Bitcoin trading is about speculating the movements in the price of the cryptocurrency. Though it has traditionally been related to purchasing bitcoin through exchanges, with the hope that prices are going to rise in time, crypto traders are also using derivatives now to speculate on both falling and rising prices. The idea is to make the most of the volatility of bitcoin. On that note, here’s a basic guideline on four types of bitcoin trading strategies.
Choose a bitcoin trading strategy and style
There are four main strategies and styles of bitcoin trading:
- Day trading
- Trend trading
- Bitcoin hedging
- Buy and hold (HODL)
Bitcoin Code is a highly popular trading platform to consider while searching for an exchange platform for bitcoin. You can talk to the experts here to decide on a trading strategy and style.
#1 Day trading in bitcoin
Day trading in bitcoin means that you are going to open and close the position within a trading day. So, you will not have any market exposure to bitcoin overnight. It means that you are going to avoid any overnight funding charge on your position. The strategy can be beneficial to you if you are trying to secure profits from short-term price movements of bitcoin. It can help you make the most of regular volatility in bitcoin price.
#2 Trend trading in bitcoin
In bitcoin, trend trading means taking the position that matches the present trend. For instance, when the market remains in a bullish trend, you would go long. On the other hand, when the trend is bearish, you would go short. As the trend starts slowing down or reversing, you can think about closing the position and opening new ones to match the present trend.
#3 Bitcoin hedging strategy
Hedging bitcoin refers to mitigating your risk exposure by taking the opposite position to the one that you already have. You can do this when you are worried about the market going against you.
For instance, if you were the owner of some bitcoins but felt worried about short-term value drops, you can open a short position with the CFDs. When the market price of bitcoins falls, the gains on the short position will offset all or some of the losses on your coins.
HODL bitcoin strategy
This bitcoin strategy is all about purchasing and holding bitcoins. The name comes from the misspelling of ‘Hold’ on a certain cryptocurrency forum. In fact, at times, it is said that HODL stands for ‘hold on for dear life.’
But make sure not to take the phrase too seriously. You can buy and hold bitcoins when you have a positive outlook on the long-term prices. When the trading or research plan shows that you need to sell the positions to limit loss or make profits, you should do that. You can also set up stop losses to automatically close the positions.
The strategy you select depends on your risk tolerance and trading goals. Considers the pros and cons of each strategy before choosing it.