Bitcoin Trading Strategies | 5 Methods

Posted in Cryptocurrency Trading Basics on . Tags:#bitcoin#cryptotrading
Bitcoin Trading Strategies | 5 General Methods You Need To Use

So we are going to be discussing more on various Bitcoin trading strategies; their best uses, advantages, and disadvantages. So get your pen, paper, and chair, because the class is in session.

If you haven't heard about Bitcoin by now, then my 85-year-old neighbor is more current than you are. Since her handyman asked to get paid in Bitcoin and she thinks its a form of..... well you know (if you don't ask me in the comment box); *Hint* she called cops! Anyways, Long story short, she now has a Bitcoins wallet with coins in it and I have to drop in every chance I get to tell her the current price of Bitcoin if I don't want a surprise visit. 

For those totally new to the idea of Cryptocurrency in general, then it's your lucky day! We have more than enough contents to get you deeply rooted in the subject. I will strongly advise that you familiarize yourself with the idea of Bitcoin first, before continuing to read this article. Don't worry, we are here to stay (at least before the crypto robots takeover). 

So we are going to be discussing more on various Bitcoin trading strategies; their best uses, advantages, and disadvantages. So get your pen, paper, and chair, because the class is in session. 

What is Bitcoin trading? 

Simply put, bitcoin trading means to buy or sell Bitcoin tokens (BTC). Let us say you one day decide to start profiting from the rise and fall in prices of Ethereum tokens (ETH), but you only have Bitcoins in your wallet. All you need do is to find a Cryptocurrency exchange that accepts a deposit in form of BTC and allows the swapping of BTC for ETH, making use of a Crypto pair; ETH/BTC. A standard Cryptocurrency exchange usually has several other Cryptocurrency crosses to select from which may include; ETH/USD, NEO/ETH, BTC/ETH etc. 

Generally speaking, to truly start trading Bitcoin, you need to have an account with a standard Cryptocurrency exchange or venture into Contract for Difference (CFDs). With CFDs, you only buy into a contract, that the price of a trading asset (USD, BTC, ETH, EUR etc) will rise or fall without owning the right to this underlying asset. CFDs is another topic on it own, that we won't be able to cover in this piece; (we love you too much to give you half-baked information). 

What is a trading Strategy? 

Whether you are trying to cheat your siblings at a poker game or winning a court case, you will always need a strategy. When it comes to trading also, a strategy is needed to help ascertain consistent winning. Like the saying goes - to fail to prepare is to prepare to fail. A trading Strategy is the building block of any trading system you will find out there. It is the category, each style used by all traders (Forex, stock, Cryptos, commodities, etc) belongs to.

Forex trading strategies can be likened to as the bare bones of a trading operation. Forex trading systems, on the other hand, makes effective the strategies. Trading systems are very elaborate and comprehensive, and it explicitly takes into account the kind of trader you are (scalper, day trader, trend trader etc). There are various trading strategies to try out, and with every passing day, some trading genius after spending years mixing trading chemicals in a secret trading lab at the top of the Himalayas would have come up with the next best trading system, available for sale at an exorbitant price... The funny but true story really. 

Anyway, whether your system is from the CIA or some crazy genius trader who mastered the market by watching monkey shave their armpits, the chances that such system belongs to the strategies we will be dissecting in this articles is almost 100%. 

Here is a list of the top trading strategies.

1. Scalping

This is more or less a fast and furious type of approach to trading. 

Broken down, scalping involves taking little scraps from mini market trends and price spikes. This way a trader only enters the market to gain the least possible profit from it, and then move out as quick as possible, before the market shows them who's the boss. Scalping is best done when the possible outcomes of an event are predictable and expected to lead to a very sharp and quick spike in the price of Bitcoin, even if it's for a short period of time. Imagine making about 1000 Satoshis, 20 times daily! from just going in and out of the market within minutes! 

Scalping requires a heightened sense, access to firsthand market information and keen eyes for mastering patterns along with details. Even with all these in place, it takes time and several months if not years of practicing. If you don't have any of this, it's better you stick to other strategies best suited to your resources. 

 2.  Fundamental analysis 

For those who are in love to make their trading decision from information gotten from, watching financial TV Channels like CNN Money, Bloomberg, etc or subscribe to a luxury financial magazine like the Wall Street Journal, Forbes, Times Finance etc. You must have been practicing fundamental analysis without even knowing. Simply put, fundamental analysis is the process of using economy data as an indicator of the likely directions of price and whether a particular asset is overvalued or undervalued in relation to other similar or connecting financial assets. 

