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This post covers the basics of Bitcoin trading. It will help you become familiar with the basic terms, understand the different ways of "reading" the market and its trends, draw up a trading plan, and learn how to execute that plan on the Bitcoin exchanges.
Bitcoin
Trading Summary Bitcoin trading is all about buying low and selling high. Unlike investing, which means holding bitcoins for a long time, trading deals are about trying to predict price movements by studying the industry in general and price charts in particular.
There are two main methods that people use to analyze the price of Bitcoin - fundamental analysis and technical analysis. Successful trading takes a lot of time, money and effort before you can actually succeed in it.
To trade Bitcoin, you need to do the following:
Open an account with a bitcoin exchange (e.g. CEX.io, eToro, Bitstamp)
Verify your identity
Deposit money into your account
Open your first position on the exchange (for example, buy or short)
In short, it is Bitcoin trading. If you need a really detailed explanation, keep reading.
1. Bitcoin Trading versus Investing
The first thing we want to do before diving into the subject is to understand what Bitcoin trading is and how it differs from investing in Bitcoin.
When people invest in bitcoins, it usually means that they are buying bitcoins for the long term. In other words, they believe that the price will eventually rise, regardless of the ups and downs 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 hold the currency in the long run (HODL is a popular term in the bitcoin community that was actually born out of a typo in the word “hold” - in an old 2013 post on the BitcoinTalk forum ).
Bitcoin traders, on the other hand, buy and sell Bitcoin in the short term when they think they can make a profit. Unlike investors, traders see Bitcoin as a tool for making a profit. Sometimes they don't even bother learning about the technology or ideology of the product they are selling.
That being said, people can trade bitcoin and still take care of it, and many people invest and trade at the same time. When it comes to the sudden rise in popularity of trading bitcoin (and multiple altcoins), there are several reasons.
First, Bitcoin is highly volatile. In other words, you can make good profits if you manage to predict the market correctly. Secondly, unlike traditional markets, bitcoin trading is open 24/7.
Most traditional markets, such as stocks and commodities, have open and close times. With Bitcoin, you can buy and sell whenever you want.
Finally, Bitcoin's relatively unregulated landscape makes trading relatively easy - without the need for lengthy identity verification processes.
2. Trading Methods
While all traders want the same thing, they practice different methods to get it. Let's look at a few examples of popular types of trading:
Day Trading
This method involves making several trades during 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 their trades by the end of each day.
Scalping
This day trading strategy has become popular lately. Scalping tries to make substantial profits on small price changes and is often referred to as "making a penny in front of the rink."
Scalping is focused on extremely short-term trading and is based on the idea that making a small profit limits risks many times over and creates benefits for traders. Scalpers can make dozens or even hundreds of trades in one day.
Swing Trading
This type of trading attempts to exploit natural fluctuations in price cycles. Swing traders try to spot the start of a certain price movement and then enter a trade. They hold on until the movement dies down and take profits.
Swing traders try to see the big picture without looking at their computer screen. For example, swing traders can open a trade position and keep it open for weeks or even months until they achieve the desired result.
3. Methods of analysis: fundamental and technical.
Can I Predict Bitcoin Price Movement?
The short answer is that no one can predict exactly what will happen to the price of bitcoins. However, some traders have identified certain patterns, methods and rules that allow them to make profits in the long term. No one takes exceptionally profitable trades, but the idea is this: at the end of the day, you should see a positive balance, even if you have suffered some losses in the process.
People follow two main methodologies when they analyze bitcoins (or whatever they want to trade, for that matter) - fundamental analysis and technical analysis.
Fundamental analysis
Attempts to predict price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates the Bitcoin industry, currency news, Bitcoin technical developments (such as the Lightning Network), rules around the world, and any other news or issues that could affect Bitcoin's success.
This methodology looks at the value of Bitcoin as a technology (regardless of the current price) and the corresponding external forces to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis predicts a possible drop in prices.
Technical analysis
Attempts to predict price by studying market statistics such as past price movements and trading volumes. He tries to identify patterns and trends in price and, based on them, draw a conclusion about what will happen to the price in the future.
The basic assumption behind technical analysis is this: no matter what is currently happening in the world, price movements speak for themselves and tell some kind of story that helps you predict what will happen next.
So which methodology is best?
As I said in the previous chapter, no one can accurately predict the future. Fundamentally, a promising technological advance could end in failure, but technically, the schedule doesn't behave the way it used to.
The simple truth is that there are no guarantees for trading. However, the correct combination of both methodologies is likely to produce the best results.
4. Understanding the Terms of Bitcoin Trading
Let's continue to break down some of the confusing terms and statistics that you will come across on most bitcoin and crypto exchanges:
Trading platforms versus brokers versus trading platforms
The Bitcoin trading platform is online sites where buyers and sellers are automatically matched. Please note that the trading platform is different from a Bitcoin broker like Coinmama.
Unlike trading platforms, brokers sell you bitcoins directly and usually for a higher fee. A trading platform is also different from a marketplace like LocalBitcoins, where buyers and sellers talk directly to each other to complete a trade.
Order Book
A complete list of buy and sell orders is indicated in the market order book, which can be viewed on the trading platform. Purchase requisitions are called requisitions because people place bids on prices in order to buy bitcoin. Sell orders are called asks because they show the sell price that sellers are asking for.
