Trading For Dummies

How to get more bitcoin? Mining didn't pan out as I would have liked, and I'm not really willing to risk investing more cash at this point. Still, I was interested in growing my bitcoin holdings so I thought I might give bitcoin day trading a try. Initially, I hoped to trade using my Bitfloor account which had some really favorable trading rules. Unfortunately, the Bitfloor exchange ceased operations before I had a chance to start trading there. Fortunately, the Bitfloor exchange ceased operations before I had any significant funds in an account there. Instead, I opened an account on Mt Gox, the largest bitcoin exchange in the world. Hoping to take advantage of the volatility of bitcoin prices, I transferred 1 BTC into my account.

The golden rule for any kind of trading is "buy low, sell high". This rule applied to my bitcoin trades as well, except that since my goal was to increase my bitcoin, I needed to apply the rule in reverse: Sell high, buy low. By selling bitcoin at a high price and then waiting for the price to come down, I could buy more bitcoin than I sold for the same dollars. There are two things that make this difficult.

The first is the trading fees. Mt Gox charges a 0.6% fee for every buy or sell transaction. That means I needed to make a 1.2% profit on my trades just to break even. I hoped to earn 1-2% on my trades which means I needed a price spread in the neighborhood of 4 dollars to hit my target. Bitcoin often has price swings of this magnitude and more, but catching the top and bottom of them is challenging.

And that brings me to the 2nd, and most important difficulty of profitable bitcoin trading. It turns out that trying to predict the direction of bitcoin prices using technical analysis like dojis and trendlines is just plain silly. Buying low and selling high is more a guessing game of chance than anything else. I'd probably do as well playing red and black at roulette.

My results? I executed 20 trades over about a 1 month period resulting in a net loss of about 0.14 bitcoin. I guess I'll consider that the cost of tuition for my bitcoin day trading education.