A 1000€ investment in crypto currencies in early 2017 could have made you a millionaire.
A year later, however, buying Bitcoin cost some investors more than 90% of their investment.
So how do you arm yourself against the high volatility of the crypto market?
- Day Trading
- Swing Trading
- What is to “hodl”?
- Technical analysis – does that really work?
- Trend Lines
- Fibonacci Retracements
- Chart Patterns
- Is Crypto just a big Bubble?
- What is it about Bitcoin Trading Bots?
We explain how to set up a profitable trading plan, which strategies professional traders use and how a solid crypto portfolio should be structured.
Which Bitcoin trading strategies do professional traders use?
People are naturally subject to extreme emotional fluctuations when trading investments.
Unfortunately, these emotions can easily lead you to make irrational decisions that you may regret later.
Therefore, it is essential to have a fixed plan for every (crypto-) investment from the beginning.
The 3 most important trading strategies are:
In day trading, several purchases and sales are concluded by the trader every day.
Through these “intraday trades” the trader hopes to take advantage of even small price fluctuations and thus increase his profit compared to longer-term strategies.
Experienced traders can actually maximize their profit expectations with this strategy.
However, the style is characterized by the high stress and time factor, among other things, by the fact that the many individual trades on some exchanges also require proportionally higher fees to be paid.
Furthermore, unpredictable price jumps can often occur in these small time intervals.
For example, if a Bitcoin whale decides to sell a part of its Bitcoins, this can sometimes shift the price in one direction by more than 5% for a few minutes, which can have fatal consequences for day traders.
Here you find a review of the most popular bitcoin broker for day traders:
In swing trading, the time horizon increases.
In comparison to day trading, intraday trades are carried out only very rarely.
Swing Traders usually trade several cryptocurrencies at the same time. Always keeping an eye on possible trends, so that they can adjust their coin positions and set them as profitable as possible.
For successful Bitcoin Swing Traders, the year 2018 probably looked like this:
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 and buys Bitcoins again.
It is important to note that you don’t have to get the absolute top or the absolute low in price every time!
Often it is a wiser decision to wait and see and make sure that the price has really caught up.
In early March 2018, for example, it looked as if the Bitcoin price had caught on and would rise again.
The price failed to print a higher high at €11,500 and the downward trend continued. Even more so, in the weeks that followed, the price dropped by over 30% to below 7,000€.
The last strategy we would like to present to you is traditional investing.
To anticipate it:
We think that pure investing in cryptocurrencies is the best option for many investors. We too have 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 saving
Sure, at the beginning you have to put a lot of work into researching the different crypto currencies. After all, you want to invest in solid projects with competent teams and good future prospects. But once you have found your 5-6 coins, you can sit back and wait for the prices to rise.
We probably agree that cryptography has a similar potential as the Internet did back then. So it is only a matter of time before large banks, institutions and hedge funds start to invest their money in this new asset class as well. Why expose your capital to risk every day with hundreds of trades, when enormously high returns can be possible simply by holding them?
Kraken and Bitstamp are among the best platforms to buy Bitcoin, but you should hold it at home on a private hardware wallet and not leave the coins on the exchange. Your coins are only yours if your control the private keys!
What is to “hodl”?
The crypto community has developed its own language jargon over time.
“Hodl” was first used in 2013 on the BitcoinTalk Forum, the then focal point for crypto enthusiasts. The original thread is here: https://bitcointalk.org/index.php?topic=375643.0
Since then, the witty spelling mistake has become synonymous with staying strong in downward trends.
Technical analysis – does that really work?
We had already briefly touched on it above.
Technical analysis (TA) describes the analysis of chart behavior.
Day traders in particular, but also swing traders use the chart to try to find zones where they can buy their positions cheaply.
One thing is clear:
There are only very few people who can really read charts successfully.
But there are all the more dilettantes who allegedly predict every price fluctuation and thus lure new investors into their fee-based trading groups.
We always guess:
Who is really so good in chart reading, it is certainly not necessary to waste its valuable time in telegram or Whatsapp groups. 😉
Nevertheless, we would like to list and briefly explain the most important Bitcoin trading tools:
Trendlines are among the simpler, yet extremely useful trading tools.
Anyone who has analysed charts on a regular basis will find that prices very often move in trends.
