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Bitcoin Trading Strategies For 2020

August 13, 2020 16:30 UTC
Reading time: 14 minutes

Bitcoin and other cryptocurrencies have increased in both use and value in recent years. Maybe you have heard of people trading Bitcoin and are interested in getting involved. In this article, we will discuss Bitcoin, its volatility and share some Bitcoin trading strategies for beginners and professionals alike in 2020.

Bitcoin Trading Strategies

Bitcoin's value, like that of any other commodity, will not continue to rise forever. Every trend has an end, and trading this new resource versus the Dollar gives some handy advantages over purchasing it outright. Bitcoin isn't backed by any physical asset, making it very difficult to value, other than by applying technical analysis to assist with short-term trade setups. This is where trading systems and proper money management come into play. That is your advantage over others who have yet to learn about Bitcoin CFD trading.

At this point, buying the dips would be a pretty logical choice (until proven otherwise), so we will explain how to use the current trend to your advantage (buying the dips).

Before we have a look at any specific bitcoin trading strategies and their associated market signals, let's review other important aspects of Bitcoin currency.

What Influences Bitcoin's Volatility?

Historically, Bitcoin's value has been very volatile. This volatility presents an opportunity for day traders and swing traders to profit from the rising and falling prices. However, it is important to bear in mind that this volatility presents a high level of risk as well as potential reward. It is essential for traders to practice good risk management, have a well thought out trading strategy and utilise stop-losses and take profits.

Before deciding whether to trade with Bitcoin, it is a good idea to familiarise yourself with what factors affect Bitcoin's volatility. Below we will list some of the key factors.

News Events

Like any financial asset, Bitcoin's value can be affected by relevant events in the news, which can either scare or encourage investment.

In recent years, there has been a lot of hype in the media about Bitcoin and its rise in value, which we will talk about in more detail later. This media hype about Bitcoin and its potential for further growth in the future partly sparked a wave of investment, which in turn has helped Bitcoin's value rocket in recent years.

On the other hand, there have been news stories in the past which have negatively affected the reputation of Bitcoin and discouraged potential investors. For example, in October 2013, the FBI successfully managed to close down the dark-web located marketplace Silk Road. Naturally, the news that Bitcoin was facilitating online drug trafficking negatively affected its reputation.

Government Regulation

Governments continually change their stance regarding Bitcoin and other cryptocurrencies. While Bitcoin is a decentralised currency, this does not mean it is unaffected by decisions taken by governments and any regulations they may introduce.

For example, China took a well publicised tough stance on cryptocurrencies and in 2017 forced local trading platforms to close down. This in turn had a negative impact on the value of Bitcoin.

Future Uncertainty

Bitcoin was only invented in 2008, meaning that as a currency it is still incredibly young. It is unclear how successful the cryptocurrency will be in the future and how much of its current value it will retain. It is also difficult to predict what future stance governments will adopt on the cryptocurrency.

Low Liquidity

The Bitcoin market suffers from low liquidity, which can in turn contribute to the volatility of the cryptocurrency. For large currency holders, it is not clear how they could liquidate their positions without seriously impacting the market value. It may not even be possible for them to liquidate their position in the short term at all.

Security Breaches

Bitcoin's software is open source. This means that a copy of the software source code is available for all users to scrutinise. Therefore, users can, and do, speak out regarding any potential issues in the coding which could lead to security breaches. There is then a collective effort among the community to rectify these issues. The open nature of this arrangement results in possible security breaches being well publicised.

BTCUSD Weekly Chart MetaTrader 5Depicted: Admiral Markets MetaTrader 5 with MT5-SE Add-on BTCUSD Weekly Chart. Date Range: 27 September 2015 - 3 August 2020. Accessed: 3 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

Current vs. Historical Price: Trending or Ranging?

We can easily say that the price is trending, even on higher time frames. When you spot a big trend on higher time frames, it means that higher time frame momentum is also transferred to lower time frames. Accordingly, lower time frames (H1, H4) piggyback the momentum from higher time frames and theoretically enable intraday traders to enjoy massive profits. At this point, the current scenario is to buy the dips on the BTC/USD currency pair due to the established bullish trend.

Due to the lack of long-term historical data, we can only compare the current moment with recent history (since 2012), but it should be more than enough to go with the flow and use various trading strategies that might provide more opportunity for profits than simply buying the Bitcoin commodity itself.

How to Trade Bitcoin CFDs

Trading Bitcoin CFDs is probably not much different from trading any other currency pair, commodity or CFD showing a strong trend. The beauty of trading lies in its diversity, and through price action studies, traders should be able to make profits that make them financially independent and stable.

Trading strategies which utilise Bitcoin CFDs benefit from trading on margin, meaning that traders can open positions without having the full cost of the position in their account balance. This provides the possibility of magnified profits, but must be used carefully, as trading on margin can just as easily magnify losses.

Bitcoin CFD traders should be focused on:

  1. Riding the trend (uptrend until proven otherwise);
  2. Proper money management;
  3. The major sessions: London, New York, and Tokyo.

Buying a dip in BTC/USD is important because it gives traders the opportunity to join the market majority and ride the impulse. Of course, the trend will change, but at this point, BTC/USD is showing an exceptionally strong trend.

Proper money management is the holy grail of trading, and if applied correctly in a strong trending environment, it should theoretically create a good Return On Investment (ROI).

Traders should definitely be focused on major trading sessions as major trading centres provide the highest volatility in BTC/USD. Fortunately enough, our MetaTrader 4 (MT4) platform offers the instrument during the major market sessions 24/7. It should also be mentioned that you should only trade Bitcoin CFDs with a regulated Forex & CFD broker, like Admiral Markets.

