Top 5 Tips When Trading Bitcoin
Bitcoin’s jaw-dropping growth in 2017 had investors and traders across the globe sit up and take notice. While owning this innovative digital currency must have felt like a rollercoaster ride, traders have had a field day, with the high volatility offering attractive entry and exit opportunities. Although bitcoin prices have fluctuated, the one thing that’s been a constant is the media attention. This resulted in wider interest and a consequent surge in trading volumes.
So, if you’re planning on joining the bitcoin bandwagon, here are five important tips:
Tip #1: Trade CFDs Instead of Physical Coins
With CFDs, you can speculate on bitcoin price movements without having to own bitcoins and going through the hassle of ensuring their safety. Since bitcoin prices are typically volatile, there are numerous entry and exit opportunities.
Another advantage is that a CFD trader can potentially benefit from both rising and falling prices. You can go long, if you believe bitcoin price will rise, and go short if you think prices will head south. Among the other advantages is the low cost of CFD trading.
Tip #2: Use Technical Analysis
Technical analysis is a great way to identify entry and exit points based on past price movements. Many of the latest platforms offer a host of technical analysis tools as standard making your job a whole lot easier. That said; remember to practice on a demo account to get familiar with using charts for bitcoin trading – before entering a live market.
Of course, technical analysis cannot be used in isolation. It’s important to keep abreast of the fundamentals that may affect price movements such as bitcoin-related news. For instance, bitcoin price fell sharply when China announced a cryptocurrency ban, and spiked when Japan legalised this cryptocurrency.
Tip #3: Never Trade Without a Target and a Stop-Loss
When opening a position, determine the price to take profits and the price to cut losses in advance. While this is one of the most basic trading rules of any market, it is also the most forgotten one. And, this is particularly important in bitcoin trading, as periods of extreme volatility can easily influence your trading decision.
So, even before placing a trade, have a target price in mind. You may be feeling optimistic about the price continuing to move upwards; however, sell as soon as your price is reached. In fact, set up your sell trade in advance so that your target is not missed.
It’s important to be disciplined about using stop-losses too. As with the target price, set up your stop-loss order as soon as you open a position. A little bit of discipline goes a long way in avoiding trading decisions based purely on emotions.
Tip #4: Use Leverage Wisely
Attractive leverage is offered on bitcoin trading, especially if you’re trading CFDs. Leverage enables you to place trades with a much larger chunk of capital than is present in your account. This is great; however, leverage can result in significant losses if the price movement is unfavourable, just as it can magnify your profits if the price moves in the direction you predicted.
Given the volatility in the bitcoin market, it’s important to use leverage wisely. Too much leverage can be hugely damaging, while too little may mean forgoing significant profits. It takes practice to effectively manage leverage, especially with bitcoin trading. Begin with little or no leverage and slowly increase this as you gain confidence. Also, do test your strategies using your demo account before live trading.
Tip #5: Risk Management
Little pigs get to eat a lot while big pigs get eaten! This perfectly applies to bitcoin trading. Avoid aiming for huge profits. Instead, focus on smaller profits on a consistent basis.
With bitcoin trading, risk management is very important. Start small and avoid putting all your money in a single trade. Price movements of 5%-10% a day are very common in the crypto world, so begin with only a small portion of your capital in bitcoin trading.
With Bitcoin trading, it’s important to move with caution. Start slow and keep learning the market dynamics. Having said that, it’s probably the most exciting asset class to trade. There’s never a dull moment.
If you liked this educational article, please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than your invested capital.