What is the best strategy to use when trading with Bitcoin? Here are 5 easy steps to make profits from Bitcoin trading.

There are many ways of making money with Bitcoin, but the top option is Bitcoin trading. It basically requires traders to buy and sell Bitcoin at the right prices. As many people are figuring out various new strategies to make money with Bitcoin, it might be hard to keep up with the trend and choose the best strategy to use.

To make things easier for you, we have summarized 5 easy steps to make money with Bitcoin effectively:

  1. Set up the chart
  2. Find a smart money divergence in the Bitcoin and Ethereum charts
  3. Look for an increase in the OBV indicator
  4. Set a buy limit order at the resistance level
  5. Place stop loss and take profit

Keep in mind that this is a universal cryptocurrency strategy, so it is not limited to Bitcoin only. It may apply to any of the thousands of cryptocurrencies available right now.

 

Day Trading with Bitcoin

Being the most liquid form of cryptocurrency at the moment, Bitcoin is believed to be capable of sustaining day traders with such high volatility, so many profitable trading opportunities are most likely to occur each day.

Generally speaking, the concept is basically the same as ordinary currency trading. It's important to be able to use technical indicators and understand the trends in the market so it's easier to tell if the price is about to increase or change direction.

When it comes to the strategy that we're about to discuss in this article, there is one particular indicator that you must know and learn to use, namely On Balance Volume (OBV). This indicator uses a combination of volume and price activity, so it can tell you the total amount of money that enters and exits the market.

OBV can be found in several trading platforms, including TradingView and MetaTrader 4. It is relatively easy to read the OBV indicator. Take a look at an example below:

Bitcoin day trading

The basic concept is that if Bitcoin is going up while at the same time the OBV is going down, that means people are selling into this rally. Such condition won't be sustainable for your trade. On the other hand, people are buying into the price dip if Bitcoin is going down while the OBV is going up. What you would want to see instead is when the OBV is moving in the same direction as the Bitcoin price. Later you will learn how to use it in the actual trading strategy.

 

5 Easy Steps of the Best Bitcoin Trading Strategy

As we already mentioned before, this strategy is suitable for any cryptocurrency, not only Bitcoin. Therefore, there will be an addition of Ethereum chart in this discussion. Follow these steps to implement the strategy for your trade:

 

1. Set Up Your Chart

This strategy will need 3 windows in your chart setup, namely the Bitcoin chart, the Ethereum chart, and the OBV indicator. You'll find out the reason why we need the Ethereum chart as well in the next step. So now your chart setup should look like this:

Setting up the chart.

 

2. Find a Smart Money Divergence in the Bitcoin and Ethereum Charts

To put it simply, we are looking for price divergence between the price of Bitcoin and Ethereum. You can spot a smart money divergence if one of the cryptocurrencies fails to confirm the action of the other cryptocurrency. For example, if the Ethereum price breaks above key resistance and Bitcoin fails to do the same as shown in the picture below, it means that one of the two currencies is "lying".

The reason why money divergence works is that theoretically, the cryptocurrency should move in the same direction when in trend. In fact, the same principle has been applied for other major asset classes for years. However, it's crucial to get a confirmation signal from the OBV indicator before you decide to buy.

 

3. Look for an Increase in the OBV Indicator

From the smart price divergence scenario in which Bitcoin fails to break above key resistance, it is possible that Bitcoin's price is lagging behind Ethereum. In such condition, the price should follow and break the resistance point soon.

To know for sure, we can check the OBV indicator because it shows us if the money is really buying or selling Bitcoin. So what we would want to see is an increase in the OBV indicator in the direction of the trend.

Other than that, we also want it to move beyond the level where Bitcoin was trading previously at this resistance level.

 

4. Set a Buy Limit Order at the Resistance Level

After we get confirmation from the OBV indicator, all we have to do is to set the limit order. As anticipation for a possible breakout, place the limit on the resistance level.

 

5. Place a Stop Loss and Take Profit for Your Trade

The only thing left to do now is to place a stop loss and take profit to prevent you from getting unaffordable loss. A smart trader would place the stop loss below the breakout candle because once the price breaks below the entry candle that initiates a breakout, it proves a false breakout.

When it comes to take profit level, usually an OBV reading above 105.000 is quite extreme so it shows at least a pause in the trend. That would be a good place to take profit.

 

Making the Strategy Even More Effective

To reduce the risk, there are several things that you can do:

  • Diversify your trades by combining several cryptocurrencies at once. This way, you're not risking all of your money at one coin and therefore, reduce the risk.
  • Stay updated with Bitcoin news to know the trends and what's happening in the cryptocurrency market. It's also helpful to find a favorable time to trade.
  • Use technical analysis and other indicators like OBV to confirm your decisions.
  • Reduce trading costs by choosing a reliable exchange with low fees and beneficial trading conditions.
  • Use stop loss on every trade. You can start with a profit/loss ratio of 2:1.

 

Don't Forget These Important Aspects

There are several essential things that you must have before trading with Bitcoin. Here's the list:

  1. Bitcoin wallet
    The wallet's purpose is to store your coins as well as validate your transactions when you're using it.
    To prevent someone else from using your Bitcoin, each wallet comes with a unique private key containing secret information that is used to validate the transaction and "sign" as proof that you really own that Bitcoin wallet.
    It is particularly useful to prevent someone else from using your Bitcoin or the transaction being altered by a third party.
  2. Find an exchange to trade your Bitcoin on
    In this case, some exchanges usually provide their own wallets so you don't even need to bother looking for a separate one.

 

The Best Bitcoin Trading Platforms

As the largest cryptocurrency in the world, it's only natural that there are a lot of Bitcoin exchanges to choose from. Its popularity has reached most countries and as a result, the number of Bitcoin exchanges is increasing each year. While this certainly is one of the benefits of using Bitcoin, it also makes it harder for traders to find the best one. Essentially, several factors must be considered when choosing the best Bitcoin exchange, such as where it comes from, how much is it limits, your preferred payment method, fees, etc.

Here are some recommendations to help you pick the best exchange:

  1. Coinbase is the top Bitcoin exchange worldwide. It offers various cryptocurrencies, a strong security track record, and reasonable fees.
  2. Binanceis the second-largest exchange that trades more than 200 coins and offers low transaction fees (0.1%).
  3. eToro is considered the best crypto exchange for beginners because it offers a platform that is easy to navigate and lets you open a demo account to trade Bitcoins without risking any money.
  4. Robinhood is a relatively new but popular exchange with over 6 million users worldwide. The best feature of this exchange is the commission-free Bitcoin trades.
  5. Coinmama allows you to buy and sell Bitcoin quickly with its instant order delivery and many payment options.

 

The Bottom Line

In the modern era that we live in today, cryptocurrency trading becomes more common as a way to make money. Many believe that this is only the beginning of the Bitcoin trend as there are bigger possibilities in the future. Therefore, take full advantage of the technological advancement in order to gain maximum profit.

But, it is also important to remember that trading always comes with risk. Losing, just as much as winning, is a part of trading. What really counts is the cumulative outcome of your trade. Before entering the market, make sure to have a proper trading strategy and don't underestimate the cryptocurrency markets. Also, it's always a good idea to trade with a demo account first so you can test your strategy and see if it brings any good to your trade without having to risk any money.