The first part of our bitcoin trading guide series explains the basics of bitcoin and trading terminology. Instructions are also provided for buying bitcoin and getting ready to trade on BTC.sx
. We originally produced the first part of this guide for our own traders to get started with our platform. However, after some really good feedback we thought we should share it publicly too. So please bear with us if it is quite orientated to our own platform. Future parts will be much more applicable to trading in general.
Here is what we have planned for the series:
1) Getting ready to trade (this post)
2) Making your first trade
- Fundamental analysis
- How to read a chart (candle sticks, volume, log vs linear scales)
- How to spot a trend (moving averages)
- How to open and close a position
3) Basics of technical analysis
- Assumptions / theory behind TA
- Classic support / resistance patterns e.g. head and shoulders
4) Advanced TA
- Elliot Waves
- Ichimoku Clouds
- Bollinger Bands
- Parabolic SAR
5) Developing a sustainable strategy
- Timing entry and exit points
- Managing multiple open positions
- Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning.
Why should you listen to what we have to say?
Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician. http://i.imgur.com/G06P306.png
This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx
. What is bitcoin?
Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as ‘digital gold’ — it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations. http://i.imgur.com/hNnKxGE.png Why is bitcoin so volatile?
Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoin’s price often changes by 10% or more — even in a ‘flat’ market.
Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets.
The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here).
For example, bitcoin has a market cap of about $3 billion
vs $31 billion
for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million
vs approximately $939 million
for the gold ETF.
The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand.
For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence gold’s price. http://i.imgur.com/NLtgVrX.png Further information
The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources: We Use Coins Bitcoin.org Bitcoin Wiki 2. How to Manage Risk Risk of buying bitcoin
As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoin’s price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose.
You cannot lose more than you put in, so don’t put in more than you can afford to lose and you’ll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor Risk of trading bitcoin
Furthermore, investing more than one can afford to lose reduces a trader’s ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price. http://i.imgur.com/yrQbCsI.png
Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx
, losses cannot exceed your deposit — so simply make sure this is a comfortable amount for you to trade with. 3. Understand Basic Bitcoin Trading Terminology Trading
Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading. Position
A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls.
Unlike a trade, a position has an open and close. At BTC.sx
you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited — this depends on how profitable your position was. Trading platform
A trading platform, like BTC.sx
, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage. Leverage http://i.imgur.com/Aik56aI.jpg
Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading.
Trading with 10x leverage on BTC.sx
, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made.
For example, let’s say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin — this is the power of leverage when used correctly.
Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx
. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own. Exchange
Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoin’s price because they contain an order book.
At an exchange you can either be a market maker or a market taker. Market maker
A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price. Market taker
A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them. Order book
An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand. http://i.imgur.com/DuRYrnx.png Sell orders: “Asks”
This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks. Buy orders: “Bids”
This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids. Current bitcoin price
This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid.
In this example, the price is $244.39 — the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder. Order book depth
This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the ‘deeper’ the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle.
If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market. Order book execution
An important feature of BTC.sx
is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks. http://i.imgur.com/1Dk8G0t.jpg Why is this important?
Firstly, when you trade on BTC.sx
you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally.
Secondly, order book execution means that BTC.sx
does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx
we want our traders to be profitable so they can keep trading.
*4. How to Buy Bitcoin *
As a bitcoin-only trading platform, BTC.sx
only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity.
If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including: Circle Coinbase LocalBitcoins Click here to see other ways to buy bitcoin in each region of the world.
To store your bitcoin you will also need a wallet, such as MultiBit
. 5. Create an Account on BTC.sx
Once you have bitcoin, you are ready to start trading. Head over to BTC.sx
to begin the registration process. 1. Click ‘Sign Up’ http://i.imgur.com/Fikj8Nd.png 2. Enter your details and read and agree with the terms of service http://i.imgur.com/AjnKzRY.png 3. Click on the email activation code http://i.imgur.com/lz5yBqK.png 4. Login to your account http://i.imgur.com/P6VJ0xm.png 5. Visit trade screen http://i.imgur.com/WjGockR.png 6. Send a deposit to BTC.sx
You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions: 1. Click on ‘Deposit’ in the trading screen http://i.imgur.com/1TxpgUh.png 2. Send bitcoin to your wallet address http://i.imgur.com/cTZim5t.png
If you do not know how to send bitcoin please contact your wallet provider for assistance.
Conclusion** ** You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx
to begin trading.
In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook
or follow us on Twitter
for future updates. If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents
Our last post submitted by
had a warm reception among the advanced traders here.
We felt like we should produce some help for the new traders too. At BTC.sx
we see a lot of traders lose money from simple mistakes that can be avoided. Armed with this insight and over 60 years of collective experience in finance, we have produced 5 tips that should be a big help to new traders. 5 Tips for Successful Bitcoin Trading Essential information you should know before placing your first trade
This post is aimed at those with very little knowledge of financial markets.
