Cryptomarket

Bitcoin Trading 101: All you need to know

Cryptocurrency trading has been a circulating buzzword ever since it entered the mainstream news in late 2017. However, not everyone knows what it really is and how it works. Find out everything you need to know about Bitcoin trading here. From basic questions such as ‘how to begin’ to advanced topics like Bitcoin trading market analysis, you’ll learn it here at BTC Post.

What is Bitcoin trading?

In the simplest terms, Bitcoin trading is the act of gaining profit by buying Bitcoins when the price is low and selling when the price is high. The whole process includes analysing the market, following the trends of other coins and keeping up with the latest crypto news to make the most informed decisions that will result in significant profits.

To make a trade, you’ll need to have Bitcoins, an account and access to any exchange platform. Here’s what you need to do to make a Bitcoin trade:

  • Access your preferred exchange platform
  • Deposit money into your account
  • Post a buy or sell order

Bitcoin trading terms

There are a lot of confusing terms when it comes to trading on crypto exchanges and for a beginner, these can be intimidating and overwhelming.

Trading platforms vs brokers vs marketplaces

Trading platforms, brokers and marketplaces are sites where you can buy and sell cryptocurrencies and conduct trades. However, they do have their unique differences.

In trading platforms or exchange sites, sellers and buyers are automatically matched by the site to complete transactions. Because of its advanced user-interface, it can be intimidating for beginners. These sites cater more to experienced traders.

Broker sites directly sell Bitcoin and other cryptocurrencies to buyers. When you place a buy order, you don’t have to wait for the system to match you with someone since they will provide the coin you want to buy themselves. It’s more convenient and more user-friendly that’s why the fees are considerably higher than in exchange sites. Because of its navigable user interface and easy process, brokers are more suitable for beginners.

Marketplaces provide a space for buyers and sellers to interact with each other and communicate directly to complete trades. If you’re looking to buy coins, you’ll have to find yourself a seller to get what you need. It requires trust between community members since no intermediary will ensure the security and legitimacy of the trade. Advanced traders use this method to cut fees and ensure they get the best trade for themselves.

Order book

The order book contains the complete list of all buy orders and sell orders in a certain market in real-time. You can view this on a trading platform and see the real-time updates whenever a new order is placed.

When browsing this list, you will see bids and asks. If you’re looking to buy Bitcoin, you will place a buy order which is called a ‘bid’ since people are bidding on the price to buy coins. On the other hand, if you’re selling your coins, you’ll place a sell order which is called an ‘ask’ since you’re showing the asking price you’re requesting for your coins.

Bitcoin price

When people say ‘price’ in the trading industry, they are actually referring to the price of the last trade conducted on a specific trading platform. That’s why the price of Bitcoin varies depending on the exchange site you’re using and the country you’re residing. Unlike fiat currencies, there is no single, global Bitcoin price that everyone follows.

Volume

The volume refers to the number of overall transactions done within a certain market in a given time period. This is used by traders to see how significant a trend is. The larger the trading volume is in a specific market, the more significant the trend is. On the other hand, if the volume is low, it translates to a weak trend.

Types of orders

There are a variety of orders you can make on an exchange site. Here are what differentiates them from one another.

Market/instant order

Exchange platforms such as Binance automatically fulfil market orders once they are posted. To make a market or instant order, you need to set the number of Bitcoins you want to buy or sell and order the exchange to execute it. The platform then finds the most suitable buyer or seller that meets your order requirements accordingly.

Limit order

A limit order lets you buy or sell coins at your own decided price. As long as the price isn’t met, the order won’t push through so it might take a long time for a limit order to be complete.

Stop-loss order

A stop-loss order is a safety option that prevents you from accumulating losses. When a certain coin hits a specific low price, a stop-loss order automatically places a sell order with a preset price for that coin to minimize your loss. It lets you set the specific price you want to sell the coins at in the future.

Trading vs investing

The difference between trading and investing lies in the amount of time that passes before a trade is made. In trading, traders buy coins and sell them as soon as the price increases. This can be as short as in a few hours, days or weeks.

Investing, on the other hand, is when investors hold on to their coins and wait for their price to appreciate over a long period of time. Investors look at the bigger picture and don’t give importance to the short-term drops and rises in price.

While the two may seem like total opposites, many prefer to invest and trade at the same time to get the most out of the market.

Trading methods

There are different ways to trade Bitcoin, some more popular than others. Aside from popularity, they also differ in levels of difficulty.

Day trading

This method involves conducting multiple trades throughout the day with different coins and trying to profit from short-term price movements. Day traders monitor the price graph’s minimal movements and make decisions depending on how the graph moves.

Scalping

Scalping means making trades when there are small price changes in the market. By making micro-trades throughout the day, scalpers can accumulate a significant amount of profit every day. It has an even shorter time period than day trading which effectively lowers the risk due to the shorter time window for price drops.

Swing trading

This is the most traditional method of trading which involves taking advantage of the natural ‘swing’ or price cycles. In swing trading, traders analyze the market and spot when the graph is signalling the beginning of an upward trend. That’s when they enter the market and hold on until the movement dies out and they sell to make a profit.

Compared to the previous methods, swing trading is less time-restricted since they don’t closely follow the graph’s movement. Swing traders can open a trading position and hold it open for a few weeks and even months until they get their desired result.

Analysis methods: Reading and analysing the charts

There’s no sure way to accurately predict the movement of Bitcoin’s price but professional traders have identified certain patterns, methods and rules that allow them to make the most out of their profession.

There are two types of methods people use when analysing the market: fundamental analysis and technical analysis.

Fundamental analysis

This methodology believes that to predict the market’s movement, you have to consider outside factors as well. By looking at the bigger picture, you can make the most informed decision that will yield positive results.

Fundamental analysis looks at the wider scope of things and not just the price and the market’s movements. It considers worldly affairs that can affect the price’s movement shortly. For example, you need to evaluate the latest happenings in the crypto and Bitcoin industry including the newest regulations and technological advancements to make an effective analysis and an informed trading decision.

Technical analysis

Compared to the previous method, this methodology relies solely on studying market statistics including past price movements and trading volumes. It identifies patterns and trends that occurred in the past to make smart decisions. Those who adhere to this methodology believe that price movements move independently from worldly affairs.

There are no guarantees on whichever method works better but mixing the best techniques from these two methodologies will probably yield the best results.

Reading price charts: the Japanese candlesticks graph

The Japanese candlesticks graph is one of the most used graphs in trading. This graph is composed of ‘candlesticks’ that represent the opening, lowest, highest and closing prices of a trade in a given time period. Because of its purpose, it’s often referred to as the OHLC graph meaning open, high, low and close.

You can also tell the difference between the opening and closing prices within a certain time frame based on the colour of the candle.

  • If a candle is green, it means the closing price is higher than the opening price and the price went up
  • If a candle is red, it means the closing price is lower than the opening price so the price went down

Starting Bitcoin trading

When you begin trading Bitcoins, it’s necessary to have all the information you need to prevent making huge incalculable mistakes. After all, the crypto trading industry is a high-risk environment that can easily overwhelm those who come unprepared. Stock up on your crypto needs here at BTC Post. Everything you need to know, from cryptocurrency news to Bitcoin trading market analysis, we got it all here.

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