This means that up to a certain point, prices move up or down 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 downward trend can be understood as an indication that a possible upward trend is following.
At Ripple this happened several times in 2018. After breaking the trendline, an explosive price breakout to the upside often followed:
Fibonacci sequences are a sequence of natural numbers, where each sequence member consists of the two previous members.
So the sequence is 0, 1, 1, 2, 3, 5, 8, 13, and so on.
This sequence can be used to calculate ratios that occur very frequently in nature. Be it the arrangement of the leaves of different plants, the spiral of snail shells, or the golden section in the history of art (you can learn more about it on Wikipedia).
It cannot be explained why, but Fibonacci ratios can be found in many areas of our lives. Among other things also in the chart behaviour of cryptocurrencies.
Have a look at the following graph of XRP:
Why don’t you try it for yourself?
You can open a demo account for free on the Plus500 exchange and use all the professional trading tools.
You can access the drawing tools window by clicking on the pencil icon in the top right-hand corner.
Fibonacci sequences are always drawn from a local maximum to a local minimum of a price swing.
I know many traders who trade at these levels.
This explains to me why this method can produce such frighteningly accurate results:
The more traders place their orders after Fibonacci levels, the more active the trading behavior 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 repeat themselves over and over again and on all time frames.
So no matter if you watch a daily chart or a 1-minute chart, you will find the same kind of patterns price forms repeatedly.
Shockwave Pattern (chart pattern)
Fractals are directed more towards Bitcoin Swing Trader.
However, there are also chart patterns in smaller time intervals, which repeat themselves constantly:
The above patterns describe the natural behaviour of price corrections in an upward or downward trend.
If, for example, the Bitcoin price falls by several percentage points at once, this does not automatically mean that a free fall follows.
Often the price is temporarily caught by daytraders at certain levels, which drives the price up again a bit. 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!
Regardless of your crypto trading strategy, you should think about how you want to structure your crypto portfolio.
There are two ways to do this:
- Concentrated investment
Diversification means that in addition to Bitcoin and perhaps Ethereum, you also invest in other cryptocurrencies.
You spread your investment across different projects, so to speak, and thus reduce the risk of loss if a project is not successful.
In contrast, when you invest in a concentrated way, you choose a few projects that you give your full attention to – and also your full trust.
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 benefit a lot more from price increases.
We have chosen a medium for our portfolio.
Projects, where we expect a huge development and applications in the economy, take a larger part of our portfolio.
Even the big coins such as Bitcoin and Ethereum are considered a calm rock in the surf for us, as they are less volatile than smaller crypto currencies.
Often it can also make sense to imitate an index or that of a professional fund.
The trading platform eToro offers this feature for its users.
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 like 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 dotcom bubble in the early 2000s.
Amazon fell a whopping 95% from $113 to less than $6.
It took some time for the price to catch up, but from the absolute low, investors were rewarded with juicy returns.
Some could increase their investment more than 300 times!
So we see that traditional asset classes are also struggling with high volatility.
Pessimists might call it a bubble.
But we prefer the term market cycles, where it is important to get in early and ride the big wave!
What is it about Bitcoin Trading Bots?
Trading Bots are software programs that directly create buy or sell orders for you via the API interfaces of the stock exchanges.
In doing so, they observe current price jumps, trading volumes and other technical indicators.
Furthermore, trading bots allow you to follow the following Bitcoin trading strategies:
Arbitrage is an attempt to exploit possible price differences on different stock exchanges.
For example, if a Bitcoin on stock exchange A costs €8,000, but the selling price on stock exchange B is currently €8,100, the bot recognizes this price difference, sells Bitcoins on stock exchange B and buys them for the lower price on stock exchange A.
A strategy that many stock exchanges also use to finance themselves. The Trading Bot can dynamically place buy and sell orders at the current Bitcoin price to make the best possible use of the spread. When the Bitcoin price moves in one direction, the bot automatically adjusts its order.
In the past, trading bots were out of reach for the average investor.
The widely used Bloomberg terminal, for example, costs $24,000 a year. A sum that often only large companies or hedge funds can afford.
In the meantime, these tools are also available to a wider, informed audience.
However, this leads to the fact that the profit margins are getting smaller and smaller as the number of trading bot users increases.
Especially in this hotly contested field, funds naturally invest large sums of money to get every possible advantage out of their private bots.