Without a doubt, 2017 has been the year of bitcoin. Its explosion in popularity has created a global buzz among consumers, traders and investors. Transaction speed, low rates, value increases and other factors have convinced people around the world to make Bitcoin one of their main modes of exchange.
According to CoinSpent as a result, large groups of traders have capitalized on the boom in trading bitcoins in spot, CFD and futures markets. In an environment best described as “turbulent”, discipline and dedication are two prerequisites for success.
Here are five tips to change the inherent volatility of Bitcoin's trades in your favor:
- Become Fluent in Technical Analysis
- Adopt a sustainable pace
- Stay on top of the news
- Implement Loss Stops
- Use prudent leverage
- Let's look at each of these in more detail.
#1: be competent in technical analysis
The nature of Bitcoin makes it an atypical value compared to other asset classes or currencies. There is no central bank or government agency that can influence its valuation. News events can have unpredictable impacts, and other financial instruments show sporadic correlations. In fact, Bitcoin's pricing models are largely speculative, ignoring much of traditional financial theory.
Understanding the basic concepts of technical analysis is an absolute necessity before entering Bitcoin markets. In many ways, the price itself provides the only reliable clues related to the future value of Bitcoin. The lack of relevant market fundamentals drives the analysis of price charts, the application of indicators and the reading of price action.
# 2: Adopt a sustainable pace
Trade is a marathon, not a sprint. One of the most important tasks facing Bitcoin market participants is to establish a long-term sustainable timeline. Putting overtime on a daily basis leads to burnout and underperformance.
Market hours for Bitcoin are long:
- Business Hours of Location
- Cash market 24 hours a day, 7 days a week
- CFD 24 hours a day, 5 days a week
- Futures 23 hours a day, 5 days a week
No one can trade effectively 24/7. The best practice is to adopt a manageable calendar by delineating optimal trading times and focusing exclusively on those periods.
Learn more about Bitcoin futures options here.
#3: Stay Informed of News Articles
Bitcoin is unique in that typical news does not have a predictable impact on markets. There are no scheduled GDP releases, WASDE inventory reports or EIAs to boost participation and biased prices.
If you're going to start trading with Bitcoin, it's a good idea to have access to a live news service and monitor it.
# 4: Implement Stop Losses
Consistent volatility is an attribute of Bitcoin markets that is particularly attractive to active traders and investors. Valuations fluctuate regularly between 5 and 10 percent daily, creating opportunities for traders with a risk appetite.
Whether a trader is participating in the cash futures, CFD or Bitcoin markets, the use of stop loss is imperative when trading Bitcoin. Large price swings are certainly ready for profit, but there is a possibility of catastrophe.
It is absolutely imperative that you use a stop loss somewhere in the market, the exact location will vary, to protect any open position.
# 5: use prudent leverage
It's a cliché, but leverage is truly a double-edged sword: it increases profits but increases losses. Too much leverage promotes reckless money management and will lead to exploiting your trading account. Too little can hinder performance because premium trades may not work according to their capabilities. Ultimately, effective leverage management is a balancing act to be performed by a Bitcoin trader.
Bitcoin futures products can help you manage leverage because they place additional emphasis on proper leverage. CME Group and Chicago Futures Exchange (CFE) offers are priced at $25 and $10 per tick, respectively. At the very least, it can be capitally intensive to take multiple statement positions.
A simple way to define the size of the position is the 3 percent rule. Under its parameters, a maximum of 3 percent of the trading account can be assigned to a single trade. This ensures proper alignment of risk to reward with respect to position size and stop loss location.