Top Bitcoin Trading Strategies to Make Money

The phenomenon that is Bitcoin has gripped the mainstream market primarily due to the fact that the digital currency has shown it is a good way for people to make money. Bitcoin, first thought of as a currency, and then as a digital gold, has also permeated the investing space and become a hot new asset that is one of the best ways to make money. Another reason Bitcoin has become so popular in the trading space is that, as an asset, it ticks some of the boxes that make it highly profitable – when the right trading system is used. The high volatility of the asset, coupled with its global liquidity and availability, means that there are a number of ways in which Bitcoin trading can be affected. 

However, determining the best investment strategy, and how to start trading Bitcoin for profit, requires a bit of research and knowledge as there are a number of options available to traders, but they all have their strengths and weaknesses. 

From buying and "hodling", which means to hold onto the asset as it appreciates – or depreciates, to day trading and margin trading, all of these investment strategies offer something different for different types of traders. 

How to Start Trading Bitcoin

Beginning on your Bitcoin trading journey is very easy. In fact, as compared with more traditional means of trading and investing, Bitcoin is one of the simplest, and most inclusive. All a trader really needs to begin trading is a Bitcoin wallet, and all a person needs to get a Bitcoin wallet is a smartphone. 

A Bitcoin wallet allows a person to buy, hold, and sell Bitcoin straight away — usually through an exchange which can be linked to the wallet. Simply buying, holding and selling Bitcoin is an actual trading strategy, and one of the more popular ones at that. 

Once you have a Bitcoin wallet, you are then able to purchase Bitcoin through traditional means, like bank payments or card purchases, and from there, you can use you Bitcoin on various platforms that are amenable to different trading strategies.

Why It Makes Sense To Trade Bitcoin

Bitcoin has been around for over 10 years now, but in terms of it being an investable and tradable asset, that drive has only come recently. The mainstream understanding of what Bitcoin’s value is has tilted towards investing and trading for a number of reasons, and this has even made it popular on institutional platforms like CME and Bakkt. The biggest advantage that Bitcoin has over other traditional stocks, bonds, assets and commodities is that it is a volatile market. Volatility is often seen as a bad thing, but it is a double-edged sword, and for Bitcoin, the majority of its volatility has been in an upwards trajectory making it an asset that offers high profitability. 

More so, Bitcoin is easy to acquire and an inclusive asset that needs a person to only own a smartphone and have as little as $10 to their name to begin trading. Bitcoin trading is also designed to be easy for these very reasons. Many of the platforms that offer trading have attempted to make it easy and uncomplicated to attract new users to the space. 

Bitcoin is also an asset unlike any other. It operates a bit like a digital gold, in that it does not exist in the physical realm and has the properties of gold when it comes to accruing value, but it is also decentralized, which means there is no one entity that controls it. So, when you invest in a stock, your stock price can fluctuate depending on what business decisions the company takes, but that does not happen with Bitcoin. Other advantages to trading in Bitcoin include the fact it has a transparent, immutable ledger to track and trace transactions. It is a scarce resource with there only ever being 21 million in existence, it has low transaction fees which are often taken into consideration by certain trading platforms, and probably — most importantly, Bitcoin is the best performing asset of the last decade by a considerable margin.

Strategy #1: Buy And "Hodl"

This strategy is arguably the easiest, most common, and highly prized Bitcoin Trading strategy. The term ‘hodl’, meaning hold, has even cemented itself as a Bitcoinism term because of the popularity of this strategy. Buy and ‘hodl’ simply means to buy Bitcoin and keep the asset stored away for it to appreciate naturally. The reason for this strategy being so popular is because of Bitcoin’s mainly upward trajectory since its inception. The asset began life worth only a few cents and now trades at more than $50,000 per coin. Thus, if one had bought 100 BTC at 1 cent each, spending one dollar when the coin first emerged and simply held onto it until through today, that same $1 investment would have been worth $5 million — and would have required no effort. 

Pros And Cons Of Buy And "Hodl"

The most obvious Pro of using the buy and ‘hodl’ approach to Bitcoin trading is that it offers a way to buy and sell Bitcoin that can be quite profitable — but it all depends on timing. In the long run, Bitcoin’s performance over the last decade was unmatched meaning that anyone who invested in Bitcoin for 10 years could not have done better with any other stock, asset, or commodity investment.

The other big advantage of this method of trading is that it is incredibly simple. We have already discussed how easy it is to enter the Bitcoin market — requiring only a smartphone and a small amount of money — and once you have bought your first fraction of Bitcoin and decided to hold it for any length of time, you are participating in the buying and ‘hodling’ strategy. 

There are of course some Cons that come with this strategy though. It is a strategy that comes with risk. Because the Bitcoin market price is constantly moving, one day Bitcoin price is going up, the next day bitcoin price can drop. If you decide to buy and hold Bitcoin at a certain price point, the price can drop significantly from there and you can lose as much as 80 percent of your investment. 

This happened with people who bought Bitcoin at $20,000 back in 2017 and saw it fall as low as $3,000 less than a year later. Buying and ‘hodling’ is also a long-term strategy, and that is usually okay, but as discussed, the Bitcoin market is attractive because it is a fast-paced market and there are better, quicker, ways to make money.

