Before we start trading bitcoin, we should do our own research. What is bitcoin? Is it worth to trade it? What strategy should I use?
Many people may think trading is easy, just buy at low and sell at high. It seems that saying is always easier than doing. However, in the most cases traders are losing money although they know this basic rules for trading. But why does people still lose money from trading? What is appropriate price to buy in? What is the right time to sell out? It seems complicated. It is all about trading skills. In this article I will present you some ways of trading strategies or tools used by most traders. Hopefully you could learn from it.
1. Buy low and Sell high
Investors buy low at the time of crashing or fair price, then holding them for long term in which the price fluctuation risk will be mitigated. We could see the all time price chart below, bitcoin price reached to the top $1200 at the end of 2013, then fell down afterwards. Now the price rebound to that level again. Many people anticipate it could pass that level and go up all the way.
Some long term traders will take up the opportunities of the black swan events, like Chinese Government Bans Financial Institutions From Using Bitcoin, bitfinex hack, Mt.Gox collapes, the change of government policies etc.
Whoever buys it up at this time and hold it in the future will make a great fortune. Bitcoin market is not robust enough to avoid the happening of such events. It is down to the ordinary investors who make decision to dump or stack up it. It is all proved at the price chart after the events. The price will bounce back previous level, even higher. It is known that bitcoin is new revolutionary technology, future’s money. As the decentralized blockchain technology develops and its ecosystem matures, people gradually adopt, use it and forgot the previous events.
2. Swing Trading or Trend Following
Traders could do this kind of trades manually or through trading bot within limited time frame, like within hours, days, couple of days etc. Experienced Traders are using fundamental or technical ways analysis to find the opportunities of opening orders. Their goal is to earn quick profit in short time.
For technical analysis, users are studying price movement chart and getting some trading signals from some indicators, like Exponential Moving Average, MACD, Bollinger etc, which requires a lot of knowledge and trading experiences.
Some people relies on trading bot through predefined parameters (algorithm), which automatically open and close the positions, boost the order speed without intervention. Even with tiny bit of profit margin like 0.1%, 0.3% (exclude the trading cost), with the trading bot, hundreds of orders will be placed daily, Even you are in the sleep, the trading bot is still working. To get more than 7% profit margin is not that difficult. It is specially fit to the swing chart or uptrend market.
Some examples will be available below:
Buy when the price stays below the EMA1 and EMA2, sell at the price based on the buy price and the set profit margin.
Another analysis is fundamental and more likely related to news and the trends, which are affecting the price. Traders need to have the knowledge, skill, experience and understanding of the underlying events forming the value of the market you’re trying to involve yourself in.
Technical and fundamental analysis has the same concept with traditional way of trading, like forex, gold, stock etc. Traditional trading theory could be applied to bitcoin market easily. The different is just the market and investment instrument.
3. Leveraged trading
There are some bitcoin derivatives available on the market, like leverage trading(margin trading), bitcoin swaps, bitcoin future contract, bitcoin binary option etc.
Traders may feel the market forms its trend and could earn a lot of money if they have more capital to trade with. For margin trading, traders are able to borrow money from the platforms (some exchanges provide this type of trading, like Bitfinex, Poloniex) and opening larger positions (could be long or short ) to speculate the short term price movement. For example bitcoin price is $1000. A trader borrows $3000 and buys 3BTC. He sells 3BTC when the price is up to $1200. He earns $600 minus $30 interest after paying back the loan. So his profit is $570.
Traders are opening the orders or buying the contracts with provided leveraged money, which could multiplies the profit or loss a few times higher from the rise or fall in price. This could be very profitable, or there are high possibilities that you are against the market and take the loss. So I don’t recommend this type of trades to new traders. Traders could use the above strategies for this type of trades, there is no difference.
4. Arbitrage Trading
Bitcoin arbitrage trading is to buy bitcoins at lower price in one exchange and to sell them at higher price in another exchange simultaneously. Different exchanges’ price is not synchronized at any point of time. Due to the different trading volume and market condition in their region, the price could vary at the most times between them. This could present the best arbitrage opportunities in front of the traders. There is a good article about how to do arbitrage trading.
Summary, there is no easy way to learn bitcoin trading. Besides learning trading theory, practical trading experience is important. Every one has to build his own trading rules and insist on implementing them corresponding with the market situations. Another factor to be successful traders is the state of psychology. We shouldn’t be greedy when we make money. What we should do is to close the position once target price reaches. We shouldn’t be fear when the market turns against our position. What we should do is to exit the position without loss expands too much.