Ever since it was first mined in 2009, Bitcoin has generated a great deal of interest across the world. In its more than decade long journey, this cryptocurrency has seen astronomical rise and sudden dips in prices, peaking at USD 20,000 in 2017. Given its volatile nature, investors must tread carefully when investing in Bitcoin.
A sound strategy for bitcoin trading can help in protecting your interests during value fluctuations and help you get the optimal returns on your investment. As a rule of thumb, the best trading strategy is the one that aligns perfectly to your individual goals, capital and risk appetite.
Here are some time-tested strategies that can deliver on these parameters.
The most popular strategy for bitcoin trading is HODLing, which stands for ‘holding on for dear life’. The term was coined against the backdrop of a crash in Bitcoin prices in 2013. It traces its origin to a typo where the word holding was misspelt as hodling and the term stuck.
The strategy simply means keeping your Bitcoins for long-term and holding off trading until the prices peak. This strategy requires a lot of patience and the capacity to keep a chunk of capital frozen for extended periods of time but has the potential to offer high returns.
2. Trend Trading
As the name suggests, this strategy is about basing your trading decisions on market trend. A trend in the cryptocurrency is marked by its consistently reaching greater highs or lowest lows. When trend trading, you essentially hold your position for as long as you think a high or low trend will continue.
This can be a little tricky if the trend reverses before your prediction or continues beyond. There is no way to define a timeframe for this with certainty. Your experience and expertise are the only factors you can base that decision on.
Hedging refers to opening strategic trades to minimise the risk to an existing position. This strategy for bitcoin trading entails selling an asset at the current market price, in the hope that the prices will dip further. If the prices do dip, you can buy it back at an even lower price.
The difference in the price is your profit, and it can offset the losses you may have incurred in make a sale. Of course, there is an element of risk involved in this short-selling approach to Bitcoin trading and you must always take calculated risks here.
Breakout strategy for bitcoin trading involves getting into the market early on in a trend, ready to trade as the prices breakout from its existing range. This approach is based on the logic that once the market breaks out, major volatility is likely to follow, so you maximise your gains by pre-empting that volatility.
All about Calculated Risks
With a careful study of the markets combined with calculated risks based on any of these strategies can help you get closer to that goal.