A quick overview of our best Bitcoin Trading tips and strategies review:
- Bitcoin Overview
- Ways to Trade Bitcoin
- How to choose the right broker through which to trade Bitcoin
- How to choose the right Cryptocurrency Exchange Platform
- Do not risk more than you can afford to lose
- Ensure that there is a plan
- Do not leave funds on an exchange
- Beware of giving into fear or greed
- Learn the lessons
Bitcoin Overview
When trading Bitcoin, it is the simple process involved with buying low and selling high. Instead of holding Bitcoin over a long term, as with investment, trading deals try to predict certain price moves through studying the industry and price graphs holistically.
The price of Bitcoin can be analysed by using two methods namely fundamental analysis and technical analysis.
Fundamental Analysis
Fundamental analysis involves the evaluation of mainly both economic and financial variables along with several others. The purpose of this is to determine the true value of a security.
In the evaluation of the price movements of Bitcoin, investors are keen to evaluate key aspects associated with the cryptocurrency’s underlying technology. In doing this, investors can see, for example, how scaling challenges may affect the value of Bitcoin.
Using fundamental analysis in evaluating Bitcoin may be complex and it has taken the development of a new set of metrics to refine the art thereof which resulted in the starting point for Bitcoin fundamental analysis being the supply and demand that derives prices.
There are numerous variables that influence the demand of Bitcoin including:
- User adoption
- Transaction activity, and
- Trading
User adoption is important as it is crucial to the long-term viability of cryptocurrency, and the driving force behind user adoption is the fact that money has various uses. Money is not only a store of value but a medium of exchange along with being a unit of account.
Bitcoin has never quite been used as a unit of account, but it has, however, managed to gain significant traction as a medium of exchange due to the increasing acceptance since its inception.
There has been a steady increase in the number of confirmed transactions per day with transactions surging in 2012 with a steady rise to more than 7,000 transactions per day.
Despite the informative nature of such data, it is unfortunately not the best indicator when applying fundamental analysis. This is due to blockchain transactions which are generated by automated systems and therefore cannot represent actual economic activity.
Traders rather face having to figure out which transactions consist of an actual participant sending to or accepting Bitcoin from another person.
When considering that the demand for Bitcoin is a complex study, supply appears to be a lot more straightforward as there is a set amount of Bitcoin; 21 million, and the rate of new supply is subsequently determined by Bitcoin protocol.
In weighing Bitcoin to conventional monetary systems, it contrasts sharply as central banks possess the ability to print money whenever they want or need. Despite this, it is, however, important to note that some caveats exist that affect the supply of Bitcoin.
The fact that the creator of Bitcoin, Satoshi Nakamoto, supposedly holds around 1.1 million bitcoins which have shown no movement since they were mined, and the Bitcoin community simply think that they should be considered “dead coins”.
The price of Bitcoin, such as with other currencies, is also determined by major events which directly relate to Bitcoin such as when a major exchange experiences a hack, or there is a setback in the Bitcoin community’s push to solve the dilemma surrounding scaling.
Traders need to leverage fundamental analysis on Bitcoin as it provides them with a better sense of the true value of the cryptocurrency and subsequently it allows them a better sense of when it is a good time to buy and when they should consider selling.
Fundamental analysis is strongly criticised as it reflects more what a security should be considered in its worth than what the actual market price for it is.
There should not be too much reliance placed on fundamental analysis and technical analysis should be done alongside fundamental analysis.
Technical Analysis
Technical Analysis in Bitcoin trading requires traders to read charts and it is an essential skill in trading Bitcoin successfully. Although it may seem intimidating and daunting at first, with time and practice it begins to make a lot more sense.
Bitcoin trading is like stock trading with the difference being the asset itself. Both use the same fundamentals and traders are advised to spend some time studying some of the greatest stock traders in the world to provide some edge.
The most important thing is to understand the psychology associated with the market and this requires research into existing strategies of established traders who have mastered their trading skill through the years.
The biggest benefit with conducting a timely technical analysis in Bitcoin trading is that it aids both investors and traders in being able to predict the market. It also helps investors and traders determine when the best and most profitable entry and exit points may be.
