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How to Trade Bitcoin In 2021

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The meteoric rise in the value of Bitcoin has made it the preferred choice of hundreds of thousands of people around the world to capitalise on the unprecedented movement of Bitcoin’s price for profits. Trading is one of the ways where people can actively buy and sell the largest cryptocurrency in the world.

By going through this guide, you will learn how to trade Bitcoin. You will understand how to make accurate price predictions through technical and fundamental analysis. If you are interested in Bitcoin trading, keep in mind it is a non-stop activity and if you are to make any real profits, you will need to keep up to date on the latest Bitcoin news and developments.

What is Bitcoin Trading and How is It Different from a Standard Purchase?

Purchasing Bitcoin for long term holding is one thing; trading it is another. Buying Bitcoin means that you own the digital assets, while pure trading is all about using different contracts offered by a broker to capitalise on the varying value. With a brokerage platform (as opposed to a cryptocurrency exchange), you don’t own Bitcoin, but buy and sell derivatives. Holding Bitcoin on an exchange has its advantages, such as the ability to take out loans against it. This isn’t the case when using a brokerage. You, as a trader, never truly hold Bitcoin there and just partake in the different contracts and deals that are powered by the underlying value of Bitcoin.

Trading Bitcoin on broker platforms, you will normally find three different ways to cash in on the rise or fall of Bitcoin:

  • CFDs: Contract for Difference (CFD) is a product that only reflects the ever-changing value of Bitcoin as the underlying asset without the trader needing to buy the digital currency. Buying CFDs when Bitcoin is dipping and selling when it’s value is high lets the trader profit by pocketing the difference.
  • Futures: Futures are time-bound trades that the investor is obliged to close at a predetermined time. Like CFDs, the price difference can potentially generate profits.
  • Options: Unlike Futures, a trader has the right to close the contract at any time. This can help in profiting when the trader is comfortable with the value increase, or close if the contract is starting to build losses.

Traders can instantly buy the contracts and sell them, allowing for a much faster way to make profits than holding Bitcoin.

For effective trading, a user must be careful in selecting a broker that is registered with local authorities. Using authentic and registered brokers mitigates the chances of fraud and scam. A good broker will also provide a vast range of support services, making the trading experience enjoyable. However, it’s not just the registered broker that keeps your investments safe. The trading platform’s service can vary, not only due to its location but yours as well. The type of derivatives offer might vary and the leverage level will also define how much risk exposure you will get. It is better to keep all this into account and define your trading strategy in advance to make sure you get the best out of Bitcoin trading.

Many people who are dabbling with trading for the first time largely depend on copying or mirroring the movement of big traders. This can be a safe bet at first glance, as following the strategies of more seasoned traders has fewer chances of losses, but this also comes with a potential downside. Seasoned traders can trade in large volumes, with cushions in place for going in the red. Following them blindly can lead to steep losses. With deeper pockets, they also have a wider margin for different fees and charges that brokers take, which can quickly eat up into your much smaller profits.

Our Step-by-Step Guide on Bitcoin Trading

We have created a detailed guide on how to start trading Bitcoin, with each step carefully explained and detailed for your understanding.

1. Combine Fundamental and Technical Analysis

Any trading involves two types of information input. Each one has its parameters and can lead to different results. The game here is to take all these inputs and create a balance of the two.

Fundamental analysis is all about the quality of information, such as:

  • News: As a global digital asset, a piece of news rising from one part of the world concerning Bitcoin can have an impact on it all over the planet. Visit good crypto news platforms and websites, paying close attention to Bitcoin adoption, regulations, any scams or hacks and in general, any news that can sway investors and traders.
  • Supply and Demand: Bitcoin is subject to price fluctuation due to varying supply and demand. Though hard-coded to produce 21 million coins in totality, the supply in the trading and exchange market can change as people pour in money or pull out Bitcoins to private wallets. 
  • Follow the general rule: An increase in supply will always put downward pressure on its price, while an increase in demand will push up its value.
  • Mining Hashrate: Bitcoin uses Proof of Work (PoW) to run complex computations and complete transactions and create new blocks. The more miners compete, the higher the hash rate. A higher hash rate indicates that miners are finding it profitable to run as Bitcoin’s price is increasing.

