How to start trading Bitcoin in 2020 - part 1

How to start trading in 2020

Since its inception in 2008, Bitcoin has continued to show value, expose flaws in the traditional financial system and solidify its impact. After the most recent all-time high in 2017, Bitcoin entered a regression period that it has recently started exiting out of. With mainstream adoption growing, media attention rising, and bitcoin at a discounted price makes 2020 the year any smart investor starts to investigate bitcoin.

Read on if you like to learn about:

  • Before you start investing in Bitcoin
  • When is the right time to buy

Also read:  How to start trading Bitcoin in 2020 – part 2

Before you start investing in Bitcoin

If this is your first time investing in bitcoin, it is important to note that it is unlike traditional assets, Bitcoin happened to be the best performing asset of the decade with returns of around 9,000,000%. However, one must be aware that the high volatility of bitcoin has also caused decimated accounts and initiated major losses for those who chose a poor entry or were impatient. People who take technical analysis they’ve learned into the stock market and apply it to bitcoin discouraging losses and liquidated accounts. To invest in bitcoin and gain a substantial ROI, it requires you to invest in the value and vision behind the currency as well. Once you understand the vision and use case for the cryptocurrency, it becomes easier to treat it as a rare commodity and accumulate the asset through dollar-cost averaging instead of unnecessarily exposing yourself to its volatility.

Bitcoin represents a decentralized currency system that can’t be regulated by a single entity, is immutable and represents a store of value acting as a hedge against our traditional inflationary fiat currency systems. The best way to assume the largest ROI with bitcoin is through accumulation periods in which you treat it like a commodity such as gold or silver. But this is also contingent on the fact that you are entering a position with proper risk management, have a set exit strategy (if you decide to start trading) and at least understand the basics of technical analysis.

When is the right time to buy?

As with any market, nothing is for sure.

Bitcoin converters allow users to see the fiat to bitcoin conversion rate, and what people all around the world are currently paying for Bitcoin. While different exchanges may vary in price, the small difference only comes down to a fraction of a percent, so choosing the best exchange comes down to transaction fees, security and user volume. Transaction fees can be hefty if you are continuously converting back to fiat currency, so many exchanges have implanted ‘stable coins’ that aren’t actual fiat currency, but rather reflect common currencies such as USD. Aside from transaction fees, utilizing an exchange that provides real-time price action is of no benefit to the user if they are lacking in volume. Having a healthy number of traders on the platform ensures that your orders will be properly placed and received, and you won’t be on the end of an order expecting it go through only to realize days later that it was never executed. In addition, a large trader volume means a larger stake in the company, which often correlates with increased trust and emphasis on user security. 

A proper entry point assumes the fact that you are leveraging your risk properly and have a substantial amount of evidence that supports your theory on price action. In addition, it also entails that you are in the right state of mind, are buying out of confidence and logic, instead of FOMO (fear of missing out) and emotional impulse. For the past 2 or so years, Bitcoin has been in a bear market after hitting its all-time high of nearly $20,000 USD. Many people were susceptible to major losses because they started to buy during an exponential rise or “bubble” as many will call it. Buying near the top almost is always because people are buying into the hype of the media and are illogically assuming the price will continue higher without any logical basis to go on. That being said, Bitcoin’s drastic drop was soon followed by a recovery period and solidified the end of the bear market back in May of 2019. After overcoming a major point of resistance at around $6200 and retesting it earlier this year, Bitcoin is poised to retest its all-time high and exceed it in the upcoming year.

In addition to the halvening that is to occur in May this year, an entry point into Bitcoin for the long-term will undoubtedly bring you gains. The hype cycle is yet to begin, the halvening is a few months away, and there are a plethora of factors that see Bitcoin initiate yet another parabolic run.

The idea behind the constant Halvening is to ensure Bitcoin doesn’t suffer from intense inflation as it’s distributed. Satoshi Nakamoto explained the thought process in an email:

The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase.

Coins have to get initially distributed somehow, and a constant rate seems like the best formula.

If one decides to use the volatility to their advantage, they might be interested in day trading or swing trading. Simply put, both methods take advantage of the fast-acting highs and lows, and traders will attempt to buy low and sell high to maximize their potential gains. Many exchanges offer drawing tools, charting patterns and some analysis done by other traders that can make this easier. For most investors, however, understanding basic technical analysis such as Fibonacci retracement tools, golden MA crossovers, and support/resistance zones will be helpful enough to ensure you are entering a position that provides you with the largest risk/reward ratio. Volatility can be hard to trade, and the market inevitably produces more losers than winners. So only experienced traders or people dedicated to putting a lot of time, research and money into the market should start day trading any market, even more so for day trading cryptocurrency.

Read more about choosing an exchange and KYC:
How to start trading Bitcoin in 2020 – part 2

Disclaimer: This article is for informational purposes only and does not provide any investment, tax, legal, or accounting advice.