So, you've done your research and are ready to trade Bitcoin. But how do you know when to buy and sell? The price of Bitcoin is notoriously volatile, with sharp, rapid price fluctuations happening regularly. For one minute, the price is $60,000. The next, it’s at $58,000. And before you know it, the price flies to $55,000. This dramatic price action can cause traders to feel apprehensive, excited, and everything in between. Unfortunately, this emotional rollercoaster can lead to costly mistakes, like panic selling or getting overconfident and buying at the wrong time. Bitcoin indicators can help you make sense of this volatility. This article will explore the many types of Bitcoin indicators and how they can help you make profitable trading decisions.
One useful tool for analyzing Bitcoin indicators is Bitcoin Magazine Pro's Bitcoin analysis. This resource can help you achieve your trading goals by providing actionable insights that empower you to make informed and profitable trading decisions in the Bitcoin market.
What are Bitcoin Indicators?
Bitcoin indicators can help traders understand price movements and predict future price action. These indicators analyze data and produce outcomes for traders to make informed trading decisions. They can also help traders develop and refine trading strategies to improve their chances of success.
Can Bitcoin Indicators Predict the Future?
In short, no. They provide traders with enough insight to observe trends and assess the validity of the available indicators.
Trends are Your Friend
Following Newtonian physics, indicators follow a simple path: Price moves have momentum, and the more momentum a move has, the harder it is to stop, and vice versa. The famous adage, “The trend is your friend, " summed up this concept.”
For example: If you were to sell 10,000 Christmas trees on the first of December and 11,000 the next day, it’s safe to say that business will continue to rise or remain at this level, things are looking good.
But toward Christmas day, sales are likely to be declining and interest is low, sales have gone from a high of 11,000 a day, to 5,000 a day, indicating that the trend is no longer on the up, the tree business may be running out of steam and so it may be time to sell the remaining stock asap. In this simple sense, indicators leverage graphs and formulas to help traders see the trends and “see” what buyers and sellers could potentially to do next.
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Understanding Bitcoin Price Movements
Bitcoin's design caps its supply at 21 million coins, making it a deflationary asset. This limitation can lead to significant price swings as demand fluctuates. Reaching the 21 million bitcoin cap is governed by a mechanism called halving. Approximately every four years, the reward for mining a block of Bitcoin transactions is halved. Initially, miners received 50 bitcoins per block.
This reward has halved several times and will continue until the last fraction of a bitcoin is mined. There are approximately 19.6 million bitcoins in circulation today, and the cap of 21 million is not expected to be hit until 2140. Increased demand from investors, particularly during economic uncertainty, often leads to price surges, while lower demand can quickly result in price declines.
Market Sentiment and Bitcoin: Why the News is so Important
The influence of media and news on investor sentiment cannot be overstated. Positive news can lead to hype, driving up prices, while negative news can trigger panic selling. This cycle of news and investor reaction contributes to the high volatility seen in Bitcoin trading.
Regulatory Impact on Bitcoin Price Fluctuations
Regulatory announcements from various parts of the world have historically triggered immediate and often unpredictable effects on Bitcoin's price. While some regulatory news can create short-term volatility, it's important to consider these developments' broader, more constructive impact.
Globally, regulatory frameworks are evolving to accommodate and govern the use of Bitcoin, reflecting a growing recognition of their potential. In the European Union, for instance, introducing the Fifth Anti-Money Laundering Directive (5AMLD) has brought regulated entities into the fold. This has enhanced Bitcoin's legitimacy, encouraging mainstream financial institutions to engage with Bitcoin markets. Similarly, Canada's regulatory environment has become more conducive to Bitcoin innovation and investment.
Impact of Regulatory Approval on Institutional Investment
The Ontario Securities Commission (OSC) has approved several Bitcoin exchange-traded funds (ETFs), making it easier and more secure for Canadians to invest in Bitcoin. These regulatory milestones have significantly contributed to the increasing adoption of Bitcoin worldwide.
As regulatory clarity improves, more investors, from retail to institutional, will likely participate in the market, potentially leading to more excellent stability and a reduction in speculative trading.
Bitcoin Volatility Index: Gauging Market Movements
The Bitcoin Volatility Index (BVIX) measures Bitcoin's expected volatility based on options market data. It's an essential tool for investors, providing insights into market sentiment and risk. Understanding the BVIX is crucial for anyone looking to gauge Bitcoin's market movements accurately.
