What Bitcoin trading strategies do professional traders use?
By nature, humans are subject to extreme emotional fluctuations when trading investments.
Unfortunately, these emotions can easily lead to making irrational decisions that you may later regret.
That is why you must have a fixed plan for every (crypto) investment right from the start. Along with a fixed plan, having a few tools is also handy. These tools include everything from advanced charting software, an automatic tracker for gas fees, or an investment calculator to track your growth.
The 3 most important trading strategies are:
In day trading, several purchases and sales are made by the trader every day.
Through these “intraday trades,” the trader hopes to take advantage of even small price fluctuations and increase his profit compared to longer-term strategies.
Bitcoin price trend within one day on the Plus500 exchange
Seasoned traders can actually maximize their profit expectations with this strategy.
But the style is characterized by the high stress and time factor, among other things, that due to the many individual trades on some exchanges, proportionally more fees have to be paid.
In addition, unpredictable price jumps can often occur in these small time intervals.
If, for example, a Bitcoin whale decides to sell part of its Bitcoins, this can shift the price by more than 5% in one direction for a few minutes, which can have fatal consequences for day traders.
With swing trading, the time horizon increases.
Compared to day trading, intraday trades are rarely carried out here.
Swing traders usually trade several cryptocurrencies at the same time. Always with a watchful eye on possible trends so that you can adjust your coin positions and set them as profitably as possible.
For successful Bitcoin swing traders, 2018 looked like this:
Bitcoin Swings in 2018
As soon as a swing trader suspects a local high, he changes his strategy to so-called shorts. So he bets against the price and sells his Bitcoin Holdings.
If he thinks that Bitcoin is “oversold”, he goes long again, so he repurchases many Bitcoins.
It is important to note that you do not have to catch the absolute top of the absolute low in the price every time!
Often it is a wiser decision to wait for a little and make sure that the price has really caught up.
At the beginning of March 2018, for example, it looked as if the Bitcoin price had caught up and would rise again.
The price failed to print a higher high at € 11,500, and the downtrend continued. What’s more, in the following weeks the price even fell by over 30% to under € 7,000.
The last strategy we would like to introduce to you is traditional investing.
To anticipate it:
We think that just investing in cryptocurrencies is the best option for many investors. We have also invested the majority of our own portfolio on a long-term horizon.
Well, the 3 most important points for us are as follows:
- Enormous time savings
- Of course, in the beginning, you have to put a lot of work into researching the various cryptocurrencies. After all, you want to invest in solid projects with competent teams and good prospects. But once you have found your 5-6 coins, you can sit back and wait for the prices to rise.
- Reduced risk
- We probably agree that crypto has potential similar to that of the internet back then. So it is only a matter of time before large banks, institutions and hedge funds start investing their money in this new asset class as well. Why should you expose your capital to risk with hundreds of trades every day, even if enormously high returns can be possible by simply holding them?
- Tax advantages
- In Germany, Bitcoin and trades in other cryptocurrencies are taxed at the income tax rate. However, if you keep your coins for more than 1 year and clearly prove this ( Plus500 offers extra account statements for this), the entire profits are tax-free!
Especially if you are not a full-time trader, the investment strategy is beautiful for investors who only want to increase their income with Bitcoin and cryptocurrencies on the side.
What is “hold”?
The crypto community has developed its own language jargon over time.
” Hodl ” was used for the first time in 2013 in the BitcoinTalk Forum, the then contact point for crypto enthusiasts.
Since then, the funny typo has established itself as a synonym for perseverance in downward trends.
“I trust the future potential of my cryptocurrencies. Even if the price falls, I’m a HODLER! “
Technical Analysis – Does It Really Work?
We already touched on it briefly above.
Technical analysis (TA) describes the analysis of chart behaviour.
Day traders in particular, but also swing traders, try to use the chart to find zones in which they can buy their positions cheaply.
One thing is clear:
There are very few people who are really successful at reading charts.
But all the more amateurs supposedly have predicted every price fluctuation and lure new investors into their paid trading groups.
