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27 Best Bitcoin Trading Tips and Strategies

Best Bitcoin Trading Tips and Strategies

Overview

Bitcoin trading is the act of buying low and selling high. Unlike investing, which means holding Bitcoin for the long run, trading deals with trying to predict price movements by studying the industry as a whole and price graphs in particular.

 

 

Bitcoin traders typically buy and sell Bitcoin in the short term, whenever they think a profit can be made. Unlike investors, traders view Bitcoin as an instrument for making profits.

There are two main methods people use to analyze Bitcoin’s price – fundamental analysis and technical analysis. Successful trading requires a lot of time, money, and effort before you can actually get good at it.

Fundamental analysis tries to predict the price by looking at the big picture.

 

 

In Bitcoin, for example, the fundamental analysis evaluates Bitcoin’s industry, news about the currency, technical developments of Bitcoin, and any other news or issues that can affect the success of Bitcoin.

This methodology looks at Bitcoin’s value as a technology (regardless of the current price) and relevant outside forces, to determine what will happen to the price.

Technical analysis, on the other hand, tries to predict the price by studying market statistics, such as past price movements and trading volumes. It tries to identify patterns and trends in the price and based on these deduce what will happen to the price in the future.

In this article, we will explore the 27 best tips and strategies for successfully trading Bitcoin. We will start by discussing strategies from both the fundamental and technical schools of thought, followed by tips that can serve to enhance the success of these strategies.

 

Buy the dip strategy

‘Buy the dip’ is a popular strategy among traders and investors and especially within the cryptocurrency field, especially for Bitcoin trading.

In theory, it means that traders should enter a position when the price dives if they believe that the current trend will endure.

To carry out this strategy successfully, one should buy incrementally as the price goes down, creating an average position and aiming to buy more as the price decreases further.

 

News-based trading strategy

Before you start developing a news trading method, you have to know the impact of economic news. Some news has a low impact and some have a very high impact. You must be able to identify high and low-impact news.

Professional traders blend the news data with technical analysis to find potential trade setups.

To trade the major news, you can use the price action signals. Draw the support and resistance level in the higher time frame.

Once the news is released, you need to look for a reliable price action signal in the minute time frame. If you spot any price action signal that favors the news take the trade.

 

Bitcoin hedging strategy

In simple terms, hedging is an action made to reduce the risk of another investment. So in Bitcoin terms, hedging is the action of selling Bitcoins to reduce the risk of holding Bitcoin, thus increasing or maximizing the reward of your profits.

When the price goes up, you hold your coins. When you can predict that the price is going to drop, you’ll want to sell off as high as you can.

 

HODLing strategy

A humorous acronym for “Holding On for Dear Life”, the idea behind the strategy is basically to hold Bitcoin.  Hodling does not look fondly on short-term trading strategies.

Buying and selling when an asset is as volatile as Bitcoin is tough if you want to profit. And even if you can profit by trading, you likely miss out on money you would have gained by just hodling Bitcoin instead. Hodlers can escape the volatility, by simply hodling Bitcoin.

 

Automated trading

Automated trading of Bitcoin is when algorithms of trading are carried out by a computer program. There are also many tools, like filters and signals, which help crypto bots make decisions.

The cryptocurrency trading process is based on the results of different market analytics and calculations and excludes human factors like fatigue. It’s also not affected by the emotional swings and tilt. Bots work 24/7 and way faster than manual clicking.

 

Countertrend trading strategy

A countertrend strategy is a trading method that attempts to make small gains by trading against the current trend. Traders also refer to the practice as countertrend trading.

A countertrend strategy targets corrections in a trending security’s price action to make money. Contrarian traders often deploy countertrend trading strategies.

The strategy involves buying/selling a security that has experienced an impulsive bearish/bullish move in the hopes that a corrective move higher/lower will allow them to sell/buy it back at that higher/lower price.

 

Trend trading strategy

Trend trading is a strategy that involves using technical indicators to identify the direction of market momentum.

It is based on the idea that markets have an element of predictability, so by analyzing historical trends and price movements, a trader will be able to forecast what could happen in the future.

Trend trading is usually considered a mid to long-term trading strategy, but it can in theory cover any timeframe, depending on how long the trend lasts.

