BITCOIN TRADING – THE BIGGEST CRASHS IN THE LAST 10 YEARS
Bitcoin trading underwent a lot of ups and downs in its brief history and we have made a complete guide to bitcoin for those who need a speedy update on the bitcoin trading ecosphere.
However for those who are quite familiar with bitcoin, here is our run down of major crashes during the early years of this digital currency experienced by Bitcoin traders .
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An Overview on Bitcoin Trading
Bitcoin is undoubtedly the most popular digital currency that is created and stored online. The idea of Bitcoin was a brainchild of Satoshi Nakamoto – a gifted programmer. The main difference between Bitcoin and physical currencies is that Bitcoin can’t be mined (created) in unlimited numbers. On the other hand, central banks usually print their local currencies in large quantity just to settle their national debts etc. which consequently results in widespread inflation and other economic problems.
There are a number of choices available for Bitcoin trading on margin. Let’s discuss those options and explain some effective means to forecast Bitcoin price. However, before coming to our subject matter let us warn everyone that trading Bitcoin on margin can be extremely risky because of its highly volatile nature. History shows that Bitcoin has a capability to move 800$-900$ within 30 days – that’s the level of its volatility. The given below chart shows the highly volatile nature of this crypto currency.
As opposed to major currency pairs that hardly move 1% a day, Bitcoin can move 30% in a single day. If you are a good trader then consider trading Bitcoins without margin. However, we are aware that because of high Bitcoin price not everyone can afford trading Bitcoins without margin so let’s discuss some options for leveraged Bitcoin trading.
Below are some popular trading platforms for leveraged Bitcoin trading;
BTC-E allows shorting of Bitcoin as well as leveraged trading. Shorting of Bitcoin means you can generate profits even when the price of Bitcoin is falling. This feature is particularly useful if you want to hedge your long Bitcoin positions. The Bulgarian exchange – BTC-E- offers world-famous Metatrader platform for Bitcoin trading with leverage upto 1:3 and a small fee of just 0.3% per side.
AVA Trade is a popular forex broker that allows leveraged Bitcoin trading through CFDs. The broker offers two Bitcoin CFDs that are Bitcoin Mini and Bitcoin Weekly. Bitcoin mini has a leverage of 1:2 and doesn’t expire while Bitcoin weekly has a leverage of 1:20 and expires on every Friday. Both CFD contracts use price feed from BTC-E. AVA Trade adds mark up of around $10 on spread. Below is a screenshot of AvaTrade’s trading platform i.e. Mt4.
A major disadvantage on both CFD contracts offered by Ava Trade is the inability of their trading during weekends. Bitcoin is a decentralized digital currency which does not rely on banks for trade execution and has no set hours for opening and closing therefor it trades 24/7. On the other hand, forex trades 24/5 due to which Ava Trade clients can also trade Bitcoin 24/5, resulting in large gaps after the weekends as can be seen in the above chart. Another disadvantage is that Ava Trade doesn’t accept clients from the United States and several other countries.
Etoro.com is another major platform that offers leveraged Bitcoin trading. The main disadvantage of trading Bitcoins with Etoro is that it is not suitable for intraday traders as you can open and close your Bitcoin positions only four times a day. Etoro uses Bitstamp’s price feed. The following screenshot shows Bitcoin CFD trading at Etoro.com.
Despite having a special US section on its website http://www.etoro.com/usa, eToro unfortunately doesn’t accept clients from the United States. A message on eToro’s website reads;
‘’As part of our ongoing optimization process currently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting new clients or funds from existing US customers. While you’re here, you are welcome to continue experiencing eToro through our practice mode, which will stay available and free to all.’’
BTC.sx allows Bitcoin trading with 1:10 leverage. It uses BitStamp’s price feed. Just like Ava Trade, Btc.sx adds $10 mark up on top of the BitStamp’s spread. The required deposit is at least 0.01033 of a Bitcoin. At a Bitcoin price of $500, the required deposit becomes almost $5. Btc.sx is dually registered in Singapore and England. This exchange currently accepts deposits in Bitcoin only – no fiat currency deposits are acceptable for now. In the given below screenshot you can see Bitcoin trading in action at Btc.sx;
Btc.sx has certain restrictions that make leveraged Bitcoin trading problematic. For instance, the exchange does not support changing of stop loss after the entry. Also you can set stop loss as a distance from the entry price, the default distance is 88 points away from the entry price. The exchange also offers trailing stop option but many traders complain that it doesn’t work.
Another problem at Btc.sx is the high rollover cost which makes leveraged Bitcoin trading problematic. For example, if you trade a position whose size is just 0.0094 of a Bitcoin then the rollover cost would be $8.8 which is too high. The exchange accepts clients from the United States which is a major advantage of this platform.
Just like CFDs, Bitcoin is also a very popular choice for binary options traders because of its high volatility. There are several binary options broker companies that allow Bitcoin options trading. Let’s discuss a couple of Bitcoins options trading platforms;
Anyoption.com is one of the most famous binary options brokers that offer binary trading in the virtual currency. You can bet on rising or falling Bitcoin prices and make profits. The given below screenshot shows bitcoin options trading in action;
Anyoption.com is however not a choice for the US clients, the company doesn’t accept USA traders at the moment.
Predictious.com is a betting exchange (and not the broker). It matches buyers and sellers of betting contracts and doesn’t price the contracts itself. Besides Bitcoins, you can bet on political issues and many other events as well.
The above screenshot shows betting on some ongoing events. The business model adopted by Predictious allows it to operate without any conflict of interest because the exchange makes money irrespective of the fact that you win or lose.