Investor Behavior and Market Dynamics: Who's Who in the Bitcoin Market?
Bitcoin's market is influenced by a mix of individual and institutional investors, each bringing different behaviors and impacts on price. The emergence of various investment platforms has made trading Bitcoin more accessible, adding to market liquidity and, consequently, volatility.
Bitcoin's Price Fluctuation: A Technical Analysis
Using charts and historical data can help identify trends and patterns in Bitcoin's price. However, the limitations of technical analysis become apparent given Bitcoin's volatile nature, which often defies traditional market expectations:
Historical Perspective: Bitcoin Volatility Over Time
VanEck has been bullish on Bitcoin since 2017 when its price was $3,000. Since then, we've said that Bitcoin is an internet-enabled, limited-supply asset. In its volatile yet vibrant history, we've witnessed a financial phenomenon morph from a nascent digital token to a burgeoning asset class.
Bitcoin's journey has been nothing short of a roller coaster ride, marked by meteoric rises, steep falls, and a resilience that continues to intrigue and reward its believers. For investors, Bitcoin has offered a new avenue for potential returns and a front-row seat to the evolution of an asset that has challenged traditional notions of value and investment. The maturation of an asset can provide additional returns that might be available once the opportunity has matured. With Bitcoin, there's more growing up to do.
Bitcoin 1.0 - Early days (2011-2017)
From 2011 to 2017, Bitcoin was in its proof of technology phase. It was establishing the blockchain as a workable force and was just beginning to have network effects. The volatility was immense; the swings in value were wild and unpredictable. Those who recognized the underlying promise of this technology and invested in it, even amidst the uncertainty, found themselves on the cusp of a revolution.
Bitcoin 2.0 - Awkward growth spurt (2017-2021)
As Bitcoin entered its toddler years, from 2017 to 2021, it began to mature. What was once known to a few tech enthusiasts was now being adopted by millions worldwide and withstanding political bans and threats.
Despite maintaining its volatile nature, Bitcoin proved its principle in 2021 by reaching new all-time highs, demonstrating that it wasn't just a one-time bubble. This phase was a testament to Bitcoin's staying power, solidifying its role as more than just a digital curiosity but a genuine asset class.
Current Trends in Bitcoin's Market Behavior
Recent market conditions have both stabilized and destabilized Bitcoin's price. Analyzing these trends can provide insights into what drives Bitcoin's volatility and offer some predictive understanding of future movements.
Bitcoin 3.0 - Tests of Adolescence (2021-2024)
The current journey is when technological development continues, and a wider circle of investors values the asset. The beginnings of institutional adoption started to surface, although the expected smaller drawdowns were more significant than anticipated. Bitcoin's resilience through these tests has been a critical part of its growth story, a phase of toughening up and proving its mettle.
Bitcoin 4.0 – Coming of age (2024-TBD)
As we approach 2024, we anticipate the advent of Bitcoin 4.0. With potential regulatory clarity and broader acceptance, Bitcoin stands on the brink of its coming-of-age story. With the approval of a Bitcoin ETF and other investment vehicles, Bitcoin is expected to transition to a more stable and accepted member of the financial community. This era may see an influx of retail and institutional investors acknowledging the legitimacy and potential of Bitcoin as a cornerstone of modern portfolios.
Though many investors are long-term BTC holders (also known as “hodlers”) and believe in its long-term appreciation, many BTC traders attempt to use short- and medium-term indicators to predict price fluctuations and make a profit. Some typical trends in technical analysis have indeed played out, including both the “double top” in BTC’s price and the “bearish divergence” of BTC’s price/relative strength index (RSI) in April and November 2021.
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Key Indicators Challenge Fed's 'Normalization' Rate Cut That Torched Bitcoin Rally
The Federal Reserve's monetary policy aims to promote economic and financial stability by managing the supply of money and credit in the U.S. economy. One of the Fed's primary policy tools is the federal funds rate, which influences economic interest rates. The Fed aggressively raised rates in 2022 to combat inflation at 40-year highs.
Easing began this year, with the central bank cutting rates by 50 basis points last week. Analysts debate whether this easing represents a normalization of an overly restrictive monetary policy or preparation for an impending recession. Risk assets, including Bitcoin and altcoins, have rallied since the Fed decision, indicating that markets perceive the rate cut as a normalization move.
