Trading Bitcoin can be a lot of fun. Especially when you learn how to surf the sometimes enormous waves of volatility. As a trading rookie, you will definitely learn that those waves also can crush you under and take you by surprise just when you were looking the other way on your surfing trade board.
Trading is not about having heaps of talent, a lucky hand, or a great intuition. Trading is something everybody can learn.
Trading has basic rules, and when you apply them well, you might make some money. And who doesn’t want to make some money? Maybe you even discover you have what it take to become a real trader.
I can assure you that takes time. I am not a professional trader, but I gained enough insides to teach you. And provide advice on things I would have done differently that will save you time and money in your journey to become a successful trader.
Where to start?
You start by choosing a trading platform. I chose Coinbase-Pro since I already had Coinbase. There are a dozen other good ones out there like Kraken, Binance or Huobi. Take the restrictions into consideration for Bitcoin trading in your country. In the US you need a VPN to get on many trading platforms.
There are different ways to trade Bitcoin. Futures for example. I am not going into detail here what that all means. I give you tips about BTC — USD Spot trading, meaning the Bitcoin price is expressed in USD.
You need to know that it is quite easy to trade your Bitcoins for a stable coin. Different exchanges use different stable coins. These are cryptos that are linked to for example the Dollar. On Coinbase Pro, the stablecoin is USDC. It is possible to change your BTC to this stablecoin. The easiest way is by just placing a market order. Check out on YouTube how to do this, there are dozens of good instruction clips. The other way is placing a stop-loss.
One of the most important tools in trading is the stop-loss. The platform stops your trade automatically on a price you decide and turns your BTC into USDC.
For example, you trade with one Bitcoin. Let’s say Bitcoins price is $8000,-. You expect it to go up and you don’t want to lose more than $200 on this trade. You put your stop-loss at $7800,-. When you go to bed, and Bitcoin decides to take a nosedive to $7500,-, you already have been stopped out your stop-loss. That’s called losing money when you sleep. But at least you didn’t lose $500,-
Now the most important question you will ask yourself everyday trading Bitcoin is; What will its price do?
If there is anything to take away from this post, it would be this
Nobody, really nobody knows where Bitcoins price is heading. You can follow as many bitcoin YouTube guru’s as you like, but none of them has the magic Bitcoin crystal crypto ball that tells the future.
To be able to predict probabilities better, you first need to learn some basic Technical Analysis or simply: TA.
TA works with patterns. To experiment with this, you need to open an account on Tradingview, it's free. Here you will see your first Bitcoin chart. You see basically a vertical Priceline on the right and a horizontal timeline at the bottom. You can stretch these lines to zoom in and out. Also, you can select on the left top a time. Popular ones to trade are 15 minutes, 1 hour, 4 hours, daily and weekly.
Let's say we use the daily chart to draw some trading patterns. There are so many tools that you will lose it right away. For now, click on tools and select these 2 tools: Volume and RSI. Volume depicts the trading volume in Bitcoin, RSI is the relative strength index.
You first need to learn some basic patterns and start trying them out on Bitcoin's past price action. Some of the main trading patterns are falling wedge, ascending and descending triangles, bull flag and bear flags, head and shoulder. When you start to recognize the patterns in the price of Bitcoin, there are probabilities attached to the outcome. A head-and-shoulders pattern has more probability for the price to move to the downside for example.
Trading is all about probability and narrowing down the scope.
For example. Bitcoin was in a descending triangle from its high of $14k in June all the way to the end of August. There are some general rules for this pattern. When the price nears its end, called the apex, there is a probability it makes a move to the downside when it is around 70–80% of the triangle. The move to the downside is more likely than to the upside because the triangle descends. In the triangle, lower highs are followed by lower lows, this is another basic sign that the price trend is one of moving down. Bitcoin was in a downtrend. More about trends later.
In this example, Bitcoin followed the rules. It dropped on September 23rd, 2019 for more than $2700 in less than 2 days. Experts would tell you that there was still a probability for its price to jump up. And they are right.
Trading patterns decrease and increase the probability of the direction of bitcoins price. They are never a guarantee.