When approaching a Bitcoin technical analysis, it is imperative to note that there are various groups of chart patterns with the most well-known patterns occurring on all timeframes.
Bullish patterns on a chart indicate the likelihood of a trend going upwards while a bearish pattern indicate that the price is likely to move more downwards.
The third pattern involves reversal patterns which signal that the predominant trend is about to end and a price breakout in the opposite direction can be expected.
Despite these distinctive patterns, they cannot fully guarantee certain market behaviour as they only show the likelihood of movements that can be expected.
Technical analysis and chart analysis can be used by traders to create their trading plan in advance which can be based on the analysis on where orders should be set depending on what the trader expects the market to do.
Among an array of analysis tools, Fibonacci retracements are often used in conjunction with chart patterns as they indicate the likelihood for certain reversals and breakouts of price.
These targets provide the trader with an idea of the ideal position where targets should be placed in advance but despite this, traders should note that they provide the likelihood of movements and in being right, more than 50% of cases are enough to make some profit.
Ways to Trade Bitcoin
There are numerous ways in which Bitcoin can be traded with two of the most predominant ways being the trading of Bitcoin and other cryptocurrencies on Forex and thus through a Forex broker, or by trading through a cryptocurrency exchange platform.
There are numerous Forex brokers who allow traders to deposit, withdraw and trade on a Bitcoin-based account. There are, however, some legal implications involved for some traders, such as Americans, as CFDs are not allowed in the United States.
Bitcoin CFDs are traded on a variety of trading platforms that are designed for just the purpose, with the most popular being MetaTrader 4. It is one of the best trading platforms which provides traders with an array of tools such as:
- Advanced charting tools
- A wide range of timeframes to choose from
- Different order types, and more.
A lot of traders may prefer to make use of a Forex broker that offers cryptocurrency trading as a tradable financial instrument for various reasons, one of the main reasons being that regulation.
Bitcoin and cryptocurrency trading are, for the greater part, unregulated and this means that client funds cannot be secured. Forex brokers, through regulatory requirements, must keep client funds in segregated accounts.
In doing so, the funds may only be used for trading activities and it must be withdrawable at any given time. Cryptocurrency exchange platforms do not keep client funds, although some make provision for proprietary hot and cold wallets.
A hot wallet is a type of storage which is kept online while cold wallets can be kept and managed offline.
When considering that cryptocurrency platforms often fall prey to hacking attempts, traders are not advised to make use of hot wallets to store great amounts of funds, but rather to keep enough funds in these wallets for everyday purchases.
Cold wallets are recommended as they are more secure and traders are, in addition, not advised to easily make use of wallets provided by exchange platforms due to the level of security threats that they face frequently.
How to choose the right broker through which to trade Bitcoin
Numerous Forex brokers have started making provision for the trading of Bitcoin by offering cryptocurrencies as a financial instrument in their portfolios of assets offered.
But before traders can start with selecting a broker, there are some key points that need to be considered in choosing the right broker namely:
- Traders need to know their needs whether it is educational sources, as a beginner, trading tools, research sources and tools, and more. It is also imperative to understand what trading goals and objectives the trader has.
- Narrowing down the field – as soon as the trader knows what they need, they can look at brokers to identify which ones will more sufficiently meet those needs.
- Consider the fees – there are numerous fees, both trading and non-trading, that need to be consider and that need to be in line with the trader’s trading plan and framework that they set up for trading Bitcoin.
- Test the broker’s platform by opening a demo account which mimics live trading in a risk-free manner and in a safe environment where the trader’s funds will not be at risk.
- Apart from education, traders need to consider, most importantly, the broker’s regulation, the level of customer support, the ease through which deposits and withdrawals can be made, the trading platform supported, and more.
When trading Bitcoin through a Forex broker, traders will see currency pairs such as BTC/USD or they may see specific Bitcoin CFDs, and at times, both. Both these ways in which Bitcoin can be traded have distinct differences such as:
- Bitcoin currency pairs are traded in the same way as conventional Forex pairs. Should the trader buy a Bitcoin currency pair, they are speculating that Bitcoin will strengthen against the quite currency.
