Hacks to Help You Trade CFD Cryptocurrencies Profitably

  Hacks to Help You Trade CFD Cryptocurrencies Profitably

Spearheaded by the Bitcoin price revolution of 2107, it is reasonable to assume that the cryptocurrency industry will mature into a stable part of the global financial sector. In fact, Bitcoin is well on its towards mainstream adoption. There are currently more than 120 Bitcoin hedge funds, and the CBOE opened a Bitcoin futures exchange in December 2017.

One of the most significant advantages to a Bitcoin hedge fund is that it can “make money in both bull and bear markets.” However, it is crucial to keep in mind that cryptocurrency prices are incredibly volatile. Bitcoin can lose up to 40% of its value in a single day.

A Bitcoin price history

On the other hand, it is important to be cognisant of the fact that the Bitcoin price fluctuations tend to be cyclical as this information will affect trading decisions. A brief look at the coin’s price history demonstrates the following:

  • Bitcoin was first released on 9 January 2009 and it had very little value until March 2010. Also, it was only linked to the USD between February and April 2011. From this point on we can plot the cyclical nature of the Bitcoin price.
  • The first price high was on 8 July 2011 when it reached $31. By the end of 2011, the price had dropped back down to $2.
  • It slowly climbed back up again and reached a high of $266 on 11 April 2013. Once again, by June 2013, the Bitcoin price had dropped back down to $70.
  • The next price cycle topped out at $1242 on 29 November 2013 and so on and so forth.
  • Fast forward to January 2017 where the Bitcoin price started its biggest rally ever. It started at $800 and by December 2017, it had reached $17900. Needless to say, soon afterwards the Bitcoin price started descending again. And, it is currently sitting around the $6000 level.

As this price history shows, the Bitcoin price will reach a low point, turn, and start rising again. At which point it does turn is open to speculation. No one is 100% certain at what level the price will turn. But, turn it will.

Points to note when trading cryptocurrencies

The Jones Mutual financial analysts are quick to point out (and correctly so) that this compressed history of the Bitcoin price history shows us how volatile the Bitcoin price (and by extension other major cryptocurrencies) can be. It also shows that the price trend moves up and down. Therefore, both short-term and long-term trading strategies can be used to leverage profitable trades.

However, it is vital to bear the following in mind when trading on the BTC (Bitcoin)/USD currency pair:

Leverage and margin

Because of Bitcoin’s volatile nature, most Forex trading companies offer CFDs at circa 5:1 on the BTC/USD currency pair. Ergo, to buy and sell 1 Bitcoin unit, you need to risk five times the current trading price. However, this is not the highest that has been asked by an exchange. A 10 December 2017 article posted on FT.com noted that the Japanese exchange, bitFlyer, was offering leveraged prices up to 15 times the value of a trader’s cash deposit.

Long-term versus short-term trading strategies

As mentioned above, it is possible to profit from both short- and long-term trading strategies.

By way of a complete explanation, a short-term strategy is designed to leverage the many small price movements during a single trading day. The time frame that the short-term trader utilises is anything from a couple of seconds to a full day. Trades are not left open overnight.

On the other hand, a long-term trading strategy like swing trading is designed to ignore the small price movements and profit from the overall price increase or decrease. In this case, a trade can be left open from overnight right up to almost a year.

Stop-Losses and Take-Profits

Unless you can spend the whole trading day watching the market’s price movements, it’s essential to add a Stop-Loss point and a Take-Profit point to each trade.

Succinctly stated, a Stop-Loss point is the maximum amount you can risk on a trade. For risk-free trading, the Stop-Loss value should be worked out using the 2% rule. For example, if your equity is $500, then you should set each Stop-Loss point at $10. In other words, you can risk no more than $10 on each trade, and should a trade swing in the opposite direction to what you were expecting; the trade will automatically close out when your equity has been reduced by $10.

On the other hand, setting a Take-Profit value allows the trade to automatically close at the profit level that you believe the trade is capable of.

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