All about Bitcoin Trading strategy

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Contents

The Best Bitcoin Trading Strategy – 5 Simple Steps (Updated)

With last week’s price move we updated this article to make sure you take advantage of this price action.

Today’s article is all about a cryptocurrency trading strategy and day trading bitcoin. You’ve probably been hearing so much about it. There are tons of cryptocurrency trading strategies that promise to make you rich. Our team at Trading Strategy Guides understands that now everyone wants a piece of the pie. That is the reason why we have put together the best Bitcoin trading strategy PDF.

The truth is that bitcoin is the hottest trading market right now. It is hotter than stock trading, oil trading, gold trading and any other market at this point. The reason people believe this is going to continue to be a hot market is because of blockchain technology. This is what allows transactions to happen without a central exchange. Here is another strategy on how to draw trend lines with fractals.

Trading bitcoin for profit is actually a universal cryptocurrency trading strategy. It can be used to trade any of the 800-plus cryptocurrencies available to trade as of today. If you’re not already familiar with cryptocurrencies it’s best to first start with a brief introduction.

How to Start Trading Bitcoin:

The first thing you need to get started trading bitcoin is to open a bitcoin wallet. If you do not have a bitcoin wallet then you can open one at the biggest wallet called Coinbase. We have arranged a special deal for everyone wanting to get started in bitcoin to get a free $10 at Coinbase. Get your free $10 by opening your Coinbase account here.

Bitcoin traders are actively seeking the best possible solutions for trading and investing in bitcoin. We have some of the best methods explained right here in this article. We have learned this bitcoin wisdom by trial and error and we are going to show you what is working right now. The methods we teach are not dependent on the price of bitcoin. They can be used whether bitcoin is going up or going down.

Keep in mind that it is possible to lose money. Your capital is at risk while trading cryptocurrency because it is still trading at the end of the day. We always recommend that you demo trade before risking any live money. Also, read the trading volume guide.

These bitcoin strategies can also be used for trading bitcoin cash as well as other cryptocurrencies. In fact, you can use this as a trade guide for any type of trading instrument. Blockchain technology is a big step forward for how to access information. Many companies are starting to develop applications to use Blockchain in their favor. Remember that when trading digital currency, it may seem like it’s not a real currency. But it actually is real. This is not some Ponzi scheme. Before you buy bitcoins, have a solid plan in place and don’t underestimate the cryptocurrency markets. You must do your technical analysis just as if you were going to day trade any other instruments. You can also read our best Gann Fan trading strategy.

Top Exchanges for Trading Bitcoin & Cryptocurrencies

One of the reasons why Bitcoin is so popular among day traders is that there are many different Bitcoin exchanges available. Finding the best Bitcoin exchange will depend on many different factors. These include your home country, the preferred method of payment, fees, limits, liquidity needs, and other factors.

Here are some of the top cryptocurrency exchanges in the market:

    • Coinbase is the world’s largest crypto exchange. Available in the United States, Canada, and the majority of countries in Europe. Offers several payment options.
    • Binance is the second-largest exchange that trades over 130 different currencies. Has low transaction fees (0.1%).
    • Bitmex is the third-largest exchange and only trades BTC. Great for short selling and margin trades.
    • Bittrex is a US-based exchange founded by ex-Microsoft security professionals.
    • Robinhood is a new exchange with 6 million users and takes zero trading fees.
    • OKEx is a Hong Kong-based exchange. Trades over 145 different cryptocurrencies.
    • GDAX – United States-based exchange that allows users to trade Bitcoin, Ether, Litecoin, and other cryptocurrencies.
    • itBit operates as both a global over-the-counter (OTC) trading desk and a global Bitcoin exchange platform.
    • Coinmama – allows you to buy and sell easily. Accepts credit cards and has a large global reach.

What is This Free Bitcoin Trading Strategy?

A cryptocurrency is really no different than the money you have in your wallet. They have no intrinsic value. And cryptocurrency is just bits of data while real money is just pieces of paper.

Unlike fiat money, Bitcoins and other cryptocurrencies have no central bank that controls them. This means that cryptocurrencies can be sent directly from user to user without any credit cards or banks acting as the intermediary. The major advantage of cryptocurrencies is that you can’t print them like central banks do to create fiat money.

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When you print lots of money, inflation goes up which makes the currency value going down. There is a limited amount of Bitcoins. This holds true for the majority of the other cryptocurrencies. The supply side can’t increase which makes Bitcoin less prone to being affected by inflation.