- When dealing with Bitcoin CFDs, traders can profit from the change of price in Bitcoin without owning the asset.
When trading Bitcoin through a Forex broker, traders must not only pay attention to the price of Bitcoin, but to that of the fiat currency as well and this involves fundamental knowledge of how fiat currency prices are affected and by which factors.
Trading cryptocurrency and trading Bitcoin as a CFD does not mean that the trader owns the asset, and this is where there is a distinct difference between trading and investing. Trading only allows traders to benefit and profit from price movements.
After selecting a Forex broker to facilitate the trade in Bitcoin and other cryptocurrencies, traders can follow the following steps to start trading Bitcoin:
- Open an account with the selected Forex broker.
- Create a trading plan.
- Conduct analysis along with research, and
- Place a trade.
How to choose the right Cryptocurrency Exchange Platform
Bitcoin and Cryptocurrency exchanges allow for the sale and purchase of Bitcoin. It can either be bought or sold through regular, or fiat, currencies, or it can be done by using cryptocurrencies.
To select a cryptocurrency exchange, a similar process has to be followed as with selecting a Forex broker and this involves key factors that must be considered such as safety, transparency, record, user experience, and the fees involved.
Cryptocurrency exchange platforms are not regulated by regulatory entities as Forex brokers may be and thus client funds are not held or secured by the exchange.
It is imperative for traders to test and rate the level of security that the exchange platform offers along with seeing what their record is in terms of hacking attempts and how they mitigate and manage such attempts.
It is also important to view the exchange’s history pertaining to hacking attempts and the exchange’s transparency regarding such issues.
It is important to gain insight into the experience of other users when considering a platform as it may highlight any issues that other traders have, or have had, with a platform.
The fees involved need to be considered and it is imperative for traders to first understand their own trading needs and any financial limitations that they have as they have to compensate of trading and non-trading fees along with any losses that they may suffer.
The steps involved in trading Bitcoin through an exchange involve the following:
- Selecting a cryptocurrency exchange platform.
- Opening an account.
- Verifying the trader’s identity.
- Depositing money into their account, for exchanges that require this, and
- Opening the first position on the exchange, whether to buy or to sell.
Do not risk more than you can afford to lose
Traders must know what their budgetary needs and requirements are before they start trading Bitcoin. This needs to be laid out in their trading plan as it provides a good idea of how much can be put towards trading.
In addition, it also helps traders avoid spending more than they can afford along with compensating for any losses which may occur.
Should traders put more on the line than they can afford to lose, they risk losing everything and there is always a chance that the trading account can go into a negative if the trader does not have negative balance protection.
Learning to trade in small amounts and to control position sizes is a key element that beginners need to learn from the start.
Ensure that there is a plan
It would be detrimental for traders to start trading blindly as there is no framework provided for the needs and objectives of the trader and essentially traders also have no idea where their entry and exit parameters are.
Traders need to formulate a trading plan to ensure that they know when and were to buy, and when and where to sell, or exit a trade, to lock in profits and minimize losses.
Do not leave funds on an exchange
Earlier in this article, hot and cold wallets along with the issues surrounding security on exchanges was discussed. Traders are cautioned in never leaving funds on an exchange that they are not actively and currently trading with.
Should traders leave funds on exchanges, it takes away from the control that the trader has over it and should the exchange experience a successful hacking attempt or the exchange goes offline or out of business, traders may lose their funds.
Beware of giving into fear or greed
These are two emotions that tend to control and drive the actions of traders. Both emotions may be detrimental as traders may experience fear and prematurely close their trades when they hear disturbing news or a rumour which may affect their trade.
Greed may also be based on the fear of missing out when traders are informed of new trends, or new opportunities and it may lead to opening trades too soon, or a delay in closing existing trades.
Traders need to be aware of the psychology involved with trading and they need to understand their own emotions and emotional triggers to avoid making mistakes that may lead to substantial losses.
Learn the lessons
Regardless of whether traders are successful or not, there are lessons to be learnt in trading. No trader will ever only experience profitable trades and in the art of making profits, traders will lose some along the way to becoming more profitable.
