Cryptocurrencies like Bitcoin are traded on decentralized markets, so they’re not supported or managed by a central authority like a government. They run on a blockchain, which is a network of computers. Bitcoin has a decentralized nature because it’s free from economic and political concerns that impact traditional currencies.
However, it doesn’t mean no external factors impact it. Bitcoin is unpredictable, as we’ve witnessed recently, and factors such as the integration of e-commerce payment systems, media presence, and supply and demand impact its evolution.
This makes it paramount that you use trading strategies to navigate the volatile market and maintain your portfolio profitable. It’s quite popular nowadays to buy bitcoin or sell it. But you might not know that three elements make up the definition of trading – trading strategy, object, and operating mode. This article discusses Bitcoin trading strategies as their algorithms that define a set of established rules for buying and selling this digital token.
How to start trading Bitcoin
However, before detailing how Bitcoin trading strategies function, let’s understand what trading this digital currency implies. The first step you should do is to open a Bitcoin wallet with the help of a platform that facilitates currency trading. Once you have a wallet, track the bitcoin price for a period to understand how it fluctuates according to the market’s movements.
Research the currency’s evolution and try to understand how it behaves in the market and in relation to the other digital tokens to determine which strategy to use.
Keep in mind that as a beginner trader, you might lose money because the crypto industry works like a maze for those lacking knowledge and experience.
Why do you need a trading strategy?
Experienced investors don’t trade based on their intuition alone because they know that the happenings in the market are far from random. Also, they’re aware that trades based on their gut and knowledge can result in great profit, and they cannot replicate the same method, even if they try hard to identify the same market conditions.
Successful Bitcoin traders rely on tested and well-developed methods that provided them with profit before because they know that prices fluctuate often, and they need a tool to identify predictable patterns that allow them to limit risks. Therefore, they adopt a strategic approach to achieve consistent results. There are many strategies you can choose from, but not all cater to your trading style, and therefore you need to determine which one would bring you the best results.
What is a Bitcoin trading strategy?
A Bitcoin trading strategy is an established method of making and planning Bitcoin trades. It establishes a set of specifications that help you identify the trades to make, when is the ideal moment for them, when to exit them, and how much you should invest in a position.
The Bitcoin trading strategy you use works like a fixed plan that allows you to gain profit when you buy or sell Bitcoin in the crypto market. It should include several analytical tools that help you identify predefined price levels and market conditions to improve your trading experience.
Types of trading strategies
The most popular Bitcoin trading methods include scalping, swing trading, day trading, arbitrage, and buy and hold. This article explains how they work but doesn’t tell you when to use them because you must decide according to your needs and skills. Therefore, remember to do some extra research before employing one of them when trading Bitcoin.
Scalping
Scalping is a well-known strategy in the crypto market. Many investors trading Bitcoin use it because it allows them to profit even when the currency registers little price movement. It allows you to make small profits daily and generate a substantial amount over an extended period. When relying on scalping to trade Bitcoin, you use leverage to open several trades and stop if you register a small loss to manage the risk you expose your portfolio too. Scalping requires using one-minute, 15-minute, or 30-minute time frames, so the trades can last from a couple of seconds to several minutes but usually not longer than one hour.
Swing trading
If you trade Bitcoin using this method, it’ll take more than a day but less than a few weeks to gain profit. Investors consider it a medium-term trading strategy because it gives them time to consider their decisions and prevent emotions from influencing their trades. Because it promotes rationality, it’s recommended for beginner traders to employ it.
Day trading
Day trading Bitcoin requires entering and exiting positions during the same day. You can capitalize on intraday price movements and close the positions by the end of the day. This strategy allows you to profit from small market movements and the market’s volatility.
Arbitrage
Arbitrage trading implies buying Bitcoin from a market and selling it in another market to profit from the price difference. You can make money by taking advantage of low-price correlations among Bitcoin offered on multiple exchanges. This method offers limitless opportunities because there are multiple market exchanges, and you can capitalize on Bitcoin’s price across all of them.
Buy and Hold
If you engage in position trading (another name for buy and hold), you hold Bitcoin for a long time. You could keep the currency in your wallet for months or even years, ignoring short-term price movements and focusing on long-term trends. When you used to buy and hold, you focused on weekly or monthly timeframes and relied on the analysis to evaluate the market’s potential.
Decide what bitcoin trading strategy would work best for you
Your skills and needs determine your trading style. You might prefer scalping because you have time to spend an entire day in front of your computer analyzing trending charts and entering and exiting trades at different intervals. Or you may opt for a long-term trading strategy like swing trading that allows you to do other activities while trading Bitcoin.
Before picking one of them, consider how much you want to gain, how much time you have to spend, and if your knowledge allows you to make risky investments.
