Bitcoin Trading Guide – Our Top Strategies

Trading Bitcoin is often touted as a get-rich-quick scheme, but, in reality, it’s much more complicated than that. Becoming a Bitcoin trader can be a rewarding way to turn a profit, but you can’t run in blindly. You need to first learn the basics of trading and understand how to properly manage risk.

In this guide, we’ll show you our working strategies for trading BTC – these will be the tools you need to make money in this $160 billion industry.

How Does Bitcoin Work?

Bitcoin is a decentralized currency, meaning that it is not controlled by a government authority or a bank. You can transfer wealth via Bitcoin without needing to use a third party. There will only ever be 21 million Bitcoin in circulation (of which, 18.5 million have already been mined), so this form of virtual currency is not subject to M0/MB inflation.

Trading Bitcoin works in a similar manner to the conventional stock market, where the price is decided not by any government or regulatory company, but actually by the people themselves. Anybody can buy or sell Bitcoin at any time. When more people are selling than are buying, the price falls. Conversely, when there is lots of interest in purchasing Bitcoin, the price will rise. BTC is a highly flexible market – the price can rise and fall very quickly. By learning about the market, you can take advantage of these fluctuations.

Reasons to Trade BTC

Bitcoin (BTC) continues to solidify its status as a sought-after asset for traders in 2023, driven by several distinguishing factors. Let's delve into the key advantages that make Bitcoin trading especially attractive.

High Volatility

Due to enormous amounts of speculative, short-term interest in the cryptocurrency market, BTC has experienced high volatility. For instance, from October 2017 to October 2018, BTC’s market price reached a peak of $19,378 and reached $5,851 at its lowest point.

Not only does this volatility make BTC trading exciting, but it also provides plenty of opportunities to rake in huge profits. Of course, elevated risks are inherent to high volatility – which is why traders should take care to develop a risk management plan.

Market Hours

Since the BTC market is not under centralized governance, you can trade upon it 24/7. The traditional stock market, on the other hand, is only operable Monday – Friday during standard business hours. You can trade on the BTC market at any time and in any place in the world. This means that you can also set up BTC trading bots to take advantage of market fluctuations while you are sleeping.

Long and Short Trading

If you want to hold BTC over the long-run, you can do so. By buying low and selling high a few months later, you can gain an enormous profit in one fell swoop. On the other hand, you can try to take advantage of fluctuations in prices that happen within a day. This can lead to smaller, but more consistent profits. For beginner traders, however, long-term trading is a simpler path.

Bitcoin Trading vs. Investing

Bitcoin has often been compared to an actual traditional stock, and in theory, they operate much the same. Both have their prices and values influenced by the actual owners of the commodity, and those change based on the general public interest in them.

However, Bitcoin trading is completely unregulated by any governmental agency. Therefore, you can rest assured that your investments are protected by outside influence. This includes a warrant that freezes your assets in court and other things that can help the government to get access to your money.

This evidence easily disproves the false claims that Bitcoin is less secure than traditional stock investments, as you and only you can access your cryptocurrency trading account. This defense has even held up after a man holding over 250 million dollars worth of Bitcoin died, and his clients were unable to access his money in any way, even though he was holding their cryptocurrency coins. The Bitcoin trade is definitely secure and protected from any outside interference.

Exclusively Digital

With Bitcoin, the hassles of physical paperwork, checks, or concerns about tangible assets getting misplaced or stolen are eliminated. In 2023, as cyber threats surge, moving away from traditional banking systems to a more secure digital asset like Bitcoin offers unparalleled peace of mind. With funds safely stored in a crypto wallet, investors find assurance in Bitcoin's resilience against external breaches.

Additionally, Bitcoin is solely online, and therefore you do not need to concern yourself over paper bills and cheques and anything else like that, which can be stolen or lost in the real world. By switching from the aging and decreasingly reliable banks and government agencies that are easy prey to the hundreds of daily cyberattacks worldwide, you are able to rest assured that your money is the safest it can ever be, stored in a Bitcoin or cryptocurrency wallet.

Buying and Selling BTC vs. Bitcoin CFDs

There are two ways in which you can trade Bitcoin:

1. Buy BTC with the intention to sell it for a profit
2. Speculate upon the value of BTC, without ever actually owning a token

The latter method is how Bitcoin CFDs (contract for differences) work. When you pursue this method, you are never interacting with an exchange directly.

