5 Bitcoin Trading Basics
With the cryptocurrency market heating up again, it’s time to dial in your trading and investment strategies. Doing so will not only benefit your portfolio’s bottom line, but it will also help you to identify trends and to make a game plan around them.
The basics of trading Bitcoin have more to do with risk assessment than Wolf of Wall Street trading tactics. If you imagine yourself calling out edge-of-your-seat trades and making ludicrous bets, then you’re going to lose everything quickly.
In reality, trading and investing in Bitcoin is about preserving your wealth. This means you should always think about maintaining your capital, not about putting it unnecessarily at risk. There is truth in the adage that without risking anything, you can’t win anything, but managing that risk is what is most important.
Diversify Your Portfolio
Look, we love Bitcoin. In fact, most cryptocurrency traders and investors love Bitcoin. That’s probably why it has been at the top of the charts since day one, and isn’t likely to budge from that spot any time soon.
However, don’t put all of your eggs in one basket. Just because Bitcoin has performed incredibly over the past decade doesn’t mean you should park all of your assets there. Instead, diversify your portfolio so that it includes distributed holdings of Bitcoin, USD, USDT, and other low-risk altcoins like ETH and XRP.
When in Doubt, HODL
If you’re new to trading or don’t have your technique down impeccably well, then you probably shouldn’t try to do anything fancy. If you are relatively inexperienced, then the best thing you can do is simply buy and hold.
That’s a straightforward investment strategy that has worked for traders of all types. If you doubt that, then just ask Bitcoin holders who have been invested since 2010.
Don’t Follow the Market too Closely
Cryptocurrency markets do all kinds of things. They pump, they dump, they go sideways – but they almost never do anything predictable. Because of that, you shouldn’t follow the day to day price action too closely unless you’re a professional trader.
If you do, then there is a high risk of you being shaken out of your position. Watching all of the small price movements endlessly can make those movements seem bigger and more important than they really are. Pro traders know that inexperienced traders are trying to participate in the market above their skill level and use price volatility to scare them.
The best defense? Don’t react to daily market action. Instead, follow the bigger trends on weekly or monthly timeframes.
Use a Stop Loss
If you do decide to trade, always use a conservative stop loss. A stop less is handy for when you can’t be present at the computer, but the trade is evolving rapidly. In such cases, having a stop loss is like wearing a parachute or having a safety net to fall on.
Without a stop loss, your trade might get blown out of the water, and you’ll be rueing the day you turned away from the monitor. Additionally, a stop loss can help you exit the trade at a timely moment and re-enter it lower before riding it back up.
Using a stop-loss doesn’t mean you expect the trade to lose. It simply means you have another option for turning a profit out of the trade, even if it happens in less of a straight line than you expected.