Bitcoin has encouraged many to take an interest in finance and allows easy access to financial exchanges. Consequently a large number of people are attempting to trade Bitcoin, without any prior trading experience.
we sometimes see traders make simple mistakes that could be avoided with a basic understanding about trading and investing.
Let’s take a look at the five most common mistakes new traders make and how to avoid them: 1. Do not invest more than you can afford to lose https://d262ilb51hltx0.cloudfront.net/max/800/1*dP87BcY7IMn9aIrwTT1ykg.jpeg
Any financial investment can produce losses, rather than returns. With a highly speculative investment, such as Bitcoin, there is a high chance that you can see very large gains or losses. By trading Bitcoin, there is also further scope to lose money from poor decision-making.
One should invest such an amount that they feel comfortable with losing completely — be prepared for the worst eventuality. There are two reasons for this.
Firstly, successful investors diversify their portfolio. Allocating too many funds to an asset class increases risk exposure. This makes it harder for gains in other assets to cover losses in another asset. You cannot lose more than you put in, so don’t put in more than you can afford to lose and you’ll be all right, even in the most negative case. - Rpietila
Secondly, investing more than one can afford to lose reduces an investor’s ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, one who is over-invested may panic and sell-off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price. 2. Set goals for each trade
Setting goals helps traders remain level-headed during periods of extreme volatility. This is highly important for Bitcoin trading. When placing a trade, determine what price to take profits or cut losses in advance.
The benefit of this is that it is easier to prevent trading decisions based purely on emotions. For example, a trader with no target price may make a profitable trade, become greedy, and then fail to realize their profits while the market is still on their side.
This chart shows the typical emotions an investor may go through and how they make it harder to ‘buy low and sell high’. https://d262ilb51hltx0.cloudfront.net/max/800/1*0tpcgBQ51awHWDhdPy2qUw.jpeg
The use of goals / price targets can prevent traders becoming greedy when experiencing euphoria and despondent after a market crash. 3. Learn how to read charts
Although technical analysis is a difficult skill to develop, new traders at a minimum should know the basics of chart reading to identify market trends.
The most widely used Bitcoin charting tool is Bitcoin Wisdom
. Despite looking overwhelming at first, it is actually very intuitive. Here are the basics a new trader should understand: Candlesticks
- these are the rectangles and lines that resemble a candlestick shape. They are used to show what the price has done within a chosen time interval, which in this example will be one day. https://d262ilb51hltx0.cloudfront.net/max/800/1*G7g3tvOz4XRcxFX9eZ4icg.png
Take a look at the candlestick highlighted by the blue box. There are several pieces of information we can gather from this single candlestick:
Opening price — this is the part of the rectangle that is horizontal to the candlestick to the left. On this day, the price opened at approximately $400 (which was the closing price of the day before).
Closing price — this is the part of the rectangle that is horizontal to the candlestick to the right. On this day, the price closed at approximately $378 (which was the opening price of the day after).
Price direction — as the closing price is less than the opening price, the price of Bitcoin fell, therefore the candlestick is red.
Highest price — the highest point of the stick shows that, during this day, the price reached approximately $407.
Lowest price — the lowest point of the stick shows that, during this day, the price fell to approximately $368.
Trading range — the difference between the highest price and the lowest price shows the range that the price was trading in. Order book
— this is a list of the prices and quantities traders are willing to buy and sell Bitcoin. https://d262ilb51hltx0.cloudfront.net/max/391/1*GmjoL5vhYY834J4w7vu7jg.png
The ‘asks’ (sell orders) are listed in the top half, and the ‘bids’ (buy orders) are the listed in bottom half. The difference between the lowest ask ($361.95) and highest bid ($360.95) is known as the ‘spread’.
The second section with the scroll bar shows live trades, which can be used to see what is happening in the market right now.
Lastly, Bitcoin Wisdom projects how the price may move based on the order book. This can be indicated by the green and red lines at the end of the chart.
How can a trader use this information? It allows short-term support and resistance levels to be identified quickly.
For example, if there is an order to sell 5,000 Bitcoin at $362, the price will have a lot of resistance at this level. This is because buyers will fullfil the cheapest sell order available to them and, given 5,000 Bitcoin is a huge quantity, this will be sufficient to satisfy buyers for a few days. It is only when this order has been fulfilled, there is potential for the price to move above $362.
It is worth watching the live trades and bids / asks being fulfilled to get a feel for how an exchange works. Keep in mind that a buyer will want to buy at the cheapest price for their desired quantity. So they will buy as much Bitcoin as possible at the cheapest price, and then the next cheapest price if the original ask contains an insufficient quantity of Bitcoin. It is this scenario that increases Bitcoin’s price — or decreases Bitcoin’s price in an opposite scenario. Logarithmic scales
— using just linear scales makes it difficult to track Bitcoin’s price over a longtime span. This is because linear scales have with Y Axis values of equidistant. This linear Y Axis is easily distorted by extreme values, which Bitcoin’s price is famous for recording.
