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Common bitcoin trading mistakes you need to avoid

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What is Bitcoin Spot Trading?

Buying and selling digital assets like Bitcoin and Ethereum for rapid delivery is known as Bitcoin spot trading. Therefore, Cryptocurrency transactions between market players are direct (buyers and sellers). As a result, you have direct ownership of Bitcoins in a spot market and are qualified for legal privileges like voting in significant forks or participating in staking.

Exchanges like Binance enable users to perform fiat-to-crypto and Crypto-to-crypto transactions, facilitating spot trading activity. Spot exchanges serve as middlemen between buyers and sellers when they offer and demand a Cryptocurrency asset. The deal will enable the trade when a bid or offer matches. You can buy and sell Cryptocurrency anytime and on any day because spot exchanges are open twenty-four hours a day, seven days a week.

Let’s assume you wish to purchase Bitcoin trading on the spot market using USD as your form of payment. In this case, you might hunt for the BTC/USD trading pair on a Cryptocurrency exchange’s spot market before placing a buy order at the desired price and amount. You can keep your tokens in a spot wallet after your transaction is complete, where you can keep them until their value rises. Alternatively, you can exchange it to purchase other alternative coins that you think you will appreciate. 

You may be able to help from capital appreciation if you hold Cryptocurrencies on the spot market as their value rises over time.

What is trading in Bitcoin futures?

You trade contracts representing a particular Cryptocurrency’s value on the futures market. The underlying assets are not yours when you buy a futures contract. Instead, you are the owner of an agreement that commits you to buy or sell a particular Cryptocurrency at a later time. Therefore, holding a futures contract does not grant you any financial advantages like voting or staking.

Futures contracts for Cryptocurrencies provide insurance against turbulence and unfavorable price changes on their underlying asset. In addition, it serves as a stand-in tool for traders to predict a particular Cryptocurrency’s price.

Profit from price volatility by using futures contracts. Futures contracts give you a simple way to easily participate in the movements of a Cryptocurrency, regardless of price changes. In other words, instead of purchasing the underlying item itself, you might speculate on the price of a Cryptocurrency.

To go long on a futures contract, you must expect the asset’s value to rise; to go short, you must expect the deal to decline. Depending on how your prediction turns out, you could make money or lose money.

The trade of derivative products, such as Bitcoin futures, is facilitated by derivatives exchanges like Binance Futures. Derivative exchanges are open around the clock, just like spot exchanges. However, due to the complexity of their goods, derivative exchanges feature safeguards and risk management systems like insurance funds, which is the primary distinction between spot and derivative exchanges.

Five Ways for Managing Risk in Bitcoin Trading

The following five steps will help you minimize your risk exposure when trading Bitcoin:

#1: Protect yourself from Counterparty Risk

Despite some of the most significant percentage increases, Cryptocurrency markets still have issues, and considerable counterparty risk is associated with exchanges. In addition, because Bitcoin transactions are irreversible, entrusting your private keys to exchange can be disastrous. As a result, numerous Cryptocurrency exchanges have experienced hacks and financial losses.

As Bitcoin traders, we can take steps to lessen counterparty risk, but we can’t completely do away with it.

  • When no trade is happening, do not retain currency on an exchange.
  • Only 20–30% of your wealth should be used for trading.
  • Distribute your coins among several businesses.
  • Investigate the sale to make sure it has a decent reputation.

#2: Trade Quality over Quantity

The traders that overtrade often lose the most time and money. The key to profitable trading is to prioritize quality over quantity. Of course, not all market conditions will be advantageous for your plan. While automatic scalping performs better when the markets are calm, swing trading performs best when there are significant trends.

You must first decide on your desired trading strategy and the optimal market circumstances to identify high-quality deals.

#3: Have an Exit Strategy

Plan your trades by making notes of the appropriate support and resistance levels on the charts. The risk-to-benefit ratio should be calculated before you set your goals for taking profits. Traders can raise their position during strong trends or lock in profits by scaling along the road.

