What are the five common mistakes of
90% of Bitcoin traders? How do I even start trading? How do I read all of these confusing
price charts that I see online? Well, stick around… Here on Bitcoin Whiteboard Tuesday,
we’ll answer these questions and more. If there’s one thing we get asked A LOT
here on 99Bitcoins, it’s how to trade Bitcoins. So we decided to dedicate this episode of
Bitcoin Whiteboard Tuesday to teaching you
what Bitcoin trading is all about. This lesson will be longer than usual, but I assure you,
it will be worth your time. We’re going to cover four major topics: The definition of Bitcoin trading The main terms you’ll encounter
when trading on exchanges A very short intro into reading price graphs And finally, we’ll go over
some common trading mistakes Let’s get started… So what is Bitcoin trading, and how is it different from
investing in Bitcoin? Well, when people invest in Bitcoin, it usually means that they are
buying Bitcoin for the long term. In other words, they believe that
the price will ultimately rise, regardless of the ups and down
that occur along the way.
Usually, people invest in Bitcoin
because they believe in the technology, ideology, or team behind the currency. Bitcoin investors tend to
HODL the currency long-term. HODL is a popular term
in the Bitcoin community that was actually born out of
a typo of the word “hold” in an old 2013 post in the BitcoinTalk forum. So while Bitcoin investors
buy and HODL for the long term, Bitcoin traders buy and sell Bitcoin
in the short term, whenever they think a profit can be made. Traders view Bitcoin as
an instrument for making profits.
Sometimes, they don’t really care about the technology or the ideology
behind the product they’re trading. Of course, people can still trade Bitcoin
if they do care about it. And many people out there
invest and trade at the same time. But why are so many people
looking to trade cryptocurrencies, especially Bitcoin, all of a sudden? Here are a few of the reasons:
First, bitcoin is very volatile. In other words, you can make
a nice amount of profit if you manage to correctly
anticipate the market. Second, unlike traditional markets,
Bitcoin trading is open 24/7. Most traditional markets,
such as stocks and commodities, have an opening and closing time. With Bitcoin, you can buy and sell
whenever you please. Finally, Bitcoin’s unregulated landscape
makes it relatively easy to start trading, without the need for long identity,
verification processes. But, all traders are not the same and there are different
types of trading methods. For example, day trading involves
conducting multiple trades throughout the day, and trying to profit from
short-term price movements. Day traders spend a lot of time
staring at computer screens, and at the end of the day,
they usually just close all of their trades.
Scalping is a day-trading strategy
that a lot of people are talking about. Scalping attempts to make substantial profits
on small price changes, and it’s often referred to as
“picking up pennies in front of a steamroller.” Scalping focuses on
extremely short-term trading, and it’s based on the idea that
making small profits repeatedly limits risks and creates
advantages for traders. Scalpers can make dozens
or even hundreds of trades in one day. Meanwhile, swing trading
tries to take advantage of the natural “swing” of the price cycles. Swing traders try to spot the beginning of
a specific price movement, and enter the trade.
Then they hold on until the movement
dies out, and take the profit. They try to see the big picture without constantly monitoring
their computer screen. Swing traders can open a trading position, and hold it open for weeks or months,
until they reach the desired result. So now that you know what trading is,
how is it actually accomplished? How can someone predict
what Bitcoin will do? The short answer is that no one can really predict
what will happen to the price of Bitcoin. However, some traders have identified
certain patterns, methods, and rules that allow them to make a profit in the long run.
People follow two main methodologies
when they trade Bitcoins or anything else for that matter: fundamental analysis and technical analysis. Fundamental analysis looks at the big picture. In Bitcoin’s case, fundamental analysis
evaluates Bitcoin’s industry, news about the currency,
technical developments of Bitcoin such as the lightning network,
regulations around the world, and any other news or issues
that can affect the success of Bitcoin. This methodology looks at
Bitcoin’s value as a technology regardless of the current price and at outside forces in order to determine
what will happen to the price. For example, if China suddenly
decides to ban Bitcoin, this analysis will predict
when the price will probably drop. Technical analysis tries to predict the price
by studying market statistics, such as past prices movement
and trading volumes.
It tries to identify
patterns and trends in the price, which may suggest
what will happen to the price in the future. Technical analysis assumes the following: Regardless of what’s
currently happening in the world, price movements speak for themselves, and tell some sort of a story
that helps you predict what will happen next. So which methodology is better? Well, like I said in the beginning,
no one can accurately predict the future. However, a healthy mix of both methodologies
will probably yield the best results. Now let’s continue to break down some of the confusing terms and statistics
you’ll encounter on most of exchanges. Bitcoin exchanges are online sites where
buyers and sellers are automatically matched. An exchange is different than a Bitcoin company
that sells you Bitcoin directly, such as Coinmama. This type of company will usually
charge a higher fee.