Joblessness is Rising: Why It's Bad for Financial Markets
The U.S. Household Survey, which tracks the unemployment rate across 50 states, Washington D.C., and Puerto Rico, showed that as of August, more than 57% of states experienced an increase in joblessness compared to the preceding month and the same period last year, according to data tracked by MacroMicro.
The fact that most states are witnessing an uptick in the unemployment rate means the risk of reduced income, consumer spending, and investment, and a decline in business and consumer confidence in the months ahead, potentially leading to a marked economic slowdown, if not an outright recession (consecutive quarters of economic contraction). A slowdown could see investors scale back exposure to riskier investments. According to August's analysis, 57.7% of U.S. states reported higher unemployment rates than the previous month and year. This points to increasing challenges in the labor market, signaling a more widespread slowdown.
Leading Economic Indicators Are Declining: What This Means for Bitcoin
The Conference Board's Leading Economic Index (LEI) fell to 100.2 in August, marking its lowest since October 2016. The index comprises several forward-looking indicators, such as average weekly hours in manufacturing, average weekly initial claims for jobless insurance, ISM new orders index, stock prices and leading credit index.
The index is widely tracked to identify shifts in economic trends and turning points in asset prices. More concerning is the slide in the ratio between leading and lagging indicators to under 0.85, the lowest since at least the 1950s, according to data tracked by Jeff Weniger, head of equities at WisdomTree. The plunge seen over the past several months points to a potential slowdown or recession, with lagging indicators catching up to the economic reality. The ratio has seen eight similar meltdowns, each portending a recession.
Gold is Surging: Why This is Bad for Bitcoin
According to data source MacroMicro, the ratio between prices for gold futures and Brent crude futures has surged over 35% this year to nearly 40 points, the highest since 2020. Gold is a safe-haven asset and an inflation hedge, while oil is tied to global demand and economic activity. Therefore, gold's prolonged outperformance relative to oil is often taken to represent a sign of an economic slowdown.
Top 10 Bitcoin Indicators You Need to Know
1. Pi Cycle Top: The Indicator That Knows When Bitcoin Is Done Bull Running
The Pi Cycle Top Indicator has gained notoriety for accurately predicting several of Bitcoin’s major market tops. Historically, after the indicator flashes a “top signal,” Bitcoin has experienced significant drops, ranging from 52% to 86%.
Here’s how it works:
The Pi Cycle Top Indicator was developed by Philip Swift, an analyst and the founder of LookIntoBitcoin, a Bitcoin analytics website.
The indicator triggers a “top signal” when Bitcoin’s 111-day moving average (orange line) crosses above twice the value of its 350-day moving average (green line). In simple terms, a moving average calculates the average price of Bitcoin over a specific number of days and updates daily.
Implications of Moving Averages on Market Euphoria and Overheating
As of August 2024, both moving average lines in the Pi Cycle Top Indicator are sloping upward. While the orange line approaches the green line, it may still take some time for them to cross. If you’re following this indicator strictly, it suggests that Bitcoin’s cycle isn’t over yet, and there could be more room for the bull run to continue.
Note that there were instances when Bitcoin’s price fell significantly even without the moving averages crossing over. When charts start trading above the 350-day moving average, it could suggest that the market is starting to get overheated and entering a euphoric stage. Read our article about Moving Averages tied to Market Cycles for a more detailed guide on the Pi-Cycle Indicator.
2. Stock-to-Flow (S2F) Model: The Scarcity Indicator
The Stock-to-Flow (S2F) model has gained significant attention for its ability to forecast Bitcoin’s potential future price. Originally designed for precious metals, this model applies just as well to Bitcoin due to its limited supply, which is capped at 21 million coins.
Here’s how it works:
As its name suggests, the S2F model evaluates two key elements of an asset, stock and flow, to estimate its future value. Stock represents the total existing supply of an asset, while flow measures the new supply generated each year. By comparing these two attributes, the model assesses a commodity’s scarcity, which is crucial in determining its price.
Bitcoin’s Stock-to-Flow Ratio and Its Implications for Scarcity
Bitcoin, like precious metals, cannot be replicated or endlessly produced. With a capped supply of 21 million coins, Bitcoin’s scarcity makes it an ideal candidate for the S2F model.
In Bitcoin’s case, the stock refers to the total number of coins in existence, 21 million. The flow is the rate at which new Bitcoin is mined annually. About 19 million Bitcoins have been mined, representing approximately 90% of the total supply. Bitcoin’s network produces around 328,500 new coins, as one block is mined every 10 minutes, yielding 6.25 Bitcoins.
