How to know when to buy and when to sell bitcoin

Well, the knowledge of when to buy and when to sell is the holy grail of trading – basically, this is the entire point of the trader’s profession. Obviously, it is not possible to explain everything about it in one short article. Moreover, there is no single trader that can answer this question 100% correctly – all traders make losing trades. After all, there are far too many factors that can influence the Bitcoin exchange rate for any prediction to be 100% reliable.

However, there are still factors that are necessary to watch for and rules and patterns that allow predictions that are “good enough”.

So today we won’t give you a ready, clear answer, intead, we will show you what to pay attention to.

News

It is necessary for any successful trader to constantly monitor the news background – the market always reacts to the news. And major events like changes in regulation in a large market segment, network updates or hacked exchanges influence the crypto market quite strongly. While it is true that “trading on the news” (relying only on the news to make trades) is a bad idea, it is still necessary to take the news background into account.

Ratio of long and short positions

Ratio of long and short positions is an indicator that is very often used by margin traders. Basically, it helps to figure out what the “whales” (traders with overwhelmingly huge amounts of funds) are doing – after all, smaller traders are almost always forced to follow the “whales”, and the better they do it, the more money they will get. Of course, it is not “be all and all” of trading, but it is still a very useful indicator.

The point is that it is profitable for large players to open positions in the opposite direction to the most of the market, once critical disbalance in the ratio is achieved.

Let’s say that there are 80% long and 20% short positions in the market. It means that there is a great probability that large players will start opening short positions en masse. The strength of buyers is spend and it is a good opportunity to push them out of the market and take their money.

Of course, exceptions happen, but they are rare.

Trading sessions

It is worth remembering that the market volume changes cyclically throughout the day with trading sessions in opening one region and closing in another. Well, technically, unlike traditional markets, the crypto market doesn’t have specific trading sessions – most exchanges work 24/7, but there is still a correlation, since people tend to trade during the daytime in their region.

Thus, the largest volumes are active in the market during the workday in the US and in China. Keep that in mind and take notes when the market activity is at the highest and at the lowest. For different strategies you want different levels of activity.

Besides, it will still be a good practice to keep tabs at trading sessions in the traditional markets – all markets are interconnected, so major movements in the traditional markets can affect the crypto market.

What to do if trading goes wrong.

There is no way to avoid making losing trades completely – some losses are inevitable, so the trick is just to make more winning trades than losing ones. Don’t rely on luck – only on calculations and statistics. 

However, what to do if you are taking serious losses?

There are three reasonable options in such a situation.

  1. Hold the losing position until the growth will resume and your losses will be compensated. This method works well for long-term (really long-term, for at least a year or better more) investments in Bitcoin, but for smaller cryptocurrencies it is risky and in the short or medium term the losses may very well increase.
  2. Average the losing position. In case of renewed growth, you’ll be able to offset losses and even gain profit much faster than by holding, but it can also increase your losses. 
  3. Compensate your losses for selling crypto at a higher rate than the market average. While this may look too optimistic, due to different market makers, different sources of liquidity and different conditions, the rates on exchangers can differ quite a bit. It is not uncommon to find a platform that at the moment offers the rate 5-10% more profitable than the market average.

It may be difficult to find such profitable offers, since there are dozens of crypto exchange platforms with constantly changing rates. Fortunately, the Changevisor service takes over the task of monitoring these platforms and showing you the best offers available right now. Thus, you can exchange crypto at a much more profitable rate and either increase your profit or at least offset the losses you took due to exchange rate fluctuations.

How to hedge risks when investing in Bitcoin

Cryptocurrencies are high-risks Investments, even if we are talking about the largest and most stable ones, like Bitcoin. While investing in crypto offers huge potential profit, there is a very real risk of losses up to the complete loss of all funds invested. So tools that help minimize the risks are extremely important for any reasonable Bitcoin investor. So let’s talk about how you can hedge your risks when investing in Bitcoin

The concept of hedging

The basic idea of hedging is “not to keep all eggs in one basket”. A lot of different approaches are tucked under this umbrella term – from investing in multiple assets to opening market positions in different directions. We’ll briefly talk about the former approach, as it is much more straightforward, and cover the latter in more detail.

Investing in different assets


Investing your capital in different assets is the very basic advice for any beginner investors. While it is undoubtedly the correct advice, there are some pitfalls you have to keep in mind while investing in Bitcoin.

It is worth remembering that in most cases altcoins follow the Bitcoin price movements. Let’s say if you invest half of your capital in Bitcoin and half – in other crypto assets, and Bitcoin price falls – other assets that you invested in will also fall. Thus, you can’t hedge risks of investing in Bitcoin by investing in other cryptos. Bitcoin is a hedging instrument for other digital coins, but not the other way around.

So if you invest in Bitcoin and want to hedge your risks – the other part of your capital should be invested in assets not related to crypto at all (shares, currencies, metals, indices, etc.). Even investing half of your free money into Bitcoin and leaving the other 50% idle in dollars can be seen as a very simple way to hedge the risks albeit far from perfect.

Hedging on exchanges

The basic idea is simple: if you are not sure about short-term Bitcoin prospects, you open a position for an amount equal to your investment, but in the opposite direction.

Let’s say you buy 1 BTC for $48,000, but the market doesn’t show a clear upward trend, so you are not sure whether to expect further growth. So you open a short position to sell 1 BTC at the price of $48,000, using derivatives like futures and perpetual contracts, or using margin trading.

If Bitcoin drops to $40,000, you’ll lose $8,000 on the first position but gain $8,000 on the second one. So your losses will be only equal to trading fees.

Then it’s time to make decision and pick one of the options:

  1. Lock in the short position, get your $8,000 profit and continue to hold the long position. It is a great solution if Bitcoin starts growing again, but if the fall continues, you lose funds.
  2. Leave the short position open and close it only when there is a clear upward trend.
  3. Close the short position with a profit and open a new short position at $40,000. The amount, for hedging purposes will be the same in BTC, but different in dollars equivalent.

Hedging Bitcoin via exchangers

Not only full-fledged exchanges can be used for hedging risks. Ordinary crypto exchangers that allow you to sell or buy Bitcoin for fiat currencies and even wallets with similar built-in capabilities also can be used for that purpose. Moreover, you can sometimes fix additional profits if  Bitcoin grows.

The thing is that some exchangers, due to price differences between market makers, can offer rates slightly higher than the market average. Usually the margin isn’t huge – 5-10% and it doesn’t happen with reliable regularity on any given platform, but it does happen and is worth watching for.

So let’s say the average BTC price is $48,000, but you spotted an exchanger that allows you to sell BTC at $52,800. You purchase 0,2 BTC for $4,800 and store 0,1 BTC in your wallet. The other 0,1 BTC you immediately sell via the exchange service where you spotted a favorable rate for $5,280.

So in the end you purchased 0,1 BTC, 50% of your free money is still free and you earned a nice $480 bonus. Of course, exchange fees will diminish the profit somewhat, but it will still be nice. Moreover, even if BTC drops by 10% – you still will break even. 

Conclusion

There are different ways to hedge your risks while investing in Bitcoin, and every method has its advantages and disadvantages. Relying on other classes of assets can be less than ideal if you don’t understand their respective markets, storing funds in exchange accounts is not safe, exchangers may charge excessive fees, etc.  So pick an option best suited for your specific situation: volumes, style of investments and\or trading, etc. And don’t forget to constantly monitor the situation and consider new options.The crypto market is incredibly dynamic and effective crypto hedging is not a passive process.