 

Breakout trading strategy

Trading breakouts are a very popular strategy among traders in many markets, not just with cryptocurrencies. However, when it comes to cryptos, trading breakouts can be somewhat intimidating after the first impression.

Breakouts occur when the price action surpasses resistance or support levels (or any chart pattern).

As per their very nature, breakouts break trends, and if they counter the previous trend, then they often signify the start of a brand new trend. Nevertheless, breakouts don’t always mean counter-trending.

An upwards trend may still have resistance levels, or downwards trends can also have support levels, but breakouts can still bring movements that surpass this, usually resulting in new high/low price levels and continuation of the current trend.

 

Short entry strategy

Day traders in short trades sell assets before buying them and are hoping the price will go down.

Short-term trading can be very lucrative but it can also be risky. A short-term trade can last for as little as a few minutes to as long as several days.

To succeed in this strategy as a trader, you must understand the risks and rewards of each trade. You must not only know how to spot good short-term opportunities but also how to protect yourself.

Recognizing the “right” trade will mean that you know the difference between a good potential situation and ones to avoid.

Too often, investors get caught up in the moment and believe that, if they watch the evening news and read the financial pages, they will be on top of what’s happening in the markets. The truth is, by the time we hear about it, the markets are already reacting.

 

Dollar-cost averaging strategy

Here’s a strategy that doesn’t take a lot of time or knowledge to participate in. Dollar-cost averaging is when you purchase a fixed amount of cryptocurrency at certain intervals while the price action is either moving up or down.

With this strategy, you’re averaging out all the purchases within those set intervals (usually months) which can be averaged out to one average price.

This price typically ends up being a much higher or lower price point than if you were to purchase in one lump sum at a single interval in time.

 

Mean reversion

The mean reversion strategy is based on a straightforward assumption – if the price of a coin shifts from its average, then it’s eventually going to revert to it.

This assumption holds true both for traditional and cryptocurrency markets. The reason why this happens is because of the overall market psychology.

 

Momentum trading strategy

A momentum investor judges the ebb and flow of the market by its momentum. An ideal scenario is to ride a positive momentum wave with your assets and then immediately sell them off when the market momentum reverses.

The core philosophy behind this is the belief that the prices of an asset will spike above its average and then run out of momentum and fall. In this situation, the timing of the buy-in and sell-off is critical.

 

Arbitrage strategy

The price of an asset can vary in different exchanges. This mainly happens due to fragmentation in price across marketplaces.

With the Arbitrage strategy, you will be able to make a profit by buying and selling on exchanges simultaneously. To exploit these price differences, you will need to buy and sell X, almost at the same time.

 

Naïve Bayes strategy

The Naïve Bayes trading algorithm uses machine learning to determine the probability of an event occurring. By feeding relevant information to your bots, you can help them determine the correct entry and exit times.

 

Natural language Processing automated strategy

In the cryptocurrency market, the price of the asset can change wildly as per fundamental news like articles, tweets, and other similar content.

Using NLP programming, one can teach their bots how to programmatically interpret words and phrases and analyze the underlying sentiment. E.g. Partnership news is usually pretty bullish.

So, if your bot can read an article which states, “X partners up with B to boost mainstream adoption,” it should start accumulating the asset.

 

Best Bitcoin trading tips to enhance your strategies

 

Do not lose your private keys

This may be the greatest mistake in the crypto community to date. Losing private keys will waste all your money as you can’t do anything if you have forgotten the password.

The total available supply of Bitcoin is capped at 21 million, with new ones released every day.

If you lose a coin or note of your local currency, it doesn’t matter much to the economy as a whole because your government simply mints new money regularly.

But seeing as the supply of Bitcoin is finite, any time someone loses any, that means the circulating supply decreases. So even when we reach 21 million, the number available to buy, sell, store and use will be lower.

It’s not known exactly how many Bitcoin is currently lost, in part because the definition of ‘lost’ varies depending on who you ask, and some may be reclaimed in the future. Though going beyond the void retrieve it isn’t easy.

Your private key gives access to your Bitcoin. If you lose this, it’s like forgetting the code for an unbreakable safe.

Some people have written down their credentials, only to lose or accidentally throw away the piece of paper. Others committed them to memory, then later forgot it.

