Over the last 12 months, cryptocurrencies, and particular Bitcoin have gone from being something that people were aware of, but didn’t really dabble in, to something that everyone is aware of, and everyone wants to dabble in.
But like most things in life, it is good to have a plan in mind before you jump in at the deep end.
From day trading to the more complex scalping, in this article, we will take a look at five of the top Bitcoin trading strategies and hopefully give you a bit of the information you need to decide which is the perfect strategy for you.
Table of contents:
- What is Bitcoin Trading
- Bitcoin for Fiat vs Bitcoin for Cryptocurrency
- 5 Bitcoin Trading Strategies
- Final Thoughts
What Is Bitcoin Trading?
Have you heard of Forex? Forex is the trading of foreign currencies on a market, based on the increase and/or decrease in their value.
Bitcoin trading is the trading of Bitcoin against the value of other cryptocurrencies, or fiat currencies, depending on your preference.
There are many different ways of trading cryptocurrencies such as Bitcoin, and which one you go for will depend a lot on your skill and experience level and of course, whether you are looking to make a serious profit, or you are just doing it for the enjoyment.
Remember, never to invest more than you can afford to lose, particularly if you are just starting out, as this is a highly volatile and unpredictable market. Keep your head on your shoulders, don’t get carried away, and don’t bet the kids college fund. To find out more, let’s read on!
Bitcoin for Fiat vs Bitcoin for Cryptocurrency
The power of Bitcoin trading is the CFD. They mean that you can trade Bitcoin without ever actually having to use them.
CFDs were originally created for the purpose of getting your paws on Bitcoin without having to actually own it and because of this, CFDs are a great option for those that are looking to start trading for the first time.
It is a popular belief that it is always more profitable to trade BTC for another altcoin, rather than against a fiat currency such as dollars or euros. This is due in part to the fact that altcoins and bitcoin are particularly volatile so if you are trading one for the other, you can experience bigger jumps in value, and therefore more profit for you.
The price of the dollar and euro, as well as other fiat currencies, tend to be pretty stable so trading with them doesn’t offer such valuable returns as with cryptocurrencies.
5 Bitcoin Trading Strategies
#1: Buy and Hold
Buying and holding are one of the most popular ways to trade Bitcoin and those that partake in it are called “holders” within the crypto community. They usually buy and hold a currency with a long view in mind and they tend to utilize a long-term approach, placing their hopes on the price of Bitcoin rising a lot.
They usually think in terms of monthly, weekly, and sometimes daily charts and they are a unique type of trader whose primary goal is to get as much cryptocurrency as they can get their hands on with the aim of it becoming more valuable as time passes.
At the moment, this is one of the best strategies you can employ when it comes to Bitcoin.
As it is a highly volatile coin, but that has a value that is expected to reach stratospheric new highs, it is a great one to invest in. It is by far the most popular cryptocurrency on the market and its price is continually climbing.
Another thing to consider is that with Bitcoin, there is a limit of only 21 million coins which means it has an inherent advantage over traditional fiat currencies.
Anyone that trades in the buy and hold method will usually base their methods on a range of different analyses instead of the analysis based decision. These decisions are typically made on the potential of the coin, rather than what current trends and charts are saying.
This type of trader remains rather unmoved by daily changes in the price of Bitcoin.
Fluctuations in its value that happen throughout the day rarely bother them and many remain unphased by the extreme changes that can occur, and those that have a lot of experience are aware of the volatile nature of Bitcoin due to its history.
They also consider a price crash as a major opportunity to purchase more coins at a low price and make a considerable profit in the future when the price increases. They think of crashes like a sudden discount of flash sale which is a perfect opportunity to capitalise on. They tend to pull profits if the price hits a high they think it won’t be able to maintain, but they very rarely liquidate all of their assets at once.
But when it comes to CFDs, this is not the idea trading method because they are not usually sustainable for holding for a long period of time because of the costs to maintain them.
It is much smarter to keep your Bitcoin in a secure wallet which is something that you just cannot do with CFDs.
#2: Swing Trading
Those that choose to utilise the swing trading method of trading are traders that will hold their currency for a couple of days or a few months’ maximum.
Their strategy centres around trading at a significant price and moving between two extremes. If, for example, the price isn’t following a particularly strong up or down trend, the tendency of those trading in this way is to trade on a high and low-cost range.
