Technical diving articles

Trader profession. How to trade bitcoin is risky and not very risky

milaeryomina

What strategy should an investor choose, how to determine support and resistance levels, and what will help reduce risks when working with cryptocurrency

The market is cyclical. A rise in asset prices is followed by a fall, and a fall is followed by an increase. As practice shows, “catching the bottom”, that is, buying a digital coin or stock at the lowest price is almost impossible. But finding the most profitable entry point is real; special trading strategies will help you with this. The simplest of these is averaging. It assumes that the investor will break the capital into pieces and invest them in cryptocurrencies or securities gradually.

Let's consider this strategy using the example of the fall in the bitcoin rate, which fell on March 12-13. The price of the coin before the start of the decline was about $ 8000. During the day, it dropped to $ 5500-6000. BTC traded at this level for several hours, and then dropped sharply to $ 3800.

Let's say an investor splits his $ 9,000 capital into three equal parts. He invests each of them in bitcoin at levels of $ 8000, $ 6000 and $ 4000. Thus, the average purchase price of an asset will be approximately $ 5500. Considering that now the first cryptocurrency is worth more than $ 7,300, the profit would be over 30%.


However, there are no guarantees that the asset price will recover after a strong fall. This is the point of averaging: if the coin continues to fall in price, it would be good to have money so that you can invest in it even more - at lower levels.

In addition to this, the strategy acts as a safety cushion. If an investor suddenly needs money, instead of fixing a losing position, it will be possible to use the capital deferred for averaging.

Alternative

Averaging is used to set a long-term position. The complete opposite of this strategy is scalping. This is more like a tactic that involves making short-term trades, usually for no more than a few hours or even minutes.

As with averaging, a trader purchases an asset under certain conditions, such as support levels. This value, having fallen to which, the price of the coin is more likely to move to growth than continue to fall. Adhering to the averaging strategy, investors acquire an asset at such levels. If the coin rate continues to decline, the holders buy it from the next support zone, thus averaging the position.

Scalpers, on the contrary, if the level could not stand and the coin continued to fall in price, they sell it in anticipation of the next one. Otherwise, they fix profits as soon as the asset rate "bounced" from the support zone.

Both strategies have their pros and cons. Since averaging is a long-term approach, and it takes time to recover the value of assets, there is a risk that the investor will remain in a losing position for a long time. In this case, the most difficult test will go to the nerves: strength and patience are needed to keep a cheap coin, especially when several parts of the capital have already been invested in it.

Scalping is suitable for more experienced traders. Its main disadvantage is risks. To have an impressive income with such a strategy, a significant amount is required. In this case, even one unsuccessful deal, error or malfunction of the exchange during trading can lead to a complete loss of capital. Therefore, even with scalping, it is necessary to split investments into parts. And the smaller they are, the safer for your capital.

Another problem with this strategy is commissions. Scalpers trade a lot, the number of daily trades can exceed dozens. Even in the presence of successful "trades", payment for the services of the exchange can reduce all profits to zero or even bring a loss.

Trading from levels

Both investors and traders use levels as a guide. Market participants buy assets from the support zone. They are sold at the resistance - this is the value, having risen to which, the price of the coin is more likely to start falling than continue to rise.

You can determine the support and resistance zone by analyzing the asset's chart. For example, if its price “bounced” from the same level several times, a support level was presumably formed here. This happened several times in 2018, when the price of bitcoin, having reached an all-time high of $ 20,000, entered a phase of long-term decline. For the first time, BTC fell to $ 6,000 in February, after which it recovered to $ 11,500. The coin rate fell back to this value again in May, briefly dropping to $ 5800. A similar situation was repeated in July and August.

Every time the price of bitcoin fell to the support line, it "bounced" up from it. This continued until November 2018, when the level was broken. Then the rate of the first cryptocurrency began to decline and within a couple of months dropped to a minimum of $ 3200.


Accordingly, the investor, having determined the support zone, can postpone the purchase of the coin until its rate drops to this value. For the trader, this will be an opportunity for speculation. As a rule, the price of an asset does not begin to grow immediately, but some time after it tries to "break" the support line several times.

Another way to determine the level is to look at the order books. Often, clusters of orders to buy an asset are formed near support zones. They prevent its price from continuing to decline.

The psychological aspect also plays a role here. Investors and traders try not to sell the asset at the support levels, as there is a high probability of a "rebound". However, this is less reliable than graph analysis. Large orders can be a trap. Those who installed them can instantly remove them, in which case the support will evaporate.

The easiest way to find levels is to trust the experts. RBC-Crypto periodically publishes notes by Peter Brandt, Omkar Godbowl, Michael van de Poppe and other analysts who point to support and resistance lines. However, we cannot guarantee that they will be defined correctly.

More risk, less risk

In 2018, the bitcoin price dropped below the $ 6,000 support line several times. It fell to $ 5800, but during the day it returned to the level again. Such situations are called "false breakouts" and are often used by scalpers.

They place orders to buy an asset below the support zone, expecting that its price will briefly fall below the level. However, this is extremely risky, since it is not known how much the coin rate will fall and whether it will recover back.


To minimize the risk with this tactic, or simply by trading from levels, you can use exchangers. Some services for buying and selling cryptocurrency, when making a deal, for a short time fix the rate at which it will be carried out. Typically, this period is 15-30 minutes.

In other words, if the user has agreed with the exchanger to sell bitcoin at $ 5,000, then the operation will be carried out at this price, regardless of how the market rate of the asset changes. This option can be used to get rid of a coin that has continued to fall in price after being purchased by the user. To do this: A

trader issues an application on the exchanger for the purchase of BTC at the current rate, say, $ 5000.

If after that the price of the coin begins to rise, then the services of the service are not needed.
If Bitcoin continues to fall in price, the user makes a transaction with the exchanger at the approved rate.
This method has several nuances. First, there is a risk of using the services of an unscrupulous service. Secondly, in a hurry, you can make a mistake when specifying the address where the cryptocurrency will go. In this case, it will be irretrievably lost, since transactions in the blockchain cannot be reversed. We wrote more about how to use exchangers in this article.

Another way to minimize risks is to use stop losses. These are orders to sell an asset at a certain price. Let's say if a trader bought a coin from the $ 6,000 support line, he can place a stop loss order at $ 5,900. In this case, if the support level fails and the cryptocurrency rate continues to decline, the exchange will automatically close the deal with a small loss at the specified mark.

However, the problem here lies in false breakouts. Because of them, traders face a dilemma: the lower the stop loss order is placed, the less likely it will be touched as a result of a breakout, but the higher the amount of possible loss. And vice versa.

Theory and Practice

Investing is easier than trading. This is less time consuming and requires less knowledge. And averaging will help you find the most successful entry point and get the maximum benefit. However, long-term holders run the risk of being "stuck" in the asset, the rate of which will continue to decline. For this reason, you do not need to invest all your savings in cryptocurrency, especially if there is a constant need for them.

Trading and especially scalping requires practice and knowledge. In addition to this, the cryptocurrency market is manipulative, due to which even an expert in technical analysis can make critical mistakes. Therefore, it is better to start trading by studying specialized literature and taking courses, which can be found in our previous selection.

Before diving into trading, it will be useful to practice with a small amount, which you do not mind exchanging for experience. You should also write down your actions and transactions, this will help to identify and understand the mistakes made. And the most important thing is to stick to strategy and not give in to emotions. On March 13, the bitcoin rate fell to $ 3800. This means that someone sold the coin at that price. He may have bought it for $ 6,900 today.