Now, let’s move forward and see how we can profit from the cryptocurrency mania. We will use our best Bitcoin trading strategy. We also have training for the best short-term trading strategy.

How to Day Trade Bitcoin

While long term traders prefer to hold their bitcoin positions for extended periods of time, day traders have discovered that Bitcoin is lucrative for many reasons:

  • Crypto trading is more volatile than stock trading.
  • Bitcoin is traded 24 hours per day 7 days a week.
  • Bitcoin allows for big trades with low overhead.
  • Bitcoin is the most liquid form of cryptocurrency.
  • Multiple trading opportunities emerge within a 24 hour period.

Because Bitcoin is more volatile than other tradeable assets, there will be a high number of profitable trading opportunities occurring each day. Like ordinary currencies, using technical indicators will make it easier to tell when price increases are likely to occur. Volume, relative strength, oscillators, and moving averages can all be applied to Bitcoin day trading.

It is important to pay attention to technical indicators and developing trends. In this next step, we will talk about OBV trading and how to get started buying and selling cryptocurrencies.

The Best Bitcoin Trading Strategy – 5 Easy Steps to Profit

This is a cryptocurrency trading strategy that can be used trading all the important cryptocurrencies. Actually, this is an Ethereum trading strategy as much as it’s a Bitcoin trading strategy. If you didn’t know Ethereum is the second most popular cryptocurrency (see figure below).

The best Bitcoin trading strategy is an 85% price action strategy and a 15% cryptocurrency trading strategy that uses an indicator.

Before we move forward, we must define the mysterious technical indicator. You’ll need this for the best Bitcoin trading strategy and how to use it:

The only indicator you need is the:

On Balance Volume (OBV): This is one of the best indicators for day trading bitcoin. It is used to basically analyze the total money flow in an out of an instrument. The OVB uses a combination of volume and price activity. This tells you the total amount of money going in and out of the market.

The OBV indicator can be found on most trading platforms like Tradingview and MT4. How to read the information from the OBV indicator is quite simple. Here you can learn how to profit from trading.

In theory, if Bitcoin is trading up and at the same time the OBV was trading down, this is an indication that people are selling into this rally. The move to the upside wouldn’t be sustainable. The same is true in reverse if Bitcoin was trading down and at the same time the OBV was trading up.

What we really want to see is the OBV moving in the same direction as the Bitcoin price. Later on, you’ll learn how to apply this information together with the cryptocurrency trading strategy.

No technical indicator is 100% effective every single time. In this regard, our team at Trading Strategy Guides uses the OBV indicator with other supporting evidence to sustain our trades and gain more confirmation. The next step comes from the Ethereum trading strategy which will be used to identify Bitcoin trades.

Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the best Bitcoin trading strategy.

Let’s get started…..
The Best Bitcoin Trading Strategy –

(Rules for a Buy Trade)

Step #1: Overlay the Bitcoin chart with the Ethereum chart and the OVB indicator.

Your chart setup should basically have 3 windows. One for the Bitcoin chart and the second one for the Ethereum chart. Last but not least, make one window for the OVB indicator.

If you followed our cryptocurrency trading strategy guidelines, your chart should look the same as in the figure above. For now, all should be good, so it’s time to move forward to the next step of our best Bitcoin trading strategy.

Step #2: Look for Smart Money Divergence between Bitcoin price and Ethereum price.

What do we mean by this?

Simply put, we are going to look after price divergence between Bitcoin price and Ethereum. Smart money divergence happens when one cryptocurrency fails to confirm the action of the other cryptocurrency.

For example, if Ethereum price breaks above an important resistance or a swing high and Bitcoin fails to do the same, we have smart money divergence. It means that one of the two cryptocurrencies is “lying.” This is the main reason why we have used this cryptocurrency trading strategy. And the Ethereum trading strategy as well.

If you’re still struggling to identify support and resistance we’ve got your back, simply read our guide on this topic here: Support and Resistance Zones – Road to Successful Trading .

In the above figure, we can notice that Bitcoin’s price fails to break above resistance while Ethereum’s price broke above and made a new high. This is the first sign that the best Bitcoin trading strategy is about to signal a trade.

The reason why the smart money divergence concept works is because the cryptocurrency market as a whole should move in the same direction when we’re in a trend. The same principles have been true for all the other major asset classes for decades. It’s true for the cryptocurrency trading strategy as well.

Before buying, we need confirmation from the OBV indicator. This brings us to the next step of the best Bitcoin trading strategy.

Step #3: Look for the OVB to increase in the direction of the trend.

If Bitcoin is lagging behind the Ethereum price it means that sooner or later Bitcoin should follow Ethereum and break above the resistance.

