How to trade bitcoin: steps and strategies

There are two main ways to get involved in Bitcoin trading. You can buy and sell Bitcoin directly through a crypto currency exchange, or you can invest in it indirectly through derivative financial instruments. 

Buying Bitcoin directly can be particularly risky, especially in the event of a cyber attack when the codes for accessing your crypto wallet may be stolen. The price of Bitcoin can also crash, causing huge losses. You only have to look at Bitcoin's 2022 performance to understand how risky cryptocurrency volatility is. Since the beginning of the year, the price of Bitcoin has fallen by 57%, a huge devaluation for those who had invested a lot of capital.

Bitcoin trading indirectly through derivative contracts such as CFDs can help you manage these risks and even turn them to your advantage. You don’t have to buy the cryptocurrency and expose yourself to the risk of your codes being stolen. You can also speculate on its price trend, meaning you invest in the short term, opening and closing positions, even on the same day, with a view to profiting from uptrends and downtrends.

Here are some useful tips on how to trade Bitcoin in this way, with steps to take and effective strategies you can follow.  

To trade Bitcoin for profit, you need to take advantage of price trends, identifying the cryptocurrency’s bullish and bearish movements through technical analysis. This is the study of price trends through charts and trading indicators. It helps you discover the best trading opportunities, get an idea of the possible price direction and how intense the price moves might be.

In addition to technical know how, you also need to know which factors can affect the price of Bitcoin. The first thing to be aware of is that the cryptocurrency market is unregulated, so it is more exposed to speculation and rumours than other sectors, which translates into higher volatility.

Another factor is Bitcoin’s limited availability. No more Bitcoins are being created today, so if demand were to increase, supply would fall, and the price could rise. How widely Bitcoin is used must also be taken into account. The more people and companies that accept and use it, the more its value increases.

Therefore, to trade Bitcoin you need to apply technical and fundamental analyses to find the best investment opportunities and also understand whether you should open long or short positions on the cryptocurrency. You also need to set up stop losses and take profits, which are automatic orders that allow you to close the position when the price reaches a minimum and maximum level to better manage risk and maximise profit

In Bitcoin trading, you always need to have a strategy and choose a trading style that matches your needs. One option for the short term is day trading, which involves opening and closing positions on Bitcoin on the same day. This strategy allows you to take advantage of daily volatility, without paying overnight fees and avoiding long-term exposure.

Alternatively, you can trade Bitcoin with medium and long-term time horizons, for example through swing trading and position trading. Some would consider this a riskier approach but it can help you manage the effect of short-term volatility on your portfolio overall and also take advantage of long-term trends. This strategy is also known as HODL or Hold On For Dear Life.

Another Bitcoin trading strategy is trend trading, whereby the trader follows market trends and closes the position as soon as the price direction reverses. This is a more dynamic approach as you open and close positions quickly with each trend change, so you’re always trying to take advantage of the prevailing price direction. You want to avoid holding a position that’s headed in the opposite direction, even if it’s only for a few seconds.

To trade Bitcoin online through derivative instruments in the UK you need to open a trading account with a trader authorised and overseen by the Financial Conduct Authority (FCA). Once you’ve done this you can speculate on its price through CFD trading. You can start with a small amount of capital, paying just a spread on executions.

CFDs also allow you to invest in other assets such as shares, raw materials, Forex and indices. This gives you the opportunity to adopt a diversified investment strategy to better manage risk. However, do make sure that you choose a modern and intuitive trading platform that offers low commissions and professional tools for financial analysis.

Bitcoin trading with CFDs involves financial leverage, which increases the potential for both profits and losses from using a small amount of capital. Bitcoin trading is undoubtedly a risky activity, so it is essential to start investing with caution, learn the basics of trading and understand this technology well in order to understand how to exploit its volatility and make a profit.