Bitcoin, a type of cryptocurrency, has piqued the interest of so many people. Because of the popularity of cryptocurrency, a market was born to trade cryptocurrency specifically. Since Bitcoin is the most known cryptocurrency, many people started trading Bitcoin online, but only a few became successful in trading BTC. The main reason for their success is their vast knowledge about bitcoin, and they make use of effective trading tips or strategies. If you want to be successful trading BTC, here are some Bitcoin trading tips you will need to succeed
Whats Cryptocurrency Trading
Cryptocurrency trading is the act of buying cryptos when it’s low and selling when it’s high. Trading cryptos deals with predicting price movements by studying the market as a whole and price graphs in particular. There are two main methods people use to analyze Cryptos’s price – fundamental analysis and technical analysis. Successful trading requires a lot of time, money, and effort before being successful. To trade Cryptos, you’ll need to do the following:
- Open an account on a Cryptocurrency exchange (e.g., CEX.io, eToro, Bitstamp)
- Verify your identity
- Deposit money to your account
- Open your first position on the exchange (i.e., buy or short sell)
Common Trading Mistakes
It’s important to remember that trading is a risky business and that mistakes cost money. Let’s go over the most common mistakes that people make when they start trading—hoping that you’ll be able to avoid them.
Do not invest more than you can afford to lose.
Any financial investment can produce losses rather than returns. With a highly speculative investment, such as Bitcoin, there is a high chance that you can see huge gains or losses. By trading Bitcoin, there are also other ways you can lose money from poor decision-making. The biggest mistake you can make is to risk more money than you can afford to lose. If you invest more money than you’re comfortable with, it will affect how you trade, and it may cause you to make bad decisions.
I will advise you to invest an amount that you are comfortable losing completely — be prepared for the worst eventuality.
Also, investing more than you can afford to lose reduces your ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, one who is over-invested may panic and sell off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and you buy back at a higher price.
Not Having a Plan
Another mistake people make when starting with trading is not having an action plan that’s clear enough. Setting goals Having a well-prepared plan helps you as a trader remain level-headed during periods of extreme volatility. Many people enter BTC trading without knowing why they’re entering a specific trade, and more importantly when they should exit that trade. When placing a trade, clear profit goals and stop-losses should be decided before starting the trade.
The benefit of this is that it is easier to prevent trading decisions based purely on emotions. For example, a trader with no target price may make a profitable trade, become greedy, and then fail to realize their profits while the market is still on their side.
Giving into Fear or Greed
Two basic emotions tend to control the actions of many traders: fear and greed. Fear can appear in the form of prematurely closing your trade because you read a disturbing news article, heard a rumor from a friend, or got scared by a sudden dip in the price (that may soon be corrected). The other major emotion, greed, is actually also based on fear: the fear of missing out. When you hear people telling you about the next big thing, or when market prices rise sharply, you don’t want to miss out on all the action. So you may get into a trade too soon or even delay closing an open trade. Remember that in most cases, our emotions rule us. So never say, “This won’t happen to me.” Be aware of your natural tendency towards fear and greed, and stick to the plan laid before you started the trade.
Not Learning the Lesson
Regardless of whether or not you made a successful trade, there’s always a lesson to be learned. No one manages only to make profitable trades, and no one gets to the point of making money without losing some money on the way. The important thing isn’t necessarily whether or not you made money. Rather, it’s whether you managed to gain some new insight into how to trade better next time.
Tips to help you Succeed Trading Cryptocurrency
Have a motive for entering each trade
Now, you need to have a clear purpose for getting into the BTC trade. Whether your purpose is to day trade or the scalp, you need to have a purpose for starting to trade cryptos. Trading digital currencies is a zero-sum game; you need to realize that there is a corresponding loss for every win. Someone wins; someone else loses.
The cryptocurrency market is controlled by the large ‘whales,’ pretty much like those that place thousands of Bitcoins in the market order books. And can you guess what these whales do best? They have patience; they wait for innocent traders like you and me to make a single mistake that lands our money in their hands due to avoidable mistakes.
Whether you are a day trader or scalper, sometimes you’re better off not gaining anything on a certain trade than rushing your way into losses. From our years of market analysis, we can comfortably tell you that you can only stay profitable by keeping off some trades on certain days or periods.
Set profit and Loss targets
Every trade you get into requires you to know when to get out, whether you are making a bitcoin profit or not. Establishing a clear stop loss level can help you cut your losses, a skill that’s very rare in most traders.
Choosing a stop loss is not a random activity, and perhaps the most important thing to note here is that your emotions shouldn’t carry you away – a great point to set your stop loss is at the cost of your coin. If, for instance, you acquired a coin at $1,000, set that as the minimum point you’re willing to trade your coin. This will ensure that if the worst comes to pass, you can walk away with what you invested in the first place.
The same applies to profit levels if you target to get out of the market after hitting a certain minimum profit; stick to that. Please don’t be greedy; it’s never a nice color on anyone!
Manage Your Risks
Little pigs eat a lot, but big ones get eaten. This is especially true of market profits when trading cryptocurrencies. Wise traders never run in the direction of massive profits; nope, they don’t!
They would rather stay put and gather small but sure profits from regular trades. Consider investing less of your portfolio in a market that is less liquid. Such high trades require more tolerance, while the stop loss and profit target points will be allocated further from the buying level.
Don’t Buy Simply Because the Price is Low.
Most beginners make one common mistake: buying a coin because its price seems to be low or what they consider affordable. Take, for example, someone who goes for Cardano instead of Ethereum simply because the latter is much cheaper.
The decision to invest in a coin should have very little to do with its affordability but a lot to do with its market cap.
There is no difference between having a coin priced at $10 per coin with a total number of 1 million shares in the market and the same coin being priced at $100 with 100,000 shares. For this reason, it is more justifiable to use a coin’s market cap to decide whether or not to invest in it than using its price. The higher a coin’s market cap, the more suitable it is for investment.
Diversify, Diversify, and Diversify!
Investments are unpredictable; even those that seem to offer infinite positive returns can come crumbling down under certain economic conditions. Cryptocurrencies are even more unpredictable.
As much as you can reap profits in thousands in a day or less, the opposite is also true. You can lose everything you invest in digital assets in a flash of a second. So, the best way to get past such uncertainties is through diversification.
Like I mentioned earlier, the value of all other coins is affected by the value of Bitcoin against the USD. When BTC loses value against the dollar, all other coins lose value and vice versa. From that, you can clearly see that diversifying your portfolio among various coins may not be enough to cushion you against bullish markets.
But having a volatile base asset like Bitcoin comes with its challenges, as you may have noticed in the second half of 2018. Bitcoin made many people rich in the shortest time than in the history of any known investment. The truth is, billionaires were made, and what most people never seem to understand is that a lot of people also lost money.
And in the midst of all this, the currency managed to grow its market cap by over thirty times more in the past year alone.
This means that it is okay for traders to keep Bitcoin as their base asset, but they also need to realize the value of the dollar cannot be overlooked. You need to diversify away from the same type of asset to different areas to spread your risk.
Here’s my opinion, if you want to be successful at trading, you’ll have to put in a significant amount of time and money to acquire the relevant skills, just like any other venture. If you want to get into trading to make a quick buck, perhaps it’s better to avoid trading altogether. There’s no such thing as quick, easy money—without risk or downside at the other end.