But, how do we know that?

Simply put, the OBV is a remarkable technical indicator. It can show us if the real money is really buying Bitcoin or if they are selling. What we want to see when Bitcoin is failing to break above a resistance level or a swing high, and the Ethereum already broke, is for the OBV to increase in the direction of the trend. We also want it to move beyond the level it was when Bitcoin was trading previously at this resistance level (see figure below). Here is how to identify the right swing to boost your profit.

Now, all it remains for us to do is to place our buy limit order, which brings us to the next step of the best Bitcoin trading strategy.

Step #4: Place A Buy Limit Order at the resistance level in an attempt to catch the possible breakout.

Once the OBV indicator gives us the green signal, all we have to do is to place a buy limit order. Place the order at the resistance level in anticipation of the possible breakout.

It’s no surprise to see this trade getting triggered and for the Bitcoin price to break higher than expected. After all, we told you the OBV is an amazing indicator.

Now, all we need to establish is where to place our protective stop loss and when to take profits for the best Bitcoin trading strategy.

Step #5: Place your SL below the breakout candle and take profit once the OBV reaches 105,000.

Placing the stop loss below the breakout candle is a smart way to trade. We’ve written more about the reasons for hiding your SL above/below the breakout candle in our most recent article here: Breakout Trading Strategy Used by Professional Traders.

When it comes to our take profit, usually an OBV reading above 105,000 is an extreme reading that signals at least a pause in the trend. This is where we want to take profits.

Note** The above was an example of a buy trade… Use the same rules – but in reverse – for a sell trade. In the figure below, you can see an actual SELL trade example, using the best Bitcoin trading strategy.

Ways to Enhance This Bitcoin Day Trading Strategy

While bitcoin day trading does have some risks, there are many ways these risks can be reduced. Here are some of the top ways to enhance your Bitcoin trading strategy.

  • Diversify your trades. Combining Bitcoin, Ripple, Litecoin, Ethereum, and other cryptocurrencies will help reduce the daily risk associated with a specific coin.
  • Minimize trading costs. Opening multiple positions every day affects your daily ROI. To minimize the cost of trading, choose a trustworthy exchange that has low fees.
  • Watch Trading times. Plan out trading times that are compatible with your schedule. Bitcoin trades 24 hours a day. It’s different from the 9-5 NYSE.
  • Follow Bitcoin News. Pay attention to cryptocurrency news stories to stay ahead of the market. Set up alerts and other types of notifications.
  • Use technical analysis. Use strong technical indicators like OBV. This will help you justify each of your trades.
  • Use stop losses. Set stop-loss orders on every trade. Start with a profit loss ratio of 2:1.

Conclusion

Maybe one day our fiat money system will go under and be completely replaced by cryptocurrencies. We’re living in a digitalized world and the possibility of Bitcoin or any other major cryptocurrencies to replace the way we pay for the goods and services is not beyond the realms of possibility.

However, as long as there are still profits to be made from Forex currency trading we encourage you to read our receipt for Forex trading success: How to Make Money Trading – 2 Keys to Success .

We hope that The Best Bitcoin Trading Strategy – has shed some light on how you can use the same technical analysis tools that you use for trading the Forex currency market to now trade the cryptocurrencies.

Thank you for reading!

Please leave a comment below if you have any questions about this best bitcoin trading strategy!

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5 Easy Steps For Bitcoin Trading For Profit and Beginners

Bitcoin trading can be extremely profitable for professionals or beginners. The market is new, highly fragmented with huge spreads. Arbitrage and margin trading are widely available. Therefore, many people can make money trading bitcoins.

Bitcoin’s history of bubbles and volatility has perhaps done more to bring in new users and investors than any other aspect of the crpytocurrency.

Each bitcoin bubble creates hype that puts Bitcoin’s name in the news. The media attention causes more to become interested, and the price rises until the hype fades.

Each time Bitcoin’s price rises, new investors and speculators want their share of profits. Because Bitcoin is global and easy to send anywhere, trading bitcoin is simple.

Compared to other financial instruments, Bitcoin trading has very little barrier to entry. If you already own bitcoins, you can start trading almost instantly. In many cases, verification isn’t even required in order to trade.

If you are interested in trading Bitcoin then there are many online trading companies offering this product usually as a contract for difference or CFD.

Avatrade offers 20 to 1 leverage and good trading conditions on its Bitcoin CFD trading program.

Why Trade Bitcoin?

Before we show you how to trade Bitcoin, it’s important to understand why Bitcoin trading is both exciting and unique.