In contrast, logarithmic scales have a Y Axis that changes values according orders of magnitude. This prevents chart distortion and can reveal hidden trends in Bitcoin’s price. Observe the difference below:
Linear Bitcoin chart: https://d262ilb51hltx0.cloudfront.net/max/1186/1*uU1WEvsAchNcdK8iGI2XJg.png
Logarithmic Bitcoin chart: https://d262ilb51hltx0.cloudfront.net/max/1177/1*t6JwI7xM_BBcZasWvGgmWg.png
The logarithmic chart has revealed another rally that was completely hidden on the linear chart. This is useful to assess the long-term trend of Bitcoin. 4. Do not set stop losses too low
A stop loss is an automatic trigger to liquidate your position if your losses reach a certain value — essentially stopping you from losing any more. They are a good tool to take advantage of.
However, at BTC.sx
we recommend that traders do not use a stop loss that is too small. Choosing 10:1 leverage means that your deposit is 1/10th of the position size. This deposit determines the stop price, the price at which a position can drop to until the deposit can no longer cover the position’s loss. At $200, the default stop will be $20 away (or 10% of $200). Anything less than the position’s default stop will increase the risk of a position closing out very quickly because of minor fluctuations in the price of Bitcoin.
Here as an example from the rally of Winter 2013 to demonstrate this: https://d262ilb51hltx0.cloudfront.net/max/1192/1*-T0MDCOxwXaUgf_XcvlOZA.png
In this hypothetical case, a trader with a default stop at 10:1 would have lost out on a huge rally. They bought-in at the right time, but because their stop loss was set too low, their Bitcoin were automatically sold at a loss during a minor fluctuation.
It is important to note that lower leverage options result in a larger stop and as a result is considered a much safer way of exploring the basics of trading. 5. Close unprofitable & leveraged positions within 24 hours
Leverage is borrowing or lending an asset in hope that it appreciates or depreciates, respectively. At BTC.sx, we give traders the ability to enter long (buy) or short (sell) positions with 2:1, 5:1 or 10:1 leverage.
If a trader shorted 1 Bitcoin at 5:1 leverage, for example, the total investment is 6 Bitcoin. To make a profit the price must fall, allowing the owner to reclaim ownership at a lower price.
However, the price of a Bitcoin must fall sufficiently to cover the trading fee and the interest fee charged on borrowing the 5 Bitcoin. Do not fear if this sounds complicated! We have integrated a breakeven calculator into our trading interface to automatically show what price movement is required to return a profit.
Our daily interest charge is applicable up-front for every 24 hour period with the first 24 hours being free. Thereafter a trader must ensure that there is sufficient balance in their account to cover the cost and ensure the position remains open for each subsequent 24 hour period. In the foreign exchange trading markets, this is referred to as Rolling Spot FX
. As the Bitcoin market is volatile, it can be hard to make a daily profit when the price is prone to change direction quickly.
Put simply, we recommend that inexperienced traders close unprofitable positions within 24 hours to avoid paying re-occurring interest. Summary
We hope this post has been informative. The key takeaways from this post are:
Do not invest more than you can afford to lose
Set goals and target prices for each trade
Learn how to read charts
Do not set stop losses under $20
Do not keep unprofitable positions open for longer than 24 hours If you feel ready to trade your first Bitcoin, click here to use our trading platform
-Rpietila, Bitcoin and commodity investor. See the patterns of top 5 currencies by marketcap and select the one which has experienced some price dip in last 7 days. Check out the current market ... –Rpietila, Bitcoin and commodity investor. See the patterns of top 5 currencies by marketcap and select the one which has experienced some price dip in last 7 days. Check out the current market price and place multiple small orders at different price gaps. So, if the asset is trading at Rs. 1000, then place limit orders at 2%, 5% and 10% below the current price. Once the limit order is set ... use the following search parameters to narrow your results: subreddit:subreddit find submissions in "subreddit" author:username find submissions by "username" site:example.com find submissions from "example.com" -Rpietila, Bitcoin and commodity investor. Risk of trading bitcoin. Furthermore, investing more than one can afford to lose reduces a trader’s ability to make good decisions. In particular ... rpietila's Bitcoin public diary. a guest Apr 23rd, 2013 191 Never Not a member of Pastebin yet? Sign Up, it unlocks many cool features! raw download clone embed report print text 4.12 KB First Class Bitcoin Supernode - Sovereign ability to run, manage and develop the Bitcoin network in absence of any other entities. - 24/7 monitoring, technical, and trading ability, connections with most ...