Limitations of the Stock-to-Flow Model in Predicting Bitcoin Value
We get a stock-to-flow ratio by dividing Bitcoin’s supply by its annual production rate. Bitcoin’s S2F ratio is around 57.712, meaning it would take approximately 57 years to mine the total supply.
This doesn’t account for Bitcoin’s halvings, events that reduce the block reward by half every four years. When halvings are considered, the S2F ratio jumps to 124 years, further highlighting Bitcoin’s increasing scarcity. The S2F model doesn’t account for market volatility or unexpected economic shifts. Critics argue that the model relies on questionable assumptions, and as with any single tool, it should be used in conjunction with other indicators.
3. MVRV Z-Score: A Metric for Bitcoin Valuation
The MVRV Z-Score is a valuable metric for determining whether Bitcoin is overvalued or undervalued. By comparing Bitcoin’s market value to its realized value, the MVRV Z-Score provides a clearer perspective on its fair market price.
Here’s how it works:
The MVRV Z-score allows investors to assess how far Bitcoin’s current price deviates from its historical moving average, effectively showing whether Bitcoin’s price is behaving abnormally. This makes it a crucial tool for answering the question, “What is Bitcoin worth?”
How to Calculate the MVRV Z-Score:
- Market Cap: Start by finding Bitcoin’s market capitalization, calculated by multiplying the current price by the total number of coins in circulation.
- Realized Value: Determine Bitcoin’s realized value. This is the sum of all Bitcoin prices when they last moved; it is tricky to calculate manually and readily available online.
- Calculate the Difference: Subtract the realized value from the market cap.
- Divide by Standard Deviation: Divide the result by the standard deviation of Bitcoin’s historical prices to get the MVRV Z-score. The MVRV Z-score has become an essential tool for Bitcoin investors. It identifies whether Bitcoin is priced fairly, making spotting buying opportunities or potential sell signals easier.
- Overvaluation: If the MVRV Z-score exceeds 6.9, Bitcoin is likely overvalued, often represented as a red or pink “danger zone” on charts. This signals that the market might be overheated, and a price correction could be imminent.
- Undervaluation: Conversely, when the score dips below 0.1, Bitcoin is considered undervalued, often shown as a green “safety zone.” This suggests it could be a good time to buy.
- Momentum Identification: The MVRV Z-score is particularly effective at detecting shifts in market momentum.
Historically, when the weekly close has an MVRV Z-score above 5, there is a 94.36% chance of a market reversal. This predictive power makes it a valuable tool for anticipating trend changes.
4. Short-Term Holder Realised Price (STH RP): An Indicator for Short-Term Traders
The Short-Term Holder Realised Price (STH RP) is a crucial indicator for traders focusing on short-term market movements. It represents the average price at which Bitcoin was last transacted on-chain within the past 155 days, reflecting the cost basis for recent market participants.
Here’s how it works:
STH RP is calculated by taking the average acquisition price of Bitcoin for investors considered short-term holders. This group is typically defined by coins held for less than 155 days. These investors are more sensitive to market movements and tend to buy or sell based on short-term price trends.
When Bitcoin’s price is below the STH RP, short-term holders are at a loss, which may increase selling pressure. Conversely, prices above the STH RP indicate profit, often creating support levels. The STH RP also helps identify key resistance levels during declines, making it a vital tool for understanding short-term market dynamics. This indicator is especially useful in volatile markets, where the behavior of recent entrants can significantly impact price trends.
The STH RP and MVRV Ratio
To dive deeper, the Short-Term Holder MVRV Ratio (STH MVRV) compares the market value of Bitcoin held by short-term investors to its realized value. This ratio helps to visualize unrealized profitability:
A ratio of 2.0 suggests significant profits for short-term holders. A ratio of 1.0 means they are breaking even. A ratio of 0.85 indicates a 15% loss, highlighting an increased risk of capitulation. The STH RP is crucial in identifying potential support levels during bull markets. When Bitcoin’s price returns to this average acquisition price, it often acts as a buying signal for short-term holders, creating a base of support that can help propel the price higher.
The indicator provides insights into the sentiment and behavior of more recent market entrants. Unlike long-term holders, short-term holders are likelier to sell during periods of volatility or price declines, making this metric useful for identifying potential resistance levels or points of increased selling pressure.
