Bitcoin is probably the most well-known cryptocurrency today. However, as a virtual currency, it's more volatile than using physical currency. With significant shifts in price, there are both risks and rewards when it comes to trading in this cryptocurrency. How do you trade it? These are some strategies to consider.
Methods of Bitcoin Trading
The cryptocurrency exchange is the most common way to buy and sell bitcoin. People purchase them and then wait to sell them, preferably at a profit. However, this method can be unreliable as it depends on the matching serves that are used by the exchange.
Another option involves a Contract for Difference (CFD) trading account. This is a method that's used which consists of a financial contract that pays the difference in the price settlement between the opening and closing trades. CFDs can be used as a hedging tool. It can be beneficial due to the volatile nature of trading.
Which Trading Strategy is Best?
The simple answer is that your goals, experience, commitment, and amount of capital invested will all determine which strategy is best. If you're not sure of which method works best for you though, these are the most common methods:
- Day Trading Bitcoin
Like the name suggests, this involves purchasing and selling BTC on the same say and placing short and long trades in order to make money on price movement speculations. Traders will close their position at the end of the day, not leaving any positions open overnight.
This method is best if you have both the time and commitment needed for the steep learning curve. This method is technical and complicated so it's not recommended for beginners. Do you enjoy significant analysis and chart reviewing? This method might be for you.
- Swing Trading
Swing trading is based on market movements. The trader holds on to a certain position until they notice a slow down or reversal of the trend. A position may be held for days or even weeks. The swing trader should track the moving average convergence divergence and the Fibonacci retracement.
Swing traders profit by capitalizing on trends as they develop. They may experience higher risk since they keep positions open for a longer period of time. However, this method does not involve as much time as day trading.
This involves placing frequent trades over short periods of time, sometimes even 20 minutes. Traders are relying on small movements in the market. However, they should have a clear exit strategy because losses can affect their gains significantly.
If you need to store bitcoin, you may not want to store it on exchanges since they can be targets of hacking. Just in 2018, millions of dollars were stolen after Coincheck was hacked. If you're holding a significant amount, it's best to open up a wallet.
Learn the Market
Before diving into trading, it's best to do your research ahead of time. Learn the news, regulations, and other aspects of the market's macroeconomics and security. Knowing these factors can help you understand the market fluctuations and support your trend predictions in the future, helping to make a profit.
Develop a Trading Strategy
If you're new to cryptocurrency, develop a trading strategy. This will help you decide when to close trades or keep them open. Ask yourself questions such as what is your acceptable risk. You should also develop a risk-reward ratio so that you'll know the amount of profit in order to justify the possible loss. Finally, choose the cryptocurrency you want to trade. Bitcoin may be your only one or you can choose other cryptocurrencies.
Learn to Trade and Monitor
Now that you have the foundations down, you can stat to trade. You should also know your input position sizing while adding risk-management options such as take-profit orders. Join a bitcoin trading platform that can help you trade wisely. There are also platforms available for mobile devices which can be customized for your needs.
Once you've settled your position, start placing trades.
Learning how to trade bitcoin doesn't happen in a day. However, serious traders will take the time to learn the process, the risk, and develop a strategy that will help them become successful. Use these tools to start off trading successfully.