You have heard about Bitcoin and that people are making money by trading or investing in it. And this may have caught your attention, but you may not know much about Bitcoin. Well, Bitcoin is a popular cryptocurrency that you can use to buy goods and services, just like fiat money.
However, Bitcoin exists in digital form only. That means you can’t keep in your pocket the same way you carry fiat money. You can either keep Bitcoin in an exchange or a digital wallet. But, how do you trade Bitcoin if you can’t hold it in your hands or pockets?
How to Trade Bitcoin
Bitcoin trading is mainly about speculating on the movement of its price. Traditionally, people have traded cryptocurrencies via exchanges. The goal is to buy Bitcoin and hope the price will eventually go up so that a trader can sell their cryptocurrency at a higher price and make a profit.
But, this has changed as traders use derivatives in speculating on both the falling and rising prices. Essentially, traders are looking for ways to make more money from the volatility of cryptocurrencies.
Essentially, everybody wants to earn more. The internet provides many ways to make money. It’s not surprising that sites like bitcoin up login shares some of the ways people can make more money. But, every venture has some risks. And Bitcoin trading is no exception. That’s why you should learn these ways to manage risk when trading Bitcoin.
Watch Out for Counterparty Risk
The crypto market has a high percentage gain. However, crypto exchanges and problems have counterparty risk. A Bitcoin transaction is irreversible. And, you can’t trust a crypto exchange with your keys. That’s because some crypto exchanges have been hacked, leading to loss of money.
Therefore, don’t keep your Bitcoin in a crypto exchange unless you’re actively trading. Also, diversify your Bitcoins among different crypto exchanges. It will also help if you trade Bitcoin with around 20-30% of your entire portfolio. Additionally, research a Bitcoin exchange before you use it.
Go for Quality Instead of Quantity
Over-trading leads to a waste of money and time. Effective trading, therefore, entails going for quality instead of quantity. Remember that not every market condition will suit your strategy. For instance, swing trading is ideal for strong trends. Automated scalping is perfect when the market is stable. Therefore, research the market to determine the most effective trading style at any time.
Develop an Exit Strategy
Identify the primary resistance and support levels on charts and then decide on your trades in advance. Research the market to know the risk to reward ratio. After that, set targets for profits. A trader can scale out to lock in profits or add to their position during strong trends.
Also, set stop orders for protection purposes. But don’t forget that stops are not always practical when it comes to the fast price movement. Slippage can lead to a bad fill.
Avoid Excessive Leverage
You may use margin always because it can increase your order size while allowing you the flexibility of going short or long. But, excessive leverage might not leave adequate time for your trade to breathe. Thus, you can lose the entire capital or principal amount if a forced liquidation becomes necessary.
The fear of missing out and loss can be your worst enemy. If you become greedy, you can buy tops. If you panic-sell, you can cash out a position at a dump’s bottom. Therefore, learn to manage emotions and be objective.
Just like most investments, Bitcoin trading has its risks. Try these tips to manage risks once you start trading Bitcoin and enhance your chances of success.