Bitcoin Trading For Beginners: Basics, Types, And Strategies

Bitcoin is the first cryptocurrency to appear and the most popular digital asset. Since its emergence in 2009, it has been growing actively in price and has become an attractive investment due to it. BTC is also actively used by traders in order to increase capital. To understand these processes more, this article will give you additional information about trading Bitcoin, including main strategies and types; you will also get an algorithm for getting started and doing it successfully.

What Is BTC Trading And How Does It Work?

Trading BTC entails purchasing and selling this digital currency at various periods of time. It assumes monitoring on how its price fluctuates, as it can be profitable to get money on its difference. Therefore, it is favorable to sell a coin with a higher market value, as well as to buy it with a lower price.

Bitcoin trading occurs on cryptocurrency exchanges and is open seven days a week, including weekends. Traders enter transactions using a variety of orders, including market and limited ones. Limit orders mean that assets have to be bought or sold at a predetermined cost, whereas market types include doing it at the current price. To choose the best time to close a deal, traders analyze the Bitcoin market state.

Bitcoin Trading Strategies

The approaches that traders use to buy and sell coins are known as BTC trading strategies. They can be implemented under a variety of market terms and traders' preferences; they also vary in risk levels. Day trading, swing trading, dollar-cost averaging (DCA), HODLing, and breakout trading are a few of them. We look at each of them in depth below.

Day Trading

Buying and selling BTC within one day is the main characteristic of the day trading strategy. This approach is based on capitalizing on brief price fluctuations, avoiding the risks associated with their abrupt changes at the same time, which can happen at night. Due to the fact that day trading involves thorough market monitoring, traders use charts and indicators (such as RSI) to forecast.

Swing Trading

Swing trading is holding BTC coins for several days or even weeks at a time. Traders get profit from middle-term price swings in this way because they are more substantial than daily ones. The strategy suits investors who wish to profit from fluctuations in BTC price but lack the time or resources to watch the market continuously.

HODLing

The long-term holding of BTC coins is known as the HODLing strategy. It involves a low level of active trading but emphasizes long-term gains instead of considering daily or weekly price swings. The reason for it is that the strategy supporters think highly of Bitcoin and expect an increase in value as the network grows.

Dollar-Cost Averaging (DCA)

Regardless of Bitcoin's market price, the strategy of dollar-cost averaging entails consistently investing a set amount of money in the cryptocurrency. For instance, you may invest $1000 in Bitcoin each month. By using this method, you can average the coin value and stay away from volatility. You purchase more BTC at lower prices and less at higher ones. For traders who want to profit from BTC without encountering the risk of market fluctuations, DCA is the best option.

Breakout Trading

Investing in a breakout trading way occurs when the price of Bitcoin surpasses both resistance (the highest price) and support (the lowest price) points. A “breakout situation” arises when the coin’s price moves below $60,000 or over $65,000, for instance, if it has been trading between these two figures for a few weeks. Traders purchase or sell BTC at these times in an attempt to profit from sudden fluctuations in price.

Bitcoin Trading Types

Trading types for Bitcoin, in contrast to strategies, focus on the particulars of buying or selling of digital assets. For example, although some traders hold BTC as long-term investments, others would prefer to turn a profit as quickly as possible. Let's learn these kinds in more detail.

Spot Trading

Spot trading is the way of buying and selling Bitcoin with instant earning at the current rate. It is also known as short-term trading. You buy BTC directly, and become the owner of the cryptocurrency as soon as the transaction closes. After that, you are free to do with your assets as you like, including holding, selling, or withdrawing them. On crypto exchanges like Binance and Coinbase, spot trading is available.

Margin/Leverage Trading

This kind of margin trading is leveraged. It assumes that in order to transact with Bitcoin, you are borrowing money from the exchange. With the least amount of starting capital, you can control more BTC by using this method.

For example, if the coin costs $65,000 and you only have $20,000, you can utilize 5x your leverage to purchase $100,000 of BTC. Because of the 5x leverage, even a 4% increase in the coin's market price would result in a 20% profit on your initial investment; however, if the price falls, you will face liquidation and lose your money. Due to these challenges, only experienced traders who can predict risks usually select the margin method of trading. Binance and Bybit exchanges provide such an opportunity.

Futures Trading

In the case of trading futures, investors sign a contract that commits them to buy or sell BTC at a certain price on a fixed future date. If the trader purchases at the agreed-upon value and the coin market value on the designated day is higher than it was previously, the transaction will be lucrative. However, if the price of BTC falls, there will be a loss.