Bitcoin Is Global

Bitcoin isn’t fiat currency, meaning its price isn’t directly related to the economy or policies of any single country. Throughout its history, Bitcoin’s price has reacted to a wide range of events, from China’s devaluation of the Yuan to Greek capital controls.

General economic uncertainty and panic has driven some of Bitcoin’s past price increases. Some claim, for example, that Cyprus’s capital controls brought attention to Bitcoin and caused the price to rise during the 2020 bubble.

Bitcoin Trades 24/7

Unlike stock markets, there are no official Bitcoin exchanges. Instead, there are hundreds of exchanges around the world that operate 24/7. Because there is no official Bitcoin exchange, there is also no official Bitcoin price. This can create arbitrage opportunities, but most of the time exchanges stay within the same general price range.

Bitcoin is Volatile

Bitcoin is known for its rapid and frequent price movements. Looking at this daily chart from the CoinDesk BPI, it’s easy to spot multiple days with swings of 5% or more:

Bitcoin’s volatility creates exciting opportunities for traders who can reap quick benefits at anytime.

Find an Exchange

As mentioned earlier, there is no official Bitcoin exchange. Users have many choices and should consider the following factors when deciding on an exchange:

Regulation & Trust – Is the exchange trustworthy? Could the exchange run away with customer funds?

Location – If you must deposit fiat currency, and exchange that accepts payments from your country is required.

Fees – What percent of each trade is charged?

Liquidity – Large traders will need a Bitcoin exchange with high liquidity and good market depth.

Based on the factors above, the following exchanges dominate the Bitcoin exchange market:

Bitfinex – Bitfinex is the world’s #1 Bitcoin exchange in terms of USD trading volume, with about 25,000 BTC traded per day. Customers can trade with no verification if cryptocurrency is used as the deposit method.

Bitstamp – Bitstamp was founded in 2020 making it one of Bitcoin’s oldest exchanges. It’s currently the world’s second largest exchange based on USD volume, with a little under 10,000 BTC traded per day.

OKCoin – Bitcoin exchange based in China but trades in USD.

Coinbase –

Coinbase – Coinbase Exchange was the first regulated Bitcoin exchange in the United States. With about 8,000 BTC traded daily, it’s the world’s 4 th largest exchange based on USD volume.

Kraken – Kraken is the #1 exchange in terms of EUR trading volume at

6,000 BTC per day. It’s currently a top-15 exchange in terms of USD volume.

Bitcoin Trading in China

Global Bitcoin trading data shows that a very large percent of the global price trading volume comes from China. It’s important to understand that the Chinese exchanges lead the market, while the exchanges above simply follow China’s lead.

The main reason China dominates Bitcoin trading is because financial regulations in China are less strict than in other countries. Therefor, Chinese exchanges can offer leverage, lending, and futures options that exchanges in other countries can’t. Additionally, Chinese exchanges charge no fees so bots are free to trade back and forth to create volume.

If you’d like to learn more about Bitcoin trading in China, this video from Bitmain’s Jihan Wu provides additional insight.

How to Trade Bitcoin

Kraken will be used as an example for this guide. The process and basic principles remain the same across all exchanges.

First, create an account on Kraken by clicking the black sign up box in the right corner:

You’ll have to confirm your account via email. Once your account is confirmed and you’ve logged in, you must verify your personal information. All Bitcoin exchanges require varying levels of verification as required by AML and KYC laws. Below you can find the first three verification levels:

Once your account is verified, head over to the “funding” tab. You should see something similar to the screenshot below. Select your funding method from the left side:

Kraken offers many deposit methods, which are listed here:

EUR SEPA Deposit (Free) – EEA countries only

EUR Bank Wire Deposit (€5) – EEA countries only

USD Bank Wire Deposit (Free until 3/1/2020, then $5 USD) – US only

USD SEPA and SWIFT Deposit (0.19%, $20 minimum)

GBP SEPA and SWIFT Deposit (0.19%, £10 minimum)

JPY Bank deposit (Free, ¥5,000 deposit minimum) – Japan only

CAD Interac Deposit (Free until 3/1/2020, then 1%, $10 CAD fee minimum, $5,000 CAD deposit maximum)

CAD EFT Deposit (Free until 3/1/2020, then 1%, $10 CAD fee minimum, $50 CAD fee maximum, $10,000 CAD deposit maximum)

Deposits made using the traditional banking system will take anywhere from one to three days. Bitcoin deposits require six confirmations, which is about one hour.

