With interest in bitcoin surging amid strict regulatory glare and mixed media coverage, trading this particular currency has become an enticing side business that helps generate an additional income. Bitcoin (BTC) is the world’s first and most valuable cryptocurrency, also known as a highly volatile asset whose price can fluctuate from one extreme to another.
Therefore, it is important that people trading BTC have sufficient knowledge of how Bitcoin works so that they can safely navigate Bitcoin movements and make the most of it by trading cautiously and vigilantly.
Here is a detailed guide that explains the importance of bitcoin trading, how it works and what factors influence the price of bitcoin the most, as well as the role of technical and fundamental analysis in developing a comprehensive trading strategy.
What is bitcoin trading?
Bitcoin trading refers to the buying and selling of bitcoin through an exchange platform. In short, Bitcoin can be traded in many ways. The first way is to indulge in buying and selling BTC on a cryptocurrency exchange. Another way to trade Bitcoin is through derivative financial instruments such as Contracts for Difference (CFDs). Trading via CFDs makes it easier for traders to trade according to the direction of market movement over a very short-term period and allows you to bet on Bitcoin price changes without actually owning any underlying coins.
CFDs have become a popular way to trade Bitcoin as they offer greater flexibility and the ability to take both short and long positions in Bitcoin while making the most of leverage.
In order to start trading Bitcoin, one must first be armed with proper information and knowledge of the subject. It is also important to understand the risks involved and the regulatory laws that could affect one’s jurisdiction and decisions.
Step-by-step guide to start bitcoin trading
Sign up for a cryptocurrency exchange: Opening a bitcoin trading account is a quick and easy process. You can open an account with bitcoin-friendly exchanges like CoinDCX, WazirX, Zebpay, CoinSwitch Kuber, and many others. All of these exchanges have a simple interface and a wide range of coins, including Bitcoin. Simply provide personal information and comply with Know Your Customer (KYC) requirements.
Read our in-depth article Best Cryptocurrency Exchanges in India for more detailed information on crypto exchanges and their pros and cons.
Deposit money into your account: Once you’ve signed up with a crypto exchange, the next step is to fund your account through bank deposits, peer-to-peer (P2P), and other transfers.
Choose Bitcoin to Invest: After depositing funds into your account, you can choose the amount of bitcoin you want to buy to continue trading.
Start the process of trading Bitcoin: Having bought a significant amount of Bitcoin, you can now start trading Bitcoin according to your chosen trading strategy. To get started, you can also take help from bitcoin trading bots available on most cryptocurrency exchanges. This automated process will help you earn significant returns based on your trading goals.
Keep your bitcoins safe in digital wallets: If you are an active bitcoin trader, you may need to store BTC on the exchange to access it. You can also buy a specific bitcoin wallet if you are buying BTC and planning to hold it for anything more than a short-term period. Broadly speaking, there are two types of digital wallets: software and hardware wallets, each with its own advantages and disadvantages.
Bitcoin Trading Strategies
Bitcoin Day Trading: Bitcoin day trading is a most common type of trading strategy, also known as intraday trading. These are traders who enter and exit positions within the same day. So here the trader has no Bitcoin market risk overnight. Therefore, overnight funding fees for the position are unavoidable.
This strategy is ideal for those looking to profit from Bitcoin’s short-term market movements, which will help you make the most of the daily volatility of the Bitcoin price.
Advantages:
- Fast wins.
- Better risk management.
- Unaffected by overnight market changes.
Disadvantages:
- Very short-term prospects.
- Could lose money faster.
- Closing a deal in a day is difficult.
- Too fast moving way to understand the market.
Bitcoin Swing Trading: In bitcoin swing trading, the trader takes full advantage of short-term price patterns. This type of strategy is based on the assumption that prices never move in one direction and are therefore constantly fluctuating. Because of this, a swing trader seeks to profit from both the up and down moves in the market that occur on a short and tight time frame.
Advantages:
- Traders have more time to grasp this day trading.
- Traders can make many long-term decisions with less risk.
- Less stressful than day trading.
Disadvantages:
- Traders need to be well researched.
- Don’t back away from emotional attachment as you hold the position for a long time.
- Not easier to learn.
