Bitcoin trading has never been more popular than it is now, and there is no sign of slowing down in the market. So now is the time to strike if you’ve considered getting in on the action.
While there are numerous tools available for Bitcoin trading, you still need an understanding of the basic strategies to succeed.
This guide we have created to introduce newcomers to some of the most common trading strategies. But seasoned traders might also want to refresh their memories and take on new 2020 design.
This is what we will cover in this Guide to Trading Strategy.
Back in 2013, the term “HODL” was coined in the Bitcointalk forum. It’s not an acronym for a complex trading strategy — it’s just the misspelt word “hold.” The original post’s author mused that traders who were new to the game or unsure of their trading abilities were better off HODLing their bitcoin in a bear market.
Back in 2013, Bitcoin saw an increase from below $15 per BTC to over $1,000 towards the end of that same year. In numerous cryptocurrency memes, the term “HODL” has appeared and is now a widely recognized trading strategy.
The premise is simple: hold onto your bitcoin and hope the price will rise again so that you can sell with huge gains. It’s not a very elaborate trading strategy, but for new traders, it can be good advice.
It is worth noting, though, that instead of rising, the bitcoin price could also dip. Therefore we advise you to have a risk management plan in place if you choose to follow this route.
Have you ever heard of “hedge your bets”? That is precisely what the strategy for trading is all about.
Because bitcoin is volatile, in the short term there’s always a chance you’ll lose money on trades. That is why hedging your bets by opening a trade that will mitigate that risk can be a good idea.
There are some ways to accomplish that.
You can sell your bitcoin short, which means you sell it with the expectation that the price will go down so you can repurchase it at a lower rate. Many traders borrow bitcoin from a broker, trade it on an exchange and then return the borrowed amount.
But that can be risky when the price goes up rather than down.
Also, you can hedge with difference contracts (CFDs), which are derivatives rather than actual cryptocurrency. In that case, you’ll keep your bitcoin hoping the price will go up in the long run, but open a CFD that bets on the falling price. Whether the price goes up or down, the loss on the other is offset by your gain on bitcoin or the CFD.
Finally, Bitcoin futures can be used to hedge your bets. These are contracts between two parties which agree to trade bitcoin on a specific future date at a certain price. Whether bitcoin’s price went up or down on that date, you’ll be making the trade and taking either the win or the loss.
Rend Trading is a strategy based on the trends in the Bitcoin world today. You’ll need to keep a close eye on what others talk about and plan to do about it.
Bitcoin, for example, became incredibly popular in 2017, when the price increased to nearly $20,000 per BTC. There were many reasons for this, but the main one was that bitcoin was getting much advertising. That meant that more people wanted to get in on the action, which increased demand — and hence increased bitcoin value.
Over any time, whether those are days, weeks, months or years, you can engage in trend trading.
Just need to get an idea of what’s going to happen next.
You can use technical analyzes to help make an educated guess for that purpose. In technical analysis, some of the indicators include the relative strength index (RSI) and the moving averages over time.
While trend trading may seem less risky than other strategies, it’s worth remembering that there are hundreds, if not thousands, of factors influencing bitcoin’s price. These include enterprises that adopt bitcoin, other cryptocurrencies that enter the market and governments that implement new trading regulations.
Breakout trading is similar to trend trading; the difference is that at the beginning or end of a trend you wish to buy or sell bitcoin.
You need to understand levels of support and resistance, often referred to as the bitcoin price graph floor (consent) and ceiling (resistance) level. In other words, these are the bitcoin price points which will not drop below or rise above.
The points at which those levels are either broken up or down are called “the breakout points.” Usually, once that happens, you can expect the price to become very volatile.Again the trick is to anticipate what’s going to happen next correctly.
If you can, then you can make some excellent deals.There are various ways to identify levels of support and resistance, including viewing volume levels, RSI, or the moving average. You can create an order to buy or sell at a specific price point which makes sense once you know that.
Breakout trading is not without risk as with the other three strategies, we covered. So even if you can create an automated purchase or sell order, it’s wise to keep a close eye on market movements rather than stay passive.
What to Know Before Bitcoin Trade
There are some last points we need to touch on before you dive headfirst into the bitcoin trading. As mentioned, starting with bitcoin is comfortable but not as easy as becoming an art master.
Research Your Chosen Trading Strategy
Each of the four trading strategies has more to offer than we covered in this guide. Make sure you do proper research before committing to any of these.
Fortunately, many online resources will teach you how to trade bitcoin, including e-books, e-courses and videos.
Just remember that none of the strategies come without risk, no matter how popular they might be.
Create A Bitcoin Trading Plan
Once you are aware of which strategy you want to pursue, you should create a business plan. Just like any other business venture, your criteria for success and failure are essential to have in place.
Without a plan, you might become the victim of your greed or fear of losing more. The plan should include realistic goals of how much you are hoping to make and a risk profile that includes how much you are willing to invest or lose.
Make Sure You Mitigate Any Risks
We have mentioned risk a couple of times now, and there is a good reason for it.
All trade involves a particular element of risk, whether it’s stock trading or bitcoin trading. One of the principal risk factors in bitcoin trading is the bitcoin price volatility.
One way you can mitigate risk is to put in place commands for limit-close and stop-loss. That way, before the market gets out of hand, you can secure any profits or limit any losses.
Find A Safe and Reliable Bitcoin Exchange
Lastly, when it comes to bitcoin exchanges, you should carefully consider your options. Not all trades are equally quick and safe to use. Therefore we recommend that you do your research.NordikCoin is a handy and secure exchange of bitcoins. Within minutes we allow you to buy and sell so that you don’t lose out on a fair chance.
At the same time, we’re cautious about protecting your bitcoin. To prevent unauthorized access to your funds, we use a multi-signature and cold storage solution.