Quick Facts You Need to Know Before Trading Bitcoin

By Dumb Little Man

January 10, 2024

Quick Facts You Need to Know Before Trading Bitcoin

Bitcoin is getting more attention, so people invest in it to take part in the counterculture. There’s a mighty feeling among its supporters that they’re creating a new realm, a digital one in these circumstances, which will dismantle the banking system. BTC allows for the direct transfer of funds between parties without the need for an intermediary. It can be traded directly between parties or on an independent exchange. You can invest in Bitcoin directly by purchasing a small number of coins. If you invest at the right time, you may possibly increase your wealth. BTC offers a degree of anonymity that conventional investing doesn’t.  

If you’re considering buying Bitcoin, do your homework and have an investment plan. There are several considerations you must make before taking the plunge. Chief among them is: 

There Are a Number of Well-Regulated, Credible Exchanges

Many digital exchanges for trading BTC have been launched in the past years. Cryptocurrency exchanges are privately-owned platforms that enable the trading of digital assets. There are both centralized and decentralized exchanges, both offering advantages. Centralized cryptocurrency exchanges offer more reliability. They operate using an order book system; buy and sell orders are listed and sorted by the intended price. 

You shouldn’t be skeptical about the credibility of crypto trading platforms. Your funds and assets will be kept in cold storage at all times. Signing up for an account is pretty much straightforward. Yet, you’ll be required to provide proof of identity. 

If you use a decentralized cryptocurrency exchange, you can trade directly from your wallet. The peer-to-peer transactions rely on smart contracts, which allow for more privacy. The lack of an intermediary means that you’re on your own. Since you’re not a sophisticated investor, this might not be the ideal choice. Let’s not forget about the low trading volume. High liquidity is desirable as positions can be entered and abandoned quickly without the price being affected. 

It’s Necessary to Have a Bitcoin Wallet

It’s Necessary to Have a Bitcoin Wallet
Photo: pixabay

Before you can start trading on a cryptocurrency exchange, you need a Bitcoin wallet. A wallet is a software program that acts like an account for your funds. It stores the data necessary to access it. Even if you automatically have a wallet when you open an account on a cryptocurrency exchange, you don’t have complete control over the private and public keys. A Bitcoin wallet helps you manage your keys, so it’s more straightforward to send, receive, and store coins. Your wallet has a unique alphanumeric address. 

Security is the most important factor to take into account when choosing a cryptocurrency wallet. Your wallet should require you to unlock it every time you use it. It would be best to keep your funds in several wallets to spread your risk. For instance, you can keep your savings in one wallet and the funds you use for daily transactions in another wallet. Some cryptocurrency wallets have built-in security flaws, which is why you must consider the reputation of the wallet. Review testimonials, internal recognition, accreditations for the company, and so on.

Price Movements Are Subject to Market Forces

Price Movements Are Subject to Market Forces
Photo: ig

When trading Bitcoin, let the market tell you what’s happening. It’s crucial to monitor and understand the rapid development in the cryptocurrency ecosystem. Read the market and make objective trading decisions based on the recent and past Bitcoin price, rather than exclusively on technical indicators. You can use tools like charts, trend lines, and price bands, to name a few. One factor that can influence the price of BTC is adoption. Individuals, governments, institutional investors, and multinational corporations are adopting the digital asset, so words are superfluous. 

It’s Best to Have a Stop-Loss Plan

A good investment can transform into a bad one pretty fast. To avoid losing money on an existing position, have a stop-loss order. The buy/sell order is placed to limit losses when the prices move against your trade. A stop-loss order will always be executed if there are buyers and sellers for Bitcoin; it’s set on the exchange and automatically executed when the specified conditions are met (entry price, stop-loss level, target price). You can set a partial stop-loss, where you sell half or some of the coins that you’ve acquired in an event requiring a stop-loss order. 

Losses are almost unavoidable, but a stop-loss order can assist you in tackling such an issue. A stop-loss order doesn’t need to be monitored. In other words, you don’t have to continually check how BTC is performing. It’s an important part of money management. Just like other forms of trading, Bitcoin trading requires proper risk management. You must avoid extra trading loss, reduce your trading risk, increase the opportunity for investing, and eliminate emotions. Once you’re trading cryptocurrency, you might lose your objectivity due to emotions. 

You Must Practice Discipline and Self-Control

The cryptocurrency ecosystem is a complex space with a vast amount of information. Trading Bitcoin requires both discipline and self-control. If you can’t stick to a plan or follow entries/exists based on your trading strategy, you’ll end up losing. A focused mind is the key to success. Mental exhaustion can arise from long-term trading, so take a break every once in a while, to improve your trading strategy and enhance your knowledge. Above all, control your emotions. Don’t let your feelings and moods get the best of you. You must assume total responsibility for everything that’s going on. 

Sudden trading decisions can negatively impact your portfolio. In the long run, it’s better to rely on a strategy instead of careful calculation. If you chase the market, you’ll see buy signals everywhere. The fear of missing out might possibly ruin you. A disciplined trader will only open a position if there’s a certainty that a trend will continue. They’re more prepared for better investment outcomes. Most importantly, don’t trust everything you hear on social media. News updates are immediate, so you can get a sense of the next big thing. Nevertheless, stay away from social media touts because they don’t have your best interest at heart.

Dumb Little Man

At Dumb Little Man, we strive to provide quality content with accuracy for our readers. We bring you the most up-to-date news and our articles are fact-checked before publishing.

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