An exchange is also different from
a marketplace such as Local Bitcoins, where buyers and sellers
directly communicate with each other, in order to complete a trade. The complete list of buy orders and sell orders
are listed in the market’s order book, which can be viewed on the exchange. The buy orders are called bids, since people are bidding on
the prices to buy Bitcoin. However, the sell orders are called asks, since they show the asking price
that the sellers request. Whenever people refer to Bitcoin’s “price,” they are actually referring to the price of the last trade
conducted on a specific exchange.
This important distinction occurs because
there is no single, global Bitcoin price that everyone follows. And sometimes, Bitcoin’s price in other countries
can be different from Bitcoin’s price in the US, since the major exchange in these countries
include different trades. Aside from the price, you will also sometimes
see the terms high and low. These terms refer to the highest
and lowest prices in the last 24 hours. Another important term is volume. It stands for the number of overall Bitcoins
that have been traded in the given timeframe. Significant trends are usually
accompanied by large trading volumes, while weak trends are
accompanied by low volumes. A healthy upward trend is accompanied by
high volumes when the price rises and low volumes when the price declines. If you are witnessing a sudden
change of direction in the price, experts recommend checking how significant
the trading volume is, in order to determine if it’s just
a minor correction or the beginning of an opposite trend.
So now, you know most of the terms
you’ll encounter on the average exchange. It’s time for us to move on, and go over the types of orders
that you can place on an exchange. There are three types of orders. A market (or instant) order refers to an order
that will be instantly fulfilled at any possible price So if you put a market order in
to buy five Bitcoins, you will find the cheapest sellers possible, until it accumulates enough sellers
to hand over five Bitcoins. In other words, you might end up buying
three Bitcoins at one price, and the other two at a higher price. In a market order, you don’t stop buying Bitcoin
until the amount requested is reached.
With market orders, you may end up
paying more than you intended, so be careful. Meanwhile, with a limit order, you will only buy or sell Bitcoin
at a specific price that you decide on. In other words,
the order may not be entirely fulfilled, since there won’t be enough buyers
or sellers to meet your requirements. Let’s say that you place a limit order to buy
five Bitcoins at $10,000 per coin. Then you could end up
only owning 4 Bitcoins, because there were no other sellers
willing to sell you the final Bitcoin at $10,000. The remaining order for
1 Bitcoin will stay there, until the price hits $10,000 again,
and the order will then be fulfilled. A stop-loss order
lets you set a specific price that you want to sell at in the future,
in case the price dramatically drops.
This type of order is useful
for minimizing losses. It’s basically an order that tells
the exchange the following: If the price drops by a certain percentage
or to a certain level, I will sell my Bitcoins at the preset price,
so I will lose as little money as possible. A stop-loss order acts like a market order. In other words,
once the stop price is reached, the market will start selling your coins
at any price until the order is fulfilled.
Other terms that you may encounter
when trading on exchanges are maker fees and taker fees. Personally, I still find this model to be
one of the more confusing ones, but let’s try to break it down. Exchanges want to encourage people to trade. In other words, they want to “make a market.”
Therefore, whenever you create a new order that can’t be matched by
any existing buyer or seller, you’re basically a market maker,
and you will usually have lower fees. Meanwhile, a market taker place orders
that are instantly fulfilled, since there was already
a market maker in place to match their requests. Takers remove business
from the exchange, so they usually have
higher fees than makers, who add orders to
the exchange’s order book. For example,
perhaps you put a limit order in to buy one Bitcoin at $10,000 (at most), but the lowest seller
is only willing to sell at $11,000.
Then you’ve just created a new market
for sellers who want to sell at $10,000. So whenever you place a buy order
below the market price or a sell order above the market price,
you become a market maker. Using that same example, perhaps you place a limit order
to buy one Bitcoin at $12,000 (at most), and the lowest seller is selling
one Bitcoin at $11,000. Then your order will be instantly fulfilled. You will be removing orders
from the exchange’s order book, so you’re considered a market taker. Now that you’re familiar with
the main Bitcoin exchange terms let me give you a short intro into
reading price graphs. These are Japanese candlesticks. They are based on an ancient Japanese
method of technical analysis, used in trading rice in 1600’s.
Each candle shows the opening,
lowest, highest, and closing prices of the given time period. That’s why you’ll sometimes see people refer to candles as OHLC
(Open, High, Low and Close). Depending on whether
the candle is green or red, you can tell if the closing price
of the timeframe was higher or lower than the opening price. If a candle is green, it means that the opening price
was lower than the closing price, so the price went up overall
during this timeframe. On the other hand, if the candle is red, it means that the opening price
was higher than the closing price, so the price went down. In the image, you can see the opening price
in the wide-bottom part of the candle, the closing price in the wide-top part
on the candle, and the highest and lowest trades
within this timeframe on both ends of the candle.