Technical indicators are all about crunching numbers. Using a range of numerical data, you can determine where the potential price of Bitcoin lies, helping you decide to make a trade. Most common technical indicators used are:

  • Moving Averages: Using prices at set intervals from past data, MA indicates how the price is moving averagely and mathematically, what the price should be in the future. MAs can have different values for different periods and many traders use variations of it, such as EMA and WMA.
  • Relevant Strength Index: An indication of the market momentum, RSI gives an overview of Bitcoin as overbought or oversold. A spiking price but with overbought indication means that there is a retraction on the horizons, while an oversold and falling prices show that Bitcoin will rise soon.
  • Moving Average Convergence Divergence: The difference between a 26 and 12 period EMA is called a Moving Average Convergence Divergence (MACD) and is a good technical indicator that shows when traders are ready to buy Bitcoin. A third, 9 period EMA is plotted against MACD. When MACD crosses the 9 EMA and rises, this leads to traders buying and vice versa.

There are many other technical indicators such as the Golden Cross, Fibonacci, Depth Charts etc. which can help you in making decisions.

2. Choosing a Trading Strategy

Though you, like every trader, will have only one goal in Bitcoin trading: making a profit, the essential thing to consider here is how to achieve it. There are several trading strategies that you can employ:

  • HODL: The word made famous by a typo, Hodling is holding on to your bitcoins. Since the king of cryptos is designed to be deflationary, it will likely increase in value over large time frames (months, even years). Holding on to Bitcoin and watching the price movement, only selling when there is a huge rush and buying it back after a retraction or crash sums up this strategy.
  • Day Trading: Bitcoin is infamous for its volatility, fluctuating several dollars (even hundreds of dollars) over the course of a single day. These movements can be captured in day trading, opening positions and closing them only a few hours later, sometimes in a few minutes even. The aim here is to make as many trades as possible and liquidate bitcoins before calling it a day, only to start afresh in the morning.
  • Swing Trading: Just like day trading, swing trading relies on capitalising on the price fluctuations, but this time over a few days or weeks. Relying heavily on technical indicators, it is only possible if your analysis is correct about Bitcoin being under or overvalued with good chances of price corrections.
  • Hedging: Working in the opposite direction, hedging is all about cutting losses. If you want to protect your wealth, you can open hedged positions where the cryptocurrency in the order would be sold off if it falls beyond a certain level. This way you can liquidate your Bitcoin and use the same money to buy more of it when the price is expected to go up.
  • Scalping: Very similar to day trading, scalping works on a much smaller time scale, from a few seconds to minutes, with very small profits being made. Through making very small, but numerous trades, the tiny profits made can aggregate into a good amount at the end of the day.

There are several trading strategies, such as copy trading, news trading and others. Each carries its benefits and drawbacks. In the end, it is you who has to decide which one is the best and then stick to it.

3. Select an Appropriate Platform for your Needs

Having the right platform for trading Bitcoin is a fundamental need. Strategies and the ability to make accurate predictions will not help you if you are trading on a platform that doesn’t fit your needs.

Determine whether you need a derivative exchange or a proper broker. Although both provide similar options and services, a broker is a dedicated trading platform and more compliant with regulations. Geared towards more serious trading, brokers will allow a larger volume of traders with a lesser fee, but at the same time, derivative exchanges allow for more risky trades to be made and therefore, people who want to go for a greater risk would find themselves more welcomed on these platforms.

Always go for a platform that is properly registered. Apart from the very high chances of being shut down due to non-compliance, unregulated platforms could possibly be a scam designed to rob you of your investment.

Trade Bitcoin Today!

4. Setting Up Your Account

Once you have decided on which platform you want to trade, simply set up your account. This can be started by going through the registration or sign-up procedure. The trading platform will ask for a username and a password to be created, along with a registered email address for verification.

Once the login credentials are created and verified through the official email sent, you will need to go through the identity verification process. The KYC process is a must under regulations and the trading platforms will either integrate it into the signup procedure or ask for it separately. In any case, verifying your identity is essential on any good trading website. A typical verification will require you to provide documentation such as a copy of your government-issued ID, proof of residency and sometimes, even your source of income.

Once verified, you will be able to deposit fiat or crypto (depending on your platform’s funding support). Head over to your account wallet and find the Deposit option. Use any of the supported methods (direct crypto transfer, connect your bank or credit/debit card, etc.) to send the funds to your account.

5. Prepare your Trading Position

Go over to the trade option after funding. The platform will show you a trading interface. Each website will have a different outlook towards how the trading options are presented, but they will always have a few common elements, such as the buying and selling Bitcoin options, trading graphs, order books, your open positions and executed traders, etc.

Below are some examples of interfaces:

On OKEx, the trading pairs are on the extreme left, with the current Price and index next to it. The trading price is below the price index and you can select your trading positions on the right of the pricing index.
On Coinbase, the trading graph is in the middle, with the option to place buy or sell orders on the extreme left.
On OKEx, the trading pairs are on the extreme left, with the current Price and index next to it. The trading price is below the price index and you can select your trading positions on the right of the pricing index.

