Have you ever wondered why few are successful while many struggles to profit? We have laid down a few Bitcoin trading strategies to help you trade like a pro.
If we look at the current price trend of Bitcoin, it is moving sideways, meaning the price of Bitcoin fluctuates between $19,000 and $20,000. However, you can still make a profit since the price is growing.
Although the price fluctuation is not massive, you can still make a killing by slowly investing in Bitcoin over an extended period.
Before we give you tips for trading, you must first understand…
What is a trading strategy?
A trading strategy is a framework based on research that allows you to minimize loss and maximize profits. In simple terms, it is a guide created by you that enables you to outline your entry and exit plan while trading in Bitcoin.
Every financial endeavor involves a specific aspect of risk. If the risk is not there, the profits are meager. For instance, you own a grocery shop in a city. You sell fresh farm goods to your potential customers. The risk here is that the whole seller or the farmer with whom you have a tie-up needs to bring the fresh farm goods before they get spoiled. The farmer is at the mercy of the weather to produce a decent environment for the vegetables to grow at their optimum level so that the natural nutrient level remains constant. If you consider poultry or a pig farm, they need to be medicated to avoid flu outbreaks that can wipe out those farm animals.
However, the returns are good, thus worth taking the risk.
Similarly, a trading strategy involves a plan which prepares you to take action for unforeseeable events and helps you exploit for a profit or mitigate loss allowing you to make decisions based on logic rather than emotions.
Back- and forward-testing may also be used in developing a trading strategy to confirm its accuracy. Several cryptocurrency exchanges offer a demo account, for instance, that would allow you to trade Bitcoin on paper.
This article will discuss two different trading strategies—active and passive—.
As you’ll see in a moment, there may be an overlap between the trading strategies’ definitions, making them less rigid. In fact, a hybrid method that combines several strategies would be worthwhile to investigate.
Active trading strategies
Active Bitcoin trading strategies require more time and focus. Because regular portfolio management and ongoing monitoring are involved, we refer to them as active.
Day trading
The most popular active trading approach may be day trading. It’s a widespread assumption that all active traders are day traders, but this is untrue.
In day trading, positions are taken and sold on the same day. Day traders, therefore, try to profit from price changes that occur during a single trading day or intraday price changes.
The phrase “day trading” originates from traditional markets, where trading is only available during certain hours. Therefore, day traders seldom hold their positions overnight when trading is suspended in those marketplaces.
Most cryptocurrency trading platforms are available 365 days a year, 24 hours a day. As a result, day trading has a significantly different meaning when referring to the crypto markets. It usually describes a short-term trading approach in which traders enter and exit positions within 24 hours or less.
Day traders frequently use technical analysis and price action to develop trade ideas. Additionally, they could use various additional strategies to identify market inefficiencies.
While day trading cryptocurrencies have the potential to be highly lucrative for some, they can also be very stressful, time-consuming, and risky. Day trading is advised for more experienced traders as a result.
Swing trading
Swing trading is a longer-term trading technique that entails holding positions for longer than a day, but often not longer than a few weeks or months. Swing trading is a form of trading that sometimes straddles the day and trend trading spectrums.
Generally speaking, swing traders look to profit from waves of volatility that develop over several days or weeks. Therefore, swing traders may combine technical and fundamental elements when formulating their trading ideas. Fundamental analysis is used when fundamental changes may take longer to manifest themselves. However, chart patterns and technical indicators are important in a swing trading strategy.
For beginners, swing trading may be the most practical active trading method when considering Bitcoin trading strategies. Swing trades take longer to play out than day trades, which is a considerable advantage. However, they are brief enough that following the trade is relatively easy.
Traders now have more time to think things over before making a choice. Most of the time, they have sufficient time to respond to how the trade is developing. Swing trading allows for more deliberate and less impulsive decision-making. On the other hand, day trading frequently necessitates quick decisions and execution, which isn’t ideal for a newbie.
Trend trading
Trend trading, also known as position trading, is a tactic that involves keeping positions open for a longer length of time, usually at least a few months. As the name implies, trend traders seek to profit from directional trends. For example, trend traders can open long positions during uptrends and short positions during downtrends.
Trend traders may only sometimes use fundamental analysis, but it usually is. Nevertheless, trend traders attempt to profit from fundamental research’s consideration of developments that may take a while to materialize.
According to a trend trading strategy, the underlying asset will continue to move in the trend’s direction. The likelihood of a trend reversal is another factor that trend traders must consider. Because of this, they might also include moving averages, trend lines, and other technical indicators in their strategy to attempt and improve their success rate and reduce financial risks.
If they research and manage their risk, trend trading can be the perfect strategy for new traders.
It would serve you best if you were to take up a Bitcoin trading course that several online crypto brokers or brokerage firms offer. First, select a reputed and trusted crypto broker or brokerage firm since scammers are a dime a dozen in this crypto industry.
Scalping
Scalping is one of the fastest trading methods available. However, scalpers don’t aim to profit from large moves or protracted trends. Instead, it’s a tactic that emphasizes repeatedly capitalizing on little adjustments—for instance, making money off of liquidity gaps, bid-ask spreads, or other market inefficiencies.
Scalpers don’t seek to keep their positions open for an extended period. However, scalp traders frequently open and close positions in a few seconds. This is why scalping and high-frequency trading (HFT) are frequently linked.
If a trader discovers a market inefficiency they can take advantage of that occurs frequently, scaling can be a very profitable technique. They can generate little earnings each time it occurs, which eventually mounts up. Scalping often works best in markets with more liquidity since it makes entering and exiting positions relatively easy and predictable.
Due to its intricacy, beginners are not advised to use the sophisticated trading strategy known as scalping. In-depth knowledge of market principles is also necessary. Other than that, large traders (whales) should generally avoid scalping. Since the percentage profit targets are frequently lower, trading larger holdings make more sense.
Passive investment strategies
The management of the portfolio can be done with less effort and time, thanks to passive investment strategies. Even while trading and investment techniques differ, at its core, Bitcoin trading strategies are the act of purchasing and disposing of assets with the intention of profiting.
Buy and hold
In a passive investment strategy known as “buy and hold,” traders purchase an asset intending to hold it for a lengthy period, regardless of market movements.
This tactic is frequently employed in long-term investment portfolios, where the goal is to enter the market without considering the timing. This strategy’s premise is that timing and entrance price won’t matter if you trade for a long enough period.
The purchase-and-hold approach often ignores technical indicators in favor of fundamental analysis, which is virtually always its foundation. As a result, the technique will only sometimes require you to check on your portfolio’s performance.
Although Bitcoin and other cryptocurrencies have only been available for roughly ten years, the HODL phenomena can be linked to the buy-and-hold strategy. Although dangerous and unstable, cryptocurrencies constitute a type of asset. Therefore, despite the fact that purchasing and holding Bitcoin is a well-known approach in the cryptocurrency world, other cryptocurrencies might need to be a better fit for the purchase-and-hold strategy.