Since its inception, the Bitcoin price has been on a roller coaster. Thus, many commentators believe that trading this crypto is not for everyone. However, anyone who decides to dive into this ocean should best learn from the whales. The naysayers think that no serious investor should trade or hold BTC or any other virtual currency.
However, many investors are watching the bitcoin action and feel tempted to get involved. Although it could be a terrible idea to join this nascent and scantily unregulated market, there are various trading methods utilized by the whales that guarantee high chances of success.
The key idea behind these trading strategies is to minimize the risk that is associated with trading Bitcoin.
The Pricing is Random
Traders and investors must always know that there is no definite rhythm or reason that controls the price of BTC at any given time. For instance, there are no discounted cash flow models, income generating potential, earning reports, or correlation to hard assets to use as pointers.
What Bitcoin traders do is engage in speculation that is solely based on subjective perception. Hence, to benefit from other traders’ subjective perception, one must look at everything objectively. There are two approaches available for this objective analysis strategy. They include long-term and short-term approaches.
The Long-Term Strategy
This approach is proven to involve the least amount of risk. Notably, after the massive bitcoin Bull Run at the end of 2017, the price of the token surged to almost $20,000. Then, it cascaded down to almost $3,100 by the end of 2018. That 2017 run-up to nearly $20,000 was a classic parabolic rise.
These parabolic rises are present in many other types of assets. But, certainly whatever goes up must always come down. Anyone with the ability to short bitcoin maybe by getting shares of the Grayscale Bitcoin Trust to short would make a profit by waiting for the price to fall by about 10% and then short it in increments as it fell.
This shorting strategy as the price continues to fall is a standard approach that based entirely on investor psychology. One can then decide to scale out of the trade by covering their short and for increments that suit their needs.
After the plunge from $20,000, bitcoin spent a few weeks oscillating around $3,000 in early 2019. That kind of stability after a big move mostly suggests that a second major move is on the way. Thus, experts advise that the stability session would be the best time to establish a new long position.
After Bitcoin soared to above $6,000 in May 2019, any long-term trader could have added another position. The perfect time to exit from their position would be around the $12,000 mark which was achieved in late June 2019.
The primary factor that influences this whole long-term strategy is to have a stop loss order in place. Every successful investor always decides what they are willing and ready to lose on their investment if the markets go the opposite way.
The best amount to risk is almost 7% of the portfolio and traders are advised to trigger a sale whenever they experience a loss. That is how the whales trade.
The Short Term Method
A short-term strategy comes with higher risk since the trader must be more cautious with their entry and exit points. The best indicator to use is the Bollinger Bands which is also popular among the whales. According to the Managing Partner at Chapwood Capital Investment Management, Ed Butowsky:
“Bollinger Bands are very useful in these situations. They are two sets of bands that are both above and below a moving average, and represent two standard deviations, meaning bitcoin has a 95% chance of remaining within these bands.”
In these situations, Butowsky advises that traders should enter or exit the market at any given time when the bitcoin price breaks away from the Bollinger Band. That means that the trader may miss the initial big move but they can benefit from the majority of it.
Whichever strategy one decides to use, it is advisable to do thorough price analysis to ensure that it pays off. Analysts, commentators, naysayers, and proponents at least agree on one thing about bitcoin; it will remain volatile for the foreseeable future.