How to Create a Bitcoin Trading Strategy: Everything You Need to Know


Many experts believe that around 106 million people currently own Bitcoin. Each year the popularity of Bitcoin and blockchain technology seems to grow.

Have you considered using a Bitcoin trading platform but aren’t sure if you’re ready? It’s important to create a Bitcoin trading strategy before jumping in.

The following guide will explore how to make Bitcoin trading profits and limit risks. Trading with cryptocurrencies doesn’t have to be intimidating if you go in with a good plan.

Follow the News

Always remember that big economic news can impact the price of BTC. The impact might be small or very substantial depending on the type of news.

Savvy traders often combine technical analysis with current news to set up their trades. If done correctly, it can generate substantial Bitcoin trading profits.

For example, you can follow price action signals if you wish to trade any major news. start by examining the support and resistance levels over a broad time frame.

After the major news gets released, look for a price action signal in a narrow one-minute timeframe. Make a BTC trade if you notice any favorable price action signals from the news.

Watch for Dips

Many Bitcoin traders and investors use a simple “dip” strategy to time their buys. That means they only buy BTC after the price drops significantly and they expect it to recover eventually.

Keep in mind that you should gradually buy small amounts as the price lowers instead of all at once. you want to create an average position and try to buy more BTC as the price “dips” further down.

It’s important to set alerts on your phone because BTC dips often occur at a moment’s notice. Consider using a Bitcoin ATM like this in case a dip happens while you’re on the go.

Longterm Holding

Watching for dips and major news works well in the short term, but some traders prefer long-term strategies. Holding onto BTC for an extended amount of time helps combat volatility and requires less attention.

Buying and selling too frequently rather than holding might actually make it harder to profit from BTC. Even if you succeed with quick trades, you’ll probably miss out on some profits by not holding.

Incorporate Hedging

Hedging is a process designed to limit the risk of your crypto investments. For example, you might sell some of your BTC to decrease the risk of holding onto all of it. In the end, you should maximize your profits by avoiding big losses.

Try holding on to your Bitcoin if you sense the price is rising. When it starts to drop or when you expect it to drop, sell a portion of your BTC at the highest price possible.

You should also diversify your portfolio with different cryptocurrencies to help limit risks. Try to find different kinds of cryptocurrencies from various industries and different levels of risk.

Resist FOMO

FOMO, or the fear of missing out, often causes crypto traders to buy irrationally based on emotion. If the price of BTC goes up substantially, it doesn’t mean that it will continue to rise higher.

Make sure you don’t jump into a BTC trade after a big run reaches its peak. You might end up riding the price back down and taking a loss instead of profiting.

Consider automated trading so that bots make your trades using algorithms without any human emotions. The bots use several filters, tools, and signals to make trading decisions.

Automated trading functions around the clock and eliminates human fatigue so that you never miss an opportunity. Some bots even let you feed them relevant news and information to help them find better times to buy and sell.

Trends and Countertrends

Trend trading works by using technical indicators to determine which direction BTC’s price might move. Trading based on trends relies on the belief that the market moves somewhat predictably.

You must analyze the previous price movements and trends to predict future BTC outcomes. It’s usually a good mid-term and long-term strategy unless the trend you follow happens in short bursts.

However, some traders prefer to generate small profit gains from trading against trends. Countertrend traders seek corrections in price action for trending cryptos to make profits.

They buy or sell BTC after a sudden upward or downward move occurs. Then, they hope that a price correction lets them buy or sell it back at a higher or lower value.

Keep an Eye on Support Levels

When price action moves past resistance or support levels, a breakout might happen. Many crypto traders watch closely for trends to break, but it’s not quite the same as countertrend trading.

For example, an upward Bitcoin trend can still have resistance levels to break.  Likewise, downward BTC trends can have support levels break. Breakouts happen after moving past these levels to create new highs or lows.

Day Trading BTC

Day trading Bitcoin means that you’ll buy and sell a cluster of BTC all within a single day. The goal is to use upward and downward price movements to make quick gains in a single trading session.

To day trade BTC successfully, you need substantial funds and a broad knowledge of how the market moves. Some day traders use leverage to raise the stakes but that comes with a lot of added risk.

Day traders pay close attention to scheduled announcements, news, and public sentiment about Bitcoin. So, day trading takes a lot more time and energy than simply holding and the reward is less.

If you enjoy fast-paced crypto trading, you might mix some day trades into your strategy. Just remember that you might run into more fees per BTC trade.

Dollar-cost Averaging

You don’t need much crypto trading experience to use dollar-cost averaging. It’s when you buy a set amount of BTC at specific intervals while the price action moves either up or down.

