For the uninitiated, bitcoin trading on an exchange is probably easy, involving nothing more stressful than clicking a mouse or looking at a screen. What can really be said about this? In fact, the vast majority of new cryptocurrency traders lose money and exit the market within a year.
Why is bitcoin trading so difficult?
This is primarily due to the following:
- unpredictability of domestic markets;
- great difficulty in forecasting.
Trading is an emotional strain that includes long hours of downtime interspersed with periods of intense action and stress. Since traders risk their own capital in an endless game, stock trading is an activity that is closely related to professional gambling. Even successful market participants often succumb to this kind of pressure.
With the exception of selling training courses, products or services, bitcoin trading on the exchange is not a privileged route to easy riches. Rather, it is an activity that requires a lot of patience, control and discipline. Newtraders are more likely to lose money as they only develop their skills and achieving consistent profitability is never guaranteed even for the most experienced trader.
Trading and investing bitcoins
Bitcoin investment is a long-term commitment, often with multiple goals such as portfolio diversification, risk hedging, business, etc. Cryptocurrency investors are generally independent of price volatility and are unlikely to be able to exit their positions.
In contrast, most traders only maintain short-term positions, trading for a few months at the most, but most often for a few hours. These market participants are also extremely price sensitive, and the desire to find the best entry and exit costs is necessary for them to abandon their positions if they turn out to be unprofitable.
Trading Advantages
Bitcoin is superior in trading to other instruments - stocks, commodities or currencies - for at least three reasons:
The exceptional volatility of bitcoin allows for high percentage returns
Big price moves and average returns are much more common when trading on the Bitcoin exchange than in other instruments. In this way, Bitcoin traders can avoid increasing risks designed to make high profits from small moves.
2. Bitcoin trading happens non-stop, 24 hoursper day, 7 days a week.
On the contrary, stocks and commodities are only traded during business hours, while the Forex markets are closed by the hour. Bitcoin trading remains active around the clock as the volume is distributed mainly in the US, European and Asian sessions.
3. Bitcoin is the fastest and most convenient tool for trading.
Bitcoin exchange fees are minimal compared to traditional exchanges, and deposits or withdrawals are made within hours from anywhere in the world. Less stringent personal information requirements are the norm for cryptocurrency exchanges, especially if transactions are processed exclusively in bitcoin.
Bitcoin trading methods
When trading the rise and fall of bitcoin, short-term traders rely on real-time data feeds as well as liquid markets to ensure fast entry and exit trades. High throughput exchanges with high volumes are preferred. For a trade to be successful, the exchange must allow traders to profit from the down move by offering a short selling opportunity.
The need to store funds in cryptocurrency and filament form dictates that the exchange of funds is a centralized service, although this may change with the advent of new generation decentralized exchanges. Whenever funds are held by a third party, there is a risk of crypto being held improperly, so it is important to choose these services wisely.
Prefer bitcoin trading platforms that offer proof of reserves for clients, have regular external audits for client funds, and have a long track record of excellence. For a seamless trading experience, choose an exchange that also offers decent volume and a fast, responsive trading interface.
Bitfinex
Despite a recent hack in which users lost 33% of their funds on the exchange, Bitfinex remains a highly popular option. The liquidity of the project is only covered by Poloniex, making it the largest Bitcoin exchange by USD trading volume.
Poloniex
It is curious that Poloniex has the most Bitcoin sales in the world, but its markets are not even backed by the US dollar or any other major currency.
GDAX
GDAX accounts for about 4% of the total bitcoin trading volume on the exchange. 80% of trades made here are for BTC/USD exchange.
Kraken
Despite the fact that the name of this exchange is known to many, the trading of EUR/BTC and USD/BTC here is about 7% of the total trading market. At the same time, about 50% of Kraken's market share is accounted for by the EUR/BTC exchange, 20% - by USD/BTC, and the remaining 30% - by other pairs with BTC.
Bitstamp
The exchange of BTC/USD to Bitstamp accounts for about 2.5% of total Bitcoin trading volume. In addition, transactions in the BTC/EUR pair is 0.5% of the total volume, which gives the Bitstamp exchange3% share in global Bitcoin trade. Bitcoin trading in Russia on the exchange is also available.
Emotional factor
For all its technological sophistication, markets are based on the primary human emotions of fear and greed.
To become a successful cryptocurrency trader, you need not only to be trained in bitcoin trading, but also to be able to manage these impulses. There are great opportunities when the market becomes irrational. This often happens after major price changes or high-profile news. At such times, weaker traders are overwhelmed with emotions and illogical in their trades.
Money management
Perhaps the most important element of trading is capital preservation. Before you learn about bitcoin trading and start trading, think about how much money you can lose before it becomes tangible to your budget. This will allow you to better determine your "pain point" - the amount you are willing to risk. Never transfer more funds to your trading account.