A buyer or seller will reliably enter the market when there is a correlation with volume which results in a fixed price of direction reverse. The price of Bitcoin can even remain within the set levels for a prolonged set period of time and it can still be profitable for the purposes of swing trading.
This type of trader will usually consider a wide range of factors and they place a lot of importance on technical indicators that can reveal oversold and overbought conditions that are seen on the market.
These conditions will indicate market sentiment and are usually dictated by intuition and common sense.
They can also indicate momentum which is something prone to imbalance and would require correction. Many of the different indicators that these type of traders look for include Bollinger Bands, RSI, and Stochastic Oscillators.
Once the price of Bitcoin reaches a certain level, the traders will then place a wager on a reversal of price.
When the indicators are based on a change or direction, and the price continues instead of reversing back then this is a good time to exit. Swing trading is also particularly effective when it comes to trading with CFDs.
When there is a good time frame match that coincides with a bigger price move, and the prices continue past a projected reversal point the there is often a small loss. If, however, they operate as predicted, there is a lot of profit to be made.
#3: Trend Trading
This type of trading requires a lot more knowledge and it is much harder to navigate than other types of trading techniques.
Traders of this type tend to use longer or more prolonged patterns of trading with the ultimate goal of capitalising on it until the end of the trend. Unlike swing trading, trend traders usually have no particular target or end game in mind and this is particularly pertinent when we consider the highs that Bitcoin enjoyed this year.
The secret to effective trend trading is to consider it as a sort of art form where the formation of the trend is subtle.
You need to be able to identify the trend at an early stage before everyone else jumps on it and realizes its potential. With trend trading, you will find you are able to hit a bigger high with an emerging trend that moves at a consistent pace, as well as continually growing prices, and declining prices as well.
It can be pretty tough to get the hang of trend trading and it generally takes some time to break through to a profit-making level so be prepared to stick with it and suffer a few losses along the way.
Be aware that trends tend to increase as people start to notice them and want to get involved. They gain momentum quickly and when they are strong, non-Bitcoin investors pick up on them, as well as the media.
Eventually, when prices go up they will reach what is known as a parabolic state before they start to rapidly extend.
It is at this point that the trends will usually crash at an alarming and almost violent rate.
Savvy traders get in quickly, make their money and then exit before the inevitable crash that hits all of the other traders hard.
Trying to win by picking out the tops is a pretty foolish way of trend trading as it is usually much smarter to just hang in there and wait for the assurance that a particular trend is growing. You can get the confirmation of this through the Rate of Change and Moving Average Convergence-Divergence analytics.
From there you will then be able to take the profit sooner, rather than much later.
#4: Day Trading
The key to successful day trading is knowing how to keep your position in a market whilst you are “on duty”.
These traders will typically operate a twelve to sixteen-hour shift as a minimum, although sometimes these shifts can be much longer.
When it comes to day trading, it has a level of intensity that is comparable to that of the stock market and you can often hear day traders complaining about their minimal sleep or the fact that they look like a zombie.
The truth is, that these are a special kind of trader and it takes a certain kind of person and mindset to make a successful one. They often switch between swing trading and day trading and they may also nurse particular accounts until the time is right to liquidate them.
The type of traders that get involved in day trading are ones that are likely to follow different hourly charts or sub-hourly charts with the occasional reference to higher time frames when needed.
The style of their trading is often better kept for those individuals that want to make trading their full-time occupation, rather than just a side-hustle.
Scalping is not a particularly well-known type of trading but there are a number of traders that employ this strategy in the hope of making a profit.
These are traders that want to make money on a minute to minute exchanges.
They generally use different imbalances that occur in the market to both order and book multiple mini-profits. They often get large returns that consist of lots of smaller profits.
It is always about the volume of trades as opposed to the size of each individual trade. Scalpers look to charts that show around five minutes of duration to help them make their decisions.
This is a really tough way of trading and you should only try it if you are really experienced and really know what you are doing. If not, steer well clear.
These five Bitcoin trading strategies vary in their complexities and the level of market knowledge that you will need before you can execute them effectively.
Remember to do your research and consider your options carefully before putting any serious amounts of money into anything.
Got excited? Check out our Guide to Cryptocurrency Trading and start today!