You’ll end up averaging out all your Bitcoin buys within those fixed intervals over several months. Having an average price spread out over multiple months helps curb volatility and risk.

Try dollar-cost averaging if you’re new to trading and you’re worried about timing your buys wrong. It’s a good way to take emotion out of your trades, practice discipline, and endure market downtrends.

Momentum and Mean Reversion

Some Bitcoin investors evaluate the crypto market based on its momentum. Their goal is to ride a wave of positive momentum with BTC and then quickly sell it off as the momentum changes direction.

The main belief behind this strategy is that the prices of Bitcoin should peak above its average, end its upward momentum, and fall. Beginners might want to avoid this strategy because the timing of buying in and selling off is crucial.

Mean reversion is a similar strategy, but it’s more of a direct assumption. The belief is that if the price of BTC moves from its average, it will end up back at that average eventually.

It’s a very reliable strategy for both cryptocurrency and traditional markets. Overall market psychology has a lot to do with why prices end up back at their averages.

Avoid Pump and Dumps

Pump and dump plots raise the price of BTC and other coins via untrue, deceptive, or extremely inflated statements. Falling for a pump-and-dump scheme might lead to significant losses so don’t fall for these traps.

For example, a group of crypto traders might build up enthusiasm for a cryptocurrency by praising it on several social media platforms. Then, the group plans to quickly purchase large amounts of the cryptocurrency.

As the price of the cryptocurrency grows, other traders outside of the group also buy in and send the price higher. But the initial group then coordinates to sell off at the same time to take profits.

When the pump-and-dump group sells off, it causes a major decline in the cryptocurrency’s price. Those traders outside of the group get stuck holding severe losses while the schemers make profits.

Risk Management Tools

The world of Bitcoin is very exciting, but don’t forget that it’s easy to lose money very quickly. Most crypto beginners only focus on the possible rewards and don’t think about managing risk.

Make sure to use all of the trading tools available to you so that you don’t deplete your BTC funds. First, consider using trailing stops when trading BTC to make sure you take profits when the price goes up.

Standard trading stops get set at one price which makes it hard to make profits. So, BTC could skyrocket and fall all the way back down and traders using regular stops wouldn’t see any gains.

Trailing stops follow the price of the crypto market and they only execute stops if Bitcoin falls to a certain price. While you might not sell BTC at its peak, you won’t end up back where you started and you’ll take profits in the middle.

Make sure to use price alerts to manage risks when trading BTC as well. You can set these free alerts to trigger at any desired price you want so that you don’t miss out on opportunities.

For example, the price of Bitcoin might fall substantially in a single day or even within minutes. You’ll get notified if you set an alert for that range so that you can act accordingly.

You can have the price alerts delivered through email, an app notification, or both. After receiving an alert you can choose to sell your BTC, hold, set up a new alert, or buy more Bitcoin.

Stay Secure

Always use two-factor authentication for any accounts associated with your BTC holdings. 2FA offers an extra layer of protection to your accounts to prevent getting hacked.

You’ll receive a generated code sent to your smartphone after logging into your crypto account. The code helps secure your account in case someone gets ahold of your email and login password.

Two-factor authentication is a spinoff of multi-factor authentication. MFA only unlocks a combination after using two unique factors.

For instance, using 2FA to access a crypto exchange account requires logging in with a username, password, and a 2FA PIN number. Authenticators send the codes to a secondary device like a smartphone so that criminals can’t obtain it.

Watch Out for Scams

Anyone can fall for an email scam and they’re very prevalent in the world of crypto. If you’re new to trading BTC, these scams might seem very frightening when they show up in your inbox.

Bitcoin phishing scams involve using fake emails and deceitful websites to loot personal information. The goal is to obtain passwords, credit card numbers, account information, physical addresses, and other sensitive data from traders.

If you receive a suspicious email regarding Bitcoin, don’t open any links or download any attachments. Even if it looks like it might have come from a legitimate exchange, contact support and don’t take any chances.

Don’t Forget Your Keys

Private keys act as an unbreakable safe and give users access to their BTC. If you lose your private key, it’s impossible to regain access to your Bitcoin.

Some traders choose to write down their private keys but risk losing or throwing away the paper. Others rely only on their memory but risk forgetting the key.

Hardware wallets (cold storage) are the best and most secure method to store your keys. They’re backed by security experts and they use tamper-resistant screens.

Create a Bitcoin Trading Strategy

Now you have many ways to create a Bitcoin trading strategy that fits your lifestyle and goals. Instead of sticking to one of the strategies above, try implementing several and find a combination that works.

Take a look at our cryptocurrency section under the topics tab for more helpful tips.



About Author


Leave A Reply