We always advise:
If you are really good at chart reading, you certainly don’t have to waste your valuable time in Telegram or Whatsapp groups. 😉
Nevertheless, we would like to list and briefly explain the most important Bitcoin trading tools :
Trendlines are one of the simpler yet handy trading tools.
Anyone who has often analyzed charts will notice that prices very often move in line with trends.
This means that up to a certain point, the prices move upwards or downwards along a trend line.
If this trend line is broken, a “trend reversal” often takes place.
So the breaking of the trend line of a downtrend can be understood as an indication that a possible uptrend is following.
At Ripple, this happened several times in 2018. After the trendline was broken, there was often an explosive upward swing:
Trend lines in the Ripple Chart 2018
Fibonacci sequences are a sequence of natural numbers in which each term in the sequence consists of the two previous terms.
So the sequence is 0, 1, 1, 2, 3, 5, 8, 13, and so on.
From this sequence, relationships can be calculated that occur very often in nature. Be it the arrangement of the leaves of various plants, the spiral of snail shells, or the golden ratio in art history (you can find out more about it on Wikipedia ).
It cannot be explained why, but Fibonacci relationships can be found in many areas of our life. Among other things, also in the chart behaviour of crypto currencies.
Take a look at the following graph from Ethereum:
Fibonacci level in the Ethereum Chart 2018
Feel free to try it yourself.
You can open a free demo account on the Plus500 exchange and use all professional trading tools.
The window for the drawing tools can be reached via the pencil symbol at the top right.
Fibonacci sequences are always drawn from a local maximum to a local minimum of a price swing.
I know a lot of traders who trade according to these levels.
This is how I explain to myself why this method can deliver such alarmingly accurate results:
The more traders place their orders according to Fibonacci levels, the more active the trading behaviour around these zones.
And this naturally leads to the creation of support and resistance zones around these levels.
Fractal traders assume that markets always move in cycles that are repeated over and over again.
The market, influenced by human emotions, should go through a psychological cycle that was recorded in the famous “Wall Street Cheat Sheet”:
A visualization of the psychological market cycle
Compare this chart with the Bitcoin price trend for 2017-2018. (It is best to use the “1-day” view on Plus500 for this).
Do you notice the strong similarity?
Fractals are more aimed at Bitcoin swing traders.
However, there are also chart patterns in smaller time intervals that are repeated over and over again:
“Wave pattern” of price corrections in the bull and bear markets
The above patterns describe the natural behaviour of price corrections in an upward or downward trend.
If, for example, the Bitcoin price drops by several percentage points at once, this does not automatically mean that a free fall will follow.
Often the price is temporarily absorbed by day traders at certain levels, which drives the price up again a little—a natural correction.
But watch out!
Chart patterns in the bull and bear market can be very similar, but the outcome of the formations is determined by the macro trend!
This is what a structured crypto portfolio should look like
Regardless of your crypto trading strategy, you should consider how you want to structure your crypto portfolio.
There are two ways to do this:
- Focused investing
Diversification means that you are investing in other cryptocurrencies in addition to Bitcoin and perhaps Ethereum.
You spread your investment across different projects, so to speak, and thus reduce the risk of loss if a project is unsuccessful.
In contrast, with concentrated investing, you choose a few projects to which you give your full attention – and also your full confidence.
If the prices of one of these projects collapse, you will lose a larger percentage of your total portfolio.
On the other hand, if you are sure of the great future of a coin, you will, of course, also benefit a lot more from price increases.
We opted for a mediocre portfolio for our portfolio.
Projects that we expect to see huge developments and applications in business take up a larger part of our portfolio.
Big coins like Bitcoin and Ethereum are also considered a calm rock for us, as they are less volatile than smaller crypto currencies.
An example portfolio could look like this:
Example crypto portfolio – no investment advice!
It can often make sense to imitate your portfolio with an index or that of a professional fund.
The trading platform eToro offers, among other things, this feature for its users.
In a study of the American stock market, The Economist showed that many index funds yield higher returns than actively managed funds.
Is Crypto Just A Big Bubble?
With our previous knowledge of market psychology, we can now take a more differentiated look at this question.
