How to trade Bitcoin for beginners (Hint: you’re probably doing it wrong)

Bitcoin chartSo, you’re thinking about or recently bought your first Bitcoins? One thing is for certain, there is no other investment quite like it.

To get you started, here are a few tips I have picked up over the last 4 years:

1) DO NOT buy more Bitcoins than you can afford to lose.
2) DO NOT get too excited when the price jumps up.
3) DO NOT worry when the price drops down.
4) DO NOT keep waiting for the ‘perfect’ time to trade – it will never arrive.
5) DO NOT think of Bitcoin as ‘pretend’ money – if you wouldn’t gamble away all your local currency, don’t do it with your Bitcoin.

By now, I’ve gotten a feel for how the Bitcoin price works. An important thing to know is that compared to most other markets there is a LOT of volatility.

One of the reasons for this is the nature of Bitcoin. It is exciting and people want to participate. It is far more accessible to the beginner than forex or stocks, and there are a lot of people for whom this is their first trading experience.

If you have little previous trading experience, it’s important you recognise that you are a little fish. Be very careful, as there are also a lot of very big fish ready to eat you up!

As you follow the Bitcoin price, you’ll sometimes bang your head against a brick wall trying to understand it, especially in the short term. Positive media attention can be greeted with a drop in price, negative attention can correlate with strong performance. If you think you understand the Bitcoin market, you do not understand the Bitcoin market.

While short term price is too hard to predict, you can pick up on trends. Over the months, the price will generally trend up (bullish) or down (bearish). It can seem obvious to buy at any time while its bullish, and wait for it to hit the bottom when its bearish… if only it was that easy. If it was, everyone would make money trading (which is obviously impossible). The problem is, when it hits the bottom, it will rapidly jump back up, and when it reaches the top of a peak, it will rapidly plummet. These are known as corrections, and are what make trading like playing with fire. If you’re inexperienced (or experienced!) you can easily get your fingers burned.

Ask those who bought at $1000 at the height of a bull market, only to see it fall to under $250. If you don’t think this would happen to you… you’re probably the sort of person it will happen to.

If you are confident in Bitcoin’s long term prospects, as you should be (it’s more like buying shares in a revolutionary tech startup), just make your investment and wait. When the price rises and rises, as it has before and will again, get excited, sure, but PLEASE keep your seatbelt on and accept you’re about to witness one hell of a correction.

As long as humans are making trades, we’re going to get excited, impulsive and carried away. Why? Because we’re humans.

So, you’ve made your investment, you’re not going to worry about the price going up or down and you’re going to wait patiently for the infrastructure around Bitcoin to grow. When should you cash out?

You shouldn’t. Unless you need the money for a family emergency, do not cash out. If you believe in the technology (which should be your reason for investing, not because you see it as a way to get rich quick), wait until the infrastructure has developed, scalability issues have been solved and you can spend your Bitcoin in day to day life.

These are my reflections, I hope you’ve found them helpful. Here’s my final bit of advice:

6) DO sit back and enjoy the rollercoaster. It’s going to be one hell of a ride!

I’ve recently started blogging about Bitcoin. If you liked this article please check out my others! Tips welcome: 1H2zNWjxkaVeeE3yX6uVqng5Qoi6gGvYTE

John Hardy
Follow me

John Hardy

Software developer living in UK.
Longtime Bitcoin advocate.
Email [email protected]
Donations welcome: 1H2zNWjxkaVeeE3yX6uVqng5Qoi6gGvYTE
John Hardy
Follow me

Author: John Hardy

Software developer living in UK. Longtime Bitcoin advocate. Email [email protected] Donations welcome: 1H2zNWjxkaVeeE3yX6uVqng5Qoi6gGvYTE

  • http://www.davidsilvasmith.com David Silva Smith

    Great advice!

    Have you had some scares while trading?

    • John Hardy

      Thanks!

      I’ve been very lucky in trading. I traded in Mt Gox a little before the $1000 peak and subsequent collapse. It was pure luck that I had stopped trading before the correction, and pure luck I withdrew before Mt Gox went broke. In hindsight I’m terrified for how much I could have easily lost, ultimately I gained around 30% through trading, but without luck it could easily have been a huge loss – I will never do it again. As the stakes get bigger, so does the stress.