Strategy introduction
At BTC.sx we provide bitcoin margin trading, with leverage of up to 10x. When trading at BTC.sx, long or short bitcoin positions are opened that create actual buys and sells on exchanges. This is known as order book execution. When a position is open for a greater period of time, the more interest a trader pays because they are borrowing the bitcoin used for leverage.
You would suspect that short-term positions are more profitable because less interest is paid, right? Surprisingly, this may not be the case. Our internal testing first indicated that holding positions for longer can be just as profitable as quick positions.
We then analysed thousands of trades to see if real bitcoin traders were also keeping positions open for more than three days. While it was less popular than day trading, those doing so were able to make more consistent profits.
Let’s take a closer look at the exact strategy these successful traders use.
1. The Swing Trader
Trade summary:
Chart summary:
Please note that the two Bitfinex positions have been put on the same Bitstamp chart for the purposes of this post. The yellow circles represent opens and the pink circles represent closes.
The primary strategy of this swing trader is to patiently trade major market movements. The first trades in August are a great example of taking a long-term view on the market and opening an appropriate position even if the market is flat.
Our trader here had confidence that when the bitcoin price does move, it moves massively. These significant price movements in bitcoin gave the swing trader an ROI above 100% for six unique positions .
2. Waiting for the bear whale
Trade summary:
Chart summary:
This trader adopted a great strategy of trading after price pumps, on the logic that the market is likely to correct itself.
Their best trades were going short after the October 2014 rally. Despite opening their positions during flat price movements, their strategy was to wait for a price drop. This happened when other traders took profits and the long-term bear trend recommenced.
Another interesting observation is that most of their positions were open for 5–7 days. At BTC.sx we have observed that, generally, a major price swing happens once a week. For those looking to time entry and exit points to catch price swings, make sure to have a sufficient account balance to keep your position open for at least five days.
3. The Bull Rider
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Our bull rider is skilled in following upward momentum, even in a downward market. Their strategy begins with opening long positions when the price already has upward momentum — watch the MACD to spot this for yourself.
However, instead of opening just one position, the bull rider opens two positions. This allows them to close one position earlier, at a profit, which provides ‘insurance’ in case the second position becomes unprofitable.
During the March 2015 rally, our trader was careful to take profits on the way up. A good trader never gets greedy. Yet the bull rider methodically opened position #3 before closing position #2. This tactic prevents traders from being caught-out by sudden price movements while they do not have a position open.
4. Steady Eddy
Trade summary:
Chart summary:
Steady Eddy is a great example of profitable trading, without taking unnecessary risks. After the price crash to ~165 USD in January 2015, this trader identified medium-term bull market.
Steady Eddy’s strategy is very simple. Enter a position that follows the overall direction, wait for a price rise — even if this takes several days — and then close the position.
Remember: just because you have closed a long position, does not mean it is a good idea to enter a short position. A safe approach is to only enter positions in favor of the wider market movement.
5. The Risk-Taker
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Unlike Steady Eddy, The Risk Taker had a more aggressive approach to trading. To begin with they opened two positions, similar to The Bull Rider, and was patient enough to wait for a significant price movement.
The Risk Taker later closed positions #1 and #2, then began waiting for a buying opportunity. This arose around the 5th of March and they opened three positions — a bold, but profitable move.
Our trader sets a great example of here of the two best times to close positions. Firstly when the rally looses steam at #4 (mostly profit takers here). And secondly, after a plateau, when the market heads down again at #3 and #5.
6 Tips to trade bitcoin more successfully
Based on the strategies of our trading pros, consider trying these six tips to replicate their success:
1. Do not be afraid to hold positions open for several days if you are confident you can predict the overall price direction.
2. Experiment with opening two positions, closing one sooner and the other later. The profit from the first position will act as insurance if the second becomes unprofitable. If the price moves in your favour the second position will become highly profitable.
3. When taking profits, try opening another position before closing the original position. This allows you to continue to profit from a sustained rally/crash while realizing your profits from the original position.
4. Open trades only in the direction that follows the long-term market trend to reduce your risk levels.
5. Closing one position does not mean you should open another position in the opposite direction.
6. Make sure to have a large enough account balance to cover the interest fees for borrowing leveraged bitcoin.
If you want to use the power of leverage / margin trading to increase your potential returns, check out BTC.sx. We offer up to 10x leverage and order book execution on Bitfinex, Bitstamp and itBit.