Unlike traditional asset class markets like stocks and commodities, bitcoin trading markets are open 24/7. Its unregulated environment makes it easier to trade without going through an identity verification process. Therefore, many people are looking into earning money off it, but beginners must know some essential information before venturing into the world of cryptocurrencies.
Types of Trading
Day Trading
Day trading involves profiting from short term price movements while making multiple trades throughout the day and closing any transactions at the end of the day. Considering that the smallest unit of a Bitcoin is a satoshi (1 bitcoin = 100 million satoshi), this enables a scalping strategy during day bitcoin trading. The theory behind scalping is to make hundreds of fractional bitcoin profits during minimal time frames to reduce risk; however, it requires constant attention to price fluctuations.
Swing Trading
Swing trading takes advantage of the natural swing of price cycles. The trader anticipates the beginning of a price movement, enters the trade, holds on to it until the movement dies out, and then earns a profit. It requires less extensive monitoring and may even take weeks or months for desired results.
Trade methodologies
Trade methodologies enable traders to predict trends. There is no surefire way of doing this, and it always involves uncertainty.
Fundamental Analysis
Using fundamental analysis, a trader looks at the big picture. Here, the value of the future price is based on external factors rather than price fluctuations. It requires evaluation of the bitcoin industry, news, technological developments, and regulations.
Technical Analysis
This methodology involves using statistical means to analyze past price movements and trading volumes—traders look out for patterns or trends in the price to predict future prices and disregard external factors.
A suitable trade methodology employs both modes of analysis to determine the future price.
Bitcoin Exchange
Bitcoin trading exchanges are online sites and software where buyers and sellers are automatically matched based on bids (buy order) and asks (sell order). Exchanges are different from bitcoin selling companies and charge a lower fee. They’re also different from a bitcoin marketplace, which is a place where people communicate with each other as buyers and sellers to make their trades.
Orderbook
An orderbook can be viewed on any exchange and provides a complete list of outstanding asks and bids. You can also view the most recent trade price conducted on a specific exchange. This is important because no single bitcoin price is followed globally, and as a result, you may find that a bitcoins price may vary on different exchange sites.
Other Exchange statistics
The exchange also provides the highest (HIGH) and lowest (LOW) exchange price in the last 24 hours and the number of bitcoins sold in a given period called volume (VOL).
These are just some of the fundamentals of bitcoin trading that can help you get started, but it is essential to remember that trading carries inherent risk. You may end up losing everything if you risk more money than you can afford. It is considered best practice to have an action plan that defines your profit goals and minimum selling price before going through trade. Always remember to keep a level head and never given in to fear or greed.
Published: 03/07/2021