With rising interest in Bitcoin amid stringent regulatory glare and mixed media coverage, trading in this particular currency has become an enticing side gig which helps to make an extra income. Bitcoin (BTC) is the first and most valuable cryptocurrency in the world which is also known as a highly volatile asset, the price of which can fluctuate from one extreme value to another.
Thus, it is important for people who trade in BTC to have sufficient knowledge of how Bitcoin works so they can safely navigate the Bitcoin moves and make the most out of it via trading cautiously and vigilantly.
Here’s a detailed guide which will explain the meaning of Bitcoin trading, how it works, and what are the factors which influence Bitcoin’s price the most and the role of technical and fundamental analysis in forming a comprehensive trading strategy.
What Is Bitcoin Trading?
Bitcoin trading refers to the act of buying and selling Bitcoin via an exchange platform. In short, Bitcoin can be traded in many ways. The first way is to indulge in buying and selling of BTC on a cryptocurrency exchange. Another way of trading in Bitcoin is by means of derivative financial instruments, such as Contracts for Difference (CFDs). Trading via CFDs facilitates traders to trade as per the direction of market movement over the very short-term period and allows you to bet on Bitcoin price changes without actually owning any underlying coins.
CFDs have become a popular way to trade in Bitcoin as they offer greater flexibility and with the optimum use of leverage one can take short as well as long positions in Bitcoin.
In order to start trading in Bitcoin, one first needs to be well-equipped with adequate information and should have a familiarity of the subject. It is also critical to know the associated risks and the regulatory laws which might affect one’s jurisdiction and decisions.
Step-By-Step Guide On How To Start Bitcoin Trading
Sign-up For A Cryptocurrency Exchange: Opening a Bitcoin trading account is a quick and easy process. You can open an account with Bitcoin friendly exchanges such as CoinDCX, WazirX, Zebpay, CoinSwitch Kuber and many others. All these exchanges have an easy user interface and a wide range of coins including Bitcoin. Just provide personal information and fulfill Know Your Customer (KYC) requirements.
Read our detailed article to “Best Cryptocurrency Exchanges In India” for more detailed information on crypto exchanges along with their pros and cons.
Put Money into Your Account: Once you have signed up with a crypto exchange, then as a next step you need to fund your account through bank deposits, peer to peer (P2P) and via other wire transfers.
Pick Bitcoin To Invest In: After putting money into your account, you can select the quantity of Bitcoin that you wish to buy to trade further.
Start the Process of Trading In Bitcoin: After buying a considerable amount of Bitcoin, now you can start trading in Bitcoin as per your chosen trading strategy. As to start with you can also take help of Bitcoin trading bots which are available at most of the cryptocurrency exchanges. This automated process helps to provide you with significant returns based on your trading objectives.
Store Your Bitcoins Safely in Digital Wallets: If you are an active Bitcoin trader, then you might need to store BTC on the exchange in order to access them. You can also purchase a specific Bitcoin wallet, if you are buying BTC and planning to hold them for little more than a short-term period. Broadly, there are two kinds of digital wallet: software and hardware wallet with their own pros and cons.
Bitcoin Trading Strategies
Bitcoin Day Trading: Bitcoin day trading is a most common kind of trading strategy, which is also known as intraday trading. It involves traders entering and exiting positions within the same day. So, here the trader does not have any Bitcoin market exposure overnight. Thus, there is no avoiding overnight funding charges on the position.
This strategy is ideal for the ones who are looking to make profit from Bitcoin’s short-term market movements which helps you to make the most of daily volatility in Bitcoin’s price.
- Quick profits.
- Better risk management.
- Not influenced by overnight market changes.
- Very short-term outlook.
- Might lose money faster.
- Closing a deal within a day is difficult.
- Too fast-paced way of understanding the market.
Bitcoin Swing Trading: In Bitcoin swing trading, the trader takes full advantage of short-term price patterns. This kind of strategy is based on the assumption that prices never go in one direction and thus keeps on swinging. Which is why, a swing trader looks to make profits from both the up and down-market movements which occur in a short and narrow time frame.
- Traders have more time to grasp that day trading.
- Traders can make many long-term decisions with less risk involved.
- Less stressful than day trading.
- Traders need to be well-researched.
- Do not sway away by emotional attachment as one holds the position for long.
- Not easier to learn.
