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Erik Larson writes about the job market, resume improvement, and career advice

5 Tips for Successful Bitcoin Trading

Written by Erik Larson, Community Blogger | Dec 24, 2017 1:16 AM

Bitcoin is undoubtedly the hottest financial asset today. From Wall Street to Silicon Valley, everyone wants a piece of bitcoin. And to think, just a year ago, Bitcoin was hovering around $600. Fast forward to today, the cryptocurrency has spiked by more than 3,000 percent. If you want to get in on the action, trading Bitcoins is one of the two options to get BTC, the other one being mining. Mining BTC tends to be more hassling due to the initial startup cost, specifically for the mining rig. Furthermore, you'll need to install and set up mining software that can be confusing and complicated, to say the least.

With trading, the process is straightforward - buy low, sell high. Yet despite this simplicity, trading BTC can be risky. Here are five tips to succeed: 

Choose an Exchange

Since it's a relatively nascent asset, Bitcoin doesn't have an official exchange yet. Stocks and currencies have the New York Stock Exchange and the London Stock Exchange; as for Bitcoins, users have a handful of choices including, but not limited to, Bitstamp, Coinbase, and Kraken. Compare these exchanges first before trading with any of them. The criteria to judge prospective exchanges include regulations, location, fees, and liquidity. Can you get in and out of trades during highly volatile times of the day or does the exchange freeze and hold all accounts frozen? Are the fees too much that it's eating up your profits?

Time Your Entry

Compared to other financial assets, like stocks and currencies, the daily volatility of Bitcoin is relatively higher. At any given day, it could jump a few hundred points in either direction. Timing your entry effectively maximizes potential gains and minimizes capital losses. Wait for the market to turn and correct itself before buying or shorting BTC. Avoid jumping the gun and being trigger happy when trading BTC or any financial asset for that matter.

Limit Your Time Trading

Like currencies, BTC and other cryptocurrencies can be traded 24/7. Unfortunately, humans aren't built to effectively function 24/7. If you force yourself to trade BTC round the clock, you'll likely make more errors in judgment, which ultimately results in more financial losses over time. Limit your trading activities to a few hours per day. Scalping BTC is simply inefficient since hefty broker fees will eat up any potential profits. Trade BTC at specific hours during the day. Pick a time when you are free from distractions so you stay focused on Bitcoin price charts.

Use Leverage Wisely

In the realm of investing, leverage is regarded as a double-edged sword in that it can hurt you as much as it can help you. While your broker might be offering a 200:1 leverage, meaning you have $200 worth of buying power for every $1 of your real money invested into the account, this doesn't mean you should use all of it. In fact, you shouldn't use more than half of the allowed leverage. Any higher than that can be considered as imprudent trading or gambling. Bitcoin futures, which is a relatively nascent derivative of BTC, can help you offset risk by placing greater focus on proper leveraging. The current futures contracts offered by the Chicago Futures Exchange are valued at $10 per tick, which means multiple contracts require a greater amount of capital, forcing investors to take more responsibility and smaller sized positions.

Check Your Emotions at the Door

Emotions are helpful in life, but it has no place in trading, at least not in something as volatile as Bitcoins. Fear and greed are the two main emotions to watch out for when trading for the first time. People who are fearful of missing out on opportunities tend to ignore risk. Those who are struck by greed tend to let winning positions run until it turns into a loss.

Final Thoughts

As the cryptocurrency bulls anticipate a rise in Bitcoin price by as much as $50,000 per BTC, the sheer market demand and volume will provide a myriad of opportunities for traders. But since BTC doesn't have a lot of technical or fundamental data to base a logical and informative decision from, work on your strategic approach and trading mindset with the five tips mentioned above.

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