Besides being the first cryptocurrency, Bitcoin also set the tone for other cryptocurrencies. The value of bitcoin has increased extraordinarily since 2009, after launching it publicly. Bitcoin traded for around $150 at a time, but in 2021, it reached an all-time high of $65,000. Since its launch, bitcoin has experienced fluctuations in price.
Many expect that the value of bitcoin will keep increasing due to its limited supply of 21 million coins. Whether the value will increase or decrease, you need to use the bitcoin strategy if you want to trade bitcoin. There are more than one strategies you can use for bitcoin trade, as discussed in this guide.
Best 4 Strategies to Trade Bitcoin
Your aim, risk management, and the amount you have will determine the bitcoin strategy since there are many of them. Regardless of the strategy you use for the bitcoin trade, since it works for you, there is no cause for alarm. However, if you want to know more bitcoin strategies, below are four of them:
- Hedging
Hedging is a bitcoin trade strategy practiced by those owning bitcoin. After analyzing the market, bitcoin owners find the probability of the market price decline over a short period. You are at risk due to the position you took before the market price declines. Placing strategic trades to eliminate or remove the risk is the aim of hedging. In simple terms, hedging means when you have bitcoin, and the price starts falling, you will sell at the current price and then buy back as the price reduces more. This way, you will recover from the initial loss you suffered due to the decline in the market price.
CFD is the most used financial instrument many investors use for hedging. Before you can trade, you are not obligated to have the underlying asset; thus, the shorting of bitcoin. Using this bitcoin trade strategy comes with certain risks, which you must note. Because, after selling your bitcoin, the market can retrace and go back; therefore, you won’t be able to recoup your loss. Also, always have risk management in place because you may lose a lot if you are not there to exit the market when the price goes down.
- HODLing
HODLing is a term generated in 2013 due to the fall in the price of bitcoin and instead of typing holding, a bitcoin user typed holding to mean he will not exit his position. Since then, many users have started using it as a bitcoin trade strategy, which is now the most popular. The basis of the strategy is for users to maintain a long position when the price of bitcoin is falling. The downside of this strategy is the risk of bearing losses due to the volatility of bitcoin. Using this strategy is not encouraged unless you adhere to stringent risk management.
- Bitcoin Breakout
This strategy involves taking advantage of the bitcoin trend such that a trader enters a bitcoin trade when there is about to be a breakout. Volatility will happen after the market breaks the support or resistance level. Thus traders employed the breakout strategy. After identifying the support and resistance level using the moving average or RSI, open a position.
- Trend Trading
The trend bitcoin trade is employed when the asset keeps having consistent lower lows or higher highs. The market trend will determine the duration for holding positions. FOMO helps drive bitcoin such that many people buy the coin and increase its value. Therefore, if you use this strategy, you must be aware of any news or development affecting the bitcoin trade. Traders used technical, fundamental, or both analyses to determine how the market will move.
Tips For Bitcoin Trade
- Understanding the market
- Selecting trading methodology
- Building a plan for trading
- Risk Management
Conclusion
Bitcoin has witnessed a massive increase in value since its introduction, and it has grown to the extent that some major companies and countries recognise it as a currency. However, bitcoin trade is on exchanges, and traders should not trade the asset without having a strategy. Use any of the bitcoin strategies discussed above to increase your chance of making profits from trading it.