How to Avoid Mistakes in Bitcoin Trading

Trading bitcoin is not easy. Even if you’re a veteran, chances are that you will lose money in bitcoin trading, even if your strategy is correct. Why? There are several reasons why this happens:

First of all, it’s important to know the difference between high volatility and market manipulation . High volatility means rapid price movements upwards or downwards – like we saw with bitcoin at the end of 2013 (spiraling up to $1150 before crashing down to $150 within three months). These prices moves can make traders lucky but they can also wipe out their entire capital – this is what happened to many unlucky souls during these events. Market manipulation works differently: The goal here is not to cancel out the real-world exchange rate completely. Here I will guide you the ways with the help of you can avoid the mistakes in bitcoin trading.

1 –  Know What You’re Doing and Why

The number one rule of Bitcoin Code review trading – or any kind of trading for that matter – is to know your investment goals . Any trade is either a long-term investment or a short-term investment. Try not to mix it up, since it’s important to identify whether the asset will be used in the long term (for example by buying and holding). Trading with money that you need for day-to-day expenses is usually not advisable, because there are more risks involved than when using money that doesn’t affect your daily life: You could lose all invested capital quickly and then also face the prospect of losing regular income due to market fluctuations and government policies.

2 –  Use Stop-Losses in Trading

A stop loss in trading serves to minimize losses in case the market suddenly moves in an unfavorable direction (for example due to government intervention). If you lose part of your capital, it will be easier for you to make up these loses later on. The more money you’re prepared to lose, the higher should be your stop loss. A simple rule says that one is willing to lose 1-2% when keeping overnight positions (a 24h position is when opening and closing a trade within 24 hours).

3 – Limit Orders are Better Than Market Orders

Using limit orders means that you set the price at which the order should be executed. This gives traders greater control over their losses compared with using market orders . Market orders are executed immediately at the current market price. If you set the limit order to sell only slightly under the current market price, you won’t be able to get that price. But if your order is executed right away, it means that you lose some potential profit.

4 – Diversify

People tend to think in categories: “I’ve got $100k and I want to put it on bitcoin.” Chances are they will buy all bitcoins available on their exchange instead of buying bitcoins across different exchanges with different prices for one user. If an exchange goes offline while holding such a position there is no easy way back into fiat currency anymore just because everyone else has re-priced his or her assets. Today’s rules forcing more transparency on the markets make this scenario less likely but there are still some problems.

5 – Know Your Market, Know Your Competition

Check the order book to see if there are many buy or sell orders at a certain price level . If you want to buy low and sell high, look for places where people have put in low asks. Likewise, if you’re looking to sell high and buy low, look for places where lots of people have put in high bids. This is not necessary but it helps nonetheless. Furthermore, having more than one exchange with different prices will enable you to diversify your investment . You can also benefit from arbitrage opportunities across exchanges when they occur (for example by selling on an exchange above price). That being said: If you are running an arbitrage bot make sure that it won’t create correlated trades – e.g. if you buy bitcoin on one exchange with BTC/USD3,000 and sell on another exchange with BTC/USD3,200 do not set contemporaneous limits to both exchanges of exactly USD 3,000 .

6 – Pay Attention To Order Book Depth

The higher the current ask price is compared to the total amount of bitcoins available for sale (called “total ask”), the more downward potential pressure there is . You can see this reflected in a constantly updated chart by looking at the total orders displayed on all exchanges. The lower the total orders get, the closer we’re getting towards rock bottom prices.

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