Strategy #2: Margin Trading

One of the more exciting Bitcoin trading strategies that have become quite popular in recent times is Bitcoin Margin trading. This form of trading offers huge profitability margins as it involves using borrowed funds to place larger trades on Bitcoin. This, in effect, means that a person can double, triple, or more, their initial investment in a single trade. 

Margin trading is also known as leveraged trading as a person borrows funds — usually from a cryptocurrency exchange, they are trading on — to leverage their trades for a higher profit margin. For example, some platforms offer trading of 3:1 meaning that if you want to trade with 1 BTC, you are able to borrow 2 more BTC for the same trade. Then, if that trade is successful, your profit is then three-times bigger.

Pros And Cons Of Margin Trading

The biggest Pro of this strategy is the massive amount of profit that can be made in a single trade. If you best on Bitcoin’s price going up, and you have a large leverage of say 100:1, then your profits are that much bigger. Traders often use this strategy to make money fast; not only because of Bitcoin’s price moves rapidly, but because there are large margins out there that can make money quickly.

The Con of this type of trading is that the margin trading can go the other way and lead to large losses as well. For example, if you use $100 to buy $10,000 worth of BTC as there is a 100x leverage available, and the price of Bitcoin drops by only $1, you have now lost $100. More so, if you don’t have the money to cover the losses, your position gets liquidated and you lose all your money. 

Strategy # 3: Bitcoin Futures Trading 

This trading strategy has become more and more popular in recent times, and that is obvious by the amount of money that is seen in the Bitcoin futures market, and the fact that there are more institutional investment firms now offering Bitcoin Futures Trading options. This Bitcoin trading strategy requires a trader to be accurate in making a Bitcoin price prediction as it is essentially betting on Bitcoin’s price being up after a certain time — known as going long — or predicting that Bitcoin’s price will be down after a certain event — going short. 

Futures trading involves entering into a contract with a trading platform — that has a set value — and taking a speculative prediction on the price of the digital asset. The contract thus sets the future price of the asset which needs to be honored regardless of how the market has moved. 

As an example, if a person has 10 Bitcoin at a value of $50,000 but they think the price of the asset is set to fall soon, they can sell (short) a futures contract at the current price of $50,000. If the price does then drop say $10,000 to $40,000 as the contract draws to a close, that same person has the option to buy (long) back the futures meaning that a total of $100,000 was protected on his investment by selling the contract at a higher price than when he bought them at $40,000. 

Pros And Cons Of Bitcoin Futures Trading

The Pros of this Bitcoin trading strategy is that it also offers a hedge against a potentially falling Bitcoin price. As explained in the example above, if you as a trader think that Bitcoin’s price is going to go down, you can hedge against it by going short. This means that if the price does fall, you get to sell your Bitcoin at the higher price you originally bought the Bitcoin contract for. Another big advantage in this form of trading is that this has become a regulated trading market with the likes of CME and Bakkt — two institutional investment platforms — offering the service. But even cryptocurrency trading platforms and exchanges are getting regulated. 

Strategy #4: Day Trading

Another very popular trading strategy that has become especially attractive when it comes to the Bitcoin market is Day trading. Many people want to learn how to day trade Bitcoin, but this form of trading basically requires a person to keep a sharp eye on the continuously fluctuating Bitcoin price and looking to buy when it is low and sell when it is higher, to take profit. 

This method is almost the polar opposite of buying and ‘hodling’ as it involves making quick buys and sells when the price moves. And, because Bitcoin’s price volatility is so well known and often quite aggressive, day trading often happens very frequently where a position changes from high to low, presenting a buying opportunity, or low to high, presenting a sell. 

Pros And Cons Of Day Trading

Day trading is a strategy that takes place with other assets as well, including stocks, forex, and other commodities. But the Pros of day trading with Bitcoin are a lot more. Firstly, the volatility of the market is a day trader’s friend, and day trading can happen 24 hours a day, seven days a week. This is unlike stock markets that close at certain times. 

Some of the Cons of this trading strategy tie into the usual ones associated with Bitcoin. Again, the volatility can be positive if your trading is going well, but it can also be a con as it may lead to big losses. Additionally, day trading requires a bit of experience and skill, and it helps to understand technical analysis in order to read the Bitcoin price charts.

As a brief explanation, there are two basic types of technical indicators used in technical chart analysis. These include Overlays, and Oscillators. An overlay is a technical indicator when the same scale as price is plotted over the top of the price on a stock chart, or in this case, the Bitcoin chart. Examples of these types of technical indicators include Moving Averages and Bollinger Bands. Oscillators are indicators that oscillate a minimum and a maximum that is plotted above or below a price chart; examples of these include RSI, stochastic oscillator and MACD. There is a lot to be learned in technical chart analysis, and it is worth doing deeper research on this

Conclusion

Bitcoin is a very new asset class that has taken the trading world by storm. It is not only an asset that is being traded by cryptocurrency people exclusively any more, but there is also even interest from Wall Street in this new asset. The cryptocurrency has a lot of advantages over traditional assets for investing in, and this, coupled with its ease of access, means it is one of the hottest things to trade today. 

More importantly, Bitcoin as an asset offers so many varied trading strategies that can suit a number of different traders. It can offer massive profitability with margin trading, or an easy ride to increased profits from buying and ‘hodling.’ What is so attractive about Bitcoin is how dynamic it is as an asset, and how well the market has formed around it to drive profitability for traders.