Never risk more than 5% of this trading capital on a single trade. Novice traders should not risk more than 1%. If your trading is successful, the size of each trade in absolute terms will steadily increase as your account grows. In case of failure, your losses will be minimized, allowing you to adjust your trading plan.
Profit targets and stop losses
Initiating a trade without a clear exit strategy is a recipe for disaster. Determine in advance the price at which you will cut your losses if the market moves contrary to expectations. This level is known as a stop loss and it is essential to survive in the market. Limit your losses below 25% of your position size.
The flip side of a stop loss is a profit target: the level at which profit is taken when the price behaves as expected. Earnings targets are best positioned to previously significant levels. If the price exceeds your expectations, penetrating significant previous levels while maintaining a strong trend, consider replacing your trailing stop target.
Risk and reward ratio
It could be argued that setting a -25% stop loss combined with a +50% profit target results in a risk/reward ratio of 1:2. Following this methodology, one good trade will offset two bad trades. It is fair to assume that a trader's chances of success are about the same on every trade. Therefore, choosing trades that will potentially meet a 1:2 ratio should provide consistent profitability over time. Of course, markets are rarely predictable. Their randomness means that successive losses must be anticipated and protected by proper positioning.
Trading Tips
Buy low and sell high. It is obvious that the difficulties arise because of the complete subjectivity of the terms "low" and "high". It is often difficult to assess the currentvalue only in the context of past levels and expected future results. This assessment can also be the result of an emotional outburst.
For every buyer, there is a seller, because there are two sides to every transaction. Actually, bidding occurs because sellers consider the price high, and buyers - low. Sustained price movements cause both sides to become more active when the spread is crossed. In other words, whichever side is collectively more willing to pay the difference between the bid and ask price to initiate a trade will move the price in the desired direction. It can also be expressed as a bullish or bearish market.
Time Frame
Different bitcoin exchange trading strategies mainly differ in the timing they use.
Bitcoin scalpers typically trade on the 5-minute timeframe or lower, sometimes following tick charts that capture each trade without reference to time. Scalpers seek to profit from fleeting imbalances between buyers and sellers. They can make hundreds of trades in one day. For obvious reasons, such traders are especially common on Burmese exchanges, which offer zero or minimal trading fees.
Market participants who seek to profit from higher bitcoin rates during their session are known as day traders. The term comes from traditional stock market participants who refrain from holding positions overnight. However, it is suitable forBitcoin traders who usually follow half-hour, hourly or 2-hour charts. This is quite reasonable, as the rate of bitcoin against the dollar fluctuates continuously, and the trend can be fast and persistent.
Trend traders are those who maintain positions for days, weeks or even months. Such traders try to capitalize on large fluctuations within the range of the market or underlying trends. They usually follow daily charts, with occasional references to weekly charts for more context. They may also look at lower timeframes to learn price action at important levels or to get more accurate exits and entries.
Choose your period depending on the desired level of activity in the market. Scalpers follow every trade and usually take several trades a day, while swing or trend traders check price only occasionally and rarely take market action.
Typically, savvy traders consider multiple time frames when planning their trades. When a compelling argument for the future direction of the market can be made across all relevant timeframes, then action should be taken.
Market Trends
Markets spend most of their time in motion. Price ranges between strong support (the “low” level where active buyers absorb all the volume offered by sellers) and strong resistance (reverse support) form its basis. This range condition is best illustrated by a daily chart.over a long period.
Bitcoin against the dollar is constantly fluctuating on the charts between support and resistance lines.
The more often the price reacts to these levels (S/R), the more important they are. They are usually rooted in meaningful "big round numbers" such as $200 and $300.
When S/R lines are sloping, they are known as trendlines. As mentioned earlier, stop losses should be placed on the other side of the trend line. If they have significantly penetrated it, this is a strong signal that momentum has shifted.
Indicators and patterns
On graphical sites and trading interfaces, indicators are usually present - mathematically derived visualizations of market aspects. The main ones include moving averages, MACD, Bollinger Bands, RSI, etc. Before experimenting with a wide range of indicators for Bitcoin trading, it is recommended to master the basics mentioned above - money management and proper stop loss. In addition, chart patterns and candles are additional tools to help you trade.
Bitcoin Brokers
In addition to buying and selling Bitcoin on exchanges, you can also trade contracts for difference using this cryptocurrency (CFD). This means that you can sell contracts to change the price of bitcoin without actually owning BTC. This process can be compared to the acquisition of shares on credit.
In order to carry out such activities, it is necessary to resort to the services of a broker. The companies that carry out thisactivities are Alpari, Instaforex and AMarkets, widely known all over the world.
