Bitcoin has increased in value over the years since its launch in January 2009 and had its highest records of all time in December 2020. This surge in the price of bitcoin in the past few weeks has attracted more bitcoin users than ever before.
If you’re just getting started with bitcoin trading and curious about how it works, this article can serve as a quick guide.
What is Bitcoin Trading?
Bitcoin trading is the act of buying bitcoin at a low price and selling it when the price is high. When you invest in bitcoin, you only have to buy it and keep your coins there, usually for the long run and watch your money grow.
On the other hand, bitcoin trading doesn’t require you to hold your coins for a long period of time. Rather, the traders would watch the market closely so they can buy as much as they can when the price is low and sell later when the price is high. The difference between the price at which they bought and sold would determine their profit.
Types of Trading
There are different kinds of traders, which could depend on the trading method used. The trades are done via bitcoin exchanges with features to help every trader make the most of them, such as the Bitcoin Compass trading features. Some of the most common methods used by traders include the following:
- Day Trading
This is the most well-known active kind of trading that involves conducting multiple trades all day long. Day traders buy securities in a day and ensure they sell them before the day is over and no position is left overnight. Since their profits would be based on the difference in buying and selling prices, they stare at the computer all day to not lose track of when the price changes.
The scalping method is becoming more popular lately, as it involves making profits repeatedly over small price changes. Since it’s short-term trading, it helps with risk management and creates advantages for traders.
- Swing Trading
This form of trading focuses on capturing short- to medium-term gains. Traders tend to take advantage of the natural swing of price cycles, which is usually at the time there’s a bitcoin trend due to the price volatility. Swing traders buy or sell their bitcoins as the price volatility sets in. They don’t have to stare at their screens all day like day traders but rather look at the big picture, which might take them weeks or months.
Bitcoin Price Volatility
The major factor that drives bitcoin trades is price volatility. The value of bitcoin has been historically volatile, which means the price tends to change over a short period of time. Factors that move the price include Supply and Demand, Press, Regulation, and Adoption.
Many traders take advantage of this volatility and make the most of it. While it has its advantages by helping you gain more profits over time, it could also be a disadvantage if you’re not careful. It takes time, effort, knowledge, and practice to be an experienced trader with fewer losses.