The bitcoin market is known for its volatility, and several factors can affect the price of bitcoin, including the following:
- The offer. Bitcoin has 21 million units of currency in circulation, but currently, not all of them are available for trading. New coins are issued through a process called mining.
- The news. How the public perceives bitcoin is critical to its price. Any negative information can dramatically alter the market value of the currency.
- The events. Any change in regulations, hacking attempts, or macroeconomic news can have an impact on the price of bitcoin.
Let’s see the best approaches and strategies when it comes to trading on the crypto market.
1.Choose the trading approach
Whether you decide to invest in bitcoin by buying the currency directly or by trading its price through derivatives, you must pick up the appropriate approach.
If you decide to buy bitcoin, you will be using a cryptocurrency exchange. You will thus come into possession of the currency itself and hold it in your virtual wallet hoping that its price will rise and that you can sell it for a profit.
On the other hand, if you decide to trade through derivatives such as CFDs, you will never own the bitcoin itself. Opening a position to trade a cryptocurrency means you are trading on its price. which means you are taking advantage of markets that move up and down. You won’t need a digital wallet, just open an account with the crypto brokerage platform which is quite simple and will take a few minutes. Trading crypto with eToro offers the best of both worlds because you have the option to trade Bitcoin as CFDs or as real crypto, depending on the regulation you are covered with.
2. Develop a trading plan
It would be best if you created a trading plan before developing a trading strategy. By staying disciplined and following a specific goal, you will be less likely to succumb to emotions such as fear or greed.
- Goals. Set realistic goals to motivate you to trade. It doesn’t have to be about setting unreasonable expectations about how much money you want to make but making some achievable and measurable findings of what you hope to achieve.
- Style. Trading can take different forms depending on how often you trade and how long you hold your positions. Discover the most popular types of trading.
- Risk management. Your plan should include appropriate risk management, including the amount of capital available to you and the money you are ready to risk on.
3. Risk management
Volatility is the backbone of the bitcoin market, but it comes with risk. That’s why it is important to learn how to manage your risk before you start trading. A risk management strategy should take into account the stops and limits you will place on your positions.
Exit limit orders will close your position as soon as the market moves some in your favour. It allows you to secure your earnings. Stop-loss orders will automatically close your position if the market moves against you, allowing you to set your acceptable level of loss.
If you are investing in derivatives, you have the option of adding a guaranteed stop to your bitcoin position, which will protect your order if the market moves against you. Once your guaranteed stop is activated, you will have to pay a premium.
4. The best bitcoin trading strategies
The best bitcoin trading strategy will be one that perfectly matches your individual goals and the capital you have. Here are some strategies that have become popular among bitcoin traders.
- Hedging strategy
Traders who already own bitcoins might consider hedging their risk if they believe the market price will decline in the near term. Hedging is an approach which consists in opening strategic positions to limit or eliminate the risk weighting on existing positions.
- Trend trading
A trending market systematically reaches higher highs and lower lows. This strategy is suitable for different time frames because it involves keeping your position open as long as you think the trend will hold for a few hours, days, weeks or months.
- Bitcoin breakout strategy
Breakout trading involves opening a position as soon as a trend begins to form, with the expectation that the price of bitcoin will break through the previous level. This strategy is based on the idea that once the market breaks through a critical support or resistance level, major volatility is about to begin.
Bitcoin traders will therefore be looking to enter the market at these specific times to exploit the trend from start to finish.