Bitcoin For Beginners: A Guide for Early Traders
To the rookies out there, Bitcoin trading can be a whole new world—queue the Aladdin soundtrack.
But guess what—it’s easier than you think. All you’ll need to start is a Bitcoin wallet, a willingness to learn the process, and a sparkling enthusiasm for our favorite peer-to-peer electronic cash system.
In its simplest form, the trading process can be broken down into three main steps:
- Creating an account – Look for a Bitcoin trading platform that matches your trading style. Once you do, you can create an account—in some cases, you’ll even receive a free Bitcoin wallet upon registration.
- Verifying your ID – Most platforms nowadays require you to verify your ID for the safety of both buyers and sellers. Don’t be afraid, it’s all protocol.
- Start trading – Once your account is set up with all the necessary details and verifications, you can start trading. Carefully analyze each offer and choose the one that best suits your needs!
And voila! You’ve now got the simplest understanding of how Bitcoin trading works. However, for the enthusiasts out there, you know that it can’t be that simple.
Factors of Bitcoin trading you MUST consider
Obviously, those three steps above are just the tip of the iceberg. When it comes to Bitcoin trading, there’s always a deeper level of understanding. Let’s go over a few notable things that you should know about before you start.
Order books and liquidity
Order books are the bedrock of most BTC exchanges on the market. These electronic lists showcase both buy and sell offers for you, lining them up for you to choose from.
Liquidity refers to the ability of an asset to flow between traders. The asset—in this case, Bitcoin—has to be able to flow between a buyer and seller quickly enough to not be discouraged by the change in price. Essentially, the more liquid an asset is, the less prone it is to pump and dump schemes. In this type of scam, traders coordinate with one another to manipulate the price of a specific asset.
The supply and demand of Bitcoin
Moving onto basic economics, let’s touch on supply and demand and how it can affect Bitcoin price.
When Bitcoin was created by Satoshi Nakamoto in 2009, its supply was designed to be capped at 21 million. We know what you’re thinking: “21 million BTC is a lot“—and you’re right. It is a lot. However, when you put it beside the fact that almost 90% of that 21 million has already been mined only a little over a decade after BTC was created, it feels like the clock is rapidly ticking.
No one knows for sure what will happen when that supply is capped, but economists will say that the price can increase, according to the law of supply and demand.
Now, let’s talk about the demand. When Bitcoin was introduced to the world in 2009, no one really knew what it was. It definitely had its ups and downs in those times, but we’re living in a different time now.
Fast-forward to a little over 11 years later: Bitcoin now seems to be more trusted with a ton of reputable communities sprouting up. Alongside its development in its real-use case aspects, Bitcoin is no longer just an investment tool but it can also be used in daily lives. At the time of writing, BTC’s price is sitting just under 35,000 USD—not its highest, but far from where it came from—possibly indicating that the demand is still high. As for how this demand will be affected once the supply is all maxed out, we’ll have to wait and see.
Bitcoin trading strategies
How do you like to trade your crypto? Look at some of the top strategies below and decide for yourself.
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- HODLing – “HODLing” is probably the most beginner-friendly trading strategy out there. This is when traders will buy low and hold their coins until they reach their desired price despite the price swings that can happen in between.
- Day trading – The day trading strategy uses several quick and short-term trades for small profits to create a cumulative profit at the end of the day. Once the trading day is over, you shouldn’t have any more open positions.
- Scalping – Scalping is like a ramped-up version of day trading as scalpers can sometimes make more than a hundred trades every day, penny-pinching their way into a significant cumulative profit.
- Swing trading – Swing traders will analyze market trends and make their moves accordingly. Like HODLers, they can buy low and hold long enough to see the price go up. However, a swing trader’s hold time isn’t as long as that of a HODLer.
- Peer-to-peer (P2P) trading – In a way, P2P trading will cancel out BTC’s price volatility, allowing their traders to earn based on profit percentages on the platform. By buying lower and selling higher, you can make money—no matter the price of BTC. With hundreds of payment methods available, you can also earn more by using the less popular payment options.
If you’re unsure about which strategy to use, you can always try each with small amounts. From there, you can get a feel of how each technique works. Once you find one you like, you may decide to start investing larger amounts.
Stop-losses can be a crypto trader’s best friend. These are orders designed to limit how much money you can lose or gain. For example, you can set a stop-loss order for 20% below the price you bought your asset. In turn, the asset will cash itself out once it hits that 20% loss mark, preventing any further losses.
Although they can seem like a trading failsafe, they shouldn’t be treated that way. Stop-losses are complex mechanisms that can be a carefully planned insurance policy—only if they’re used properly. Using it on random assets without understanding its purpose and application can lead to some pretty bad losses. Study up about stop-losses before you go head-first into using them.
Bull and bear markets
One thing you’ll have to consider when it comes to Bitcoin trading is how investor mindsets can affect the market. The bull and bear markets can change the way an investor thinks.
Bear markets are markets that are experiencing a downtrend in price. To some, that means assets seeing a 20% dip over 60 days or more, but these figures aren’t definitive. This can lead to more negative sentiment towards the market and more conservative investments.
Bull markets are the opposite. Instead of quick price drops, the market sees upward trends. Instead of more conservative investments, the market can be more positive and investors may have a more positive attitude.
Analyzing the market
When it comes to reading market trends and getting an idea of where they may go, there are two thought camps: technical analysis and fundamental analysis.
- Technical analysis – Technical analysts look at the market with the idea that history repeats itself. To get their prediction of where the market will go, they look at historical data such as trading volume, past pricing trends, and other relevant data from the past. They look for repeated behaviors. Once they find a pattern, they can make a calculated prediction based on the market’s bullish or bearish trends.
- Fundamental analysis – Fundamental analysts have more of a “big picture” approach when it comes to looking at the market. Instead of looking at statistics, they’ll look at the asset’s intrinsic value. If there’s a coin that they feel like is being undervalued on the market, they’ll put their money into that and hope that their investment grows from there.
Each analysis method represents a trading style. Since the market is highly unpredictable, there’s no sure fire way to get to the answer you’re looking for. It all boils down to preference, so which camp do you belong in?
Go forth and prosper
Hopefully, with all these factors now etched into your trading personality, you can use this as a good stepping stone—something you can use to become a better crypto trader.
In this game, knowledge is power. We’re all learning as we go, so you can feel safe with every trade as long as you treat it like a learning experience. Don’t dwell on losses and keep moving forward.
Richard Branson, a prominent investor in the space, once said:
“You don’t learn to walk by following rules. You learn by doing, and by falling over.”
At the end of the day, we’re all taking risks here—so let’s try and make the best of it.