Last update: Apr 10, 2021

Everything You Wanted To Know About Bitcoin Trading: How To Trade One

You’ve been putting it off for too long! It’s time to learn the basics, the concepts, and what it takes to trade crypto. It’s time to ride Bitcoin’s volatility and use the fluctuations to make a fortune. Of course, this is a high risk/ high reward situation, but you wouldn’t want it any other way.

While we’re at this, we’re going to teach you the basics and we’re going to use examples to do so.

You should know that this guide doesn’t constitute financial advice. And that historically, most retail investors lose money in the stock market. How does that translate to cryptocurrency markets? That’s for you and other brave souls to find out.

In the following guide, you’ll learn about the most popular trading methods, about analysis and metrics, about trading Bitcoin or altcoins and the advantages and disadvantages both bring, about the most common words used by people in the business, and more, much more.

So take out your pen, sit back and relax, because we’re about to get serious about buying Bitcoin or other cryptocurrencies and selling them for a profit.

Bitcoin Trading vs Investing

Even though these two terms sound like one and the same, they’re diametrically opposed processes. Both strategies aim to get the most money into your bank account, but at different rates and by doing very different things.

Investing means holding positions for a long time, betting on a company or asset’s wellbeing. Investors get dividends while watching grow the businesses they pick.

Trading means playing the market like a fiddle, constantly buying and selling stocks or assets to maximize profit. Traders use the ups and downs to their advantage and frequently cash in. Only to start all over again.

No strategy is perfect, both have advantages and disadvantages.

One thing’s for sure, though: the cryptocurrency market’s volatility makes it a near-perfect vehicle for trading.

Trading Methods Explained

So, you decided to trade Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and/ or other cryptos.

Well, there are a few techniques you can use. They’re basically copied verbatim from the stock market world, which makes sense.  But before you start trading, you should be aware that the special characteristics of the crypto market make this a whole new game. And you should learn how to play it.

Day trading

day trading bitcoin

As the name suggests, day trading is buying stocks or assets and selling them during the same day. Hopefully making a profit. Day traders don’t hold positions overnight.

Scalping

These traders hold their positions for seconds; maybe even minutes, but no more than that. And definitely never-ever overnight. They profit from the smallest changes in price, even if those changes are short-term.

Swing trading

These more stable traders hold their digital assets for days; maybe even weeks. The idea is to profit from a foreseen change in price, to capture the biggest piece possible and move on.

Holding

Much closer to investing, the holders keep their positions for months; maybe even years.

Futures trading

A futures contract is a derivative instrument that compromises the trader to buy or sell digital assets in the future at a set price. Both the buyer and the seller are bound to buy or sell at said price, regardless of the current value of the asset.

Position trading

These traders are in for the long haul. They buy and hold, hoping that the price of their asset will increase over time.

Bull trading

A Bull market is a market in which prices are expected to remain high or to rise. The name comes from the way a bull attacks, with its horns going upward. In a bullish market, you go long. More on that later.

Bear trading

A bearish market is the opposite, a market that’s expected to lose value and its prices to fall. The name comes from the way a bear attacks, downwards, stomping the prey into the ground. In a bear market, you go short. More on that later.

Whale trading

A whale is an investor with a huge amount of money that can really move the needle and affect the market as a whole. Following a whale’s trail is a valid, and often profitable, trading strategy.

Trading analysis

trading analysis btc

So, you decided to invest your hard-earned money in altcoins and Bitcoin. And you want to trade with them and maximize your profits.

Then, you should spend time studying the market because there are many factors that could affect your investment. But what factors are those? And how do you even go about studying them?

Luckily for you, others have faced this problem before and came up with methods to help you navigate these troubled waters.

Fundamental analysis vs technical analysis

If you focus your attention on the fluctuation of the price and trading volume of an asset through time, you’re applying technical analysis.

The theory states that those fluctuations are not random but follow a pattern, and by understanding said pattern you’ll get an edge.

On the other hand, you’re applying fundamental analysis if you consider other factors. Among those factors are, the state of the industry, the company’s leadership and management, its reputation, its competition, the market capitalization, etc. Your aim is to determine if an asset is undervalued or overvalued.

