Bitcoin is a very different from other financial products. For the most part government issued currencies follow certain rules, respond to changes in policy and macroeconomic data. Bitcoin on the other hand, is not only decentralized but it is also not regulated by a government or central bank – which therein lies its appeal. Some traders or buyers of bitcoin believe that the cryptocurrency may is safer as its price can’t be manipulated by a certain group of people – it be a bank or a government.
The truth is that there is an inherent risk to your capital no matter what the instrument – even the go-to safe haven since the beginning of time – Gold, can wildly fluctuate depending on the market conditions.
What is true, is the fact that bitcoin is the new kid on the block – it seems exciting to many and with its recent moon-shot like jump in price, it has become a lot more appealing to a lot more people. So let’s take a look at some of the most popular ways to trade bitcoin.
CFDs is a very popular way to trade bitcoin, because this type of financial instrument allows you to trade on Bitcoin’s price movement, the way you would like – by either buying and keeping CFD bitcoin until the price goes up substantially or by buying it and trading it in a short period of time – without the need of buying the actual bitcoin. Because the problem with owning something is that when the time come to sell that something, you have to find someone to buy from you at the price you want. That isn’t the case with CFD’s.
Another advantage of CFD bitcoin is being able to use various tools to manage risk like stop-loss – which allows you to sell your bitcoin when a certain price is reached when its price is going down. You can also use leverage with CFD bitcoin, allowing you to increase your initial investment – just keep in mind that when using leverage, a smaller price movement will make a larger impact on your investment, it be negative or positive.
To be fair this is more of a method of trading bitcoin, but it can help to know your options right?
On Balance Volume (OBV)
Since bitcoin’s price movement isn’t affected by policy changes or political scandal (I’m looking at you USD), a good way of contextualizing the cryptocurrency’s price is by the volume of “trades” in an out of it. It is possible if the indicator is going down at the time the price of bitcoin is going up, that means that the upward trend isn’t sustainable. If the indicator is up and the price is up, it could possibly indicate that the trend is sustainable.
Intraday strategy is used with a variety of financial products, bitcoin lends itself well to this strategy as it is exceptionally volatile. Of course whenever there is potential for gains, there is also potential for losses, just keep that in mind moving ahead. Intraday trading in simple terms means trades that last for a single trading day. Some investors or traders will purchase a financial instrument and hold on to expecting the price to go up. Like the over-used Warren Buffet quote “Buy Low – Sell High” which was actually attributed to economist and professional investor Benjamin Graham, which Buffet was a “disciple” of. The more you know. Back to our main topic though, intraday traders seek to take advantage of the small fluctuations an instrument experiences throughout the trading day. With bitcoin’s price fluctuating hundreds of dollars within the span of a few days intraday is used by many bitcoin traders.
Trade S/R or Support and Resistance
Support and resistance is a very popular strategy, especially with bitcoin traders, as it is one of the biggest influencers of the cryptocurrency’s price. What is support and resistance you ask? If you look at a price chart of an instrument, simplified to a line you would see a zig-zag type of pattern, every upward point followed by a downward point is support and resistance – the high being support and the low being resistance. Some analysts believe support is when demand is high for an instrument which doesn’t allow it to fall beneath a certain level and inversely resistance is when selling off prevents the instrument from breaking through a certain high price. In theory support and resistance can be used to test or confirm trends, both upward and downward ones.
No matter what strategy you chose, make sure it takes into consideration your risk appetite and that you are using the right risk management tools.