Bitcoin Position Trading: This kind of trading is also known as trend trading which is a long-term approach. It entails buying and holding Bitcoin for a longer period of time. This strategy does not take into account the short-term price movement and focuses on the growth in the long term.
- Easier to grasp.
- Less stressful.
- Market movements are easier to predict.
- Profits can be realized only long-term.
- Keeping position for long periods can be risky.
Bitcoin Scalping: This kind of strategy is like day trading which focuses on extremely short-term market movements. Scalping allows traders to make substantial small but frequent profits on very small price changes.
- Very quick profits at a high win rate.
- Very risky.
- Need proper skills to make profits.
Understanding Factors Influencing Bitcoin’s Price
Let’s understand the factors which have a huge impact on Bitcoin’s price:
Limited Supply: The price of Bitcoin totally depends upon its supply and demand. Bitcoin has always had a finite number of coins and its current supply is capped at 21 million, which is expected to be exhausted by 2140. A limited supply means that there is a high possibility of change in the price of bitcoin as per its rising and falling demand.
Market capitalization: Bitcoin is known as the largest cryptocurrency in the world as it has a highest market capitalization which means that the users perceive this currency as a more sought-after investment.
Notable And Key Events: Any big news which is directly related to Bitcoin’s security tends to have an effect on the Bitcoin’s overall market price. For example, the ban of crypto in China has led to massive sell-offs in BTC. At the same time, any big development in Bitcoin’s community can lead to a huge rally in BTC.
Smooth Integration: Bitcoin is a cryptocurrency which enables smooth transactions between the two parties and without any involvement of regulatory or centralized authority. Therefore, its image directly depends on its smooth integration into a new-aged payment system. If a lot of corporations or countries accept BTC as a legal payment method, then it can have a direct effect on its pricing.
How to Analyze Bitcoin: Fundamental Vs. Technical?
Like any other financial asset, Bitcoin is also analyzed by two techniques:
Fundamental Analysis: Fundamental analysis is an approach which is used by the Bitcoin traders to determine the “intrinsic value” Bitcoin. This is done by a number of internal and external factors at large. For traditional asset classes such as equities, fixed income securities and commodities, it is easier to perform fundamental analysis. However, for cryptocurrencies various different parameters has to be looked upon to assess it fundamentally, such as whitepaper, liquidity and trading volume, fees, market capitalization and other project metrics.
Technical Analysis: Simply put, technical analysis of Bitcoin includes reviewing the price patterns using various types of charting techniques such as a line chart, bar chart, candlesticks, etc. and applying technical analysis indicators. Such indicators are a combination of trend lines, support and resistance levels, moving averages, directional movement index, momentum indicators and extension, etc. Technical analysis indicators use the past prices of Bitcoin for forecasting its future price movement.
Bitcoin technical analysis usually relies on charting patterns, statistical indicators, or both. The most commonly used charts are candlestick, bar, line and bar charts. Each can be created with similar data but presents the information in different and useful ways.
Tips To Do Bitcoin Trading In A Most Successful Way
Do your research: Unlike other financial markets, Bitcoin markets are infamously volatile, and key events can impact and move the prices of Bitcoin both heavily and quickly. It is crucial to stay, if you want to be a pro Bitcoin trader and wish to earn from Bitcoin the most, then you have to stay up to date on every possible bitcoin news and any key event that could potentially cause market movements.
In fact, there are various exchanges which help you to collate all the relevant news items that you need to read before the start of your day.
Ignore Hype or Misleading News: Do not take your trading calls based on social media news. As Bitcoin is a hot Topic and misleading and false news on Bitcoin tends to spread very quickly.
Build A Balanced Portfolio: Bitcoin trading is still at a very nascent stage. There is still quite a lot of ambiguity in the crypto market. Thus, it is very important to build your balanced portfolio, and not a very Bitcoin heavy portfolio. Building a balanced portfolio includes different cryptocurrencies such as Bitcoin, Dogecoin and Ethereum and also a mix of other financial assets. This strategy will help you to go a long way in beating volatility.
Bitcoin trading in India is still quite new and largely fragmented. As Bitcoin is open to arbitrage and margin trading, it offers huge opportunities to traders who are looking for short-term profit gains. However, Bitcoin is also subject to multiple changes in regulation, taxation and the way it has to be treated. That is why it is very crucial for traders to not get caught up in the hype and continue to be vigilant about the volatile nature and unpredictability of Bitcoin.