Bitcoin trading is very profitable for everyone willing to invest both their time and money. the market has a lot of spreads that have made it highly disintegrated. Arbitrage and margin trading makes it possible for the masses to make money by trading bitcoin or other cryptocurrencies.
The most crucial advantage of Bitcoin trading is that you can trade it without ever actually having to use them. This is known as CFD that was created to trade Bitcoin without having to physically own it Also CFDs are also beneficial for those who have started Bitcoin trading for the first time.
Top Bitcoin Trading Strategies
In this article, we will discuss some of the techniques of trading bitcoin, including how to short bitcoin in case you analyze that it may crash at any point in time.
Strategies to trade Bitcoin
- Overlay the Bitcoin chart with the Ethereum chart and OBV(On-Balance Volume) indicator. The OBV indicator does analyze the total money getting in and out of the market by using the volume and price activity. This would look something like this.
- Look out for the disparity in price between Bitcoin and Ethereum to check out for smart money divergence This occurs when one cryptocurrency fails to confirm the action of other cryptocurrency is not able to confirm the action of the other cryptocurrency.
For instance in the figure above we can notice that Bitcoin’s price is unable to break the resistance, while Ethereum’s price was able to do the same and reached a new high. This notifies that the best Bitcoin trading mechanism is about to show a trade.
The reason why smart money divergence does well because the cryptocurrency market as a whole should move in the same way when in a trend. This is similarly true for any other assets apart from cryptocurrencies.
- If you notice that Bitcoin is not too far behind the other cryptocurrency, in this case, it is Ethereneum, then it will soon be able to catch up and eventually break the resistance.
To understand this, we use the help of the OBV indicator, which is explained above. This can give us an idea of whether real money is purchasing or selling Bitcoin. You must keep an eye on when Bitcoin can cross the resistance level and Ethereum is already broke. Ethereneum must get done to the level at which, Bitcoin was trading before at the same resistance level.
- Make sure to place a limit order on the resistance level to get hold of the possible outcomes. Once the OBV indicator signals, the only thing that is left to be done is to place a buy limit order. Place the order at the resistance level so that you can find a possible breakout.
- Placing the stop loss below the breakout candle is one of the smart ways to trade. Usually, when the OBV is above 100k, this signals for the point when you can earn maximum profit.
- You can reverse the process stated above and proceed with selling a trade. The diagram below gives an example of how to sell Bitcoin using the best trading strategy.
Ways to Short Bitcoin
- Margin Trading - This is the simplest way too short bitcoin through a cryptocurrency margin trading platform Many of the exchanges allow trading in this manner. In this type of trade, investors generally borrow money from a broker to conduct a transaction. This type of trade has a leverage factor that determines the profits or losses you may incur by doing the bitcoin trade.
- Futures Market - Similar to any other asset, bitcoin too has a futures market. The security is sold here under a contract to a prospective buyer that mentions clearly when and at what price, the security has been sold. This contract guarantees that you will get a good price in security if you are willing to wait to see the changes in its price shortly. Sell a futures contract only when you predict that the price of bitcoin will decrease in price.
- Binary Options Trading - Call and put option is also a way to short bitcoin Implement a put order to short the currency. In this manner, you must be able to sell the currency at today’s price. even if there are chances of the price to drop on later. Binary options are available in many offshore exchanges but again the probabilities of price rise and risks are high.
- Short Selling Bitcoin Assets - Investors who are willing to buy and sell actual bitcoin can short sell the currency directly. Sell them at a price you want to sell, wait until the price drop and eventually buy back the tokens again. If the price does not drop or rise as you may have expected, you are likely to either lose money or bitcoin assets in the process.
One day, fiat currencies will be taken over by cryptocurrencies as the world is rapidly advancing towards the age of digitalization and automation in the 21st century. It may be possible that shortly we would purchase everything using cryptocurrencies such as Ethereum and Bitcoin. Hence it is highly recommended when we have both the fiat currencies and cryptocurrencies side by side, we do learn how to trade them for one another that may work out well when we are supposed to replace the fiat currency with the former one once and for all.