So, you want to join the exciting world of crypto trading? Great. But despite what your favorite crypto influencer might want you to believe, you’ll need a solid strategy if you aspire to be a successful crypto trader.
Cryptocurrency has exploded in recent years, with many online “experts” claiming to know the secrets of getting rich by trading digital currencies such as Bitcoin. It’s the same principle forex traders have used for years to buy and sell foreign currency — but now they trade in digital currency instead.
Bitcoin uses a peer-to-peer network and public key cryptography to record and legitimize new transactions, with its cryptographic algorithms enabling a decentralized, secure digital ledger.
This technology is the foundation of the blockchain system on which crypto runs.
Bitcoin is riding high on the waves of rising crypto popularity. In November 2021, its value reached an all-time high when the price of one BTC topped $65,000 — causing a surging interest in Bitcoin trading.
Although the May 2022 downturn sent crypto prices into a tailspin, Bitcoin is likely to continue to grow in popularity in the coming years as it becomes more mainstream, with Bitcoin-based entertainment and the number of businesses that accept crypto payments on the rise.
But before you dive headfirst into your Bitcoin trading adventure, you need to be aware of the risks and how to mitigate them. Don’t just blindly follow the advice of the latest crypto influencer — do your own research instead. This article will outline some Bitcoin trading tips and our top dos and don’ts of Bitcoin trading for beginners.
What is Bitcoin trading?
Let’s start by clarifying the difference between trading and investing. Investing in crypto is generally a longer-term strategy that involves buying assets on a cryptocurrency exchange and holding on to that currency, with the expectation that its value will increase steadily over time.
Cryptocurrency trading is a short-term strategy to make a profit from the fluctuations of the market. The principle is simple: use crypto exchanges to buy when the price is low, and sell when it’s high.
But despite the simplicity of the premise, Bitcoin trading has become more sophisticated than it was in its nascent years. Traders now employ a variety of strategies to profit in spite of market conditions.
To understand how Bitcoin trading works, you’ll need to know what factors affect crypto markets. Here are four of the main ones.
1. Bitcoin supply
You might not know this, but there’s actually a limited amount of Bitcoin. This is different from a fiat currency, such as the US dollar, because the federal reserve can print more money when needed. Bitcoin’s supply limit is embedded into its design, and as of May 2022, roughly 90% of Bitcoin’s market cap had been mined.
Experts predict that Bitcoin will run out by 2040, with mining becoming increasingly difficult and power-hungry (again, this is part of Bitcoin’s design) — all of which means that the value of Bitcoin is likely to continue increasing. By contrast, many altcoins, such as Ethereum, have an unlimited supply.
2. Media attention
Both mainstream and social media affect crypto prices. Research shows that news directly relating to crypto, such as crypto-related crime, often negatively impacts the value of Bitcoin as people begin to panic sell.
Other studies have shown that social media opinion can sway the market when it comes to crypto prices. Fear of missing out — aka, FOMO — can drive up prices, while negative speculation can cause them to plummet.
A great example of this is Elon Musk and Dogecoin. In December 2021, he tweeted that Tesla would be accepting the meme-inspired altcoin as payment, leading to an immediate 33% spike in its value.
3. Crypto uptake
As crypto — and Bitcoin in particular — becomes more mainstream, the demand for it grows. With increasing numbers of vendors now accepting Bitcoin payment, this trend is likely to withstand market dips.
4. Unexpected shocks
Global events — such as security breaches or the introduction of government regulations — can have a ripple effect on Bitcoin prices. The geographical regions in which events occur can affect the extent of the impact.
For example, in April 2021, the Chinese government announced a ban on all crypto-related activities. This spooked investors and led to mass selling, causing prices to fall sharply.
Another potential factor in the crash was an electricity blackout in the Xianjing region of China, as China was responsible for over half of the world’s Bitcoin mining until late 2021.
Another example of this was the week-long uprising that took place in Kazakhstan in January 2022. The country had become the world’s second-largest Bitcoin miner after China announced its crypto ban, but the uncertainty caused by the uprising made Bitcoin prices soar.
Bitcoin trading: the dos and don’ts
Ready to start making money trading Bitcoin? Stick to our trading dos and don’ts to stay safe and have fun on the crypto market.
Bitcoin trading dos
1. Do your research
Bitcoin trading might seem straightforward — after all, everyone and their grandmother seem to be doing it these days. Some of the principles are similar to trading stocks, but as we’ve already seen, Bitcoin is subject to forces that stock markets aren’t.
That’s why it’s essential to get acquainted with the main strategies, key mechanisms, and most important trends before you can step confidently into the crypto market with minimal risk of losses.
