Learn to Trade Bitcoin: 10 Must-Read Tips

Updated 9 July 2020

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Bitcoin is the most popular instrument among traders dealing in the cryptocurrency market.

Since its first appearance in 2009 it has experienced exponential growth and, whilst its millionaire-making heyday is thought to have passed, it remains the most commonly traded digital asset and holds significant profit potential for savvy investors.

However, bitcoin trading needs to be approached with caution.

As a decentralised market, it is highly speculative. Unlike currencies traded on the foreign exchange markets, where values are influenced by centralised governments, economic activity and global events, the value of bitcoin, and all other cryptocurrencies, is largely determined by supply and demand.

This volatility, along with the security issues that accompany digital assets, makes risk management the single most important factor in a bitcoin trading strategy.

The following bitcoin trading tips have been compiled to help you navigate the cryptocurrency market and mitigate your risk.

10 Must-Read Bitcoin Tips

The bitcoin trading tips below are not exhaustive and do not constitute professional investment advice.

Instead, you should use this article as a starting point for your research before utilising one of the many available demo accounts to hone your trading skills before opening a live position.

1. Start out Small

The first of our bitcoin trading tips is to proceed with caution and start with a relatively small investment.

Although it’s an exciting market with a reputation for making the lucky few substantial profits in a short time frame, it is by no means easy to trade bitcoin, and there’s huge risk involved.

Cryptocurrencies, in general, are extremely volatile. Avoid the temptation to go in all guns blazing and, instead, opt for small-stake trades that allow you to get a handle on the market with minimal risk.

Of course, the best of all bitcoin tips is to never trade with more than you can afford to lose.

2. Choose a Secure Wallet

Your bitcoin wallet is a holding pen for your digital assets so it’s important to choose wisely to ensure security and ease of access.

There are multiple options out there, all with their own features and functionality.

For beginner traders, it’s advisable to trade through a reputable broker, such as Coinbase, and use the wallet they provide. If you’re looking to choose your own wallet, though, you’ll need to decide which type is right for you.

Wallets are described as either hot or cold:

  • Hot wallets are connected to the internet and subsequently open to hackers

  • Cold wallets store your assets offline and are generally considered more secure

If you want instant access and are only holding a small amount of bitcoin, a hot wallet should suffice so long as you double-check the reputation of the provider. When holding bitcoin of high value, it’s best to opt for a cold wallet.

Ideally, you would utilise both, keeping a limited amount readily available, with the bulk of your funds kept safely offline.

3. Research the Market

The only sure-fire way to become a successful bitcoin trader is to do your homework and get to know the market.

This is not a straightforward process as many of the practices used to evaluate other financial markets do not apply to bitcoin. It’s a largely speculative field and the effects of global news and events on bitcoin value are very unpredictable.

That said, there are steps you can take to broaden your understanding.

Technical analysis is a key research skill so take the time to practice reading charts and identifying patterns to inform your trading strategies.

You should also be wary of bitcoin tips from other traders. The nature of the market means many people are waiting to profit from the inexperienced. These same people are all too happy to tell you the ‘right time to buy’ in the hope of pumping value so they can exit on a big win. Never take advice on face value and do your due diligence before entering a trade.

4. Decide on a Trading Strategy

Before you even think about opening a position, you should put careful thought into the type of trader you want to be. This will depend largely on the amount of time you have to commit to trading activity and market analysis, and how quickly you’re looking to turn a profit.

Bitcoin traders typically fall into one of four categories:

  • Scalpers are the most active, making multiple trades per day for small profits.

  • Day traders enter and exit the market within 24 hours, taking advantage of short term market movements.

  • Another technique is swing trading, which is based on in-depth technical analysis to capture trends in the market.

  • Finally, you may want to be a passive trader, holding on to your positions with a focus on long term profit.

The benefits of this last approach are discussed in number eight of our bitcoin trading tips.

5. Be Strict With Profit Targets and Stop-Loss Orders

As mentioned, bitcoin is unpredictably volatile, more so than any other financial instrument, so it’s vital to have a plan and stick to it.

Before opening a position, consider what level of profit you would be happy to take from the trade, what losses you can afford to shoulder, and set your target and stop-loss levels right from the start.

This is one of the most important tips, as without a disciplined approach it’s all too easy to expose yourself to potentially devastating movement.

Many beginner traders fall victim to greed, holding on to a position for further profit only to see prices plummet, whilst others optimistically convince themselves that a downward trend will reverse as they fall deeper into the loss zone.

