Stories about people that have made good money trading Bitcoin or investing in it are all over the internet. It’s, therefore, not a surprise that this digital currency has caught the attention of many people across the globe. But is investing in or trading Bitcoin a risk-free venture?
Well, like the other cryptocurrency, Bitcoin is a volatile digital asset. That means its price can fluctuate rapidly within a short time. Several factors influence the price of this digital currency, the majority of which are beyond the investor or trader’s control. Nevertheless, people use Bitcoin to pay for services and goods, the same way they do with fiat money.
But, Bitcoin is only available in digital form. Thus, you can’t hold or keep it in your pocket like fiat money. However, you can store Bitcoin in a crypto exchange or a digital wallet. So, how do you trade Bitcoin if it’s only available virtually?
Trading Bitcoin Entails
Trading Bitcoin entails speculating on its price movements. Initially, people traded cryptocurrencies through exchanges. These are platforms that allow people to purchase and sell Bitcoin using fiat currencies. When trading Bitcoin, you focus on buying the digital money at a low price and sell it at a higher cost, thereby making a profit. However, modern traders can use derivatives to speculate on the rising and falling prices. Trading Bitcoin enables traders to make money from cryptocurrencies’ volatility.
Every Bitcoin trader wants to make more money. And the internet has many tools and information about ways to trade Bitcoin for profits. But, trading Bitcoin comes with risks. Sites like bitcoins-evolution.com provide information about services and products available for Bitcoin traders. The goal is to enable Bitcoin investors and traders to make more informed decisions. That’s because Bitcoin trading comes with risks that you should learn to manage or mitigate. Here are tips to help you manage risks when trading Bitcoin.
Focus on Quality Rather than Quantity
If not careful, you can over-trade Bitcoin. And this can lead to time and money wastage. Effective Bitcoin trading involves focusing on quality rather than quantity. Bear in mind that not all market situations will favor your Bitcoin trading strategy. Swing trading, for example, is suitable for solid market trends. On the other hand, automated scalping suits a stable market. Therefore, market research is crucial when determining the most appropriate Bitcoin trading style to adapt at any time.
Don’t Use Leverage Excessively
Most Bitcoin traders use margin because it increases the order size and enables them to trade more flexibly by going long or short. However, excessive leverage may limit the time your trade has to breathe. That means you risk losing the entire principal amount of capital if situations necessitate forced liquidation.
Formulate an Exit Strategy
When trading Bitcoin, studying charts enables you to understand the market trends and then make informed decisions. Therefore, use charts to identify the direct support and resistance levels. With that information, decide on your Bitcoin trades early. Also, research the crypto market to understand your risk-to-reward ratio. With this information, set your profit targets. You can even scale out to add your position or lock in your profits during a strong trend.
Additionally, use stop orders to prevent losses. However, stops may not be practical in every situation. For instance, they may not work when the market exhibits a fast movement in Bitcoin price. And slippage can cause a bad fill.
The Bottom Line
Bitcoin trading comes with a fair share of risks. However, you can follow these tips for managing risks when trading Bitcoin to avoid or minimize your losses.