Your trade would have been to ‘freeze’ your Bitcoins when your analyzes would have been the descending pattern and wait for the price to drop. It dropped from approx $9.700,- to $8.000,-. Here, you could have changed back into Bitcoin again, or even at $8.500,- where the price finally ended up an hour later. You would have made $1.200 in an hour. But you had to wait 3 months for this to happen. Maybe you want faster gains? Then you will need to take higher risks, and you can lose more. First, you will need to think about why you want to trade, and what your strategy will be
The why question is pretty important. Obviously you want to make some money. Then follow this NR 1 golden rule of trading
Only trade with money that you are prepared to lose. Start with $100,-. Never with your entire savings. Learn with this money first.
When you enter the Bitcoin trading arena, realize that you basically play against professional traders, wales and trading Bots. These are computers placing bets after calculating stuff you can't even calculate in a lifetime. You also trade against Bitcoin's famous high volatility. This is maybe its most difficult aspect to master and makes it so seductive for people to make quick wins.
When you have figured out your WHY, you need to come up with a strategy. Don’t go random, or on intuition or feelings, or worse: emotions.
Trading is all about emotion, put them out the door, make a strategy, and follow it till the end. And learn.
Making a strategy means you first observe for quite a while. You need to discern a pattern first. You only can draw a triangle when the peak or bottom of three different candles have touched the edge of the triangle for example. Learn these things first. When you are sure about your pattern, you are more likely about the outcome.
The next step is very, very important.
You need to set your trading target. AND STICK TO IT.
So, the price is hovering above $8000,-. You see a descending triangle, the low of the triangle is the $8000 range. You wait till it drops down. This will be approximately 70–80% into the triangle. When it made the drop, turn your USDC back into Bitcoins. Hurray, you made a profit.
Here comes another rule.
Always follow your own strategy, even when it is opposite to what everybody else yells on YouTube. And follow it till the end
For learning how to make strategies, you need to learn the basic pattern first and start a trading journal
Keeping a trading journal
Keep track of your trading. This allows you to also take some distance. In the beginning, you are bound to make mistakes. That’s normal. Reflect on those mistakes, write them all down. never start a trading day without writing in your journal.
In your journal, start with writing down your strategy for the short, medium or long term. The strategy comes from extensive observation. From having recognized the patterns in TA. Write everything down in full detail. Where you will get in, what your stop-loss is, and your target.
Take time off to read back in your journal. Make a strong imprint of your mistakes. They are the gold for the future. The money you lost is the money you paid to learn to become a better trader.
Trading & Emotions
You can use YouTube in the beginning and follow channels like CryptoZombie, Crown’s crypto cave or The Moon. They post videos daily and you will learn a lot about trading patterns. The sentiment in these videos is mostly that Bitcoin needs to go up. Everybody seems to wait for the next parabolic run-up. This happened from May to June 2019 and means that Bitcoin’s price rose spectacular and people could make 4 x profit. It went from roughly $3400 in April to $14.000 in June. Naive traders believe these moves happen all the time. Bitcoin came into a big correction after this moonrise, and “we” are still in this correction that might even take its price further down.
Learn that it doesn’t matter if Bitcoin goes up or down, you can make money both ways
Also, notice that there are strong emotions around trading. You find that back in the comments on videos, in the content. You might feel the need to “choose a side”. Do you feel better with Bitcoin going up soon?
Watch out this doesn’t become bias or even a believe. Catch yourself when you keep on expecting Bitcoin’s price to go up, even when your own Technical Analysis shows you another pattern. It will make you end up crying.
Trade the market you see, not the one you want
Maybe this expectation is fed by most of those Bitcoin YouTubers, and you feel better to follow the sheep. Over time you will learn this;
Bitcoins price mostly does the opposite of what is expected. When the Market expects a rise, it will drop. This is how wales make their money. Trade against your sentiment, your Bias and what everybody thinks. This sounds easier then when you are about to make a trade.
Another very important skill you need to learn is zooming out. Keep on seeing the bigger picture. Surf on the high timeframes and take distance from the constant candle movement. Force yourself to zoom out when you get lost in staring at candles.
Never stare at candle’s, this is a sign you are caught into your emotions. It is a waiste of your time.
Learn to discern bigger trends. The biggest is a bear or bull market. The bulls fight the price up the hill, the bears defend the price down into the valley.
