Trading is a profession that dwells on strategies. Especially if you are dealing with Bitcoins, it is of prime importance.
Today, we will talk about these strategies and discuss them in detail. But before that, how are you going to decide which strategy will work best for you? Your best strategies are the ones which are aligned to your goals and objectives. They should be perfectly aligned to your individual goals, risk appetite, and capital.
Let’s look at some bitcoin trading strategies:
If you have been in this world for quite some time now, perhaps you are familiar with the term HODLing.
The term HODLing first came into existence in 2013. An investor decided not to sell his bitcoin despite its price falling sharply. While typing ‘I am Holding’ he misspelled it and wrote ‘I am HODLing.’ It caught bitcoin traders’ attention quickly, who decided that it was an acronym for ‘Hold On to Dear Life.’
Put simply; HODLing means being optimistic and believing that irrespective of the falls, the price index will definitely rise in the near future. Since bitcoin came into existence, its price has risen by 1338%. But has it been a non-stop rise? Absolutely not. Compared to traditional currencies, especially the hard ones, such as the dollar, pound, euro, and yen, bitcoin’s value fluctuates significantly.
So, does HODLing mean that all we need to do is sit idly by for an indefinite period knowing that this cryptocurrency always eventually appreciates in value? No, it doesn’t. HODLing is a major fundamental mistake.
Trying to time the market when it comes to bitcoin is nearly impossible, and buying and holding is the only rational approach, especially when the asset is as volatile as Bitcoin. But you cannot just sit idle. You need to maintain a reasonable portfolio and keep rebalancing it from time to time.
No matter how complex you find this strategy to be, once understood, it is really easy to execute. Hedging, on its own, simply means to take action to reduce the risk of other investments. So, when the topic is bitcoin, it means, to sell the cryptocurrency, in the process you reduce the risk of holding bitcoin, to increase or maximize your rewards.
Sounds difficult? It is not. For example, when prices show an upward trend, you hold your bitcoins until you sense a drop. In other words, you hold the cryptocurrency until it reaches what you believe to be its peak – and then you sell it. When the prices are rising, you acquire more, at lower rates of course. If you are good at executing, you acquire more than you had each time, which results in an overall gain.
Is it hard to hedge when it comes to bitcoin? If you look at hedging as selling high and buying low, it is fairly straightforward. However, you need to know what a decline is or how to predict that one is looming. Conversely, you need to be able to do the same regarding increases. To be able to do that, you need to be well-versed with the fundamentals of technical analysis.
To be good at technical analysis is a question of doing your research, i.e., learning. If you read all there is in the news regarding bitcoins and other cryptocurrencies, you will be in a much better position to get a sense of the market.
Trend Trading Bitcoin
Trend trading means reaching out to higher highs and lower lows. You go in the main direction of the market. You do not really care about the real value or price of the bitcoin, but just trade in the direction the price moves. In other words, you capture gains by taking advantage of the cryptocurrency’s momentum in a specific direction. People who do this are known as trend traders.
The prime focus remains the same – to analyze the trend of the market. Trend traders do that by using timeframes. They vary daily, weekly, hourly, or even monthly. They basically use fundamental technical analysis of the trends in the market, to determine the direction of the flow.
In this strategy, you hold a position for as long as you think a trend will last. To master this strategy, you need to learn to identify the trends.
The most popular technical analysis indicators people use to identify a trend are moving averages, relative strength index, and the stochastic oscillator. Additionally, don’t forget to check the reviews of bitcoin trading robots online to get a better idea.
Bitcoin Breakout Strategy
This strategy is based on the idea that once the market breaks through, from a resistance level, or key support, major volatility starts. In this strategy, when the market enters a trend, you enter the market as early as possible so that you are ready for the bitcoin price to breakthrough. It is crucial in this strategy to be able to identify the resistance and support levels.
Like in the previous strategy, you will use the volume and technical indicators like the ones discussed above. Once, using these indicators, you identify the levels, you can open a position. You can now predict the breakouts, after a specific price point based on your technical analysis and ride the bitcoin until your analysis suggests the opposite.
Pick the one that aligns with your long-term goals!
Hopefully, after reading this article, you are now in a better position to select a strategy that best suits your goals and objectives. A goal is where you want to be at a specific moment in the future. An objective is a description of how you plan to get there.
Remember that bitcoin is a very dynamic asset. It is important to understand the bitcoin market, and at the same time the strategy you plan to use.
Choosing how you trade is of extreme importance too. Remember that a strategy is just a strategy. It is not a guarantee of success. However, if you carry it out carefully, after doing your research, your chances of making a good profit are much greater.
Today, there are nearly 18 million bitcoins in existence. The total changes approximately every ten minutes, i.e., evey time new blocks are mined.
Video – What are cryptocurrencies?
Bitcoin, which has existed since 2009, is a type of cryptocurrency. Cryptocurrencies function without a central bank or administrator.