Best bitcoin trading strategies and tips

A bitcoin strategy is a methodology for trading the market that covers the price points you’d enter and exit at. Discover the best bitcoin trading strategies and some top tips for getting started.

Top bitcoin trading strategies

The best bitcoin (BTC) trading strategy is one that is perfectly aligned to your own individual goals, risk appetite and available capital. However, there are a few strategies that have become popular with bitcoin traders. These include:

  1. HODLing
  2. Hedging
  3. Trend trading
  4. Breakout trading

HODLing

Perhaps the most famous bitcoin strategy is what is commonly known as ‘HODLing’ or ‘holding on for dear life’.

The term was fist coined in 2013, when bitcoin’s price was falling and a user incorrectly typed ‘hodling’ rather than ‘holding’, to indicate he would not be exiting his position. It has since evolved to become a strategy that revolves around maintaining a long position on bitcoin, in the hope that it increases in price over the long term and return to the peaks of the 2018.

However, bitcoin is notoriously volatile, which means that this strategy could result in losses. This is why the strategy is rarely recommended without a strict risk management plan in place.

Hedging bitcoin

Individuals who already own BTC might consider hedging their bitcoin risk if they believed that there was going to be a short-term decline in the market price. Hedging is the practice of opening strategic trades to decrease or eradicate the risk to existing positions.

In this case, you’d hedge an existing holding by opening a position to short bitcoin, which involves selling the asset for the current market price in the expectation it will decline. If the market price did fall, you’d then buy it back for the lower price and profit from the difference. This would mean that any loss to your original bitcoin holding would be offset by the profit to your short bitcoin trade.

There are a few financial instruments traders can use to hedge their bitcoin exposure, but a vast majority of traders choose to hedge with contracts for difference (CFDs). As a derivative product there is no obligation to own the underlying asset in order to trade. So, you wouldn’t ever have to sell your bitcoin to place a short trade, unlike with traditional short-selling, which would involve borrowing bitcoin to sell.

Want to practise hedging bitcoin? Start building your strategy in a risk-free environment using an IG demo account.

It is important to remember that there are significant risks if you decide to hedge your bitcoin using a short-selling strategy. This is mainly because there is an unlimited downside risk – when you sell a bitcoin, there is no constraint on the amount the market can move against you and how much loss you might incur as a result. So, it is crucial to have risk management measures in place.

Trend trading bitcoin

A trending market is one that reaches consistently higher highs or lower lows. The strategy is suitable for different timeframes, as essentially you hold your position open for as long as you believe the trend will continue – whether this is hours, days, weeks or months.

For many, bitcoin itself is a trend. It experienced a huge surge in popularity in 2017, which caused it to reach a high of $19,763.50 in December that year. The driver of the trend was that people didn’t want to miss out on the new big thing, experiencing what is known as FOMO, or a fear of missing out. As such a popular market, it is vital that trend traders stay abreast of any news and events that might influence its price.

Discover what cryptocurrency trading is and how it works

Trend following strategies use technical analysis to predict the direction of market momentum. Trend trading bitcoin involves opening a position when you believe that the digital currency’s price will continue to move in its current direction or is about to form a new trend.

There are multiple ways that traders can identify the direction of a market trend and its momentum, which usually involve using technical analysis indicators. Popular trend and momentum following indicators include moving averages, the relative strength index (RSI) and the stochastic oscillator.

Bitcoin breakout strategy

Breakout trading involves entering the market as early as possible in a trend, ready for the bitcoin price to ‘breakout’ from previous range. The strategy is based on the idea that once a market breaks through a key support or resistance level, major volatility will start.

Bitcoin traders would therefore look to enter the market at these key points in order to ride the trend from start to finish.

In order to identify support and resistance levels, bitcoin traders will often use volume levels as confirmation signals and technical indicators, such as the RSI or the moving average convergence divergence (MACD).

Once these levels have been identified, you can open a position. Say bitcoin was currently trading within a range of $11,000 and $11,050. Your technical analysis suggests that once it crosses the $11,050 price point, it will breakout into an upward trend. So, you decide to place an entry order to open a long CFD position if the market rises to $11,051. If the price did rise to this level, your CFD would be executed and you could ride the bitcoin trend until your analysis showed it was going to reverse.

If the market price didn’t ever cross the $11,051 level, your bitcoin position would never be executed.

Bitcoin trading tips: what you need to know before trading

  1. Understand the bitcoin market
  2. Choose how to trade
  3. Build a trading plan
  4. Manage your risk

Understand the bitcoin market

The bitcoin market is infamously volatile, which makes it absolutely vital to understand the market before you implement your strategy. There are a lot of factors that can impact the price of bitcoin, including:

  • Supply. Bitcoin’s supply will be capped at 21 million coins but not all of these are currently available to trade. New coins are released through a process known as mining, with the rate at which they are created altered by bitcoin halvings
  • News. The public perception of bitcoin is crucial to its price, and any negative news can severely damage the coin’s market value
  • Events. Any regulation changes, security hacks and macroeconomic releases can have consequences for the price of bitcoin

Choose how to trade

However you decide to trade bitcoin – whether this is buying the coin outright or speculating on its price with derivatives – it is important to understand your chosen method.

If you decide to buy bitcoin, you would do so via a cryptocurrency exchange. You would take ownership of the coins themselves and keep them in a digital wallet, in the hope that they increase in value and you can sell them for a profit. It’s important to be aware that opening an exchange account can be a lengthy process.

If you decide to trade using derivatives instead – such as CFDs – you won’t ever take ownership of bitcoin itself. When you open a position to trade a cryptocurrency, you are speculating on its price, which means that you can take advantage of markets that are rising and falling in value. You won’t need to open a digital wallet, just an account with us, which you can do in minutes.

Learn more about how to trade cryptocurrencies

Build a trading plan

Before you start to build a strategy, you should create a trading plan. By having discipline, and sticking to a clear plan, you’ll be far less likely to fall prey to emotions like fear and greed.

  • Goals. These should be achievable aims that will be your motivation for trading. They don’t need to be outlandish claims about the amount of money you want to make, but rather attainable and measurable statements of what you hope to achieve
  • Style. Trading can be carried out in a variety of ways, depending on how often you want to trade and how long you want to keep those trades running. Discover the most popular trading styles
  • Attitude to risk. Your plan should include your risk profile, including how much capital you have available to trade with and how much you would be willing to risk on each trade

Manage your risk

Volatility is a key part of the bitcoin market, but with volatility comes risk. This is why it is important to learn how to manage your risk before you start to trade. A risk management strategy should include stops and limits to set out the parameters of your trades.

Limit-close orders will close your positions once the market has moved by a certain amount in your favour, enabling you to lock in profits. While stop-loss orders will automatically close your position once the market has moved against you, enabling you to define your acceptable loss.

And, if you are using derivative products, you can attach a guaranteed stop to your bitcoin position that will protect your trade if the market moves against you. If your guaranteed stop is triggered, there will be a premium to pay.

Start trading bitcoin

  1. Open an account with IG quickly and easily to place your first bitcoin trade
  2. Practise trading on an IG demo account. Test your bitcoin strategies in a risk-free environment to build your confidence

Alternatively, you can join IG Academy to learn more about financial markets.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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