Additionally, traders who understand market trends are more likely to choose futures trading. They can use crypto exchanges like FTX, Binance, and Bybit.

Options Trading

Similar to futures type of trading, this kind means purchasing or selling BTC on a specified future date. But options, on the other hand, provide traders the ability to close a deal even earlier than the chosen date. For example, such a necessity can arise, and the trader uses an option if the value of cryptocurrency is predicted to increase or decrease. Exchanges like OKX and MEXC offer the option trading capability.

Short Selling

Making money using a short selling is possible in case the Bitcoin price falls. The trader sells BTC at the current market rate after borrowing it from a broker (a crypto exchange). After that, he returns the borrowed coins to the broker, buys them back at a reduced price, and keeps the remaining amount as profit. However, short selling carries a risk since losses may result from a rise in the BTC price. You can use the Binance or Bybit exchanges to implement this trading type.

Arbitrage

In the context of trading Bitcoin, arbitrage refers to the practice of profiting on different coin prices across various exchanges. Thus, traders purchase BTC on one platform at a lower cost and sell it for a higher price on another. Although there are few risks associated with this trading method, you have to act fast because price differences disappear quickly. You should select exchanges like Cryptomus or Kraken that have an easy-to-use interface if you want to use this trading option.

Automated Trading (Bots)

Bitcoin automated trading bots use the software that enables trades to be carried out automatically in accordance with predetermined strategies and the market state. Unlike the manual method, they produce faster and more accurate decisions since they continuously monitor market data. You have to select the best course of action and possess technological expertise in order to use bots properly. The tool's implementation is assisted by Cryptohopper and Pionex services.

How To Start Trading Bitcoin?

Let's now see in more detail how Bitcoin trading happens on cryptocurrency exchanges. Regardless of the strategy used, the steps will be the same because the procedure is identical on all platforms. This is the step-by-step algorithm:

• Step 1: Select a trading type and strategy. Choose the Bitcoin trading method and approach that works best for you from the ones we've listed above.

• Step 2: Choose a crypto exchange. Decide which platform to use to trade Bitcoin. Consider that there should be an option of trading the method you’ve chosen. It should also have a wide working base and offer strong security measures. For example, traders can operate on Cryptomus P2P exchange with confidence because it uses AML and 2FA to protect users’ data and funds. Learn the site's security policy and read other users’ reviews to ensure the platform is trustworthy.

• Step 3: Create an account. Enter your name and email address to register on the selected platform. Pass the KYC procedure; to do this, prepare your driver's license or passport and be ready to take selfies to verify your identity.

• Step 4: Fund your account. Deposit money to your exchange account with crypto or fiat money. You can link credit or debit cards to certain exchanges in order to conduct trades.

• Step 5: Choose your trading pair. Next, make sure the amount of BTC you intend to purchase and the currency you have deposited match. Thus, if you invested dollars, your trading pair will seem like "USD/BTC"; if you deposited Litecoins, it will look like "LTC/BTC."

• Step 6: Make a deal. Proceed according to the selected trading strategy: go to the needed page, enter the necessary information (such as a market or limit order), and then confirm the transaction. You can now monitor and control your trade.

Tips To Trade BTC And Make The Most Profit

When trading Bitcoin, you should use a cautious strategy to reduce risks and maximize profits. We've compiled a few suggestions for you about that:

• Choose a trustworthy crypto exchange. Trade on a platform where you can be sure that your BTC is protected because these transactions involve significant amounts of money. The size of commissions and the coin value on the exchange should also be taken into account, as they may have an impact on your final income.

• Keep an eye on the market. Stay informed about updates in the cryptocurrency field by reading the news about Bitcoin and the market in general. To determine the direction of the coin's price, consider market trends.

• Use technical analysis. Acquire the skills necessary to interpret BTC price charts and technical indicators. You can use it to recognize market patterns.

• Control the risks. There can arise cases of a significant price fall, so only trade with money you can afford to lose. To protect your assets from volatility, try not to spend a lot of borrowed money.

To trade BTC profitably and safely, try to follow these guidelines. Even as you gain experience as a trader, it's essential to remember how unpredictable the cryptocurrency market can be, especially as it expands. In this manner, the Bitcoin trading types and strategies you use will only result in earnings for you.

We sincerely hope that this guide was helpful to you and that you can now decide with confidence the type and strategy to use while trading Bitcoin. Have you ever had the experience of trading this coin? Tell in the comments below!