Now, navigate to the “Trade” tab. Using the black bar at the top of the page, you can switch trading pairs. In this example we’ll use XBT/USD. We want to buy bitcoins, so let’s put in an order. Navigate to the “New Order” tab.

Let’s say I’ve deposited $300 into my account with a USD bank wire. In the example below, I’ve submitted an order to buy 0.5 bitcoins (XBT) at a price of $370 per bitcoin.

Check the black bar at the top, and you’ll notice that the last trade price was $383.17.

Why submit an order to buy at $370 per bitcoin (XBT) and not $383.17? One may submit an order lower than the current price if one expects the price of Bitcoin to fall. In this case, since my order is lower than other offers in the orderbook, I won’t receive my order for 0.5 bitcoin immediately. Placing an order at a specified price is called a _limit order._ Before placing an order, be sure to check the orderbook for your trading pair.

In the example orderbook below, you can see that the highest buy offer is for $382.5 per bitcoin, while the lowest sell order is at $384.07 per bitcoin.

Using the order form there’s also an option for “Market”.

A market order in this case would submit a buy order for XBT at the price of the lowest available sell order. Using the orderbook above, a market order for 0.5 XBT would purchase 0.5 XBT at $384.07 per XBT. If selling bitcoins, a market order would sell bitcoins for the highest available price based on the current buy orderbook—in this case $382.5.

Trading Risks

Bitcoin trading is exciting because of Bitcoin’s price movements, global nature, and 24/7 trading. It’s important, however, to understand the many risks that come with trading Bitcoin.

Leaving Money on an Exchange

Perhaps one of the most famous events in Bitcoin’s history is the collapse of Mt. Gox. In Bitcoin’s early days, Gox was the largest Bitcoin exchange and the easiest way to buy bitcoins. Customers from all over the world were happy to wire money to Mt. Gox’s Japanese bank account just to get their hands on some bitcoins.

Many users forgot one of the most important features of Bitcoin—controlling your own money—and left more than 800,000 bitcoins in Gox accounts. In February 2020, Gox halted withdrawals and customers were unable to withdrawal their funds. The company’s CEO claimed that the majority of bitcoins were lost due to a bug in the Bitcoin software. Customers still have not received any of their funds from Gox accounts.

Gox’s catastrophic collapse highlights the risk that any trader takes by leaving money on an exchange. Using a regulated Bitcoin exchange like Kraken can decrease your risk.

Your Capital is at Risk

Remember that as with any type of trading, your capital is at risk. New traders should start trading with small amounts or trade on paper to practice. Beginners should also learn Bitcoin trading strategies and understand market signals.

Bitcoin Trading Tools & Resources

Cryptowatch & Bitcoin Wisdom – Live price charts of all major Bitcoin exchanges.

Bitcoin Charts – More price charts to help you understand Bitcoin’s price history.

bitcoinmarkets – A Bitcoin trading sub-reddit. New users can ask questions and receive guidance on trading techniques and strategy.

TradingView – Trading community and a great resource for trading charts and ideas.

Bitcoin Trading Guide for Beginners

By: Ofir Beigel | Last updated: 1/1/20

This post covers the basics of Bitcoin trading. It will help you get familiar with basic terms, understand different ways to “read” the market and its trend, make a trading plan and to learn how to execute that plan on Bitcoin exchanges.

Bitcoin Trading Summary

Bitcoin trading is the act of buying low and selling high. Unlike investing, which means holding Bitcoin for the long run, trading deals with trying to predict price movements by studying the industry as a whole and price graphs in particular.

There are two main methods people use to analyze Bitcoin’s price – fundamental analysis and technical analysis. Successful trading requires a lot of time, money and effort before you can actually get good at it.

In order to trade Bitcoins you’ll need to do the following:

  1. Open an account on a Bitcoin exchange (e.g. CEX.io, eToro, Bitstamp)
  2. Verify your identity
  3. Deposit money to your account
  4. Open your first position on the exchange (i.e. buy or short sell)

That’s Bitcoin trading in a nutshell. If you want a really detailed explanation keep on reading. :

Don’t Like to Read? Watch Our Video Guide Instead:

1. Bitcoin Trading vs. Investing

The first thing we want to do before we dive deep into the subject is understand what Bitcoin trading is, and how is it different from investing in Bitcoin.

When people invest in Bitcoin, it usually means that they are buying Bitcoin for the long term. In other words, they believe that the price will ultimately rise, regardless of the ups and down that occur along the way. Usually, people invest in Bitcoin because they believe in the technology, ideology, or team behind the currency.

