Basic bitcoin trading strategy

The good thing about trading Bitcoin Futures is that if done correctly, there is room for profit in either a bull or bear market scenario. In a bull market, investors will open long positions and wait out their profits. Since Futures have a tendency to trade at a higher value than the spot price, bull runs can bring higher premiums to the market. These rising prices are the direct result of investors positioning to prepare for the foreseen increase in market value.

Reversely, bear markets create a scenario where futures can trade at a lower value than the spot price of an asset. These price drops are the result of investors seeking to preserve capital and reposition for future movements. The industry standard places most futures contract expiration dates on the last Friday of the month. These contracts include both monthly and quarterly agreements. Knowing this information can help you to align your investment strategy with upcoming developments within the sector.

Currently, the most popular exchanges offering Bitcoin Futures rely on two main payment structures.

The first option is the inverse pay structure. In this scenario, you put up BTC as collateral for your investment agreement. The second style of payment structure is referred to as a linear payment structure. The main contrast being that linear futures contracts require you to make your payments in USDT directly.

Interestingly, the last 2 years has also seen the emergence of hybrid payment strategies. These contracts provide investors with a bit more flexibility in terms of payment types. You can even choose different currencies to receive your profits. This scenario benefits investors who may require some profits paid in USD, while others remain in cryptocurrencies.

There are also opportunities to earn profits from the price variances between exchanges at times throughout your contract. Importantly, this strategy requires you to arbitrage.

Arbitrage is one of the oldest forms of commerce known to man. Bitcoin arbitrage occurs whenever an investor engages in the simultaneous buying and selling of Bitcoins in different markets or in derivative forms with the goal to leverage price inefficiencies between platforms holding the same asset. Arbitrage is possible whenever you notice:. The earliest forms of arbitrage involve simply purchasing an asset in one location and bringing over to another location and selling it for a profit.

Today those that live near a border-crossing are uniquely positioned to participate in this type of commerce. Luckily, digital assets give us the ability to trade as if we were located anywhere globally. When dealing specifically with the arbitrage of cryptocurrencies, there are a few other considerations to ponder.

Next, you will need to consider the speed at which your asset transfers. In the case of Bitcoin Futures, the exchange times vary greatly depending on the platform you utilize. Lastly, you want an asset with high volume.

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Luckily, Bitcoin Futures provide all three of these scenarios frequently. Now that you have a better understanding of some of the basics of Bitcoin Futures trading, you are ready to learn about the three main trading strategies used by investors today. The great news is that these techniques can be used on nearly any asset class that offers futures. The two main techniques are:.

The Cash-and-Carry futures trading strategy is the most popular in the market for many reasons. Primarily, its popularity stems from its market neutral approach. If done correctly, the cash-and-carry strategy minimizes risk exposure for the investor. This reduction in risk exposure is due to the way in which this technique anticipates any market movement.

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The main goal of this technique is to exploit pricing inefficiencies in the spot price. The first step in a basic cash-and-carry-arbitrage is to evaluate the market. You will need to closely monitor the percentage difference between the current spot price of Bitcoin and the price of Bitcoin Futures contracts. Begin making daily notes of the price percentage at a certain time per day. This data will allow you to compile a better awareness of how the two price points correlate. Next, a Bitcoin Futures arbitrageur would make two purchases. The first purchase would be a long position in Bitcoin.

Importantly, this is a direct investment into Bitcoin. The investor would then open a short Bitcoin futures contract at the same time and for the same amount. Critically, this contract needs to be at a price considered expensive by the investor. In most instances, you will notice the futures contracts experience more intense price volatility than Bitcoin directly.

They also trade for a much higher value usually. However, there are instances where the Futures fall below the spot price as well. You will need to use your chart to determine when the Futures price uncouples from the spot price. Divergences arise when large numbers of traders decide to exit the market and sell their assets.

When the market moves sideways, however, it can trigger multiple buy and sell signals as the two moving average lines converge and diverge more frequently.

This is the only problem with the trading strategy, but the average gains tend to outweigh any losses incurred from periods of low volatility. Again, this is a long-term strategy and works best over a period of at least 18 months and can be combined with other indicators to deliver better results. The RSI divergence strategy is a more technical strategy but can be used to great effect for timing trend reversals before they happen.

This is when the price starts moving in the opposite direction, from a downtrend to an uptrend or vice versa. While this system alone can be used as a simple crypto trading strategy, it can sometimes give false results. For example, there are times when the RSI shows an asset is overbought, which is typically a buy signal, and then the price continues down even further. The RSI divergence strategy is more advanced than this and can be used to identify when the price trend will change direction before it happens.

It works by looking for discrepancies between the price and the RSI indicator. Normally, both the price and the RSI move in roughly the same direction. However, there are times when the price is falling but the RSI is rising, and vice versa. The best time frames to look for divergences are usually within a four-hour or daily window.

These time frames tend to show stronger shifts in the mid-to-long-term trend. The yellow lines show the discrepancies between the RSI indicator and the price. The best times to look for divergences are when the price is in either the oversold or overbought areas. The name value is a friendly name for the Exchange. It is used in log statements to display the Exchange's name.

For the adapter value, you must specify the fully qualified name of the Exchange Adapter class for the Trading Engine to inject on startup. The class must be on the runtime classpath. See the How do I write my own Exchange Adapter? The authenticationConfig section is used by the inbuilt Exchange Adapters to configure their exchange trading API credentials - see the sample exchange. The networkConfig section is optional. It is used by the inbuilt Exchange Adapters to set their network configuration as detailed below:.

The connectionTimeout field is optional. Once this threshold has been breached, the exchange adapter will give up and throw an ExchangeNetworkException.