June 19th, 2020 | Updated on June 29th, 2022
With each passing day, bitcoin becomes popular, more mainstream. Financial systems across the world have been adopting bitcoin as they take another step towards digitization.
Now, we have more bitcoin trading than ever. Many terminologies related to this form of trading are also in circulation. Bitcoin trading also involves numerous strategies.
Here is a simple guide to understanding what is bitcoin trading and what are the different strategies being used in this trading:
How Bitcoin Trading Is Different From Investing
- Unlike investor, persons who trade in bitcoin don’t hold their crypto for long periods.
- Sometimes investors buy bitcoin without any intention to sell it.
- Such investors are called HODL (hold on for dear Life). For them, bitcoin is not a digital currency. They are driven by long-term profit and loss. Hence, they tend to ignore Bitcoin’s volatility.
- A Bitcoin trader uses bitcoin as electronic cash. Usually they don’t store it and trade with other currencies.
How To Become A Bitcoin Trader
Like any other trader, bitcoin trader also buys bitcoin when its price is low, and sell it when price is high. You have to sharpen your analysis skills to understand how bitcoin trading works, and how to keep an eye on its price movements.
Not even an expert is supposed to make an intelligent all the time. At times their prediction can go wrong. But certain indicators are always there and proper understanding of these will help you know the future price of bitcoin.
Out of two types of market analysis — technical and fundamental, you can choose the one which is best suited for your skill.
A technical analyst keeps an eye on the price and volume of bitcoin. This information is enough for you to determine the emergence of any trends.
For a fundamental analyst, price and volume are one of the many factors they take into account.
Comprehensive data are analyzed in fundamental analysis to determine the price of bitcoin.
Even feedback from community developers and possible legislation can be factored in to determine the intrinsic value of the digital currency.
Other factors that are taken into account by fundamental analysts include recent news, current price, volume, etc.
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Bitcoin trading involves many techniques. A small trader knows about all these techniques, and choose the one best suited for him/her.
Some of the most common bitcoin trading techniques have been explained here:
Day traders make short term predictions of bitcoin. They are one of the most active trading class in bitcoin market. Risk is maximum in such trading. But a smart day trader relies on traditional and fundamental analysis to minimize their loss.
Usually, they close all trades at the end of the day.
They are full time traders. They monitor even a slight fluctuation of price. As many as 100 trades can be made in a day by them. If done correctly, scalping can be an effective way to stack Satoshis little by little.
In this segment, only those traders operate who are capable of taking patient approach to price movement. They are more interested in long term patterns. Since they have good idea of long-term movement, they know when the lowest point come. They sell, when price is high.
Volume: Number of total Bitcoins traded within a given timeframe. Shifts in volume is a good indicator.
It is analyzed to understand whether a particular trad is significant or not. Sharp changes in volume indicate that market is undergoing big change. Increase in trading volume does not always mean that price will go upward.
Market Order: This is an instant order which can be fulfilled at any possible price. Neither a single buyer nor a single seller can match an order. Multiple buyers and sellers match your orders at different prices.
All you need to do is set the numbers of Bitcoins you want to buy or sell. Rest of the works are done by the advanced algorithms of trading platforms.
Limit Order: A limit order is more specific than a market order. It enables you to buy or sell only at a specific price. This strategy is not flexible enough, hence chances of your remaining unfulfilled are higher.
Stop loss order: As the name suggests, such orders help you minimize or completely stop losses. You can determine a price of your choice. At this specific price you can liquidate your assets.
Bitcoin Trading Platforms/Exchanges
Broker: Bitcoin brokers prefer more personalized trading exchange. Here, privacy is important.
Brokers sell you Bitcoin directly, in a private and secure environment. Nothing comes without price. For privacy, one has to pay higher transaction fees.
Order Book: This book maintains complete list of buy orders and sell orders. It allows you to better monitor market activity.
Whale: A Bitcoin whale is someone who has a large amount of Bitcoin holdings.
Bitcoin Exchanges To Use