Bitcoin investors tend to HODL the currency for the long run (HODL is a popular term in the Bitcoin community that was actually born out of a typo of the word “hold”—in an old 2020 post in the BitcoinTalk forum).

Bitcoin traders, on the other hand, buy and sell Bitcoin in the short term, whenever they think a profit can be made. Unlike investors, traders view Bitcoin as an instrument for making profits. Sometimes, they don’t even bother to study the technology or the ideology behind the product they’re trading.

Having said that, people can trade Bitcoin and still care about it, and many people out there invest and trade at the same time. As for the sudden rise in popularity of Bitcoin (and several altcoins) trading – there are a few reasons for that.

First, bitcoin is very volatile. In other words, you can make a nice profit if you manage to correctly anticipate the market. Second, Unlike traditional markets, Bitcoin trading is open 24/7.

Most traditional markets, such as stocks and commodities, have an opening and closing time. With Bitcoin, you can buy and sell whenever you please.

Finally, Bitcoin’s relatively unregulated landscape makes it relatively easy to start trading—without the need for long identity-verification processes.

While all traders want the same thing, they practice different methods to get it. Let’s review some examples of popular trading types:

Day trading

This method involves conducting multiple trades throughout the day, and trying to profit from short-term price movements. Day traders spend a lot of time staring at computer screens, and they usually just close all of their trades by the end of each day.

Scalping

This day-trading strategy is becoming popular lately. Scalping attempts to make substantial profits on small price changes, and it’s often referred to as “picking up pennies in front of a steamroller.”

Scalping focuses on extremely short-term trading, and it’s based on the idea that making small profits repeatedly limits risks and creates advantages for traders. Scalpers can make dozens—or even hundreds—of trades in one day.

Swing trading

This type of trade tries to take advantage of the natural “swing” of the price cycles. Swing traders try to spot the beginning of a specific price movement, and enter the trade then. They hold on until the movement dies out, and take the profit.

Swing traders try to see the big picture without constantly monitoring their computer screen. For example, swing traders can open a trading position and hold it open for weeks or even months until they reach the desired result.

Can I predict Bitcoin’s price movement?

The short answer is that no one can really predict what will happen to the price of Bitcoin. However, some traders have identified certain patterns, methods, and rules that allow them to make a profit in the long run. No one exclusively makes profitable trades, but here’s the idea: At the end of the day, you should see a positive balance, even though you suffered some losses along the way.

People follow two main methodologies when they analyze Bitcoins (or anything else the want to trade, for that matter) – fundamental analysis and technical analysis.

Fundamental analysis

Tries to predict the price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates Bitcoin’s industry, news about the currency, technical developments of Bitcoin (such as the lightning network), regulations around the world, and any other news or issues that can affect the success of Bitcoin.

This methodology looks at Bitcoin’s value as a technology (regardless of the current price) and at relevant outside forces, in order to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis will predict a probable price drop.

Technical analysis

Tries to predict the price by studying market statistics, such as past price movements and trading volumes. It tries to identify patterns and trends in the price, and based on these deduce what will happen to the price in the future.

The core assumption behind Technical analysis is this: Regardless of what’s currently happening in the world, price movements speak for themselves, and tell some sort of a story that helps you predict what will happen next.

So, which methodology is better?

Well, as I already said in the previous chapter, no one can accurately predict the future. From fundamental perspective, a promising technological achievement might end up as a flop, and from technical perspective, the graph just doesn’t behave as it did in the past.

The simple truth is that there are no guarantees for any sort of trading. However, a healthy mix of both methodologies will probably yield the best results.

Let’s continue to break down some of the confusing terms and statistics you’ll encounter on most of Bitcoin and crypto exchanges:

Trading Platforms vs. Brokers vs. Marketplaces

Bitcoin trading platform are online sites where buyers and sellers are automatically matched. Note that a trading platform is different from a Bitcoin broker, such as Coinmama.

Unlike trading platforms, brokers sell you Bitcoin directly and usually for a higher fee. A trading platform is also different from a marketplace such as LocalBitcoins, where buyers and sellers communicate directly with each other, in order to complete a trade.

The Order Book

The complete list of buy orders and sell orders are listed in the market’s order book, which can be viewed on the trading platform. The buy orders are called bids, since people are bidding on the prices to buy Bitcoin. The sell orders are called asks, since they show the asking price that the sellers request.

Bitcoin Price

Whenever people refer to Bitcoin’s “price”, they are actually referring to the price of the last trade conducted on a specific trading platform. This important distinction occurs because, unlike US dollars for example, there is no single, global Bitcoin price that everyone follows.