Cryptocurrency analysis compared to typical stock analysis

The origin of the term “day trading” goes back to the stock market, which only functions during business hours. The crypto market never sleeps.

That’s the first crucial difference. In the cryptocurrency market, the only brokerage you need to buy and sell are the crypto exchanges and, since clear regulations are not in place, it’s available to anyone. Plus, you don’t need a fortune to start trading.

That openness makes it unpredictable. And that’s dangerous when it comes to investment, but that’s also what makes it exciting.

Another exciting factor is the lack of historical data. The stock exchange has centuries of transactions that work as a model.

The crypto market is just starting and everyone seems to be making it up as they go along. How cool is that? And how dangerous?

Bitcoin Trading Glossary

Going Short

When a trader thinks that the price of an asset will decrease, he could take a short position on it.

That means he sells the asset while stating the intention of buying it again later at a lower price. If a trader doesn’t own the asset in question, he could borrow it from a broker, thus making both the risk and the reward significantly higher.

Going Long

bitcoin shorting

A trader takes a long position when he’s confident an asset will increase in price. If the trader wants to benefit from a bullish market, he goes long on a call option.

That call gives him or her the possibility to buy the asset at a predetermined price.

Leverage

A trader that’s extremely confident in an asset might want to borrow funds to increase his trading position. That action is called leverage.

Margin Trading

You create a margin account when you deposit an amount of asset with a broker as collateral and borrows funds to increase the size of a position.

This borrowed money comes with interests and you can lose the original deposit, so the risks are high. This move is only recommended for advanced traders.

Liquidity

If the market for an asset makes it easy to convert it to Fiat currency, that asset is considered to be liquid. If it’s difficult to find a counterpart willing to buy or sell an asset, then that market lacks liquidity.

Also, if you can buy or sell an asset while causing no ripples in its price, that market is said to be liquid.

CFDs

When an investor and a broker sign a Contract for Differences or CFDs, they agree that one will pay the other the difference between the current price of an asset and the price when the contract expires.

This is a move recommended for expert traders only. Notice that the investor doesn’t own or buy the asset.

Arbitrage

If two markets offer the same asset at different prices, you can buy low in one and immediately sell high in the other.

This practice is called arbitrage. By doing this, you’re helping correct inefficiencies in the market, and as a result, there should be price convergence.

Currency pair

If, for example, you want to exchange BTC for ETH, you’ll have to find a market for it. That market is called a currency pair.

Most marketplaces offer one linking Bitcoin and Ethereum, but finding one for more obscure coins can be a challenge.

Trading platforms

Nowadays, every cryptocurrency exchange that’s worth something has its own professional platform for trading. How could they afford not to? You can check the blockchain if you don’t believe us, trading is where most of the transactions are. That’s where the action is!

From Binance to Kraken, to Coinbase, to Gemini, or even eToro, they’re all in the game. Even the ever-changing apps are getting into it. But let’s not get ahead of ourselves and break it down for you.

The Basics

First of all, you’re going to need a digital wallet to store your coins in. If you’re unsure on which one to use, check our guides.

Secondly, you’re going to need a cryptocurrency exchange to acquire your first coins. If you’re unsure on which one is the right for you, we compared most of them.

Once you have your setup ready, you can proceed to buy Bitcoin or other digital currency with your credit card, debit card, or with bank transfers and wires. Each cryptocurrency exchange has its own particularities, but by now all of the main ones accept most of the mentioned payment methods.

Be aware that if you’re a new user, you’ll have to go through the Know Your Customer (KYC) process, and that could take up to a couple of weeks. You’ll have to provide a government ID and other documents, there are no two ways about it.

Marketplaces

As we said, nowadays most Bitcoin exchanges already have an advanced version in which you can trade like a pro. The interfaces are complicated and there’s a learning curve, that’s something you’ll have to deal with no matter what. Over time, you’ll find out what everything does and where everything goes. And the veil will lift itself.

So, use Binance if you’re looking for the lowest commissions.

Use Kraken or Coinbase if you want to play nice with governments everywhere.

Use Bittrex if security is your priority.

Buy your first batch of a strong coin, with Bitcoin and Ethereum being the strongest at the time of writing.