Also, people may destroy their private keys on purpose for various reasons. The creator of Bitcoin, Satoshi Nakamoto, is believed to have mined one million but has never touched them. Some believe Nakamoto destroyed the private key.

 

Do not fall for phishing scams or email account scams

Falling for an email scam is something that can happen to anyone. It’s a frightening concept and one that frequently results in undiluted panic.

Also known as a phishing scam, it involves using email and fraudulent websites to steal sensitive information such as passwords, credit card numbers, account data, addresses, and more.

With the increasing popularity of cryptocurrency airdrops, it is no surprise that there are also many scams out there.

 

Use 2-factor authentication

Two-factor authentication, or 2FA, adds an extra layer of security to your account.

When logging into your account, in addition to your email and password you’ll enter a code generated by an authentication app on your smartphone. This secures the account.

The cryptocurrency community is all about advocating proper security techniques, and two-factor authentication (2FA) is one method that’s taught first and foremost to newcomers.

2FA is a subset of multi-factor authentication (MFA), a system that requires the use of two different factors to unlock a combination.

For example, if 2FA is applied to a cryptocurrency exchange account you would need to log in with your username and password, but you will also need to enter a 2FA authentication PIN. The authenticator is usually on a secondary device like a mobile phone or a USB key.

 

Do not give in to FOMO

Never let FOMO (Fear Of Missing Out) control your emotions. Try to feel and think logically to shatter the dreams of high returns. When you notice the market going up, try to avoid feeling like investing in the hopes of it going higher.

 

Try to diversify your portfolio

The most effective strategy for minimizing risk is diversification. A well-diversified portfolio consists of different types of securities from diverse industries, with varying degrees of risk.

While diversification can’t guarantee against a loss, it is the most important component to helping you reach your long-range financial goals, while minimizing your risk.

 

Do not chase pump and dump schemes

Pump and dump is a scheme that boosts the price through recommendations based on false, misleading, or greatly exaggerated statements. So, it’s better to not fall into these traps.

In this scheme, a horde of traders drum up enthusiasm for a coin by evangelizing it on multiple channels, including social media. Subsequently, they instigate a coordinated purchasing frenzy for it.

As the coin’s price climbs, other traders, unconnected to the pump-and-dump group, also latch onto the buying spree, further boosting its price. The coordinated action is repeated, except this time around in selling the coin, when it reaches a certain price target.

This causes a sharp decline in its price. While the pump-and-dump group makes profits, other traders, who purchased the coin based on false promises, are left holding losses.

 

Install a price ticker

A price ticker will alert you whenever the price fluctuates. So, it’s better to install it on your phone. Depending on the price, you can make wise investment decisions. Actually, it is not the price that should be the sole factor to watch out for before investing.

You should always observe the market capitalization as that is an eminent factor. This is one of the common day-to-day altcoin trading strategies (crypto trading strategy).

 

Use risk management tools

As much as trading can be enjoyable and rewarding, the negatives are often overlooked when people first begin.

The fact of the matter is that it’s very easy to lose a lot of money, very quickly. One way to prevent the chance of burning through your funds is by utilizing the tools available to you.

Trailing stops become very important when trading Bitcoin. With the potential for its price to plummet unpredictably in a short space of time, trailing stops can ensure profit is earned when Bitcoin’s price rises while still protecting from price falls.

Regular stops are fixed at one price, meaning a market can rise 2000 points and fall back down to the level the stop is set at, and no profit is earned.

With trailing stops, the price level that the limit is set at ‘follow’ the price of the market, and the stop is only executed once the market falls a certain number of points.

Price alerts are another tool in your risk-management arsenal. You can set them to trigger at any chosen price selected by you, so for instance if the price of your invested equity falls drastically in one session, you’ll be notified if the market hits your predetermined price.

You can choose to receive the alerts either via email or an app notification. Once triggered you can act accordingly, whether that means closing your position, setting a new alert, or opening a new position.

 

Don’t assume an uptrend

If Bitcoin’s price does rise favorably, don’t assume it will continue to rise towards the five figures level we’ve seen it at before. If you are thinking that it may rise, there’s a fair chance others are too.

So, if a sharp price rise is followed by a quick decrease in price, this may spark worry and cause people to panic. Once this happens, another price crash could very well occur. Just keep in mind that a price can fall just as sharply as it rises.