There are several disadvantages to working with exchanges:

• Exchanges may lack the infrastructure, public records, and regulation necessary to respond to support requests in a timely manner.
• Servers may be unreliable, causing markets to be suspended temporarily.
• Fees and restrictions are imposed upon withdrawing and adding funds to your account.

By choosing to trade Bitcoin CFDs, you don’t own the underlying asset – instead, you have the right to the price difference. You’ll predict whether BTC will rise or fall. If you predict incorrectly, then you have to pay the associated loss. By making a correct prediction, you will earn the associated profit.

The profit/loss is the value change multiplied by the quantity. Since you don’t own the underlying asset, the majority of brokers simply require a very small percentage of the asset’s value (with the value being the quantity of the asset times the price).

One of the significant advantages of trading Bitcoin CFDs is the addition of leverage. After all, you are able to trade multiple times the amount of BTC than you would if you had to buy the cryptoasset outright. The downside, however, is that potential losses are increased as leverage is increased as well.

Consider an example – let’s say you trade a Bitcoin CFD with a 50x leverage. If you net a profit, it would be 50x higher than what you would have earned if you purchased the cryptoasset outright and then sold it. But, if you predict wrongly, your losses will be 50x as much.

So, in order to determine whether you want to buy and sell Bitcoin outright or work with CFDs, you must determine if the potential rewards are worth the risk.

General Bitcoin Trading Terms

Before you delve into cryptocurrency market research, we recommend reading up on the following terms and their applications.

Trading Platforms vs. Marketplaces vs. Brokers

On a Bitcoin trading platform, buyers and sellers are automatically matched up. These platforms act as a middleman between both parties, and trades are based on the current BTC market price.

Marketplaces, on the other hand, are peer-to-peer, meaning that sellers and buyers communicate with each other directly while carrying out a trade.

For higher volume trades, it may be better to use a Bitcoin broker. With crypto brokerages, funds are traded over a dealer’s network. The dealer acts as a middleman, finding buyers and sellers who have large pools of cryptoassets. There are usually larger associated fees, but this option is more convenient, more flexible, and faster than going through an exchange platform.

Order Book

When you’re using a trading platform, you’ll be able to view the market’s order book – this is a complete list of all buy orders (also called bids) and sell orders (also called asks). It will look like this:

Bitcoin Price

When you see the “price” of BTC, this is referring to the price of the most recent trade that was carried out on a specific crypto trading platform. This is different from fiat currency prices because there is no universal BTC price that everybody follows. Bitcoin’s price could be different in the US than it is in the UK since these countries’ major exchanges include different trades.

High vs. Low

Next to the current BTC price, you may see the terms “high” and “low.” These are referring to the highest and lowest prices of BTC over the last 24 hours. Depending on the platform, you may be able to change the timeframe that highs and lows are pulled from.

Volume

This term refers to the total number of Bitcoins that have been traded in a specified timeframe. Traders use volume to determine the significance of a trend. If a trend is significant, it will be accompanied by large volumes – and, conversely, low volumes indicate a weak trend. If you see a sudden change in BTC’s price, we recommend checking the trading volume to determine if it’s the start of an opposite trend.

Market Order

A market order (also referred to as an instant order) is where a trader sets the amount of BTC they would like to buy or sell. They can then order the exchange to execute the purchase or sale instantaneously. The platform will then match you up with a buyer or seller to meet your order. In many cases, you may be matched with multiple people and at different price points. The order will be complete once enough buyers or sellers have been gathered to fulfill your set amount of BTC.

Limit Order

This kind of order allows traders to buy and sell BTC at a specific price that they can set. This order may not be completely fulfilled if there aren’t enough buyers or sellers that meet those price requirements.

Stop-Loss Order

A stop-loss order enables a trader to set a certain price they’d like to sell their cryptoassets at in the future. This is used to minimize losses in case the price of BTC or another kind of crypto drops dramatically.