5. Hash Ribbons Indicator: A Bottom Finder
Timing the market is challenging for any trader, but the Hash Ribbons indicator offers a strategic advantage. This tool, developed by Charles Edwards, focuses on Bitcoin’s hash rate to identify potential market bottoms and bullish trends.
Here’s how it works:
The Hash Ribbons indicator uses the 30-day and 60-day Simple Moving Averages (SMAs) of Bitcoin’s hash rate. The hash rate is a key measure of the Bitcoin network’s health, reflecting the computational power used to process transactions. A higher hash rate generally indicates better network stability and security.
As shown in the chart below, there’s a positive correlation between Bitcoin’s price action and the hash rate.
When the 30-day SMA crosses above the 60-day SMA, it signals the end of miner capitulation and the beginning of a recovery. A classic example of this pattern is observed around the Bitcoin halving events, where the block reward paid to miners is cut in half.
The Hash Ribbons Indicator
Has been reliable in predicting long-term bullish trends. For example, between 2016 and 2020, the indicator flashed several buy signals, each followed by a significant price rally. This makes it a favored tool among traders looking to time their market entries during extreme fear and uncertainty. As of August 2024, the Hash Ribbons have printed a buy signal.
Some traders incorporate the 10-day and 20-day SMAs of Bitcoin’s price to filter out false signals for added accuracy. While no indicator is foolproof, the Hash Ribbons has a strong track record and is valuable to any trading strategy.
6. Ichimoku Clouds: A Versatile Bitcoin Indicator
An Ichimoku Cloud consists of five lines, each displaying averages over certain periods determined by the trader. When two lines cross, the area between them is shaded in, forming a “cloud.”
When the current price is above the cloud, the trend is up; conversely, the trend is down when the price is below the cloud. If the cloud is also moving toward the price, it can be assumed that the trend is strong.
7. Relative Strength Index (RSI): A Simple Indicator for Bitcoin Overbought and Oversold Levels
The RSI indicator is one of the simplest; it shows if an asset is overbought or oversold. Using historical data, the RSI attempts to determine the overall demand for an asset.
It does so by assessing whether an asset has been purchased so much that there is likely to be a downward ‘correction’ in price or the opposite. This indicator has two lines, one at 30 and the other at 70. When the reading is above 70, the price is likely to drop, and when below 30, the price is assumed to be on the rise.
8. Moving Averages (MA): A Tool for Bitcoin Price Action and Trend Analysis
Prices can spike in one direction or the other. These are usually misinterpreted as ‘reversals’ or continuations of a trend. An MA indicator calculates the average price over some time and recalculates this as time passes, though it is worth noting that short-lived spikes tend to have little effect on MA indicators set for more extended time frames.
Observing graphs showing moving averages can be useful when determining ‘support’ and ‘resistance’ levels; Support describes a barrier at a lower point in which the price is less likely to sustain a continued move. Resistance is the opposite, meaning the action is above the price, which it is unlikely to remain at. As shown in the graph below, an MA clarifies these levels.
9. Fibonacci: A Tool for Bitcoin Price Retracement Predictions
The famous Fibonacci indicator is similar to that of MA in that it is useful when predicting the parameters of price action. Unlike the other slightly more calculated indicators, Fibonacci ratios naturally occur in nature, art, and human decisions.
Akin to a self-fulfilling prophecy, the Fibonacci ratio follows the notion that People think it will happen, so they make it happen by trading. The levels are sometimes met partially due to some self-fulfilling prophecy. When the price moves suddenly, it will often retrace or retreat toward the trend.
10. Volume: The Most Underrated Bitcoin Indicator
This is among the most underrated and valuable bitcoin indicators. Volume displays how many people are buying and selling Bitcoin. With it, you can see the buy/sell tug-of-war with every green and red candle on the page.
A significant price move in any direction only has momentum if enough people are behind it. Consider the number of traders behind a price movement as the “mass” in the momentum; the greater the number, the more likely the price will move in favor of the majority.
Limitations and Challenges of Bitcoin Indicators
Bitcoin trading indicators have limitations. They don’t guarantee success and can be misleading. Traders should understand the pitfalls of these tools before relying on them for trading decisions.
Fundamental Analysis of Bitcoin is Not Straightforward
Bitcoin's fundamental analysis is complex. Many traders use fundamental analysis to evaluate potential investments in traditional markets, but applying these same principles to Bitcoin can be challenging.