 

The long term is not always better than short term

Many people invest in Bitcoin in the long run, anticipating price rises. While it’s true that its price may gradually rise and over time reaches its highest ever level, whether it actually will and how long it may take is another story.

Trading short-term can be as efficient. Of course, this means you won’t benefit as much if Bitcoin’s price was to rise substantially, but you also won’t lose as much should it crash.
What’s more, there’s still plenty of opportunity surrounding short-term Bitcoin trading.

 

Identify the trends

Bitcoin and cryptos are some of the most unpredictable markets to trade down to their reliance solely on sentiment to drive price – no company statement or centralized bank will affect its price directly in the way, for instance, equities will.

Therefore, it’s far more difficult to anticipate a specific time that Bitcoin’s price may change. However, there still are trends that can be seen.

The main one involves the mining reward halving, which is one of the only times traders can predict when its price will change. In theory, as the reward for successfully mining decreases, the supply will effectively lower as it’s more difficult to earn a Bitcoin.

Therefore, the price is likely to rise if demand remains constant, as supply (not the existing supply but the supply of Bitcoins left to mine) decreases.

In reality, Bitcoin had experienced two very significant bull runs around a year after the halving, in 2013 and 2017 respectively.

With the next halving, the period 12 months after that date could prove to be interesting. It is subtle trends like these that should be looked out for.

Some suggest that this change will be more significant for the next halving, as the mining reward will fall to an eighth of what it started as (from 50 Btc to just 6.25 BTC).

With the mining reward falling exponentially as each halving occurs, this trend could continue with the price change of Bitcoin becoming ever more drastic as the mining reward is halved to an increasingly smaller amount.

 

Stay informed of developments

With no monthly statement, planned quarter or annual reports, or any other official announcements, it can seem like Bitcoin price changes originate at random.

This is far from the case, as its price is based on trader and consumer confidence in the crypto. So, be sure to follow the influential figures in the Bitcoin world.

Keep informed on what companies are looking to embrace Bitcoin and which ones condemn it. Look at how other cryptos are performing in comparison to Bitcoin. Look at the markets that may have a direct impact on Bitcoin.

Other currencies may be worth following as if one or more begins to crash, more faith may be put in the decentralized cryptos.

Staying informed, especially if you’re a short-term trader, will equip you to make predictions based on good, genuine knowledge of how a currency may react based on news that comes out.

 

Conclusion

A Bitcoin strategy is a methodology for trading the market that covers the price points you’d enter and exit at.

It’s important to learn to walk before you can run. Begin by learning the basics about the mechanics of buying and selling Bitcoin. You’ll need to read reviews of all the leading Bitcoin exchanges first to discover the easiest and safest platforms to start buying Bitcoin.

As with all financial investments, you must learn how to protect your assets. In this case, you’ll need to ensure your digital assets are comprehensively guarded against the threat of cyber-attacks and scammers.

There are purpose-built Bitcoin wallets designed with security at the forefront.

Finally, if you’re going to handle Bitcoin investing mentally, you need to get your head around the fact that it’s going to be a bumpy ride. The volatility in Bitcoin is enough to scare off even the most experienced of traditional investors.

Nevertheless, if you’re prepared to adopt a strict risk management strategy and consider diversification in other cryptocurrencies when necessary, there is no reason why you cannot turn this high-risk investment opportunity into a profitable one.

 

FAQ’s

 

What does Bitcoin trading entail?

Bitcoin trading is the act of buying low and selling high. Unlike investing, which means holding Bitcoin for the long run, trading deals with trying to predict price movements by studying the industry as a whole and price graphs in particular.

 

Do Bitcoin traders make a profit?

Generally, yes they do. Bitcoin traders typically buy and sell Bitcoin in the short term, whenever they think a profit can be made. Unlike investors, traders view Bitcoin as an instrument for making profits.

There are two main methods people use to analyze Bitcoin’s price – fundamental analysis and technical analysis. Successful trading requires a lot of time, money, and effort before you can actually get good at it.

 

Which trading strategies will help me make a profit?

This will depend on your trading style and your goals. Check our list of the 27 best Bitcoin trading tips and strategies directly from the Forex Suggest website.

 

Author Details

Louis Schoeman

Louis Schoeman

Featured Forex and Stocks writer

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