Traders need to focus on the insights that can be gained while trading, not only on making profits as learning lessons can lead to improved skills, knowledge, and experience.
Know and Analyse Bitcoin Market trends
Firstly, traders need to learn the basics of Bitcoin trading followed by what both fundamental and technical analysis entails and how it must be done.
This will allow traders to get to know the Bitcoin market and more proficiently analyse the trends as Bitcoin prices are extremely speculative and they do not agree with traditional financial theories.
Traders will need to consider the factors which impact the price of bitcoin such as the demand, supply, news, and events. By collaborating both fundamental and technical analysis, traders can more accurately learn when to buy and when to sell Bitcoin.
Plan a long-term goal
Bitcoin trading needs to be done at a set pace as it is not a sprint to see who can make the most profit in the most efficient or fastest way.
Traders need to map out their long-term goals and adapt their strategies to work for them especially where manual trading is concerned.
Traders need to determine the time that they can put into trading along with what they want to achieve over a long period of time and whether they can sustain those goals as well.
Know the risk factors
Trading involves a lot of risks and it is imperative for traders to ensure that they have risk management protocols in place to minimize their losses.
The Bitcoin and cryptocurrency market is extremely volatile and when trading, it is important to make use of stop loss orders to avoid substantial losses that may exceed the capital of the trader.
Correct use of Leverage
Leverage is a useful tool in trading, despite the financial instrument being traded, as it allows the trader to open larger positions despite their initial capital. Where there are great profits to be gained, there are also substantial losses which can be incurred.
Leverage in itself has a lot of risks while cryptocurrency trading has its own as well and traders will find that Forex brokers do not offer a high level of leverage while most cryptocurrency exchange platforms do not offer any leverage at all.
When using too much leverage, traders run the risk of becoming reckless and losing more than their initial capital while too little leverage may hamper the trade performance as premium trades cannot provide traders with their expected returns.
The use of programmatic strategies
This involves experience, skills, and knowledge in coding as it opens a new world for traders to refine their trading skills and to tailor their strategies to precisely what they need.
By learning to create strategies from scratch, traders can make use of algorithms as they trade based on finite parameters and there are thousands of ways to incorporate various factors and parameters into conducting analysis and executing trades.
Learn different methods
There are various ways in which Bitcoin can be traded where strategies, utilities, and methods are concerned, and traders should take time in exploring different options to find ways which cater specifically to their needs and objectives.
Size positions accordingly
While trading, traders are urged to put the correct amount of funds into a trade while keeping tabs on specific sizing methods to ensure that the risk and reward ratios are correct and to avoid putting too much funds at risk.
Find a broker or exchange that caters for trading needs
Before selecting a Forex broker to facilitate trades or a cryptocurrency exchange platform through which to buy, sell, or trade, traders need to identify their trading needs and objectives.
This allows traders to refine and narrow down their search on finding a broker or exchange that caters more specifically for them.
Make use of demo accounts
Before trading in a live environment or choosing a specific broker or an exchange, it is imperative for traders to make use of demo accounts to test the platform and offering of a broker or an exchange.
Demo accounts can also be used to test strategies in a risk-free environment as it mimics a live trading environment without posing threats to the trader’s own capital.
Explore automated trading
For traders who do not have a lot of time to trade manually, there are numerous options involving making use of trading bots which trade 24/7 and trade on their own accord based on rules and parameters set by the trader.
These trading bots are able to open and close trades without the trader intervening and provide traders with peace of mind that they will not miss out on opportunities when they are not able to trade manually and look for trends or changes in the market.
50-period and 100-period moving averages
This strategy forms part of the trend-following aspect of Scalping and features two moving averages which can be utilized in identifying the short-term trend of Bitcoin.
The cross of a shorter 50-period moving average is placed above the longer 100-period moving average which signals an uptrend while the shorter moving average below that of the longer signals a downtrend.
Stochastic indicator with a (5,3,3) setting
The Stochastic oscillator is used by traders to identify market conditions where overbuying or overselling is present. This signals the trader of a turning point in the current trend.