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Trade CFDs on Cryptocurrencies

Bitcoin Trading Strategies

Bitcoin Scalping Strategy

It is recommended to use a scalping strategy in order to exploit volatility to your advantage. Scalping the BTC/USD pair is performed using an excellent Double MACD strategy (which is also covered in our Forex 101 course). Due to volatility and trend, this strategy is suitable for trading BTC/USD on shorter time frames, such as the m5.

This strategy for trading BTC/USD uses 2 EMAs (Exponential Moving Averages), 34 and 55, 2 Stochastics that are overlaid (8,1,3 and 13,1,3), a MACD 2Line indicator (34,89,34), or the default MT4 MACD - if you don't have the MACD 2Line, and the Admiral Markets Pivot, which is available with MetaTrader Supreme Edition.

There is also a complete template included with all indicators that you can automatically load into your MT4 with the help of the Forex 101 trading course. If you decide to use the strategy without Forex 101, this is how you can set it up on your chart:

  • Open your 5m BTC/USD chart
  • Apply 34 and 55 EMAs. Blue is the 34 EMA, Red is the 55 EMA. Both are set on close:
  • Add the MACD (34,89.34)
  • Add the Stochastic (8,1,3) and (13,1,3) overlaid in the same window
  • Finally, add the Admiral Pivot set on daily pivots

BTCUSD 5M Chart MetaTrader 5Depicted: Admiral Markets MetaTrader 5 with MT5-SE Add-on BTCUSD M5 Chart. Date Range: 2 August 2020 - 3 August 2020. Accessed: 3 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. You buy BTC/USD when Blue 34 EMA is higher than Red 55 EMA.
  2. The price needs to pullback towards the EMAs. Ideally, it should stop at the EMAs or pullback slightly below them.
  3. The MACD is above 0 (or the MACD must show a blue histogram if you use the template from Forex 101).
  4. Any of the Stochastics should be below 20 and pointed upwards (ideally, cross 20 from below)
  5. The target is the next Admiral Pivot with the stop-loss below the previous swing low.

Bitcoin Day Trading

For intraday trading, you might want to use our scalping strategy several times a day. Alternatively, if you have a day job and time doesn't allow you to scalp, you might want to use Bitcoin day trading strategies.

This day trading strategy involves the MACD with the RSI and CCI indicators for intraday traders. You will also need to apply the Admiral Pivot indicator.

The indicators for this strategy are used on a M30 timeframe:

  1. RSI (10,close)
  2. CCI (14,typical price HLC/3)
  3. MACD (12,26,9)
  4. Admiral Pivot

Traders using this Bitcoin trading strategy buy BTC/USD when the market signals are as following:

  1. MACD>O
  2. RSI>50
  3. CCI>0
  4. The price is slightly above pivot point support

A stop-loss is placed below the entry point, while the target price is the Admiral Pivot resistance. In strong trends, this could be a winning day trading strategy for BTC/USD.

BTCUSD M30 Chart MetaTrader 5Depicted: Admiral Markets MetaTrader 5 with MT5-SE Add-on BTCUSD M30 Chart. Date Range: 1 August 2020 - 4 August 2020. Accessed: 4 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

Making A Profit with BTC/USD

At this point, simply buying BTC/USD is the way to go until the trend reverses. Bitcoin is reaching new benchmarks of value in the trading market, and by using our strategies, you may be able to profit, no matter if the trend is to the upside or downside. There are many ways to potentially make a profit by trading BTC/USD, but due to strong volatility and hype, buying dips is currently the most profitable trading strategy.

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Market Sentiment – The Impact of The Hype in the Media

Ever since Bitcoin started to lift off, the market sentiment has been astonishingly bullish. The pair suffered a sharp drop in March 2020 which coincided with European and American lockdowns in response to the coronavirus pandemic, however, price quickly began to recover.

The media has been guilty of over-hyping the Bitcoin currency, but the real reason might be the technology behind the blockchain. Many industries have been exploring its benefits and limits and there is the possibility that the real estate industry will also join in the blockchain hype. Bitcoin has gained popularity as the world's best and most profitable cryptocurrency, with more and more people joining the network on a daily basis. This might create a bubble, and the uptrend might suddenly explode. People treat it as a commodity.

The other problem with Bitcoin lies in the fact that as the price of Bitcoin rises, it is harder to get paid in fractional units. At some point, Bitcoin will have to re-issue coins (increase supply), but mentioning that might cause panic in the market and tank it, easily.

Out of these reasons, the solution is not to mine BTC, but rather to trade it versus other FIAT currencies, e.g., USD. You will also be able to trade it and make profit, even if it starts to drop and a downtrend develops. Don't forget that through our platform, you have 24/7 access to trade BTC/USD.

Trading Bitcoin and Other Cryptocurrencies with Admiral Markets

Besides trading Bitcoin versus the US Dollar (BTC/USD), Admiral Markets clients can also choose to trade CFDs on Litecoin versus the US Dollar (LTC/USD), Ethereum vs the US Dollar (ETH/USD), and Ripple vs the US Dollar (XRP/USD).

Traders need to download MetaTrader 5, which grants them access to the market and/or allows them to follow price action on charts. The process is very quick and simple, so you'll be ready to go in no time. In the end, Bitcoin might not be the undisputed cryptocurrency, the trend can always change or reverse, but the invention of Bitcoin has certainly changed the world forever!

Trading With A Demo Account

Customers of Admiral Markets also have the ability to trade risk-free with a demo trading account. This means that traders have the option to practice Bitcoin trading strategies without putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets' demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders. To open your FREE demo trading account, click the banner below!

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About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

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