Bitstamp Order Book
Bitcoin
Trading Summary Bitcoin trading is all about buying low and selling high. Unlike investing, which means holding bitcoins for a long time, trading deals are about trying to predict price movements by studying the industry in general and price charts in particular.
There are two main methods that people use to analyze the price of Bitcoin - fundamental analysis and technical analysis. Successful trading takes a lot of time, money and effort before you can actually succeed in it.
To trade Bitcoin, you need to do the following:
Open an account with a bitcoin exchange (e.g. CEX.io, eToro, Bitstamp)
Verify your identity
Deposit money into your account
Open your first position on the exchange (for example, buy or short)
In short, it is Bitcoin trading. If you need a really detailed explanation, keep reading.
1. Bitcoin Trading versus Investing
The first thing we want to do before diving into the subject is to understand what Bitcoin trading is and how it differs from investing in Bitcoin.
When people invest in bitcoins, it usually means that they are buying bitcoins for the long term. In other words, they believe that the price will eventually rise, regardless of the ups and downs 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 hold the currency in the long run (HODL is a popular term in the bitcoin community that was actually born out of a typo in the word “hold” - in an old 2013 post on the BitcoinTalk forum ).
Bitcoin traders, on the other hand, buy and sell Bitcoin in the short term when they think they can make a profit. Unlike investors, traders see Bitcoin as a tool for making a profit. Sometimes they don't even bother learning about the technology or ideology of the product they are selling.
That being said, people can trade bitcoin and still take care of it, and many people invest and trade at the same time. When it comes to the sudden rise in popularity of trading bitcoin (and multiple altcoins), there are several reasons.
First, Bitcoin is highly volatile. In other words, you can make good profits if you manage to predict the market correctly. Secondly, unlike traditional markets, bitcoin trading is open 24/7.
Most traditional markets, such as stocks and commodities, have open and close times. With Bitcoin, you can buy and sell whenever you want.
Finally, Bitcoin's relatively unregulated landscape makes trading relatively easy - without the need for lengthy identity verification processes.
2. Trading Methods
While all traders want the same thing, they practice different methods to get it. Let's look at a few examples of popular types of trading:
Day Trading
This method involves making several trades during 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 their trades by the end of each day.
Scalping
This day trading strategy has become popular lately. Scalping tries to make substantial profits on small price changes and is often referred to as "making a penny in front of the rink."
Scalping is focused on extremely short-term trading and is based on the idea that making a small profit limits risks many times over and creates benefits for traders. Scalpers can make dozens or even hundreds of trades in one day.
Swing Trading
This type of trading attempts to exploit natural fluctuations in price cycles. Swing traders try to spot the start of a certain price movement and then enter a trade. They hold on until the movement dies down and take profits.
Swing traders try to see the big picture without looking at their computer screen. For example, swing traders can open a trade position and keep it open for weeks or even months until they achieve the desired result.
3. Methods of analysis: fundamental and technical.
Can I Predict Bitcoin Price Movement?
The short answer is that no one can predict exactly what will happen to the price of bitcoins. However, some traders have identified certain patterns, methods and rules that allow them to make profits in the long term. No one takes exceptionally profitable trades, but the idea is this: at the end of the day, you should see a positive balance, even if you have suffered some losses in the process.
People follow two main methodologies when they analyze bitcoins (or whatever they want to trade, for that matter) - fundamental analysis and technical analysis.
Fundamental analysis
Attempts to predict price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates the Bitcoin industry, currency news, Bitcoin technical developments (such as the Lightning Network), rules around the world, and any other news or issues that could affect Bitcoin's success.
This methodology looks at the value of Bitcoin as a technology (regardless of the current price) and the corresponding external forces to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis predicts a possible drop in prices.
Technical analysis
Attempts to predict price by studying market statistics such as past price movements and trading volumes. He tries to identify patterns and trends in price and, based on them, draw a conclusion about what will happen to the price in the future.
The basic assumption behind technical analysis is this: no matter what is currently happening in the world, price movements speak for themselves and tell some kind of story that helps you predict what will happen next.
So which methodology is best?
As I said in the previous chapter, no one can accurately predict the future. Fundamentally, a promising technological advance could end in failure, but technically, the schedule doesn't behave the way it used to.
The simple truth is that there are no guarantees for trading. However, the correct combination of both methodologies is likely to produce the best results.
4. Understanding the Terms of Bitcoin Trading
Let's continue to break down some of the confusing terms and statistics that you will come across on most bitcoin and crypto exchanges:
Trading platforms versus brokers versus trading platforms
The Bitcoin trading platform is online sites where buyers and sellers are automatically matched. Please note that the trading platform is different from a Bitcoin broker like Coinmama.
Unlike trading platforms, brokers sell you bitcoins directly and usually for a higher fee. A trading platform is also different from a marketplace like LocalBitcoins, where buyers and sellers talk directly to each other to complete a trade.
Order Book
A complete list of buy and sell orders is indicated in the market order book, which can be viewed on the trading platform. Purchase requisitions are called requisitions because people place bids on prices in order to buy bitcoin. Sell orders are called asks because they show the sell price that sellers are asking for.
Bitstamp Order Book