When you have lots of patience. You can even potentially buy in Bitcoin at the beginning of a bull trend, follow the market, and sell at the start of a bear market. We are talking months and even almost years here. Most of 2018 was a bear market. People thought that the start of the rise in May was the beginning of a bull market, but the sharp recent pull-back, or correction, makes traders doubt at the moment. Firstly because Bitcoin dropped under the important 200 daily moving average (MA). Now, when Bitcoins weekly stays under the 21 weekly moving average for a few weeks into 2020, we are probably in a bear market again. Notice here that Technical Analysis and using the tool of Moving Average can tell us something about trends.
A simpler trend is to define a down or uptrend. Bitcoin’s move in the descending triangle I mentioned above from June was a downtrend.
Here is golden trading rule number 2;
The trend is your friend until the end
This generally means. When you have discerned a trend, and Bitcoin price confirms this, through higher timeframes, and you were lucky enough to make a trade relatively at the beginning of that trend, than follow that trend ALL THE WAY. Don’t sell or buy in the middle because you made some nice profits already. Wait till the end.
Patience and Risk Management
After all my trading hours, all the mistakes I made, all the pages I wrote in my journal, I saw the light. I found the magical formula for trading. I realize there is no secret key to being successful in trading, but this formula reminded me daily on what trading is all about. Also, it helped me to not get lost in emotions like a shipwrecked moving without direction on waves of candles.
This is my secret
Trading = Risk Management x Patience
It looks simple, but living accordingly might be difficult for you while trading. Risk management essentially means you don’t turn trading into gambling.
Maybe you won a little on a short, you got excited, and put more than you want to lose in a trade. You put the stop-loss very high for example because you are “sure” the price will drop again.
This can happen after a so-called Bear of Bull trap. The price suddenly moves down, for example, you get all excited, you made a win, and your brain wants to repeat this experience, it was all so easy!
But then the price surges. The bulls push the price right through your stop loss as if it didn’t exist. You get all emotional about this loss, now you want to make back that loss, so you double again. ETC. You are gambling! When you spot yourself doing this, take a break, get out. You will lose.
Basically, because your emotions drive you to make too high risks. Remember, trading is about increasing probabilities, bringing down the risk of losing by doing TA, zooming out, and having patience.
This is the other part of the equation. Patience
Take a lot of time in trading. Learn to be happy with a small win in a week's time, or even a month's time.
Trading is about making more winds than losses.
It's that simple. When you train your discipline and patience, those small wins can turn in to nice side hustle, or even potentially bigger when you suppress the urge to reach for the stars too soon too fast.
Test first if you really want to spend your time on trading. Is it worth it for you? When you follow most of the rules above, you spent most of your time analyzing in the beginning. You place a small trade when you are sure about your pattern, you cash in when the target is met. Even when you have to wait a week of a month for this to happen. This will build your trading experience and confidence.
When people on YouTube offer you discounts for leverage trading. Don’t do it. I know, you are your own boss, but when you begin trading you shouldn’t be on these platforms. Why?
When you begin, you are bound to lose more then you win. This is the learning-mony as my mother would say. In everything you need time to learn, not even to speak about mastering here. When you enter leverage trading, your learning money gets leveraged out quickly and you will have way less money to learn. It’s that simple. Don’t do it. Learn to win first on a consistent basis. This might take years.
And oh, when you log in to your trading platform. Never forget Bitcoin is money, not just numbers on a screen and green and red candles. When you made that profit. Take it out, buy something in the real world. Or put it on your HODLING wallet. You deserved it! It’s a reward for your patience, risk management, and discipline.
Check out my Starters Guide for Bitcoin, Blockchain and Crypto
DISCLAIMER: None of the above represents trading advice. The purpose of this writing is to show how to get into trading. Tips on what people need to know and advice from experience.
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Lucien is a writer, blogger and crypto educator with his own YouTube channel. He initiated the medium publication “Spirit of Crypto” and is Ambassador for the ThreeFold network, bringing the decentralized Internet of tomorrow.
He lives in front of a wonderful magnetic rock in Ibiza with his 14 wild cats. Lucien loves to write, learn and grow as a human and writer every single day.