This method of trading can be a little bit complex and also not really advisable for short-term traders or beginners in general. As a smart person, you are asking why is that so, right? However, not asking doesn't mean you aren't smart, don't go googling "how to be smart" please! 

The reason is:

This News and economic data's used in fundamental analysis comes from Central banks, regulatory bodies and the major financial institutions (let's call them the big boys or girls whichever you feel comfortable with). If you are used to the price charting packages, you will notice that the price of a target asset tends to increase or decrease sharply just right after an important news release. So unless you are able to get access to this news before prices start to reacts to the news, you will most likely always miss the spike in prices, thus entering at the top or bottom of an already established trend. 

So if you don't have access to state of the art information transmitters or subscribed to some secret and very expensive financial news channels. This method might prove a bit more of a gamble for you. However, it should be noted that some traders have devised various means of profiting from this strategy, following methods that have been tested and trusted over a long period of time. These methods usually involve setting a trap for the price before the news or riding on the economic news/data outcomes. 

3.  Technical analysis

This is a bit more straightforward approach to trading Bitcoin. Mathematicians in the house will surely love this! Technical analysis is based on the mathematical interpretation of past price data. In other words, you are using mathematical equations in the form of indicators to predict the likely directions of price, using information from the past.  

Since it is quite possible to merge as many basic indicators together to form another unique one, the number of technical indicators you will find around is quite a lot. However, there are some basic ones you will surely come across in your technical analysis path. These set of indicators makes up the bulk of several other, so they are generally regarded as the system indicators (they mostly accompanies a charting package). Examples of these system indicators include; Relative Strength Index (RSI), Moving Averages, Fractals, Stochastic Oscillators, Bollinger Bands, etc. 

The others originating mostly from the alteration or merging of the standard mathematical equations, used in the making of the above-listed ones are referred to as Custom indicators. You can liken indicators to the financial market traffic lights, they help with the likely directions of the market as well as help tell when the perfect time to enter the market is.  

Going by the basic definition of what technical analysis is, it is like collecting candy from a kid. But in truth, the reverse is the case, only if you are the kid and the market is collecting all your candies (BTC) then it's easy :). 

Technical analysis requires a lot of practice to truly understand and master it well. Generally, it is recommended to master a particular technical analysis system for not less than 6 months with consistent profit, using a demo trading account, before you go live.

4. Algorithm trading  

Movies like The Terminator, The Transformers etc has proven that if not now, one-day machines will be able to perform unimaginable functions at accuracy and speed beyond what is humanly possible. When it comes to the financial market, that time has long arrived. 

From fictional books and Several Hollywood productions, Wall Street is "well-known" for recruiting special "maths/computer" genius right out of college, to help build some next generation never seen before trading robots. 

As cliché as this might sound (all thanks to Hollywood), it is actually the truth. Computer software and hardware robots are being built on regular bases to help with trading the crypto market and other financial markets, without any form of human interaction or flaws. This robot help in various ways such as:

- Entering the market at lightning speed;
- Processing Larger trades quickly;
- Calculating and interpreting Technical indicators data instantly;
- Receiving and feeding back economic news reports instantly, etc.  

So if you are into computer programing (No! HTML or CSS skills won't cut it) and your mathematical skills are near that of Pythagoras himself, then this type of trading strategy might just suit you well.

5. Swing trading 

The market moves upward (uptrend), downward (downtrend) or sideways (range). Each of these market movement represents the current sentiments of any market. 

For Bitcoin traders, upon establishing the current trend the market is in, the next step is to locate the likely top or bottom of such trend. Once this is done, a swing trader enters the trade in the opposite direction of the already established trend, hoping for the price to drop or increase right after. This type of trading is one, if not the best for Cryptocurrency traders, as it is a medium-term and a single trade can last up to about one day or a week before the take profit point is reached. Swing trading also allows the use of large stop loss, this way the trade is protected from, the sharp erratic movement that might stop out the trade, before going off into the profit zone. Swing trade can be combined effectively with almost all forms of trading strategies and it is also perfect for trading ranging markets, for those who can identify the up and down bands of a trading range. 

Start trading Bitcoin 

If you are looking to start trading Bitcoins for a living, in hope of fancy cars and quickly switching to beings the favorite Child or Uncle/Aunty, just know it's never going to happen overnight. Practice is needed and a lot of failed attempt is expected, so don't go firing your boss yet!  

Take your time to explore each of this strategies, to see the one that best fits your style, from there you can get several resources on that and with enough practice and the perfect tools, you will be unstoppable. 

Joshua Dylan


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