By being strict with your profit targets and stop-loss orders, you can easily avoid this pitfall and minimise risk.

6. Use Leverage With Extreme Caution

Leverage enables you to hold a much higher stake in a trade than the actual capital in your account would otherwise allow. Though this may seem appealing, and can indeed lend itself to significant profit, it can also lead to huge losses if a leveraged trade was to turn against you.

Successful use of leverage is a balancing act between risk and reward and takes practice to master.

For bitcoin beginners, leverage is best used with extreme caution and preferably avoided altogether, at least until you have developed your confidence and trading style.

Only the most experienced traders with sound market knowledge should adopt leverage as part of their bitcoin trading strategy.

7. Diversify With Different Cryptocurrencies

The most important bitcoin trading tips are those that focus on mitigating risk, and diversifying your portfolio is one such tip.

Too many first-time traders develop an obsession with bitcoin’s potential and fail to address its downfalls.

By trading in other cryptocurrencies, you hedge your investments. If one falls in value, your loss may be offset from profit on another.

Diversification can also boost your profits in good market conditions. If you’ve invested wisely, you could well find yourself holding multiple assets of high value.

It’s important not to over dilute your portfolio, though. You still need to assign a worthwhile amount of capital to each trade. Find a balance that reasonably increases your profit potential whilst simultaneously minimising your exposure in any one cryptocurrency.

8. Buy and Hold Bitcoin

As discussed earlier, there are several types of bitcoin trading strategies. The buy and hold approach is a passive strategy where positions are held anywhere from weeks to years.

There are multiple benefits to this:

Buying and holding bitcoin allows you to bypass its short-term volatility. It’s not unusual to see significant movement throughout any given day which can mean your stop loss and take profit targets are easily met, throwing you out of your trade.

This, in turn, can lead to overtrading, and since opening a new position is costly, overtrading can seriously eat into your profits.

As a passive trader, you can keep your position open and potentially earn a good profit with little time commitment, but you still need to have a robust risk-management strategy in place, with carefully considered stop-loss orders.

9. Get a Handle on Your Emotions

Alongside bitcoin trading tips involving risk management and strategy, there are also emotional factors that you need to be aware of, most notably, the fear of missing out (FOMO).

Due to bitcoin’s extreme volatility, it is not unusual to see dramatic price spikes in a very short space of time and it can be tempting to buy-in to an upward trend, fearing you’ll miss out on major profit if you don’t.

However, this goes against the most basic rule of trading – buy low, sell high.

If bitcoin has skyrocketed, it’s likely you’ve already missed the advantageous point of the upward trend, and you’ll end up paying a premium for an asset that will inevitably decrease in value, placing you at a significant loss.

Falling victim to FOMO is one of the main reasons so many beginner traders fail. Be wary and accept that some profitable opportunities just weren’t meant for you.

10. Watch out for Scammers

With no central exchange and little regulation in place, the bitcoin market is, unfortunately, an ideal environment for scammers.

Fake exchanges and wallets are common, as are phishing scams where fraudulent emails direct you to scam sites identical to the platforms you use to capture sensitive data.

Ponzi schemes, which work on a pyramid structure, offer increased returns for investors that recruit other investors and should be avoided at all costs.

Malware is, of course, another issue and without proper security measures around your bitcoin wallet, you leave yourself open to the threat of having your account emptied.

These are just some of the scams to watch out for and, as bitcoin trading is such an open, complicated and relatively new market, new threats pop up regularly.

So, the last of our 10 bitcoin trading tips is to keep your wits about you, be aware of anything untoward and put robust safety measures into action.

Final Thoughts

Whatever type of bitcoin trading strategy you plan on adopting, you must place security and risk-management measures at its core.

As it is such a volatile market, the potential for both profit and loss is high and first-time traders should never invest more than they can afford to lose.

You should use these bitcoin trading tips alongside other trusted resources to ensure you have a good grasp of the market and its pitfalls, understand how to conduct strategic technical analysis and can compile a detailed risk-management plan to give yourself the best chance of becoming a successful bitcoin trader.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Further Reading

You might also be interested in these other WikiJob articles:

The 10 Best Bitcoin Wallets of 2020, Revealed!

Bitcoin Trading for Beginners: The Basics

How Do Bitcoin Debit Cards Work?

What Is a Cryptocurrency Crowdsale?

The 10 Best Places to Buy Bitcoin