Bitcoin, or BTC, is a cryptocurrency that is traded as a commodity at many online brokerages. It is unique in many ways. For starters, BTC is not subject to central bank policy and it operates outside of the realms of regulation. BTC trading is relatively anonymous, and many online brokerages will not require any proof of identification when trading this cryptocurrency. BTC has revolutionized the way that retailers, buyers, and traders interact with one another and the markets. Many folks are now dabbling in Bitcoin trading in much the same way as they do with traditional currency pairs like the AUD/USD, GBP/EUR and USD/JPY among others. Fortunately, you don’t need much trading experience to get involved in digital currency trading since everything is relatively easy to understand. However, novices will want to avoid the following pitfalls:
- Limit Your Trading Bankroll to What You Can Afford to Lose
Most every financial trade can go one of two ways – up or down. As a trader, you must be prepared for losses, and you should allocate a bankroll with that in mind. When you trade highly speculative financial instruments like BTC, losses are commonplace. This is especially true for novices who have little experience in currency trading, or digital currencies like Bitcoin. The golden rule is never to invest money that you need for everyday expenses. If you’re going to trade BTC online, make sure that you have a diversified financial portfolio to act as a hedge against any losses you may accrue.
- Always Set Take Profit Prices and Stop Loss Levels in Advance
Trading currencies, commodities, indices, and stocks is inherently volatile. Trading cryptocurrency is especially volatile. It is extremely important to go into a trade knowing what goals you have in mind. You should always have a figure in mind when you take profits, or a figure at which you cut your losses. You do not want to be trading with an emotional mindset – that’s a recipe for disaster. Greed is the Achilles’ heel of many a trader. When a currency is rising relative to its peers, it is normal to want to continue benefiting on the upside, or downside when it appears that there is significant momentum at play. However, greed has led to more losses than anything else. Always keep target prices in mind. One way you may wish to do this is by trading with strategies. A good example of a BTC trading strategy is the trendline strategy. You certainly do not want to be trading in a euphoric state of mind, or in a state of mind where you are despondent. It is better to trade when an asset is rising in price, before it peaks, and before it bottoms out.
- Make Sure You Understand How to Set Stop Losses
When you set a stop loss, you are setting an automatic liquidation of your trade. Once the trade hits a certain value, a sell order will be initiated and your trade will be closed out. If you are losing money, the stop loss will prevent you from losing more. The reason stop losses are so popular with traders is that it is impossible to keep your eye on hundreds of trades simultaneously, so the automatic stop loss will sell your losing trade to prevent further losses. Stop losses are important when you’re using high levels of leverage. They prevent you from hemorrhaging cash when the trade is not going your way.
- Understand the Importance of Charts with BTC Trading
Technical analysis and fundamental analysis are important components of your trading arsenal. Even if you have little mathematical or statistical ability, it behooves you to research a little about charts and market trends. Once you understand the basics of chart reading, you will find that your BTC trades are much more successful. Several types of charts are available to you, including candlestick charts which display price movements over time intervals. You will note things like opening prices of BTC, closing prices, low prices, high prices and the trading range.