Do your research, learn the lingo, analyze market trends, and watch videos by famous investors such as Elon Musk, Barry Silbert, and Michael Novogratz to educate yourself.
2. Do use a reputable exchange
Just because an online exchange platform offers BTC trading, doesn’t mean it’s legit. Play it safe by researching any new trading platform on Google and checking Bitcoin forums like the ones Reddit.
Some of the most reliable crypto exchanges include:
- Coinbase
- Binance
- FTX
- Chipper Cash (yep, that’s us!)
3. Do diversify your investment portfolio
This rule of thumb is as old as investing itself, and it doesn’t just apply to cryptocurrencies.
Crypto is extremely volatile, with prices often rising and falling — sometimes within a matter of minutes.
Therefore, it’s crucial that your BTC investments are part of a diversified portfolio that includes risky and safe investments, equity and debt investments, and mutual funds. This can protect you from shocks when one of your investments takes a hit.
4. Invest what you can afford to lose
Many people learned this the hard way when the 2022 downturn hit. Crypto bros, influencers, and amateur traders worldwide found themselves facing the harsh reality that they’d lost most — if not all — of their life savings.
Even with a diversified portfolio, you should only invest what you can lose. Assume that the money you put in can’t be used anywhere else. Most of all, don’t bank major expenses, such as buying essential goods, on the rising value of crypto.
Getting good at trading takes time and experience, and you should consider any gains a bonus. The important thing initially is to learn the ropes, so if you want to ride the rodeo, set aside money for it specifically.
Bitcoin trading don’ts
1. Don’t be ruled by your emotions
It’s natural to feel smug if a trade pays off or disappointed if you lose money. But no matter how a trade plays out, don’t let it go to your head.
Emotions are at the heart of impulsive trading, and trading on sentiment alone is a recipe for disaster — so don’t let greed or fear take over your next trading decision.
2. Don’t go with hunches
If you fancy yourself as the next Leo DiCaprio from the Wolf of Wall Street, stop right there — this is not a game of instincts, despite what Hollywood may have taught you.
Your intuition won’t always predict gains — in fact, it could land you in hot water. It’s much more profitable to do it the boring way — analyze markets, look at past trends, listen to experienced investors, and build your next move on a pragmatic foundation.
3. Watch out for scammers
That said, don’t listen too much to what others are saying and always rely primarily on your own research. There are a lot of Ponzi schemes and other mining scams out there trying to make money off people’s lack of crypto fluency.
A common scam that has got influencers like Kim Kardashian and Logan Paul in trouble is known as the “rug-pull.” Developers mint a new currency, use influencers to promote it and drive up the price, then disappear when it devalues, leaving investors out of pocket.
So don’t fall for empty praise for Bitcoin or any other coin — especially if it’s coming from celebrities, who are rarely disinterested or impartial. Look at the data, analyze past trends, and be wary of people who promote coins you’ve never heard of before — or since.
3 popular Bitcoin trading strategies
Now you have an idea of how crypto prices work, let’s take a look at three of the most common crypto trading strategies.
1. Day trading
Day traders open and close their trading position in a single day. This strategy allows them to avoid overnight exposure to funding charges or price shocks. It involves buying and selling several times throughout the day to take advantage of short-term value gains.
Trend trading
Using several indicators, investors attempt to identify an asset’s momentum — in other words, whether it’s going up or down.
In a bullish cryptocurrency market — when prices are on the rise — investors will go long, which means buying crypto assets early on in the trend and selling them when they peak.
In a bearish market — when price movements are falling — investors try to make money from short selling. This means selling assets and then buying them back at lower prices, which is more of a high-risk strategy.
HODL
“Hodling” is a trading strategy that stands for “hold on for dear life.” It can be fairly low-risk when employed in a market with a long-term upward trend forecast.
As the tongue-in-cheek name suggests, the idea with hodling is to hang onto your digital assets and ride out short-term dips.
However, this doesn’t mean you should keep them forever — if your research indicates the long-term trend will change, it’s best to sell and minimize your losses.
Trade Bitcoin safely with Chipper Cash
By now, you should be armed with the knowledge you need to go forth, research, and find the best and safest Bitcoin trading strategy for you. While it’s essential to be aware of the risks, trading crypto offers an exciting opportunity to learn, make smart investments, and grow financially.
Chipper Cash is designed to help you every step of the way — whether you want to trade Bitcoin, invest in stocks, or simply transfer money anywhere in Africa.
With our app, you can instantly convert your local currency to Bitcoin and test out trading techniques 24/7. So why wait? Request early access and get started right away.