Bitcoin Trading: 3 popular strategies to get started

Bitcoin Trading: 3 popular strategies to get started

Gianluca Lombardi February 18, 2023
10 min read

A €1,000 investment in Bitcoin trading in early 2017 could have made you a millionaire.

A year later, buying bitcoin has resulted in losses of over 90% for some investors.

How can you protect yourself from the high volatility of the cryptocurrency market?

We explain how you can create a bitcoin trading plan, what strategies professional traders use, and how a solid cryptocurrency portfolio should be structured.

If you are already looking further and want to choose the best place to trade Bitcoin, then check out our list of hand selected Trading Platforms.

Trading Bitcoin: What strategies do professional traders use?

People are by nature subject to strong emotional swings when making financial investments.

Unfortunately, these emotions can easily lead to irrational decisions that one may later regret.

Therefore, it is important to have a fixed plan for any cryptocurrency investment from the start.

The three main trading strategies are:

Day trading with Bitcoin

In day trading, the trader makes several buy and sell transactions per day.

With these ‘intraday trades’, the trader hopes to profit from small price fluctuations and thus increase his profit compared to long-term strategies.

Bitcoin Daily Trading, Chart

Experienced traders can increase their profit expectations with this strategy.

However, in addition to the high stress and time factor, this style is characterised, among other things, by the fact that many individual trades on some exchanges involve the payment of proportionately higher commissions.

Furthermore, unpredictable price spikes can often be observed in these small time intervals.

For example, a single bitcoin sale can change the price by more than 5% one way or the other in a matter of minutes, which can be fatal for day traders.

Swing Trading

Swing trading in bitcoin increases the time horizon.

Swing traders usually trade several cryptocurrencies at the same time. They always keep an eye on possible trends to adjust their positions as favourably as possible.

For successful bitcoin swing traders, 2018 presented itself as follows:

Bitcoin swing trading, chart
Bitcoin Swings 2018

As soon as the swing trader suspects that a peak has been reached, he switches to a so-called short position.

However, if the trader believes that bitcoins are currently oversold, he opens a long position, i.e. he buys bitcoins again in anticipation of a price increase.

Keep in mind that it is not necessary to always reach an absolute maximum or minimum price!

It is often a wiser decision to wait and make sure that the price has actually taken a direction.

At the beginning of 2020, for example, it looked as if the price of bitcoin had embarked on an upward trend and was going to rise again.

But.

The price of bitcoin failed to reach the upper level of $14,000 and the downward trend continued. Moreover, in the following weeks, the price even fell by more than 50 per cent, dropping below $4,500.

Investing

The last strategy we want to present is the traditional ways to Bitcoin Investing.

We believe that investing exclusively in cryptocurrencies is the best choice for many investors. Most of our portfolio is also based on a long-term horizon.

Why

The three most important points for us are the following:

  • Significant time savings

Of course, a considerable amount of research work on the various cryptocurrencies is necessary in the beginning. After all, you want to invest in solid projects with competent teams and good future prospects. But once you have found your 5-6 projects, you can calmly wait for the prices to rise.

  • Reduced risk

We can probably agree that cryptocurrencies have similar potential to the internet of its time. It is only a matter of time when big banks, institutions and hedge funds will start investing their money in this new asset class. Why put one’s capital at risk every day by entering hundreds of trades, even though simply maintaining these trades can produce very high returns?

If you are not a full-time trader, the investment strategy is extremely attractive to investors who simply want to increase their income with bitcoin and cryptocurrencies.

What is a “hodl?

The cryptocurrency community has developed its own language over time.

The term ‘hodl‘ was first used in 2013 on the BitcoinTalk forum, which at the time was a contact point for cryptocurrency enthusiasts.

Since then, this ridiculous misspelling has become synonymous with a very persistent trend.

“I am HODLing!”

Technical analysis: does it really work?

Technical analysis (TA) describes the behaviour of a chart.

Day traders in particular, but also swing traders, try to use the chart to identify areas where they can buy their positions cheaply.

One thing is certain:

Very few people are able to read charts successfully.

