Cryptocurrency trading is similar to rafting down a wild river. It is an intense and resource-consuming process that requires a lot of time, consideration and determination. Understanding the cryptocurrency market and its fundamental rules is the first step to conquering it. In this article, we will share the hottest trading tips and strategies that will help you to always “stay afloat”.
Cryptocurrency trading strategy
Bitcoin strategy is a trading system that includes the price entry and exit points that you should follow. The variety of different options on the cryptocurrency market allows traders to perfectly match their strategies with personal goals, investment profiles, risk approach and accessible resources. There are four most widespread cryptocurrency strategies that we will describe below.
HODL is undoubtedly the most well-known cryptocurrency investment tactics. The concept was first introduced seven years ago, when Bitcoin was in a bear stage and one of the investors wrongly spelled “hodling” instead of “holding” to express his unwillingness to exit the current position.
HOLD became a full-fledged cryptocurrency tactics that is determined by sustaining a position and expecting that it would grow in price soon. At the same time, Bitcoin is sadly known for its high volatility which signifies that this approach could end in failure for unexperienced or impatient investors. For this reason, HOLD is never approved without risk minimisation recommendations.
Those who have already invested in Bitcoin often plan to deliberately open Bitcoin trades if they had reasons to believe that a short-lived dump will happen. Hedging is a process of initiating important positions to eliminate or minimize the uncertainty of established positions. In this situation, traders would hedge the current investment by selling Bitcoin, which means selling the digital coin for the real market value expecting that it will fall in price in the near future. In case the price decreases, traders would later purchase Bitcoin back for the smaller price and benefit from the existing difference. In a nutshell, any loss to primary level could be balanced out by the Bitcoin profit.
There are many financial tools that investors can apply to hedge their cyrpto risk, but a pervasive majority of users prefer to hedge with the so-called CFD tactics. In contrast to the long-established short-selling, traders are not required to sell their cryptocurrency in order to initiate a short trade, because Bitcoin is qualified as a derivative goods. Hedging strategy, especially the CFD, is also associated with numerous risks, such as unrestrained downside danger, when the uncontrollable cryptocurrency market can play against a trader. However, there is no guarantee that they would not lose everything overnight.
Bitcoin Trend trading
Market becomes trending when it consistently approaches the very highest points or the very lowers ones. The tactics is relevant for various time frames, because traders keep their position open inasmuch as they think the trend will last – from several months to a couple of hours. Many traders believe that Bitcoin is a trend itself. In December 2017, Bitcoin reached $19,763.50, which became the highest price in the history of the cryptocurrency. The trend was fuelled by the so-called “Fear of missing out”, when investors were afraid to pass up the new popular trend. Trend traders should always keep an eye on important events and announcements that could potentially influence the Bitcoin price.
In most cases, trend traders execute technical analysis offered by a variety of platforms or bots to forecast the cryptocurrency market. Bitcoin trend trading requires to announce a new position when a person thinks that the cryptocurrency’s price will keep growing or falling in the same direction or will eventually develop a new trend. There are many different ways that help traders define the dynamics of a trend, which normally entails price movement forecasting and following signals.
Breakout includes entering trending cryptocurrency market as quickly as possible and waiting for the coin to break from the former price range. The main idea behind this strategy is that when a market breaks the key resistance or support points, there is a big chance of major volatility. That is why traders would seek to enter the market at “breakout” points in order to gain profit.
To recognize those levels, traders usually apply technical analyses and AI-based signals, such as MACD or RSI. Once identified, traders can initiate a Bitcoin position. For example, Bitcoin is traded within $8 000 – $8300 range. Your analysis predicts that when it hits $8300, it will turn into a bull market. You will most probably want to open a long-term initiative if the Bitcoin price reaches $8301 point. If the prediction was correct and the price was raised to the aforementioned level, your CFD will be run and you would keep going with the trend until your bot would suggest leaving the position. If the Bitcoin price never reached $8301 point, your position will not be carried out.
Crypto trading tips
Keep an eye on the cryptocurrency market
Get aware of the key features of the Bitcoin market before choosing the appropriate trading strategy. There are many aspects that can influence the Bitcoin price dynamics. In this article, we will focus on the main three factors listed below.
News and events
Bitcoin’s public perception play an important role in maintaining its price and market capitalisation. For this reason, unpleasant news have a potential to negatively impact its dynamics and market value. Cryptocurrency regulations and restrictions, security attacks and global macroeconomic processes have an effect on Bitcoin’s rank on the market. Moreover, the majority of digital coins heavily depend on Bitcoin. In case Bitcoin turns into bull market, other cryptocurrencies also has a chance for a sustained rise. However, due to the unstable economic situation, Bitcoin has been reduced by more than 40% since the black swan events occured in 2020.
You can only generate new BTC coins with mining. The mining reward is halved every 4 years. 21 000 000 BTC can be mined in total. In November 2012, the reward was reduced from 50 to 25 BTC per block. Following the second halving in July 2016, it went down to 12.5 BTC per block. In 2020, the BTC reward was cut by half again to 6.25 units. Bitcoin halving become a powerful social event that was widely discussed in the media and ultimately had an impact on the Bitcoin price.
Design a trading plan
Before you proceed with the actual trading, it is strongly recommended to build a detailed plan. By following well-structured guidelines, you will avoid falling prey to negative emotions like anxiety, fear, panic or greed. There are many useful Reddit conversations on how to design a trading plan and execute it. Otherwise, you can always look for a free software that would design a personalised plan for you based on your goals and strategy.
By objectives we mean achievable goals that will become your incentive for trading. They are not necessarily connected to the financial gains, but rather reachable and feasible estimations and plans.
Style and Risk profile
The cryptocurrency market offers a great selection of Bitcoin strategies, depending on the frequency of trading as well as the durability of those trades. Take into account as many important factors as you can to ultimately make the best decision on your trading profile.
Your final trading plan should also involve your attitude to risk and speculations.
You can either buy Bitcoin through a crypto exchange, such as Godex.io, or trade with the help of derivatives. However you decide to arbitrage your digital funds, it is essential to have a knowledge of a preferred method. If you prefer to purchase cryptocurrencies via an exchange, you would become an owner of your digital coins and store them in a specialised wallet. If you favor to trade with the help of derivatives, you will not be able to own Bitcoin yourself and will not require a digital wallet. You can immediately open a position and start speculating on the price.
It’s no secret that the cryptocurrency market is extremely volatile and all traders are subject to its price dynamics and fluctuations. Good habits will help to alleviate the losses, act in accordance with the rules and increase profits.