate possible without increasing loss.

There are several ways to speed up capital growth. Here are some of the most common ways traders do so:

Using Leverage To Amplify Profits

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By putting a portion of capital up for collateral as margin. Some trading platforms will allow a trader to apply leverage to a trade.

Leverage lets traders to amplify their trades for larger gains using the same amount of capital. Leverage also amplified losses, so proper risk management is necessary and caution should be taken.A complete loss of capital or liquidation is possible.

How To Make Profits From Bitcoin’s Ups And Downs

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Buying low and selling high is the name of the game for spot traders, but this only really lets traders profit when prices are rising. However, CFD trading platforms allow traders to do more than just buy and sell assets. This type of platform enables long and short positions to be taken, so traders can profit from whichever direction the market heads next.

How To Reduce Risk And Prevent Capital Loss

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Traders can employ certain risk management tactics and strategies to protect from capital loss and reduce risk. Setting a stop loss and other proper planning acts as risk management in and of itself, but more advanced strategies also exist.

Getting control of emotions and sticking to a trading plan can also help to protect against loss and maximize returns. Even portfolio diversification by trading and investing in numerous assets can have a risk reducing effect.

Step 5: Start To Trade Bitcoin

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Now you know what Bitcoin is, and how and why to trade it, it’s time to get started actually trading yourself. Follow these easy instructions to get started with a Bitcoin trading platform and begin trading BTC.

Choose a Trading Platform

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First, you must select a trading platform. Find a reliable Bitcoin-based margin trading platform offering CFDs with leverage on forex, stock indices, commodities, and cryptocurrencies like Bitcoin.

Open free account

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Register For A Free Trading Account

Once you have selected an advanced Bitcoin based trading platform, it is time to get registered for a free account. Registration takes one minute or less. Simply enter your email, country, and confirm your email address to begin.

Make a Deposit

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Some brokers require a small minimum deposit of 0.001 BTC to get started. After depositing Bitcoin to a BTC wallet address, the next step is trading that Bitcoin for profit.

Start Trading Bitcoin

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That’s it, you are now ready to take your first position in Bitcoin. Load up the trading terminal, perform some technical analysis and set your limit order in accordance with your trading plan and take your first position in BTC.

FAQ: Frequently Asked Questions About Bitcoin Trading

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What is Bitcoin trading?

Bitcoin is investable, but trading is even more profitable. It involves profiting as prices fluctuate by buying and selling the asset in between each price swing.

How do you trade Bitcoin?

Trading either involves swapping the coin for fiat, or another crypto, or using derivatives contracts like CFDs.

Is trading Bitcoin profitable?

Bitcoin trading can be extremely profitable for those who properly time each peak and trough in the crypto market. It is more profitable than investing alone.

How much does it cost to start Bitcoin trading?

The only cost associated is a small initial deposit of just 0.001 BTC to get started trading on some brokers.

Where can you learn Bitcoin trading?

Beginners can get started on the PrimeXBT blog or through the platform’s help center. Or there are several online trading courses and resources available.

Is it a good time to invest in Bitcoin?

Yes. Now is as good of a time as any to start investing in Bitcoin. You can buy BTC from the broker dashboard using a credit card or from fiat gateways like Coinbase. Then you can trade BTC by sending it to a BTC address.

Can you lose money on Bitcoin?

Yes. Losing money on any investment is possible and trading only heightens those risks. With Bitcoin, however, there is a chance its price goes to zero and fails as a financial technology experiment. This could be a result of government intervention or a massive hack, or even a solar flare that knocks out the internet. Therefore it is recommended to never invest more than you can afford to lose. 

What do you do when Bitcoin is going up?

Opening a long position will allow traders to profit from uptrends.

What do you do when Bitcoin is going down?

Opening a short position will allow traders to profit from downtrends.

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