Advantages & Disadvantages of Trading Bitcoins
Now let’s discuss some advantages and disadvantages of trading Bitcoins.
Advantages of Bitcoin Trading
Following are some main reasons why you should consider trading Bitcoins;
24/7 Trading Is Possible
Bitcoin is an international digital currency which is available 24/7 for online trading. As opposed to Forex, Bitcoins can be traded during weekends as well. Traders can trade Bitcoins from any part of the world anytime, even on weekends and holidays because the crypto currency doesn’t rely on banks or other financial institutions for online trading. It is however pertinent to mention here that leveraged Bitcoin trading through CFD brokers is unavailable during weekends and holidays.
High Volatility of Bitcoin is Ideal for Traders
Bitcoin is famous for its highly volatile behavior. Currency pairs barely move 1% in a single day while Bitcoin can move even 10% during intraday trading. 3% move is considered normal in Bitcoin trading during volatile weeks. If predicted and traded correctly, such swings may be highly profitable in short term trading. With CFD and binary options brokers, you can make money on both upswings and downswings of the Bitcoin price.
Leveraged Bitcoin Trading – More Risk, More Profitability
Bitcoin trading can be traded on margin as many brokers are offering generous leverage for Bitcoin trading nowadays. It is however important to note that all leverage products can result in the loss of your capital. It is the most risky and but at the same time most profitable form of trading. There are many CFD brokers that allow trading of $2500 worth of Bitcoins by using a margin of just $250. If analyzed and forecasted correctly, this kind of leverage can result in huge profits against very small capital at risk. Leveraged Bitcoin trading is particularly less risky and more profitable on shorter timeframes.
Bitcoin Price is Easy to Predict in Intraday Trading
Bitcoin is a decentralized digital currency which can be mined (created) in limited quantity. These traits make Bitcoins independent of banking influence and inflation. Bitcoin prices are hardly affected even in serious financial turmoil. Examples include the Cyprus crisis, Brexit, ECB announcing QE and other such instances to which Bitcoin prices hardly reacted. This kind of behavior is ideal for intraday traders who rely heavily on technical analysis for short term trading.
Disadvantage of Bitcoin Trading
Due to no physical existence, Bitcoins keep becoming a target of hackers on and off. In past, large scale hacking attempts caused closure of major Bitcoin exchanges and sudden fall of Bitcoin prices. Similarly, regulation and compliance related news from China and American also cause unexpected swings in Bitcoin prices. These kinds of events are very difficult to monitor by traditional traders and analysts. So it is very important that you risk minimum amount (the amount which you can afford to lose) in leveraged Bitcoin trading.
Above was a brief summary of various advantages and disadvantages of Bitcoin trading. Now let’s briefly discuss some advantages of using Bitcoin in general. A major plus of the new cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions completely free of charge, it is recommended to pay the small fee in order to speed up the sending process. The fee amount depends on the data size of the transaction. A typical transaction is 500 bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents. Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can offer their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.
How to Forecast Bitcoin Price Effectively?
Let’s discuss some effective ways to forecast Bitcoin price for day trading. There are basically two methods to forecast Bitcoin prices;
- Fundamental Analysis
- Technical Analysis
Let us discuss each type of analysis in detail;
In fundamental analysis, we study various economic and political factors that may affect the price of Bitcoin. Some key fundamental factors that may cause sudden rise or fall in Bitcoin price are as follows;
The most important fundamental factor that often causes high volatility in Bitcoin price is the sudden increase or decrease in Bitcoin demand because of some political, legal or business decisions that consequently lead to sharp increase or decrease in Bitcoin price. Some examples of such decisions are as follows;
- US supreme court legalizes Bitcoin existence
- China mulls restriction on Bitcoin transactions
- Microsoft starts accepting Bitcoin as a payment method
- Hackers stole Bitcoins worth millions in widespread hacking on exchanges
It is recommended to keep yourself updated with current affairs and routine news relating to Bitcoins if you are a Bitcoin trader.
Another effective way to forecast Bitcoin price is to conduct extensive technical analysis. Such analysis is focused on charts and technicians usually use past price movement of Bitcoin to predict future behavior of the price. Below are some major methods of conducting technical analysis;
- Candlestick Patterns: It is a famous chart pattern that studies price movement in the form of candles. Candlestick patterns are wide used by day traders all over the world to predict continuity or reversal in the ongoing trend of price. There are some main candlestick formations that can be very useful to take entry, such formations include; bullish/bearish pin bars, bullish/bearish engulfing candles, shooting star, hammer, dojis and several others.
- Fibonacci Retracement Levels: Fibonacci levels are the most likely levels from where price can change its direction. Widely observed Fibonacci levels include 0%, 38.2%, 50%, 61.8%, 76.4%, and 100%.
- Swing Analysis: Swing analysis is particularly useful in predicting the ongoing trend. In swing analysis, traders compare the swings of current wave with the swings of previous wave. Higher High and Higher low show bullish trend while Lower Low and Lower High represent bearish trend.
- Trendlines: Drawing trendlines can also be a good way to identify moving support and resistance levels. Trendlines are drawn by joining all upswings and downswings.
- Horizontal Support/Resistance levels: Another way to forecast Bitcoin price is to draw horizontal support and resistance levels. Such levels are drawn by joining the horizontal swings of upside and downside waves.
In conclusion, we would like to emphasize again that trading Bitcoin on margin can be extremely risky but at the same time highly profitable. We discussed various platforms that allow leveraged Bitcoin trading. We also discussed different advantages and disadvantages of leveraged Bitcoin trading. In the end, we discussed some effective methods to conduct fundamental and technical analysis.