When we’re in a bull market,
most of the candlesticks will usually be green. And if it’s a bear market,
most of the candlesticks will be red. So what are bull or bear markets? These markets are named after these animals because of the ways
they attack their opponents. A bull thrusts its horns up into the air,
while a bear swipes its paws downward. So these animals are metaphors for
the movement of a market. If the trend is up, it’s a bull market. But if the trend is down, it’s a bear market. Here's another important feature
to be familiar with while analyzing graphs: resistance levels. Occasionally, Bitcoin’s price
seems to hit a virtual ceiling, and you can’t break through it for a long time. That’s a resistance level. So if Bitcoin fails to break $10,000,
the resistance level is $10,000.
Usually, at a resistance level,
you will see a lot of sell orders, and that’s why the price fails to
break through that specific point. Meanwhile, there’s also a support level. In other words, there’s a price
that Bitcoin might not go below. Support levels act as floors
by preventing the price of an asset from being pushed downward. A support level will be accompanied by
a lot of buy orders set at the level’s price. The high demand of a buyer
at the support level cushions the downtrend.
Historically, the more frequently
the price has been unable to move beyond the support or resistance levels,
the stronger these levels are considered. Here’s a common characteristic of
both support and resistance levels: They are usually set at a round number, since most inexperienced traders
tend to buy or sell when the price is at a whole number. So usually, you’ll see a lot of buy or sell orders
around prices like $10,000, rather than a price like $10,034. Because so many orders are placed
at the same level, these round numbers tend to act as
strong price barriers. Psychology also creates
support and resistance levels. For example, until 2017,
it seemed expensive to pay $1,000 per Bitcoin. So there was a strong
resistance level at $1,000. But once that level was breached, a new psychological resistance level
was created: $10,000.
Congratulations! You now know the basics of Bitcoin trading. However, there’s still a lot more to it. Since we can’t possibly go over everything
in one lesson, I want to direct you to additional resources that will take you to
the next level of trading. Take a look at the resource section
at the end of this video. Then you can find out about
advanced Bitcoin trading lessons, the top Bitcoin trading tools, and the best Bitcoin exchanges
for starting your trading.
But before we end this video, let’s go over the most common mistakes
that people make when they start trading, in the hopes that
you’ll be able to avoid them. The biggest mistake you can make is to risk
more money than you can afford to lose. Take a look at the amount
you feel comfortable with. Here’s the worst-case scenario:
You’ll end up losing it all. If you find yourself
trading above that amount, stop. You’re doing it wrong.
Trading is a very risky business, and if you invest more money
than you’re comfortable with, it will affect how you trade,
and it may cause you to make bad decisions. Mostly, you may end up losing
a portion of your money that you can’t do without. Another mistake that people make
when starting out with trading is not having an action plan
that’s clear enough. In other words, they don’t know
why they’re entering a specific trade, and more importantly,
when they should exit that trade. So clear profit goals and stop-losses
should be decided before starting the trade. Moving on, NEVER leave money
on an exchange that you’re not currently trading with. If your money is sitting on the exchange, it means that you don’t have
any control over it. If the exchange gets hacked, goes offline,
or goes out of business, you may end up losing that money. Whenever you have money
that isn’t needed in the short term for trading on an exchange, make sure to move it into your own
Bitcoin wallet or bank account for safekeeping.
Two basic emotions tend to control
the actions of many traders: fear and greed. Fear can appear in the form of
prematurely closing your trade, because you read a disturbing news article,
heard a rumor from a friend, or got scared by a sudden dip in the price
(that will soon be corrected). The other major emotion, greed,
is actually also based on fear: the fear of missing out. When you hear people telling you about
the next big thing, or when market prices rise sharply,
you don’t want to miss out on all the action. So you may get into a trade too soon,
or even delay closing an open trade. Remember that in most cases,
our emotions rule us. So never say,
“This won’t happen to me.” Be aware of your natural tendency
towards fear and greed, and make sure to stick to
the plan that was laid before you started the trade. Let's wrap things up. Regardless of whether or not
you made a successful trade, there’s always a lesson to be learned. No one manages to
only make profitable trades, and no one gets to the point of making money without losing
some money on the way.
The important thing isn’t necessarily
whether or not you made money. Rather, it’s whether or not
you managed to gain some new insight into how to trade better the next time. We’ve spent a great deal of time today
talking about Bitcoin trading, but I have to warn you: The majority of people
who start trading Bitcoin stop after a short while, because they don’t successfully
make any money. Here’s my opinion:
If you want to be successful at trading, you’ll have to put in
a significant amount of time and money to acquire the relevant skills,
just like any other venture. If you want to get into trading
just to make a quick buck, then perhaps it’s better just
to avoid trading altogether. There’s no such thing as
quick, easy money, without a risk or downside
at the other end. However, if you’re committed to learning how to become
a professional Bitcoin trader, take a look at our resource section below. Then you can get the best possible tools,
and continue your education. You may still have some questions.
If so, just leave them
in the comment section below. And if you're watching this video on YouTube
and enjoy what you've seen, don't forget to hit the like button. Then, make sure to subscribe
for notifications about new episodes. Thanks for joining me at the Whiteboard. For 99Bitcoins.com, I'm Nate Martin
and I'll see you in a bit.
