Bitcoin is a digital currency. This means that it can be used as a form of virtual payment – if both parties are willing to trade. However, unlike traditional or fiat currency, Bitcoins are decentralised. This means that there is no institution or government that controls and regulates it. It is also pseudo anonymous in the sense that senders of Bitcoin do not need to identify themselves when sending Bitcoin to another but the system will make the transaction public.
Many investors are attracted to invest in Bitcoin because the supplies are limited. You have to know that fiat currencies have an unlimited supply and with this, it can influence or manipulate the value of the currency relative to others. In the case of Bitcoins, there is an algorithm that controls it. There will only be 21 million Bitcoins and once it is reached, there will be no more supply. This makes it an attractive asset – if the demand grows and the supply is limited, the value will surely increase.
If you are interested in bitcoin trading, you need to understand the basics first. Do not trade Bitcoin if you do not have any trading experience. If you are a beginner, you should consider the following tips:
Do not invest more than you can afford to lose
Whether it is stocks or Bitcoins, traders should learn one simple rule – do not invest more than you can afford to lose. Traders are often regarded as risk-takers but you only risk what you can afford to lose in that way, you can still get back on your feet.
Having Bitcoins, you have a high chance of seeing large gains but poor decision-making can lead to high losses. Always keep in mind to invest an amount that you feel comfortable losing to be prepared for the worse eventuality.
Set goals before trading
Traders always set goals before trading. This is to remain level-headed especially during times of extreme volatility. When you are trading Bitcoins, it is crucial that you determine the price to cut losses or take profits in advance. Setting a goal can help the trader prevent making decisions based on emotions.
Understand the charts
Technical analysis is difficult to master but when you are determined to learn, you will surely develop it in time. If you are a beginner, start learning the basics of chart reading first. This is so you can identify and understand market trends. You can consider a Bitcoin charting tool and take time familiarising the charts.
Do not set stop losses below 10%
When you trade, there is a stop loss mechanism. This is an automatic trigger that will liquidate your position if your losses reach certain point or value. The mechanism is good because it will stop you from losing more. It is a good tool to take advantage of. If you do not set stop losses below 10%, it will risk the position of closing very quickly since the price of Bitcoins fluctuates.
Understanding Bitcoin trading is overwhelming but it does not mean that you should not consider it. If you are ready to trade, keep these things in mind to be successful.