Long Entry
Should the faster 50-period moving average cross over the lower 100-period moving average, the trader is signalled of a short-term uptrend in bitcoin.
Stochastic values above 80 signals the trader to overbought market conditions while anything below 20 signals oversold conditions.
Short entry
A short signal is returned when the 50-period moving average crosses below that of the 100-period moving average. This signals the trader of a short-term downtrend.
When using this strategy on short timeframes such as 1M or 5M, it tends to return the best result. Traders should ensure that stop losses are placed just above the recent swing high in case of short positions.
Stop losses can also be placed just below the recent swing low in case of long positions. The profit targets of the trader should be the approximate size of the Stop Loss so that the trader can at least have a 1:1 return to risk.
Bitcoin Breakout Trading
When using this strategy, the focus is on identifying breakouts around familiar price ranges and chart patterns such as:
- Head and shoulders
- Double tops and bottoms
- Various triangle patterns
- Channel and trendline breakouts, and numerous others.
When a breakout occurs, it is often followed by a substantial buying or selling momentum in the direction of the breakout with traders attempting to catch the momentum to profit from it.
Bitcoin Trend-Following
This day trading strategy is based on the trade of the underlying trend of Bitcoin. This used to be a profitable approach when the cryptocurrency market knew only an upward direction but with ranging cryptocurrencies, a breakout approach would be better.
Although, should a new trend in Bitcoin be established and it is characterized by higher highs and higher lows in uptrends, or lower lows and lower highs in downtrends, this trading strategy may yet again become more viable.
Bitcoin Countertrend Trading
This strategy refers to catching price corrections which may go against an established trend. This strategy is not recommended for beginners as it involves a substantial amount of risk associated with the level of volatility in the cryptocurrency market.
Automated trading
The name of the strategy is self-explanatory. Automated trading involves making use of AI technology such as trading robots, or Expert Advisors, to trade on behalf of the trader.
There are numerous trading bots available with different parameters programmed which can be downloaded or purchased. A lot of Forex brokers and crypto exchanges also provide such robots to traders.
The trading bots are programmed according to different strategies and when choosing a bot, it depends on the traders trading needs, objectives, and parameters in deciding which one to use when trading.
HODLing
HODLing, or “holding on for dear life” is a famous Bitcoin strategy which was developed in 2013 and revolves around maintaining a long position on Bitcoin and hoping that the price increases over a long term.
This strategy is, however, notoriously risky as the cryptocurrency market is volatile and in using this strategy, it may lead to substantial losses. This strategy is rarely recommended, and it requires a strict risk management plan.
Hedging
In Hedging Bitcoin, traders open strategic trades to decrease or eliminate the risk of existing positions. Traders hedge an existing holding by opening a position to short their current position.
This involves the selling of the asset on the current market price in the expectation that it will decline. Should the market price fall, traders will then buy their asset back for the lower price and coin profits from the difference.
News-based Trading
This means that, when using this strategy, traders will be trading on times when massive news breaks. This includes instances where the news reports events such as natural disasters, terrorist attacks, and others which cause assets to fall.
However, this is a risky strategy as there is a likelihood that prices on these assets may fall even lower.
“Buy the Dip” Strategy
This strategy entails that a trader enters a position as the price dives should the expectation be that the current trend will endure.
This also involves a lot of discipline in trading psychology as it may trigger the overwhelming urge to close the position should the price continue declining in a downward trend.
Conclusion
Trading, and Bitcoin trading, deserves a lot of consideration and tactic with the goal on making profits and minimizing any losses. Therefore, it is imperative for traders to ensure that they start with a basic understanding of Bitcoin trading first before trading.
There are numerous strategies that can be employed when trading Bitcoin and traders are urged to ensure that they thoroughly research and learn their strategy before moving to another.
The general rule concerning strategies is that it is better to have one good strategy that works instead of having numerous strategies that increase the chance of losses while they do not make profit at all.
In addition, traders need to realize that there is no holy grail of strategies where trading, Bitcoin included, is concerned and one trading strategy that works for a trader will not work the same for another trader as each has their own trading styles, needs, and objectives.
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