Bitcoin Trading Strategies

At the time of writing, Bitcoin has gone through an explosive price increase over a brief period. One implication of this is that it cannot go on forever. As time passes, the type of trading strategy that will be most useful to Bitcoin traders will change. At the time of writing, determining the trend by looking at the price over a short time frame, for example by asking if it is up or down over the past 4 weeks, will usually work well. As price movements become more normalized over time, that useful time frame will lengthen towards something closer to the 13 weeks or so which, tends to be most useful look-back period in trading fiat currency pairs.

Until Bitcoin goes through this change of slowing down in its volatility, the most profitable strategies to use will probably rank in this order:

  1. Entering early after reversals at counter-trend extremes, such as 1 or 2-day highs or lows, using price action to determine reversals.

  2. Entering early after reversals at support and resistance levels where a lower high or higher low is formed, using price action to determine reversals.

  3. Entering on breakouts after high-range moves in the direction of the trend.

As cryptocurrencies like Bitcoin and Ethereum “mature”, these strategies will probably become more effective in the reverse order to that in which I have listed them, with breakouts after high-range moves being the most profitable strategy and using price action to determine reversals the least profitable.Bitcoin

The complete details of a system meeting the specifications of the breakout strategy are detailed below.

Time Frame:

4 Hour chart

Indicators:

RSI 10, SMA 18, SMA 60, ATR 30

Conditions for Long Trades:

  • Price is higher than it was 3 months and 6 months ago

  • At candlestick close, RSI 10 is 50 or higher, SMA 18 is above SMA 60, total range of candlestick is greater than 1.25 X ATR 30.

  • The high of the candlestick is above the high of the previous candlestick.

  • Entry if price reaches $10 beyond candlestick high during the next candlestick. Place stop loss $10 under the candlestick low.

  • Use fixed profit target of at least 3 X the risk. For example, if your stop is $200 in price away from your entry, the profit target should be at least $600.

Conditions for Short Trades:

  • Price is lower than it was 3 months and 6 months ago

  • At candlestick close, RSI 10 is 50 or lower, SMA 18 is below SMA 60, total range of candlestick is greater than 1.25 X ATR 30.

  • The low of the candlestick is below the low of the previous candlestick.

  • Entry if price reaches $10 beyond candlestick low during the next candlestick. Place stop loss $10 above the candlestick high.

  • Use fixed profit target of at least 3 X the risk. For example, if your stop is $200 in price away from your entry, the profit target should be at least $600.

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