Trading Bitcoin can be intimidating, especially for new traders. Thankfully, there are several strategies that new traders can follow when they are trading Bitcoin. Using the strategies, newcomers can maximise their chances of succeeding in the cryptocurrency market. Without further ado, let’s have a look at the top five tips that every Bitcoin trader must know.
- Do extensive research
- Know the risks
- Strategize your diversification methods
- Secure your crypto coins using wallets
- Get well accustomed to volatility
One of the best advice that we can give new Bitcoin traders is to do plenty of research. Many people tend to jump into the cryptocurrency market because they don’t want to miss out on a huge opportunity. While this is good motivation for you to begin trading Bitcoin, it is vital to have a proper strategy on how to plan your trade in the cryptocurrency market. If you enter the market blindly, there is a high possibility that you won’t be able to survive in the highly volatile cryptocurrency market.
The more you understand about Bitcoin, the better you will be when you trade this digital currency. Having a solid foundation when starting is essential because it allows you to understand more about Bitcoin. While Bitcoin offers a unique and rare opportunity for the world’s financial market to shift to a decentralized system, it needs to be treated accordingly. A good start is to your research is by understanding blockchain, the technology underlying Bitcoin.
In fact, take 10 minutes to go through the original 2008 Satoshi white paper. This document is eight pages long and is truly an inspiring work of the genius that will forever change how economies can function.
If you are considering to trade Bitcoin, one of the most eminent risks is the highly speculative nature of the investment. The market is largely unregulated, and anyone considering to get into cryptocurrency market should be prepared to lose their entire investment. Investors getting their feet wet with Bitcoin trading should have a strong grasp of the blockchain, which is a distributed ledger system that underlies all digital currencies. While this may seem obvious, the first thing that investors should do is to understand blockchain. Many investors today, don’t spend the time to understand this powerful technology.
Without a proper understanding of how blockchain can store secure data and your Bitcoins, you don’t have a complete understanding the nature of your investment. Learning about Bitcoin can take some time. Therefore, it is advisable for new traders to work with a mentor. When you have a trusted person or resource that you can engage with, you can understand the nature and risks of your investment in a safe environment.
As it is with any investment, investors should realize that everything comes with a risk. Digital currency is at an early stage of development compared to similar asset markets like the stock or bond markets. Therefore, experts advise all new traders not to invest money that they cannot afford to lose.
It would do you good to start small and invest a small portion of your capital. Seeing as the price of Bitcoin is skyrocketing, don’t try to chase Bitcoin prices. Decide on an entry point and stick with it. When it comes to Bitcoin, traders are almost always right in terms of price action, but your timing may be a bit off. Patience is virtue when trading Bitcoin, so you should just let the Bitcoin price to come to you.
When you think that Bitcoin has reached the right price for you to enter the market, you should refrain from buying all the Bitcoins that you can buy. Instead, you should use the “stage in and stage out” strategy. Using this strategy, traders should invest a little at a time, wait for a bit and then invest some more.
The year 2017, has produced some very impressive gains with Bitcoin showing a nearly vertical rise after October 2017. There are already media outlets reporting on stories of individuals becoming Bitcoin millionaires. These stories might tempt an investor to invest more because they want to be another Bitcoin millionaire, but by no means should you put all your eggs in one basket. Even in the financial market, it is not advisable for you to only invest in one asset.
When it comes to the cryptocurrency market, investors who are trying to diversify their portfolio should consider other alternative coins, more traditional assets such as stocks and bonds, or both. The underlying idea behind diversification is when a decline happens in one asset, this can be offset by an equal gain another. Let’s take for example an investor invested in a simple portfolio consisting of Bitcoin, Ether, Litecoin and Bitcoin Cash. In the case that Bitcoin falls by 10%, ideally another digital asset will rise by the same amount to offset the effect.
An investor should always have a diversified portfolio because in the case that any of these coins decrease in value, they will still be able to invest in the market because some of the alternative coins would still have value. Hedging against volatility is similar to investing in the stock market or foreign exchange market. Having proper risk management techniques will ensure your survivability in the cryptocurrency market. However, when it comes to selecting alternative coins to incorporate into your portfolio, once again you have to be very careful.
With the rapid growth of the cryptocurrency market, there are thousands of plenty of alternative coins out there. Remember that most of them can be thought of as start-ups and most start-ups fail. Therefore, you should always do your research the business model for any coin that you are considering. Other aspects that you need to take into consideration is the current funding, credibility of the leadership team, original technology, product maturity and so on.
Any seasoned cryptocurrency investor would advise against keeping your crypto points in an online exchange. Many exchanges have gotten hacked in the past and obtaining your money back in situations where the online exchange has been hacked can be difficult. While online exchanges can store digital currencies, they are not the best place for you to store your cryptocurrencies.
You can purchase your cryptocurrencies in an exchange like Coinbase. However, you should immediately move your coins into an online wallet like Jaxx or Coinomi. You can even opt to use a paper wallet, which is free and easy to do. If you want to explore more wallet options, you can manage your risks by using both hot wallets and cold wallets to store your cryptocurrencies. You can think of this as trying to manage your risks. Similar to how you keep some cash in your wallet and some in your bank account, you reduce the risk of you losing everything at a time.
If you’re going into the cryptocurrency market hoping that you will see stable price action, you are making a big mistake. The digital currency market is well known for being volatile. There are several strategies that investors can use to manage these price fluctuations. Strategies that we have discussed earlier includes diversification. Another strategy which is advocated by Warren Buffett is to buy and hold.
Most of the new traders have a weak hand because they want to sell immediately once the price goes the other way. Having a passive investment style will outperform active strategies in the long term. Passive investing is less costly than active investing because of lower trading costs and lower operating expenses.