Bitcoin is the most popular digital asset in the cryptocurrency market. It has seen exponential growth since it first appeared in 2009, and although its millionaire heyday is believed to be over, it remains the most traded digital asset. However, bitcoin trading needs to be approached with caution as it involves significant risks.
Bitcoin Trading Tips Every Trader Should Know
Although the following bitcoin trading tips are not exhaustive and do not constitute professional investment advice, they will help you navigate the cryptocurrency market and mitigate your risk.
Start out Small
The first of our bitcoin trading tips is to proceed with caution and start with a relatively small investment. Although it’s an exciting market with a reputation for making the lucky few substantial profits in a short time frame, it is by no means easy to trade bitcoin, and there’s huge risk involved.
Cryptocurrencies, in general, are extremely volatile. Avoid the temptation to go in all guns blazing and, instead, opt for small-stake trades that allow you to get a handle on the market with minimal risk. Of course, the best of all bitcoin tips is to never trade with more than you can afford to lose.
Choose a Secure Wallet
Your bitcoin wallet is a holding pen for your digital assets so it’s important to choose wisely to ensure security and ease of access. For beginner traders, it’s advisable to trade through a reputable broker, such as Coinbase, and use the wallet they provide. If you’re looking to choose your own wallet, though, you’ll need to decide which type is right for you.
Choose a Trading Strategy
Bitcoin trading typically consists of four categories:
- Scalpers are the most active, making multiple trades per day for small profits.
- Day traders enter and exit the market within 24 hours, taking advantage of short term market movements.
- Another technique is swing trading, which is based on in-depth technical analysis to capture trends in the market.
- Finally, you may want to be a passive trader, holding on to your positions with a focus on long term profit.
Research the Market
The only sure-fire way to become a successful in bitcoin trading is to do your homework and get to know the market. This is not an easy process as many of the practices used to evaluate other financial markets do not apply to bitcoin. It’s a largely speculative field and the effects of global news and events on bitcoin value are very unpredictable.
Calculate the Risks
Before opening a position, consider what level of profit you would be happy to take from the trade, what losses you can afford to shoulder, and set your target and stop-loss levels right from the start. This is one of the most important tips, as without a disciplined approach it’s all too easy to expose yourself to potentially devastating movement.
Use Leverage With Extreme Caution
Leverage enables you to hold a much higher stake in a trade than the actual capital in your account would otherwise allow. Though this may seem appealing, and can indeed lend itself to significant profit, it can also lead to huge losses if a leveraged trade was to turn against you. Successful use of leverage is a balancing act between risk and reward and takes practice to master. For bitcoin trading, leverage is best used with extreme caution and preferably avoided altogether, at least until you have developed your confidence and trading style.
Diversify With Different Cryptocurrencies
The most important bitcoin trading tips are those that focus on mitigating risk, and diversifying your portfolio is one such tip. Too many first-time traders develop an obsession with bitcoin’s potential and fail to address its downfalls. By trading in other cryptocurrencies, you hedge your investments. If one falls in value, your loss may be offset from profit on another.
Buy and Hold Bitcoin
Buying and holding bitcoin allows you to bypass its short-term volatility. It’s not unusual to see significant movement throughout any given day which can mean your stop loss and take profit targets are easily met, throwing you out of your trade. This, in turn, can lead to overtrading, and since opening a new position is costly, overtrading can seriously eat into your profits. As a passive trader, you can keep your position open and potentially earn a good profit with little time commitment, but you still need to have a robust risk-management strategy in place, with carefully considered stop-loss orders.
Source
Check out more of our latest news here
Leave a comment