Cryptocurrency is a relatively new financial instrument that has won traders attention around the world. This tool is different from traditional assets in terms of its volatility, as well as price formation, which raises the question: what trading strategies are applicable for bitcoin and other cryptocurrencies? Are strategies used for traditional currencies valid for trading virtual coins?
Where and how to trade Bitcoins and other cryptocurrencies
Today, Bitcoin trading is available to almost everyone. You can trade at brokers or on the cryptocurrency exchange itself. Almost all terminals for trading in financial markets have added bitcoin, altcoins and other cryptocurrencies to their instruments.
The technical principle of the analysis, review and trading does not differ from the usual financial instruments of the forex market, as well as contracts for difference.
Consider the financial terms of trading cryptocurrency bitcoins from different brokers.
Bitcoin is traded just like the main financial instruments using margin trading. The leverage provided by the broker is in the range from 10 to 200. Buying in one lot (transaction volume) means that you will have 1 bitcoin. If you bought bitcoin at a price of $ 5,000, then at the volume of the transaction equal to 1 lot, a price change of $ 50 will also change your current balance to $ 50. If we take for the one point (pip) the fifth digit to the left (the first after the comma), we get 1pp = 0.1 $, while for the pair eur / usd 1pp = 10 $.
It is important to remember that the price of Bitcoin changes very often, it is a very volatile tool, so always keep track of what price you are entering into a deal. It also affects your deposit. Pay attention to the fact that the broker sometimes acts as an exchanger, they can remove the extra commission.
Bitcoin versus Euro
Bitcoin trading at the moment, looks more interesting than other assets. This is caused by the high volatility of the instrument. Due to the constant increase in the price of bitcoin and other cryptocurrencies, we can work both intraday and in the long term.
Difference in Trading on Bitcoin and Euro
The graph shows the bitcoin price changes against the euro currency.
Pay attention to the growth of Bitcoin prices for the last period. As can be seen from the figure, we can trade both for a fall and for a rise. Since bitcoin is pegged to currencies in major pairs, we can analyze it by technical analysis and also take into account changes in the asset of a currency pair.
The same picture is observed in relation to other currency pairs. There are differences when trading cryptocurrencies in relation to the other cryptocurrencies themselves. In this case, mainly technical analysis is taken into account, which shows the sentiment of the crowd.
How to choose a strategy for trading bitcoins
Over the past year, the change in the price of an asset has been several hundred percent. In the long run, you can use strategies in the direction of the main trend.
Remember that the price of cryptocurrency does not depend on state policy. What the government can do at the moment is only to introduce regulation on cryptocurrency and bitcoins. However, due to the fact that the cryptocurrency is not a controlled instrument, it is impossible for the state today to determine who is the owner and affect the demand.
Choosing a strategy for trading Bitcoins should depend on your capabilities, your deposit and knowledge of technical analysis. As practice shows, the basic strategies used in the forex market and binary options for price analysis are equally suitable for trading cryptocurrencies.
This is because the price of assets depends on the behavior of the crowd. Today, one can observe high excitement around bitcoin and other cryptocurrencies. Therefore, according to all predictions, this currency will grow in price for at least a few more years. We must remember that the financial market is unpredictable and everything can happen.
What to look for when choosing a strategy for trading Bitcoins
- Choice of currency pair. The advantages of using fundamental analysis is that cryptocurrency does not depend on financial news.
- Time intervals. With proper division of the budget for trade, you can use intraday trading as well as block positions with the help of long-term deals.
- Technical indicators to determine trends — you can use technical analysis to determine crowd behavior, and the effect on the pricing of a crypto asset.
- The initial budget / deposit with a broker – when choosing a strategy, be sure to remember about risk management. Your initial deposit should depend only on the strategies that you use and your capabilities. If you start trading with a minimum deposit, it is best to catch the minimum price changes, as part of day trading.
We prefer to use trend strategies for trading Bitcoins and other cryptocurrencies. Therefore, the main and typical indicator for determining the price movement are the trend lines. Trend lines on high timeframes can ignore the high volatility of an asset, and determine the clear direction of the price movement.
Bitcoin trend lines
Determining the line of support and resistance is a very clear tool for understanding the strong points of correction, as well as changing the direction of movement of an asset. As history shows that breaks in the resistance lines of the movement of prices on cryptocurrency are almost always practiced between the middle and high timeframes.
Moving averages are the main indicator of technical analysis. It is present in almost all used indicators. The logic of indicators suggests that there is an average price of an asset, a divergence from the average price always leads to the return of the price to its average value. Therefore, a clear definition of the trend, gives us the opportunity to determine the correction as well as a change in the direction of movement.
Using moving averages strategy for trading bitcoin
Using a moving average strategy for trading bitcoin and other cryptocurrencies. Please note that the behavior of average prices is identical to traditional assets.
This indicator is not very common in trading bitcoin and altcoins. You can not build a strategy on the total trading amount since the bitcoin asset is not monitored (anonymous), thus, it is impossible to calculate the volume. Therefore, the volume will depend only on the number of transactions made at a particular provider of quotations. And it will be erroneous in relation to the market price and market movement.
The most complex strategies for trading forex, CFDs and binary options, use simple indicators and crowd behavior patterns. Remember that almost all indicators duplicate the indications of the summary ones. For example, macd can be expressed in ordinary moving averages, the same applies to the indicator alligator, bollinger bands and others.
The most correct thing is to choose the settings for each indicator, in each time period.
Remember that history repeats itself, so put all the indicators on the chart, take 2-3 candles back and try to find a point that predicts the future of price changes.
This is a general article about bitcoin trading strategy. We would like to draw attention to the fact that cryptocurrency is a new financial instrument. There is still a lack of complete data for a clear understanding and analysis of the future movements of the price of this asset.
Open an account with a broker who provides cryptocurrency trading, make a minimum deposit, and test the unique strategies of binary options and the forex market.
Author: Kate Solano, Forex-Ratings.com