Bitcoin, an entirely digital cryptocurrency, was initially introduced in 2009 to enable peer-to-peer transactions without the involvement of a central bank. Check websites to know can bitcoin help you to utilize the best trading strategies to make your bitcoin trades profitable. Named after its inventor Satoshi Nakamoto who never revealed his identity, bitcoins have gained popularity as internet transactions.
Bitcoin saw explosive growth in 2017, and many people are only now aware of how bitcoin trading works or what is a bitcoin fork. This guide will cover the basics of bitcoin trading to help you get on board, and here complied the different bitcoin trading styles so that you can choose what suits you the best.
- Day Trading:
Day trading is like swing trading. The difference is that day trading involves making a trade based on one day’s or even a few hours’ market movements. Day traders use a strategy of placing a buy order and then either covering it or writing (taking profits) at the current price level.
They also sell at the current price level and then cover or close their position when the price rises or falls by some predetermined amount. However, unlike swing traders, day traders don’t have to go long on and short off to make money from it because they will anticipate only one move in the market: up or down.
A scalper is somebody who trades on a short-term basis, and they aim to make a profit within a small amount of time by taking advantage of short-term trends. They are not had open positions in the markets for too long and do not have a strong knowledge of technical analysis. Traders perform scalping in a similar way to that of day trading.
A scalper does not have to hold positions for long but will only make small profits or losses within minutes or hours at most. As a result, scalpers often buy at the low and sell at the high, with each position having large movements from one day to the next because they rely on tiny price movements rather than actual news to make large profits.
- Swing traders:
Strategists describe the swing trader as a market participant who trades within a mean-reversionary environment. However, following price trends and exploiting liquidity conditions can produce skewed results in an upward market. The interest of the swing trader is to try to identify underlying trends and buy or sell with both sides of the market when they appear.
Swing traders do not trade with a pre-set stop loss (loss limit) and usually do not trade with a profit target. As a result, they are willing to take more risks than short-term traders when they think there are good chances for profit but will cut losses quickly if they see no consistent trend.
- Arbitrage trading: The most popular in the bitcoin ecosystem:
Long-term bitcoin trading is pretty much like traditional financial markets, but with rapid price movements. Arbitrageurs exploit differences in the price of the same instrument on different exchanges or in different currencies. Bitcoin exchanges are located worldwide and trade with each other and other foreign exchange markets from time to time.
Arbitrage traders will try to buy bitcoins from exchanges where they are relatively cheap and sell them at an exchange where they are relatively expensive, taking advantage of the price differential. Arbitrage opportunities in bitcoin trading arise due to imperfect information, market volatility, and the inability of arbitrage traders to take advantage of these available opportunities because they wish to avoid exposing themselves to significant loss if they were wrong about their assessment.
- HODLing Bitcoin:
HODL stands for “Hold on for Dear Life,” and the term has been gaining popularity in the Bitcoin community. HODLing is a bitcoin trading style in which the trader will hold on to their bitcoin until it has appreciated sufficiently to give them a good return on investment (ROI). HODLing sometimes works because of market volatility by buying when there is blood in the streets and then selling when prices become more stable.
- Trading Futures: Short selling:
The futures market is one of the most speculative investment markets to trade bitcoins, but investors can also use it to hedge their risk. Investors using the futures market to trade bitcoins will want to borrow or pay in cash for futures contracts. The futures market is an agreement signed between two parties that exchange goods, assets, or services after a specific date in the future.
The two most popular selected with bitcoin are CBOE and CME, but others such as BitMex have been gaining much traction recently. One good thing about futures contracts is that they close at a predetermined time, which means there are no price gaps during the contract period. However, with other types of bitcoin trading, gas gaps can lead to significant price swings.