Tools exist to help with this analysis, but each has its proponents and detractors, and many traders need clarification on the process.
This offers potential investors both an opportunity and a challenge. While Bitcoin can provide lucrative trading opportunities, its unique characteristics complicate investment decisions.
Bitcoin’s Value is Difficult to Determine
Like many hard assets, Bitcoin’s value is difficult to determine based on cash flows. Gold and silver are comparable; these assets must be evaluated based on future price movements rather than current financial performance. The availability of the asset and the demand for it will determine this.
While none of these models are perfect, several rational and straightforward frameworks have been developed to predict Bitcoin’s intrinsic value changes. These models can provide helpful signals to traders who lean towards a fundamental approach to investing.
Integrating Bitcoin Indicators into Your Trading Strategy
Many traders focus too much on one or two indicators instead of combining a range of Bitcoin indicators to create a well-rounded trading strategy. Bitcoin indicators can help determine the current trend and potential future price movements. Combining different indicators gives you a clearer picture of what is happening in the market.
This can help you develop an effective Bitcoin trading strategy that adapts to market conditions. For example, you might discover that Bitcoin is in a bullish trend, but the RSI has reached overbought territory. This information can help you decide about opening a position, such as going long but taking profits quickly or waiting for a price correction before entering the market.
Understanding Market Trends Can Help You Make Informed Trading Decisions
Before incorporating Bitcoin indicators into your strategy, it’s a good idea to understand market trends clearly. Market trends can be described as the general direction a market is moving in and can be bullish (prices are moving up), bearish (prices are moving down), or sideways (little to no movement).
Bitcoin market trends can last for days, weeks, or even months. For this reason, identifying trends early can help you maximize your potential profits. Using Bitcoin indicators to understand current market trends can inform your trading strategy and help you make decisions that align with the overall trend.
Setting Clear Entry and Exit Points Is Crucial
Whether you’re day trading Bitcoin or using a HODL strategy, setting clear entry and exit points for your trades is essential. Bitcoin can be highly volatile. Prices can change rapidly, and if you’re not prepared, you could end up with a losing trade when you could have exited with a profit.
Bitcoin indicators can help you determine your trades' best entry and exit points. For example, you might open a position when a particular indicator signals the market is in your favor, then exit when the indicator shows the market is reversing.
Backtesting Bitcoin Trading Strategies is Key to Success
Backtesting a trading strategy involves using historical price data to determine how well the strategy would have performed. By backtesting, you can identify any flaws in your strategy and make adjustments before risking your capital in live trades.
For example, if you backtest a strategy incorporating Bitcoin indicators and find that it performed poorly during a particular market trend, you could adjust it to improve its performance before using it in future trades.
HODL: The Simple Bitcoin Strategy
Although more of an investment strategy than a Bitcoin trading strategy, our list wouldn’t be complete without this one. Taking its name from an accidental misspelling of the word “hold” on one of the most popular forums, the term represents ‘hold on for dear life.’
This is one of the most popular Bitcoin investment strategies used by those who’d prefer to simply buy and store their Bitcoin away for the long haul, taking profits when it makes sense and feels right. HODLers aren’t bothered by short-term Bitcoin volatility. For instance, HODLers that managed to buy Bitcoin at any time during 2017 when it was at or below $20,000 are up at least 62% on their Bitcoin investment.
Day Trading Bitcoin: The Fast-Paced Trading Strategy
This Bitcoin trading strategy involves opening and closing several positions within the same day. This style is most suitable for short-term traders who want to capitalize on Bitcoin's high short-term price volatility compared to other assets from traditional financial markets. They must buy low and sell high while mitigating risk. I’ll go over risk a bit more.
Trend Line Trading Bitcoin: Riding the Waves of Market Trends
It involves aligning all of your trading activity with the market trend, which can either be bullish (prices are going up) or bearish (prices are going down). For example, your Bitcoin strategy would be to go long if the market trend was bullish and adjust your position if things reversed.
Hedging with Bitcoin: Protecting Your Capital
A Bitcoin trading strategy involves you taking an opposing position to one you are already in to mitigate some risk because you’re afraid the market might move against you. For example, if you're a HODLer and feel there might be an impending short-term drop in value, you could open a short position on Bitcoin using leverage to trade with a smaller deposit than my initial position and make some extra gain.
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