For instance, Bitcoin’s price in certain countries can be different from its price in the US, since the major exchanges in these countries include different trades.

Note: Next to the price, you will sometimes also see the terms high and low. These terms refer to the highest and lowest Bitcoin prices in the last 24 hours.

Volume

Volume stands for the number of overall Bitcoins that have been traded in a given timeframe. Volume is used by traders to identify how significant a trend is; Significant trends are usually accompanied by large trading volumes, while weak trends are accompanied by low volumes.

For example, a healthy upward trend will be accompanied by high volumes when the price rises and low volumes when the price declines.

If you are witnessing a sudden change of direction in the price, experts recommend checking how significant the trading volume is, in order to determine if it’s just a minor correction or the beginning of an opposite trend.

Market (or Instant) Order

This type of orders can be set on a trading platform and it will be instantly fulfilled at any possible price. You only set the amount of Bitcoins you wish to buy or sell and order the exchange to execute it immediately. The trading platform then matches sellers or buyers to meet your order, respectfully.

Once the order is placed, there is a good chance that your order will not be matched by a single buyer or seller, but rather by multiple people, at different prices.

For example, let’s say you put a market order to buy five Bitcoins. The trading platform is now looking for the cheapest sellers available.

The order will be completed once it accumulates enough sellers to hand over five Bitcoins. Depending on sellers availability, you might end up buying three Bitcoins at one price, and the other two at a higher price.

In other words, in a market order, you don’t stop buying or selling Bitcoins until the amount requested is reached. With market orders, you may end up paying more or selling for less than you intended, so be careful.

Limit Order

Allows you to buy or sell Bitcoin at a specific price that you decide on. In other words, the order may not be entirely fulfilled, since there won’t be enough buyers or sellers to meet your requirements.

Let’s say that you place a limit order to buy five Bitcoins at $10,000 per coin. Then you could end up only owning 4 Bitcoins, because there were no other sellers willing to sell you the final Bitcoin at $10,000. The remaining order for 1 Bitcoin will stay there, until the price hits $10,000 again, and the order will then be fulfilled.

Stop-Loss Order

Lets you set a specific price that you want to sell at in the future, in case the price drops dramatically. This type of order is useful for minimizing losses.

It’s basically an order that tells the trading platform the following: If the price drops by a certain percentage or to a certain point, I will sell my Bitcoins at the preset price, so I will lose as little money as possible. A stop-loss order acts like a market order.

In other words, once the stop price is reached, the market will start selling your coins at any price until the order is fulfilled.

Maker and Taker fees

Other terms that you may encounter when trading are maker fees and taker fees. Personally, I still find this model to be one of the more confusing ones, but let’s try to break it down.

Exchanges want to encourage people to trade. In other words, they want to “make a market.” Therefore, whenever you create a new order that can’t be matched by any existing buyer or seller, i.e. a limit order, you’re basically a market maker, and you will usually have lower fees.

Meanwhile, a market taker places orders that are instantly fulfilled, i.e. market orders, since there was already a market maker in place to match their requests. Takers remove business from the exchange, so they usually have higher fees than makers, who add orders to the exchange’s order book.

For example, perhaps you put a limit order in to buy one Bitcoin at $10,000 (at most), but the lowest seller is only willing to sell at $11,000. Then you’ve just created a new market for sellers who want to sell at $10,000.

So whenever you place a buy order below the market price or a sell order above the market price, you become a market maker.

Using that same example, perhaps you place a limit order to buy one Bitcoin at $12,000 (at most), and the lowest seller is selling one Bitcoin at $11,000. Then your order will be instantly fulfilled. You will be removing orders from the exchange’s order book, so you’re considered a market taker.

Now that you’re familiar with the main trading terms, it’s time for a short intro into reading price graphs.

Japanese Candlesticks

A very widely used type of price graph, Japanese candlesticks are based on an ancient Japanese method of technical analysis, used in trading rice in 1600’s.

Each “candle” represents the opening, lowest, highest, and closing prices of the given time period. Due to that, Japanese Candlesticks are sometimes referred to as OHLC graph (Open, High, Low, Close).

Depending on whether the candle is green or red, you can tell if the closing price of the timeframe was higher or lower than the opening price.

If a candle is green, it means that the opening price was lower than the closing price, so the price went up overall during this timeframe. On the other hand, if the candle is red, it means that the opening price was higher than the closing price, so the price went down.

In the image above, the opening price of the green candle is the wide-bottom part of the candle, the closing price in the wide-top part on the candle, and the highest and lowest trades within this timeframe on both ends of the candle.