#4: Don’t use Excessive Leverage

Traders widely use margin since it increases the order size and provides them the flexibility to go long or short. However, if you use excessive leverage, your trades won’t have enough time to mature, and you risk losing all of your principal money if you exit a position.

#5: Avoid Hype 

The two greatest enemies of a trader are fear of loss of capital and fear of missing out. If you become very greedy, you can end up buying tops. On the other hand, you might be able to cash out at the bottom of a dump if you sell in a panic. Being able to restrain your emotions and maintain objectivity is half the battle.

The markets typically enter their distribution phase when euphoria is at its peak, and a downward trend may occur. The media frequently reports trends after the markets have peaked and is late to the party. When the hysteria is at its peak, enter the market early and sell for a profit.

Common Bitcoin trading mistakes you need to avoid

The Blockchain-based Cryptocurrency known as Bitcoin is decentralized. Before today, it had only been used as a payment mechanism, but because of its unpredictable pricing and potential for significant returns, people have begun trading it. Risks abound in Bitcoin Trading, and even a tiny error might result in losses. The standard trading errors you must avoid at all costs are listed below.

Not focusing on risk management

Bitcoin trading is a complex undertaking since it is fraught with hazards, and if you want to succeed at it, you must be skilled at managing those risks. Stop loss is one method of risk management that can be used when trading Bitcoin. Stop-loss is a fantastic instrument that can assist you in significantly reducing risks and maximizing profits. But unfortunately, because they don’t concentrate on risk management, which results in enormous losses, most traders lose money.

The stop-loss option is available almost everywhere you can trade Bitcoin. Avoid the typical error of failing to use stop losses since it may cause your failure. Stop-loss enables you to exit the investment at the ideal time and significantly reduces losses. Additionally, it aids in risk management, a vital component of Bitcoin trading.

Skipping paper trading

People today lack patience, so everyone wants to immediately start trading Bitcoin for real money and make the most significant returns. However, selling Bitcoins is not a brilliant idea. Since there are several hazards involved, you risk losing all your hard-earned money if you don’t have the necessary knowledge and abilities. To master all the fundamentals of Bitcoin trading without risking any real money, you must try your hand at paper trading before moving on to real money.

The main reason why most traders avoid paper trading is that it can be a little monotonous, which is a significant error. To prepare for actual Bitcoin trading and to ensure that you can make good decisions and benefit the most, beginners should always start with paper trading.

Investing better than what you can afford to lose

Bitcoin trading is unquestionably beneficial, but you must remain composed and make wise choices because if you become overly greedy, you will frequently experience losses. You should only invest an amount in Bitcoin that you can afford to lose because it is a very volatile currency, and you cannot foresee its price changes. Unfortunately, some traders make the costly mistake of investing all their savings in Bitcoin, which you must avert at all costs.

Bitcoin trading does not guarantee that you will make a profit or lose money. Therefore you should refrain from spending a lot of money on it since if you lose it, you might have to deal with many issues. You should only fund the amount that you can lose worry-free if you want to be on the safe side.

Getting affected by the emotions

One of the most frequent mistakes that Bitcoin traders make is terrible choices out of stress. You should avoid making decisions when feeling emotional since you will likely come to regret them. Because the Bitcoin market is so explosive, you must be prepared to deal with frequent price changes when trading Bitcoins. Although it is normal to experience feelings and worries like FOMO, you shouldn’t let them influence your trading decisions.

Some traders act quickly when the price of Bitcoin suddenly changes because they believe that waiting may cause them to miss a good chance. It is a colossal error. Never trade with your emotions since they have no place in Bitcoin. Instead, you must focus on study and analysis and base your conclusions thereon.

Conclusion:

We hope to have prevented you from making some of the most common and elementary blunders in Bitcoin trading today. Although these aren’t the only mistakes you can make, remembering them will put you on the right track. As you gain more knowledge about Blockchains, you can start to stray from these fundamental principles and forge your course.

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Christopher Stern
Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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