Markets run in cycles driven by human emotions such as fear, greed, and hope.
This means that even the fundamentally best projects are subject to these cycles.
We have seen something similar before, namely after the dot-com bubble in the early 2000s.
Amazon fell a whopping 95% from $ 113 to less than $ 6 at the time.
It took some time for the price to stabilize, but from the all-time low, investors were rewarded with juicy returns.
Some have been able to multiply their investment by more than 300 times today!
The Amazon share also went through (goes through?) The various market cycles.
So we see that traditional asset classes are also struggling with high volatility.
Pessimists may call it a bubble.
However, we prefer the term of market cycles, where it is important to get in on time and ride the big wave!
What is Bitcoin Trading Bots all about?
Trading bots are software programs that create buy or sell orders for you directly via the API interfaces of the exchanges.
In doing so, they observe current price jumps, trading volumes and other technical indicators.
Furthermore, trading bots enable the following Bitcoin trading strategies to be pursued:
- Arbitrage tries to exploit possible price differences on different exchanges.
- For example, if a bitcoin on exchange A costs € 8,000, but the selling price on exchange B is currently € 8,100, the bot detects this price difference, sells bitcoins on exchange B and buys them lower price on exchange A.
- A strategy that many exchanges also use to finance themselves. The trading bot can dynamically set buy and sell orders at the current Bitcoin price to make the best possible use of the spread. As soon as the Bitcoin course swings in one direction, the bot automatically adjusts its order.
In the past, trading bots were out of reach for the average investor.
The widespread Bloomberg Terminal, for example, costs $ 24,000 annually. A sum that often only large companies or hedge funds can afford.
These tools are now available to a wider, more informed audience.
However, this leads to the fact that the profit margins decrease with the increasing number of trading bot users.
Funds naturally invest large sums in this hotly contested field to get every possible advantage out of their private bots.
Do Bitcoin Trading Bots Work?
The question ” Do Bitcoin trading bots work? “So it’s a bit difficult to answer.
Yes, they can work, but don’t expect trading bots to do all of the work for you.
In addition, trading bots do not currently support regulated CFD platforms such as Plus500 or Skilling.
Nevertheless, we would like to introduce you to the best Bitcoin trading bots that are publicly available:
The 3Commas Trading Bot was developed by a huge team and offered a web-based service.
For you, this means that you can check your trading dashboard on your mobile phone when you are on the move.
In addition, the 3Commas team is trying to build a social trading platform around the trading bot.
The monthly price for the starter version is $ 29.
The CryptoTrader Bot convinces with a beneficial “backtracking feature”.
This allows you to check your strategies for profitability retrospectively or for future price scenarios.
The bot is cloud-based and starts at 0.004 Ƀ / month.
The CryptoBot, based on Gunbot technology, is one of the most widely used Bitcoin trading bots.
You can adjust and optimize preset strategies at your own discretion.
Unlike most bots, you only pay 0.1 Ƀ once for the gunboat or 0.3 bitcoins for the premium version.
The HaasOnline Trading Bot is certainly one of the most professional bots on our list.
The quality has its price, however, because you have to pay 0.073 Ƀ for a 1-year license. The premium version even costs 0.208 bitcoins.
Watch out for trading signal groups!
When we first dealt with Bitcoin and cryptocurrencies in 2013, we were fortunate that the community was still tiny.
Back then, there was no such thing as trading groups.
You learned a lot through personal contact with the coin developers and had an extremely steep learning curve.
Unfortunately, things look different today.
In the big bull market of 2017, there was a huge influx of newcomers, all looking for big money.
Many of them have been fooled by other investors who have recently entered the crypto world themselves.
With pump and dump groups, lurid trading signals and a lot of marketing, they lured multitudes of beginners into their Telegram groups and paid diligently every month.
That left a lot of deceived investors and a huge pile of losses.
We, therefore, advise you:
Never blindly trust another person when trading!
Build up a plan on your own how you want to invest your money in the best possible way and implement this plan consistently.
We are still at a very early stage of crypto adaptation.
It will be a shame if some cybercriminals rob you of your valuable crypto coins before the big cycle.