Bitcoin trading is not easy. Even if you are a veteran, chances are you will lose money in bitcoin trading, even if your strategy is correct. Why? There are several reasons why this happens:
Contents1 – Know what you are doing and why2 – Use stop-losses in trading3 – Limit orders are better than market orders4 – Diversify5 – Know your market, know your competition6 – Pay attention to the depth of the book ordersFirst, it is important to know the difference between high volatility and market manipulation. High volatility means rapid price movements up or down – as we saw with bitcoin at the end of 2013 (spiraling all the way to $1150 before crashing to $150 in three months ). These price moves can bring good luck to traders, but they can also wipe out all their capital – this is what has happened to many unlucky souls during these events. Market manipulation works differently:the goal here is not to completely nullify the real-world exchange rate. Here I will guide you with the help of you to avoid mistakes in bitcoin trading.
The number one rule of Bitcoin trading code review – or any type of trading for that matter – is to know your investment goals. All trading is either a long-term investment or a short-term investment. Try not to confuse, as it is important to identify whether the asset will be used for the long term (e.g. buying and holding). Trading with money that you need for daily expenses is generally not recommended, as there is more risk than when using money that does not affect your daily life:you could quickly lose everything invested capital and then face the prospect of losing regular income due to market fluctuations and government policies.
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 for these losses later. The more money you are willing to lose, the higher your stop loss should be. A simple rule says that one is ready to lose 1 to 2% by holding positions overnight (a 24h position corresponds to the opening and closing of a trade within 24 hours).
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 to using market orders. Market orders are executed immediately at the current market price. If you set the limit order to sell only slightly below the current market price, you will not be able to get that price. But if your order is executed immediately, it means you lose potential profit.
People tend to think in categories:“I have $100,000 and I want to put it on Bitcoin. “There is a good chance that they will buy all the bitcoins available on their exchange instead of buying bitcoins on different exchanges with different prices for one user. If an exchange goes offline while maintaining such a position, there is no longer an easy way to switch back to fiat currency just because everyone has revalued their assets. Today's rules forcing more transparency in the markets make this scenario less likely but there are still some problems.
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 made low bids. Likewise, if you're looking to sell high and buy low, look for places where lots of people have bid high. It's not necessary, but it still helps. Also, having more than one exchange with different prices will allow you to diversify your investment. You can also benefit from arbitrage opportunities between exchanges when they occur (for example by selling on an exchange above the price). That being said:if you're using an arbitrage bot, make sure it won't create correlated trades - for example, 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.
The higher the current ask price relative to the total amount of bitcoins available for sale (referred to as "total demand"), the greater the potential downward pressure. You can see this reflected in a constantly updated chart by looking at the total orders displayed across all exchanges. The lower the order total, the closer we get to the lowest prices.