Bitcoin Price Prediction: Fundamental vs. Technical Analysis

If you learn to study the patterns that Bitcoin follows, and where to buy and sell at, you can take advantage of long-term trends and minor fluctuations alike. The two main types of price prediction are fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental analysis consists of studying what is going on in the world right now. For example, if a popular financial article said to purchase Bitcoin in a month (due to whatever reason), then after looking into it and deciding that you agree, you can follow the experts’ decision and profit off of it.

There are also disadvantages to using fundamental analysis. The information you receive may not be entirely reliable. Double-checking your sources and always ensuring that you know what the information you receive is based on can help guarantee your success. Additionally, news sources that you may indulge in could be biased or just totally wrong. Thus, stay safe so that you never fall susceptible to faulty information that can put you at risk and even harm your bottom line.

Technical Analysis

If you want to implement technical analyses, you need to research a lot about the former history of Bitcoin and how it has changed overall throughout its past. This means that reviewing previous rises and falls in the Bitcoin price history to help you reach an informed decision will be your main strategy. By checking how the cryptocurrency has responded to past situations, you are able to accurately guess how the extremely volatile currency will respond to current events.

One of the disadvantages of using this method is that the history of Bitcoin only dates back a mere 10 or so years. This means that, while a lot has happened in this time, it is still not a large enough period of time to confidently make completely accurate decisions.

Perhaps, in another decade or so, this method will become increasingly feasible; however, at the present moment, that is just not the case. We recommend incorporating both technical and fundamental analyses into your trading strategy.

How to Trade Bitcoin Stock

When you’re ready to start trading Bitcoin, follow this step-by-step tutorial for a smooth onboarding.

1. Choose an exchange

There is no official BTC exchange market – so, you have lots of options to choose from. Some are great, while others are less-than-reputable. Take the following factors into consideration:

• Location: You’ll want to pick an exchange market that is located near you so that you can deposit your country’s fiat currency
• Liquidity: You should pick a BTC exchange market that offers high liquidity alongside deep market penetration.
• Trustworthy: Find an exchange that has been in operation for at least a couple of years, and that has plenty of reviews online.
• Regulated: Pick an exchange that regulates its market, so you are protected from any fraudulent activity.

2. Create an account

You will likely need a verifiable email address and phone number to create an account. Some exchanges will also require you to verify your identity by uploading documents.

3. Fund your account

Once your account is set up and verified, deposit funds into your account. Once you do so, you’ll be ready to trade.

4. Start trading

This step of the process will vary depending on the exchange you use. Head to the site’s main menu; you should see Buy and Sell options. This is where you can set market and limit orders. Once you’ve purchased your first form of crypto, you can now trade cryptocurrency pairs – there will be no need for fiat currency if you don’t want to continue using it.

Types of Bitcoin Trading Strategies

There are many different strategies that can help you to effectively trade Bitcoin, and more are being invented by the day. However, although we have analyzed multiple trading systems, the three explained below are the most optimal and profitable, per our findings. We hope that you are able to successfully implement and benefit from them to the fullest extent.

1. Bitcoin Day Trading

Day trading is a type of trading where you never hold onto any Bitcoin at all, and actually sell all of yours by the end of the day, no matter the losses you have sustained (unless, of course, Bitcoin has dropped a tremendous amount). Although it does take up a lot of your time throughout the day, this is a way to make a lot of money in a short time.

Due to the fact that you are actually just buying and selling on the fly, whenever Bitcoin rises a predetermined amount, you will never benefit a huge amount from rises, but also avoid major losses from dramatic downfalls as well. Therefore, you reduce risk while maximizing the amount of profit you are able to obtain from buying and selling your preferred cryptocurrency. This strategy works for any cryptocurrency, but Bitcoin is the most volatile and, therefore, the best choice.

2. Bitcoin Automated Trading

Bitcoin automated trading works very similarly to the previously mentioned method. You utilize software to do all of the hard work for you, such as deciding when, where and how much Bitcoin to buy and sell. At the same time, you control whether your strategy changes day-by-day, or if you are gunning for the long term.

Additionally, by trusting the software, you no longer need to worry or concern yourself with your gut feelings, meaning that you can sit back, relax, and enjoy the lessening of pressure. Although this method does typically reduce the trader’s stress levels, automated trading can be unpredictable some of the time, and keeping a close eye on your finances is a smart move, no matter which strategy you are working with.