If you are new to Bitcoin trading, you might feel a bit overwhelmed with the different trading nomenclature. Following are a few terminologies in trading that you should be aware of:

Short or Long Positions?

If you believe that the price of Bitcoin is all set to rise, you can opt for a long position. This essentially means you will trade Bitcoin for a specific price and then sell it for a higher value, making profits. Now consider if your technical and fundamental analysis say Bitcoin price is going to dip. You wouldn’t make any trades to risk losing, right? Shorting is a position in which you can make profits even when the market is receding. You make money by betting on the falling value.

Shorting can be a very profitable trading strategy given that money is still made, but it can be a bit riskier. Unlike long positions, where you can lose your invested amount at most, shorting in a rising market can potentially increase your losses well beyond your expectations .

Limit or Market Order

A Market Order is as the name says, an order where Bitcoin’s market price is used. In a market order, you will only find the option to enter the amount you wish to buy and sell. If you are looking for a better rate than the market, you can go for the Limit Order. Apart from entering the Bitcoin amount you want to trade, you will also be able to define your desired rate. This way, you can achieve a better price.

A Limit Order can take time to execute when placed. The market conditions may not reach the level where you want it, but if you have done your cost to benefit analysis correctly, the wait can be worth it.

Trade Position Amount and Leverage

Your trade position amount is what you place in the order. Many platforms give another edge to users by offering leverages. This allows any seller or buyer to gain more exposure to the market by placing less than the actual amount in the trade. The broker or the platform extends credit to the users in this case. 

Trading platforms define the margin requirements and display it in ratios, such as 10:1, which means a 10% leverage. Holding $1,000, you can open up a trade for $10,000 for Bitcoin. The increased exposure translates into higher profits, but the pendulum can swing both ways, meaning losses are also amplified.

Risk Management: How to Decide the Right Stop-Loss and Take Profit values for Your Bitcoin Trade

Stop-Loss orders are employed to mitigate losses as the market turns red. Placing two key input Bitcoin values determine when the order is triggered: the Stop Price (defined market rate) and the Limit (price you want to be sold in the market once triggered). Using your analysis, you can place the Stop-Loss orders just below key support levels, where you are sure that the market will bounce back. In case Bitcoin value keeps dropping and crosses the support level, the order will be triggered and your positions closed, saving your losses.

Trailing Stop-Loss orders is a variation in which the order continues to adjust to the changing floor resistance levels as the market goes up. Should Bitcoin fall below the latest support level, the order would trigger. Trailing Stop-Loss orders allow traders to continually move their closing positions to mitigate losses while allowing them to make as much profit as possible. Stop-Loss and Trailing Stop-Loss orders are very good for traders who aren’t very active; if the market goes down, they can automatically pull out.

Review and Execute Your Bitcoin Order

Once you have done your homework and are sure of the market swing, you can select the type of order that suits you best, enter the required information, such as the amount of the order, the limits, leverages and other factors. It is wise to look over the information one last time to ensure that everything is selected and entered correctly.

When confident, you can simply tap the order placement button (buy/sell) and your order will be placed.

Close Your Trade for Profits or Limit your Losses

An order that is executed with the right analysis will give you profit. Depending on the order type, you can close it manually or it will be done automatically. Normally, Take Profit settings are used by traders which close the order when sufficient profits are realised. Using Take-Profit and Stop-Losses combinations can maximise the amount of profits that you can achieve and at the same time limit your losses in a bear market.

For example, when you place a limit order to sell, you can set in a Bitcoin higher value (the point where you are comfortable with profit targets being achieved) and the order will be executed when the conditions are met. At the same time, setting up a Stop-Loss order at key support level will still let you take away a tiny profit, or at least mitigate your losses.

Other Considerations

Numerous other factors can affect your decision of selecting the right trading platform, such as security history of the platform itself, deposit/withdrawal and trading fee, the depth of data their interface shows etc.

Other trading platform independent factors that come into play are cryptocurrency related news, new regulations or laws, adoption etc. You must keep in mind all of these and others as every little factor can have an impact on the market and your trades.

Frequently Asked Questions

  1. If you believe you have the knack for trading, there’s no harm in trying to make profits from Bitcoin.

  2. Bitcoin trading has a very low entry barrier, with as little as 0.001 BTC order size. You can invest very little and still be able to trade.

  3. In Futures, the trader is obliged to close the contract at the time of expiry. Perpetuals are a variation of Futures where there is no contract expiry time and it can continue perpetually.

  4. Not necessarily. Many derivative exchange platforms and brokers accept Bitcoin as funding sources for trading.

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