The current coronavirus pandemic is the worst financial calamities of our time. It is incomparable to the dot com bubble, the previous crisis, and other recessions of the past. At the same time, the pandemic has levelled the playing field for so many people, who have been forced to work from home. As we have written before, you can use the current coronavirus pandemic to start a new business. In this article, we will look at how to trade Bitcoin during the coronavirus lockdown.
While in our previous article, we made the case for investing in Bitcoin, today we are focusing on the act of buying and selling BTC within short-term intervals. The goal of trading BTC is to take advantage of short-term volatility because you can benefit when the price is rising and falling. While trading is a good thing, it is also risky. In fact, most people who start trading lose money.
Why Trade Bitcoin Online?
Day trading is the act of buying a financial asset that you believe will rise and shorting one that you believe will decline. Most day traders open trades and close them within a few minutes while others leave them open for a few days. These traders day trade several assets such as cryptocurrencies, commodities, currencies, and index funds. Here are some of the benefits of day trading Bitcoin:
- Volume. Bitcoin is the biggest and most liquid digital currency in the world. According to CoinMarketCap, BTC worth more than $31 billion is traded every day.
- 24/7 trading. Unlike fiat currencies, you can trade Bitcoin every day. This is beneficial because it means you can make more money.
- Bidirectional. By trading Bitcoin online, you can benefit regardless of the direction the currency is moving in. You can buy when it is moving upwards and short when its price is falling.
- Leverage. Online brokers provide leverage to traders. This means that you can trade Bitcoin with more money than you have.
- News. There is a lot of Bitcoin-related news every day. This tends to create more volatility in the market.
Steps for Day Trading Bitcoin
As mentioned above, day trading Bitcoin is relatively risky. Therefore, you should always day trade it with funds that you can afford to lose. For example, you should not trade BTC with your school fees, rent, or funds you have budgeted for medical expenses.
Learn More About Trading
The first step you need to when you want to start day trading Bitcoin is to take time and learn more about the industry. Fortunately, there are many materials about trading you can find in the internet. We recommend that you use the following resources to learn about trading:
- Books. There are many books about trading you can buy from Amazon. You can find some of them here.
- Online trading courses. You can subscribe to day trading courses in various platforms like Coursera and Udemy.
- Free online platforms. There are several online platforms that guide you to trade. The best platform you can use is Babypips.
- Online videos. There are several online videos that will give you some idea about how to trade in the financial market.
We also recommend that you take time and watch other people trade. You can start by watching videos such as the one below.
Find a Good Broker
This is an important step you need to follow when you want to start trading Bitcoin. You should look at several things when you are finding a Bitcoin broker. First, the broker should have a good reputation in the industry. For this reason, we recommend using popular brokers that have been around for a while.
Second, the broker should have a good trading platform. Ideally, you want a broker that has a platform like MetaTrader.
Third, always look at the fees. You want a broker who is relatively affordable. As you will realize, most of these brokers don’t charge a commission. Instead, they make money from the spread between the bid and ask prices. Always look at their spreads.
Other details you should look at are customer service and the tools that they have. Some of the brokers you can consider are:
Please note: As you create your account, many brokers will offer you leverage. Please select as little leverage as possible because it increases your risks of losing money.
Develop Your Trading Strategy
The next step in your trading journey is to develop a trading strategy. This is an important step to follow because you need a strategy to become a successful trader. In fact, lacking a strategy is one of the most important reasons why many traders fail.
There are two main ways of developing a Bitcoin trading strategy. First, you will learn the strategies from the above materials. Second, you should develop your strategy by using the demo account that is provided by a broker. A demo account gives you real data and virtual cash that you can trade in the crypto market.
There are two things you need to know about a demo account. First, the demo account should have the same amount that you intend to start trading with. For example, if you wish to start trading with $10,000, the demo account should have this amount. Second, you should take the virtual cash seriously.
There are several day trading strategies that you can use. These are:
- Scalping. This is the strategy of opening and closing trades within a few minutes.
- Algorithmic trading. This is an advanced method of using algorithms to trade in Bitcoin.
- Swing trading. This is the process of opening and closing trades within a few days.
- Trend following. This is a process of identifying a trend and following it.
- Price action. This is the process of identifying chart patterns and interpreting them.
- Breakout trading – This is a strategy of waiting for a trend to change direction and then follow it.
Because of how risky trading is, we recommend that you spend a few weeks learning and testing your strategy. The more time you use in this stage will help you make more money while reducing risks.
The final step of your journey is to start trading. You achieve this by depositing funds into your trading account and then start trading using the strategies we covered above.
As you start, you need to understand three things. First, always follow the strategy you have already developed above. Second, always protect your trades using a stop loss or a trailing stop loss. Third, be calm even when the price of Bitcoin moves in a different direction. Don’t panic.
In this article, we have looked at the most important things you need to remember when trading Bitcoin. You can apply these tips when you are trading other financial assets like Ethereum, currencies, and stocks as well. The secret to succeed is to have a good strategy and sticking with it.