Bitcoin position trading: This type of trading is also known as trend trading, which is a long-term approach. It involves buying and holding bitcoin for an extended period of time. This strategy disregards the short-term price movements and focuses on long-term growth.
Advantages:
- Easier to grasp.
- Less stressful.
- Market movements are easier to predict.
Disadvantages:
- Profits can only be realized in the long term.
- It can be risky to hold the position for a long period of time.
Bitcoin scalping: This type of strategy is like day trading, which focuses on extremely short-term market movements. Scalping allows traders to make significant small but frequent profits on very small price changes.
Advantages:
- Very quick wins with a high win rate.
Disadvantages:
- Very risky.
- Need the right skills to make profits.
Understand factors affecting the price of bitcoin
Let’s understand the factors that have a major impact on the price of bitcoin:
Limited offer: The price of bitcoin depends entirely on supply and demand. Bitcoin has always had a finite number of coins and its current supply is capped at 21 million, which is expected to be exhausted by 2140. A limited supply means that there is a high probability of price changes in bitcoin as it increases and as demand decreases.
market capitalization: Bitcoin is known as the largest cryptocurrency in the world as it has the highest market cap, which means users perceive this currency as a more desirable investment.
Notable and important events: Any major news directly related to bitcoin security tends to affect the overall market price of bitcoin. For example, the ban on crypto in China has led to massive sell-offs in BTC. At the same time, any major development in the Bitcoin community can lead to a huge rally in BTC.
Seamless integration: Bitcoin is a cryptocurrency that enables smooth transactions between the two parties and without the involvement of regulators or centralized authorities. Therefore, its image directly depends on its smooth integration into a modern payment system. If many companies or countries accept BTC as a legal payment method, this can have a direct impact on pricing.
How to Analyze Bitcoin: Fundamental vs. Technical?
Like any other financial asset, bitcoin is analyzed through two techniques:
Fundamental Analysis: Fundamental analysis is an approach used by bitcoin traders to determine the “intrinsic value” of bitcoin. This is generally achieved through a range of internal and external factors. For traditional asset classes like equities, fixed income and commodities, it’s easier to do fundamental analysis. However, when it comes to cryptocurrencies, various parameters must be considered in order to assess them fundamentally, such as: B. Whitepaper, liquidity and trading volume, fees, market capitalization and other project metrics.
Technical analysis: Simply put, Bitcoin technical analysis involves reviewing the price patterns using different types of charting techniques like line chart, bar chart, candlestick etc. and applying technical analysis indicators. Such indicators are a combination of trend lines, support and resistance levels, moving averages, directional movement index, momentum indicators and extension, etc. Technical analysis indicators use Bitcoin’s past prices to predict its future price movement.
Bitcoin technical analysis usually relies on chart patterns, statistical indicators, or both. The most commonly used charts are candlestick, bar, line and bar charts. Each can be created with similar data but presents the information in different and useful ways.
Tips to conduct bitcoin trading in the most successful way
Please investigate: Unlike other financial markets, bitcoin markets are notoriously volatile, and major events can affect and move bitcoin’s prices both strongly and quickly. If you want to be a professional bitcoin trader and earn the most from bitcoin, staying current with all sorts of bitcoin news and all major events that could potentially cause market movements is important.
In fact, there are various exchanges that will help you put together all the relevant news that you need to read before starting your day.
Ignore hype or misleading news: Do not take your trading calls based on social media messages. Since bitcoin is a hot topic, misleading and false news about bitcoin spread very quickly.
Build a balanced portfolio: Bitcoin trading is still in a very young stage. There is still quite a bit of ambiguity in the crypto market. Therefore, it is very important to build a balanced portfolio and not a very bitcoin-heavy portfolio. Building a balanced portfolio includes various cryptocurrencies such as Bitcoin, Dogecoin, and Ethereum, along with a mix of other financial assets. This strategy will help you beat volatility far.
bottom line
Bitcoin trading in India is still fairly new and largely fragmented. Because Bitcoin is open to arbitrage and margin trading, it presents tremendous opportunities for traders looking for short-term profit growth. However, Bitcoin is also subject to numerous changes in regulation, taxation and the way it must be treated. Because of this, it is very important for traders not to get caught up in the hype and remain vigilant to Bitcoin’s volatility and unpredictability.
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