And then, head to the professional platform and exchange your coins for others and sell Bitcoin for a profit.

Brokers

In the crypto world, there are brokers like Coinmama. They will assist you in getting some Bitcoin or Ethereum into your virtual hands, but that’s it.

But as we already told you, in the trading world, crypto exchanges serve as brokers. If you use their pro platforms, they’ll finance your trades and give you leverage if you’re a qualified client.

Be aware that this might change at any moment, for example, Coinbase Pro stopped offering margin trading to retail investors citing “recent changes in our regulatory environment.”

There are also services like eToro, which will help you buy Bitcoin, but their main service is the trading platform. From an easy way to participate in the Forex market to their Social trading platform, which allows you to mimic other trader’s transactions, eToro provides toys for the novices and atomic weapons for the experienced trader.

Apps

Some mobile apps are making it easier than ever to buy Bitcoin. From the classic Paypal to the newcomer CashApp, everybody is getting in the game right now.

On the other hand, Apps associated with major crypto exchanges are taking trading mobile. Kraken offers the Kraken Pro app. The Binance app even lets you trade options. Coinbase pro has its own app. Etc.

Also, there are independent Apps that interact with several crypto exchanges. The ProfitTradingApp is one. Altrady is another one. IQ Option is yet another one.

Finally, there are all-in-one apps like Crypto.com that are making a play to control de market.

Trading BTC vs trading altcoins

cryptocurrencies supported by bibox

The whole point of trading cryptocurrency is taking advantage of the price movements in the crypto market. When the price rises, you sell. When the price of Bitcoin falls, you buy. That simple set of rules mutated into a whole new line of work. Into a science, even.

You could trade Bitcoin or you could trade all the others, but if you’re serious, the idea is to trade them all. To play on the volatility of the market and, for example, buy ETH when it’s low, wait for it to get high, and trade it for LTC.

You could even go Forex and get Fiat currencies into the mix. If the government is printing US Dollars left and right, that means the price is going down. It also means that some people will see the play and invest in Bitcoin as a safeguard against inflation, which will cause the price to go up. All that already happened, and you can be sure serious traders made a fortune.

That also means that you can make a lot of money just trading Bitcoin if you feel so inclined.

Step by Step Guide For Typical (Successful) Cryptocurrency Trade

The anatomy of a successful trade would be the following:

  1. Open an account in an exchange and pass the KYC process.
  2. Buy a strong cryptocurrency using the payment method of your choice.
  3. Place a buy limit order for the digital asset you think will provide an opportunity. Let’s say that you think BCH will drop in price. Your limit order will consist of the price you’re willing to pay. When the asset arrives at that price, the system will look for a seller, and fill your order if there’s a match.
  4. You hodl your BCH until the market bounces back.
  5. When that happens, you place a sale limit order with the price you want to sell it for. If the system finds a buyer, you pocket the difference. Or better yet, you reinvest it in your next move.
  6. If you don’t want to reinvest it, transfer your funds to your Bitcoin wallet. Don’t leave your coins in an exchange.

Please notice that the examples presented are pure speculation and were selected to illustrate a point. Don’t take them as financial advice. Do your due diligence before investing.

6 Most Common Cryptocurrency Trading Mistakes

  1. The crypto market is not the stock market. Some people fail to see the differences and study this new field.
  2. The phrase “only invest what you can afford to lose” is now a cliche. But it’s good advice in a market as volatile as this one. Some people don’t take it seriously and that’s a mistake.
  3. Be an active trader, but don’t exaggerate. Not every trade is a good trade and you have to pay commissions for each one. Pick your battles. And don’t expect to make money in every trade.
  4. Most cheap coins are cheap for a reason. Do your due diligence and investigate before investing.
  5. Invest in security. If you’re serious about this, buy a hardware wallet. Activate the 2-factor authentication in every service you use. And don’t leave your coins in an exchange.
  6. Diversify. A variety of coins will shield you from unexpected market moves.

List Of Best Cryptocurrency Exchanges

author Andrej Ilisin

A serial entrepreneur working primarily with digital assets. He's the CEO of Sharp Capital, a company that focuses on growing online businesses. Andrej is also huge crypto, chess, and CrossFit enthusiast.