• Four Bitcoin Trading Terms that You Should Know

    | Updated on December 2, 2022

    In general, trading on CFD positions is straightforward enough in theory. Still, in practice, it’s often difficult to understand, so you need to do your research before jumping into the market. For bitcoin traders, websites such as bitqt-app.com provide trading features such as artificial intelligence, trading bots, market analysis, live customer support, and much more. Speculating on bitcoin’s price movements is extremely risky, as it is difficult to predict the price accurately, and there is a high degree of volatility.

    It means that you’ll often be in a state of uncomfortable limbo, taking a position that looks like it’s good but really isn’t and then getting out when you think the price has fallen too far. Unfortunately, though, it may have moved in the opposite direction. This feeling can be highly frustrating, but it’s vital to remember that you can’t win every time, and even experienced traders sometimes still lose. 

    This guide breaks down four key terms used when trading bitcoin and provides more detail on them by examining what they mean, how they’re relevant, and why they’re essential. 

    Fundamental Analysis (FA):

    The idea behind fundamental analysis is to look at a bitcoin’s fundamental characteristics to determine if it’s a good investment. Fundamental analysis is typically used in the stock market, but users can apply it to other markets.

    For example, bitcoin is sometimes described as a “store of value” since its use for transactions cannot be reduced to a single utility (e.g., gold or silver). Of course, there are several other ways of describing this quality (e.g. “digital cash” or “global reserve currency”). Still, they generally boil down to the same conclusion: bitcoin can act as a store of value and an alternative unit of account.

    However, bitcoin is only worth something if people believe it will be appreciated. In other words, the fundamental analysis doesn’t look at how much money you can make in the long run by investing in bitcoins; it looks at how likely you are to make money by investing now.

    The problem with this approach is that there are dozens of potential ways to view bitcoin’s fundamental characteristics, and trying to look at all of them will lead to confusion and meaningless data sets (e.g., you might decide to look at bitcoin’s source code and how secure this is to determine if it’s a good investment).

    It leads to another problem: the possibility of confirmation bias. That is, there is a risk that the hypotheses you test will be those that confirm that you should invest in bitcoins because they make you feel good about making money. Also, note that fundamental analysis doesn’t consider future events or what will happen to bitcoin’s value if people stop buying or selling it (e.g. due to increased regulation, hacking attacks, or bad publicity).

    Technical Analysis (TA):

    Technical analysis is a way of looking at bitcoin by examining its historical price movements and using this information to try to predict the future price movement of bitcoins.

    This approach fails for two reasons. First, past performance is not necessarily indicative of future performance; second, bitcoin’s price can’t be explained by only quantifying its past performance. In general, technical analysis involves looking at the past price movements of an asset (e.g. if it has been rising gradually over the past few weeks, then you might decide that it’s a good investment). The problem with this approach is that it relies on human assumptions about how people behave, and there is no way of proving that these assumptions are correct. 

    Other technical analysis problems include overconfidence (e.g., it’s possible for the person looking at the chart to overestimate how significant the difference between one price point and another is), and people can’t use that past price movement to determine future prices. For example, people often try to predict price movements based on what happened in the past, but this doesn’t work because many possible futures could have occurred.

    Spot Market:

    In general, it’s assumed that people will always transact at the spot market; however, this is not always the case, and there are times when transactions at other prices have occurred (e.g., some traders choose to sell a large amount of bitcoin at one time, rather than selling small amounts on regular intervals). 

    The problem with the spot market is that not everyone wants to buy or sell bitcoins at an exact price, and if people are speculating, they might move the price in either direction. Therefore, when trading on an exchange, you must understand how the company will handle these situations and how they could influence your trades or overall results.

    Margin Trading:

    Margin trading involves borrowing money from your broker to make a trade. Most exchanges permit this, but some restrictions depend on the exchange. For example, some exchanges only allow you to place two trades a day, while others allow three or four (e.g., if you’re trading large amounts of bitcoin, this might be important). 

    The problem with margin trading is that it introduces risk into your trade and might not work for you in the long run. Making these trades also doesn’t involve market making, leading to other problems like liquidity issues and market manipulation. These are some important terms related to bitcoin trading.

    Joseph Williams
    Related Post
    error: Content is protected !!