There is a growing number of amateurs who are said to have predicted all kinds of price fluctuations, thus attracting new traders to their paid trading groups.

We always offer advice:

If you are really good at reading charts, you certainly don’t need to waste valuable time in Telegram or WhatsApp groups 😉

However, we would like to list and briefly explain the most important tools for bitcoin trading:

Trend lines

Trend lines and indicators are one of the simplest but extremely useful trading tools when it comes to technical analysis.

Anyone who repeatedly examines charts will notice that price very often moves in line with the trend and that up to a certain point prices move up or down the trend line.

If this trend is broken, a ‘trend reversal’ often occurs.

Therefore, the breaking of a downward trend line can be understood as an indication of the approach of a possible upward trend.

In 2018, such a situation occurred several times for Ripple. The breaking of the trend line was often followed by a strong upward movement:

Ripple trading, trends, chart
Ripple trendline from 2018

Fibonacci sequence

Fibonacci sequences are sequences of natural numbers in which each element of the sequence consists of two preceding elements.

The sequence is therefore as follows: 0, 1, 2, 3, 5, 8, 13, etc.

Very common relationships in nature can be calculated from this sequence. Whether it is the arrangement of the leaves of different plants, the spiral of a snail shell or the golden ratio in art history (for more information, see Wikipedia).

It is impossible to explain why, but Fibonacci’s concepts can be found in many areas of our lives. Among other things, in the graphical behaviour of cryptocurrencies.

With the eToro platform platform, you can open a free demo account and use all the professional trading tools.

You can access the drawing tools window by clicking on the pencil symbol in the top right-hand corner.

Fibonacci sequences are always drawn from the local maximum to the local minimum of the price change.

We know many traders who trade at these levels.

Therefore, we explain why this method can give such frighteningly accurate results:

The more traders place their orders based on the Fibonacci levels, the more active the trading behaviour around these areas will be.

This naturally leads to the formation of support and resistance zones around these levels.

Fractal trading with Bitcoin

Fractal traders assume that markets always move in cycles that repeat themselves from time to time.

The market, influenced by human emotions, must go through a psychological cycle:

The fractals of Wall Street
Visualisation of the market’s psychological cycle

Compare this chart with the price history of Bitcoin in 2017-2018 (preferably using the “1-day” view on the Plus500 platform).

Do you notice many similarities?

Fractals are better suited to bitcoin swing traders.

However, there are also chart patterns in smaller timeframes that are constantly repeating:

Bitcoin Shockwave Model
“Wave chart” of bull and bear price corrections

The above formations describe the natural behaviour of price corrections in an upward or downward trend.

For example, if the price of bitcoin falls by a few percentage points at a given time, this does not automatically mean that there will be a fall in price.

Often the price is temporarily absorbed by day traders at certain levels, causing the price to rise again. A natural correction.

But beware!

Bullish and bearish chart patterns are very similar to each other, but the outcome of the pattern is determined by the macro trend!

This is what a structured cryptocurrency portfolio should look like

Whatever your cryptocurrency trading strategy is, you need to consider how you want to construct your cryptocurrency portfolio.

This can be done in two ways:

Diversification

Targeted investments

Diversification means investing in other cryptocurrencies besides Bitcoin and possibly Ethereum.

To this end, it is possible to spread the investment over several projects, thus reducing the risk of loss in case a particular project fails.

With concentrated investment, on the other hand, you choose a few projects to which you devote your full attention and in which you have full confidence.

If the price of one of these projects falls, you will lose a larger percentage of your overall portfolio.

Conversely, if you are confident in the positive future of a particular currency, you will naturally benefit more from an increase in price.

For this reason, a larger part of our portfolio is occupied by projects from which we expect potentially strong growth and utilisation in the economy.

Large coins, such as Bitcoin and Ethereum, are also considered a calm wave in the surf, as they are less volatile than smaller cryptocurrencies.

An example of a wallet could be the following:

Example of a cryptocurrency portfolio – without investment advice!

It often makes sense to map a portfolio using an index or a professional fund.

Are cryptocurrencies just a big bubble?