3. Bitcoin Scalping

Bitcoin scalping is more of a fringe method than any other way of trading Bitcoin due to its unreliableness. Scalping is when people buy the entire stock of something and then sell it back to the actual real purchasers at inflated prices. This often occurs due to there being no supply left for those other people to access, meaning people are forced to buy from the scalpers who drove up those prices in the first place.

Bitcoin scalping works in relatively the same way. When the price is low, you buy up a lot of Bitcoin, and then drive it upwards again. Although, this method does require a large amount of either assets or other people willing to work as a coordinated team to help you achieve the level of effectiveness that you seek.

4. Bitcoin Swing Trading

Swing trading is the act of buying and selling following a certain degree of chart movement. With swing trading, you are holding your BTC for longer than a single day – as opposed to day trading, in which you close the position before the end of the day.

Traders often choose swing trading, as intraday price shifts are typically marginal.

Swing trading is ideal for traders who can’t dedicate the time and focus necessary for day trading and scalping maneuvers.

How to Read Bitcoin Price Charts

Once you understand how to read Bitcoin price charts, you can use them to increase your profits and minimize your losses. These charts are typically fresh with relevant information and the most up to date prices that are available to the general public.

Japanese Candlesticks

The most common type of Bitcoin Price Chart, the ‘Japanese Candlestick’ model, are the easily-recognizable green and red bars. These indicate rising and falling prices within a certain given time period (such as an hour, a day, or more). A green ‘candlestick’ denotes an increased price, whereas a red one means a falling value.

Bull vs. Bear Markets

A bull market is economically sound and on the rise, whereas a bear market is receding, and asset values are decreasing. Here’s an example of what BTC looks like in a bullish market, with minor bear cycles.

Resistance and Support Levels

If you see that BTC’s price seems to have hit a cap, you are witnessing its resistance level. Essentially, this is the consequence of large volumes being executed at a particular price point, which is why the overall price fails to break through this cap.

Support levels, on the other hand, appear to be a floor that Bitcoin will not drop below. To determine the strength of resistance and support levels, you have to look at the number of times the price of BTC has not been able to move beyond these thresholds. If it happens frequently, the levels are considered to be strong.

Where to Trade Bitcoin

As aforementioned, you can trade bitcoin through a brokerage, a marketplace, or a Bitcoin trading platform. Some of the most popular Bitcoin exchanges include:

Important Things to Consider Before Buying Bitcoin

Security is your most important responsibility. Making sure that your personal information and banking credentials are never compromised should be at the top of your priority list. Being confident in who you are dealing with, whether it is the company that is storing your cryptocurrency or the person on the other end of the trade, will help to put your fears at ease and make you certain that you are safe.

The cryptocurrency market is extremely volatile. Due to its unregulated state, the market of cryptocurrency exchanging is very flexible, and thus fluctuates readily. You can earn a lot of money in just a single time period, but then lose your entire fortune the very next day.

Bitcoin isn’t anonymous. BTC transactions are permanently located on a public document – anybody can see your balance and transaction history. These transactions are associated with your Bitcoin address rather than your identity, but government agencies are able to use the address to determine who you are. If you value privacy, you will need to take steps to ensure your privacy.

Bitcoin is taxed. There are very few countries that are considered to be “tax havens” for Bitcoin. You’ll need to determine the Bitcoin taxation laws of your country and see if you will be required to pay income tax or capital gains taxes on your profit.

Mistakes to Avoid When Trading Bitcoin

All beginner traders are bound to make mistakes – but, by keeping these tips in mind, you will be able to minimize the consequences.

Giving In to Emotions

We recommend reading up on trading psychology and the detrimental effect that fear and greed can have on your trades. Stay on the side of rationalism, rather than emotions.

Blind Trading

You should always be sure to have a trading strategy (and actually stick to it). Before going into a trade, take your time and learn about the cryptoasset, whether it is BTC, ETH, LTC, or something else. Research the exchange you want to use before opening up an account and initiating a trade.

Not Analyzing Mistakes

When things go wrong, it’s important to step back and take an objective look at what led to your losses. Could it have been avoided? Does your trading strategy need to be altered? Did you allow your emotions to get in the way? What’s more, you should also evaluate where things are going well.

Final thoughts