When we’re in a bull market, most of the candlesticks will usually be green. If it’s a bear market, most of the candlesticks will be red.

Bull and Bear Markets

These terms are used to indicate the general trend of the graph, whether it’s going up or down. They are named after these animals because of the ways they attack their opponents.

A bull thrusts its horns up into the air, while a bear swipes its paws downward. So these animals are metaphors for the movement of a market: If the trend is up, it’s a bull market. But if the trend is down, it’s a bear market.

Resistance and Support Levels

Often, when looking at market graphs such as OHCL it may seem as though Bitcoin’s price cannot break through certain highs or lows. For example, you can witness Bitcoin’s price go up to $10,000 and then appear to hit a virtual “ceiling” and get stuck at that price for some time without breaking through it.

In this scenario, $10,000 is the resistance level – a high price point Bitcoin is struggling to beat. The resistance level is the outcome of many sell orders being executed at this price point. That’s why the price fails to break through at that specific point.

Support levels, in a sense, are the mirror image of resistance levels. They look like a “floor” Bitcoin’s price doesn’t seem to go below when the price drops . A support level will be accompanied by a lot of buy orders set at the level’s price. The high demand of a buyer at the support level cushions the downtrend.

Historically, the more frequently the price has been unable to move beyond the support or resistance levels, the stronger these levels are considered.

Interestingly, both resistance and support levels are usually set around round numbers e.g. 10,000, 15,000 etc. The reason for that is that many inexperienced traders tend to execute buy or sell orders at round price points, thus making them act as strong price barriers.

Psychology also contributes a lot to support and resistance levels. For example, until 2020, it seemed expensive to pay $1,000 per Bitcoin, so there was a strong resistance level at $1,000. Once that level was breached, a new psychological resistance level was created: $10,000.

Great, you made it this far, and by now you should have enough know-how to go out and get some field experience. However, 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—in the hopes that you’ll be able to avoid them.

Mistake #1 – Risking More than You Can Afford to Lose

The biggest mistake you can make is to risk more money than you can afford to lose. Take a look at the amount you feel comfortable with. Here’s the worst-case scenario: You’ll end up losing it all. If you find yourself trading above that amount, stop. You’re doing it wrong.

Trading is a very risky business. 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.

Mistake #2 – Not Having a Plan

Another mistake people make when starting out with trading is not having an action plan that’s clear enough. In other words, they don’t know why they’re entering a specific trade, and more importantly, when they should exit that trade. So clear profit goals and stop-losses should be decided before starting the trade.

Mistake #3- Leaving Money on an Exchange

This is the most basic ground-rule for any crypto trader: NEVER leave your money on an exchange that you’re not currently trading with. If your money is sitting on the exchange, it means that you don’t have any control over it. If the exchange gets hacked, goes offline, or goes out of business, you may end up losing that money.

Whenever you have money that isn’t needed in the short term for trading on an exchange, make sure to move it into your own Bitcoin wallet or bank account for safekeeping.

Mistake #4 – 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 make sure to stick to the plan that was laid before you started the trade.

Mistake #5 – 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 to only 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.

7. Frequently Asked Questions

How do I trade Bitcoin?

In order to trade Bitcoins you’ll need to do the following:

  1. Open an account on a Bitcoin exchange (listed below)
  2. Verify your identity
  3. Deposit money to your account
  4. Open your first position on the exchange (i.e. buy or short sell)

Is day trading a good way to make money?

Day trading is just one method out of many you can choose for trading. Other examples include swing trading or scalping.

While many people will argue day trading is a good way to make money, more than 90% of people quit day trading in the first 3 months.

Any type of trading strategy can work as long as you’re consistent and are willing to put in the time and effort to learn how to be better than other traders out there.

We covered a lot of ground about Bitcoin trading, but I have to warn you: The majority of people who start trading Bitcoin stop after a short while, mostly because they don’t successfully make any money.

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 just to make a quick buck, then perhaps it’s better to just avoid trading altogether.

There’s no such thing as quick, easy money—without a risk or downside at the other end. However, if you’re committed to learning how to become a professional Bitcoin trader, take a look at our resource section below. These resources will help you get the best possible tools and continue your education.

You may still have some questions. If so, just leave them in the comment section below.

  • Cointelligence Academy – An A to Z trading course by Cointelligence and Mati Greenspan
  • Algorithmic trading and technical analysis – Everything about technical analysis and programming trading bots. No prior knowledge needed
  • TradeView – The most popular trading software around
  • Coinigy – Another Bitcoin trading software

The following sites are suited for Bitcoin trading:

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