Thanks to our previous knowledge of market psychology, we can now consider the question in a more nuanced way.

Markets operate in cycles driven by human emotions such as fear, greed and hope.

This means that even the fundamentally best projects are subject to these cycles.

We have seen this phenomenon before, particularly after the internet bubble in the early 2000s.

At that time, Amazon’s share value plummeted by 95 per cent from $113 to less than $6.

It took a while for the price to correct, but from the bottom investors were rewarded with juicy profits.

Some today have managed to multiply their investment by more than 300 times!

Bitcoin trading chart
Amazon’s shares have also gone through different market cycles.

We therefore see that even traditional asset classes are struggling with high volatility.

Pessimists might call it a bubble.

However, we prefer the concept of market cycles, where it is important to enter on time and ride the big wave!

What is bitcoin bot trading?

Trading bots are programmes that create buy or sell orders directly through exchange APIs.

They monitor current price spikes, trading volumes and other technical indicators.

In addition, trading bots enable the following bitcoin trading strategies:

  • Arbitrage

    Arbitrage consists of taking advantage of any price differences on different exchanges.

    For example, if a bitcoin on exchange A is worth 8,000 euro but the selling price on exchange B is currently 8100 euro, the bot detects this price difference, sells the bitcoins on exchange B and buys them on exchange A at a cheaper price.

  • Market Making

    The trading bot can dynamically place buy and sell orders at the current bitcoin price to make the most of the spread. When the bitcoin price moves in one direction, the bot automatically adjusts its order.

    In the past, trading bots were beyond the reach of the average trader.

    These tools are now available to a wider audience.

    However, this means that profit margins are shrinking as the number of users with trading bots increases.

    In this highly competitive field, funds naturally invest large sums of money to extract every possible benefit from their private bots.

Do bitcoin trading bots work?

The answer to the question“Do bots work in bitcoin trading?” is rather difficult.

Yes, they can work, but trading bots cannot be expected to do all the work for us.

However, we would like to introduce you to the best publicly available bitcoin trading bots:

3commas.io

3Commas Trading Bot was developed by a large team and offers a browser-based service.

For the user, this means being able to check the dashboard even on the move.

The 3Commas team is also trying to build a community platform around the trading bot.

The monthly cost of the initial version is $29.

CryptoTrader.org

Trading Bitcoin Bot Cryptotrader

The CryptoTrader bot is distinguished by its very useful backtesting function.

This makes it possible to test strategies and their profitability for future price scenarios.

The cost of the bot is cloud-based and starts at 0.004/month.

TheCryptoBot.com

Cryptobot-Banner

CryptoBot, based on Gunbot technology, is one of the most widely used bots for Bitcoin trading.

Users can customise and optimise the preset strategies at their own discretion.

Unlike most bots, you only pay once (0.1Ƀ) for Gunbot and 0.3 bitcoins for the premium version.

HaasOnline.com

HaasOnline platform view

The HaasOnline trading bot is definitely one of the most professional bots on our list.

Quality comes at a price, however, as you have to pay 0.013 bitcoin for a one-year licence. The advanced version costs 0.038 bitcoin.

Beware of bitcoin trading signal groups!

When we started dealing with bitcoin and cryptocurrencies in 2013, we were lucky because the community was still very small.

At that time, there were no discussion groups on Telegram.

We learned a lot through personal contacts with cryptocurrency developers and the learning curve was very steep.

Unfortunately, things look different today.

In 2021, a huge number of new players entered the market in search of big money.

Many of them were deceived by other investors who had recently entered the cryptocurrency world.

Through ‘pump and dump’ groups, buy and sell alerts and numerous marketing activities, they attracted a lot of new players to their groups on Telegram and raised a lot of money every month.

In this way, many investors were deceived and suffered huge losses.

We therefore recommend:

Never blindly trust other people when concluding a deal!

Create a plan for yourself on how best to invest your money and follow it consistently.

We are still in the early stages of cryptocurrency adoption.

It would be a shame if cybercriminals robbed you of your precious cryptocurrencies before the big break 😉

Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.