How To Make Profitable Bitcoin Trading Strategies A 5 Step Guide

Category: Blog | Author: Trading Brokers | Date: May 18, 2023

The thought of owning digital currency excites everyone. But the fear of trading and fluctuating markets haunts people too. To combat this problem, developers developed an automated trading bot like the Bitcoin Traders App, which manages your trade and helps you get the best out of your deals. It has default settings that will help you earn good revenue despite the changing market conditions. But if you learn a strategy or two, that will help you create your strategy to manage your most liked currencies while giving the rest to the bot.

The idea sounds good, and the article is also based on it. We will give you a short 5-step guide for a trading strategy. We will also tell you which strategies are primarily used and will help you in the long run. So, let’s start this adventurous ride.

Technical Indicator – On Balance Volume

Before diving into the details, here is a technical indicator you should know about that will help you understand the process better. As an average statistic that increases variation on good days and reduces variation during low days, On Balance Volume quantifies the purchasing and trading activity. The entire day’s output is regarded as up-volume if the market concludes greater than the closing price on the previous day. The entire trading day’s intensity is regarded as low-volume if the market concludes as less volatile than the one before it.

The exact quantification of the OBV is not that important; you should focus on its direction and note the following points:

  • Higher peaks and higher troughs shown by both the cost and OBV indicate that a positive trend will continue.
  • Lower peaks and lower prices indicated by both the cost and OBV show that a negative trend might start.
  • If the OBV goes up during a trading range, accumulation might occur. This is unmistakably an upward breakout.
  • Distribution might occur if the OBV goes down during a trading range. This is unmistakably a downward breakout.
  • Higher prices and lower OBV peaks show that the upward trend might stall or fail. This is a sign of Negative Divergence.
  • Lower price troughs but no signs of lower roughs from the OBV, shows that the downward trend might stall or become a complete failure. This is a sign of Positive Divergence.

Now that you know about On Balance Volume or OBV, let’s learn about those trading steps so that you start your trading journey soon.

5 Simple Steps

Now that you know the technical terms, we will discuss a tried and tested strategy for many of the biggest cryptocurrency names. Bitcoin and Ethereum get traded based on this strategy. This strategy is broken down into 85% price action and 15% crypto trading, which requires an indicator we have discussed before. So, without further ado, let’s learn basic trading strategies that will help you create your own strategy.

1.    Overlaying Charts

Start the procedure by opening up three windows. One will be for the BTC chart, the second for the ETH chart, and the last one for the OVB indicator chart so that you can track the performance of the two. By following the proper guidelines, you can lay up the perfect chart. If you need clarification, check the sample charts to see whether they match yours.

2.    Money Divergence Between BTC and ETH

We will examine the rate differential between Bitcoin and Ethereum to explain the situation deeper. The process of money divergence happens when one digital currency can’t verify the activity of the other cryptocurrency.

Take an example that will assist in a better understanding of this. If Bitcoin’s value goes above a specified threshold or a swing high and Ethereum fails to follow suit, then this circumstance is called smart money divergence. In strategist’s language, we say that “one of the currencies is lying.” This strategy works best because the whole digital currency market should move when facing a trend. These regulations and principles were also accurate for the trading strategy or virtual currency.

3.    Measuring the OBV Indicator

Suppose Ethereum is behind Bitcoin, indicating that ETH will join BTC and cross the threshold a while later. But how do traders know about this? This is all because of the incredible OBV indicator we discussed a while ago. It can show its users if traders and investors are buying or selling crypto. The OBV will go up towards the direction of the trend if Bitcoin does not go above the threshold and Ethereum gets broken.

Knowing about these small indications is helpful in the long run. For this, you have to understand OBV a bit better. We have provided details, and you must review previous charts and trends to identify how OBV can assist you with your trade correctly. You can go through articles and lessons to learn about it and practice your learnings on simulation trading so that you understand better without wasting any of your money.

4.    The Buy Limit Order

You set up a buy limit order when you attain a green light or the signal from your OBV indicator. Place the order at the threshold or resistance level to predict a possible breakout.

This might trigger the growth of BTC, and it could break higher than usual. It will show you that your strategy has worked out and that you can efficiently use the OBV indicator. This was the purpose of using this indicator because it directly does its job without delaying the circumstances. You don’t have to verify the result multiple times after the result is shown.

5.    Protective Stop Loss

Putting the stop loss under the breakout candle is an efficient trading procedure. Once your OBV reaches 105,000, you can reap all the profits as a fruit of your hard work. Because this reading is an indication that the trend is on pause for a while, and you can take the revenue because it won’t affect your trade.

You can use those profits to start a new trade, save money, or buy something you have always wanted. You made your way through a rigorous trading routine; a pat on the back or a treat is long due. This 5-step strategy seems simple, but when you practically do it, you will have to face many hurdles, especially as a beginner. That is why we suggested simulation trading so you get an idea of how tough the market is and how you can combat and solve those issues.

Final Words

This method may be challenging in the beginning. But as you move forward, you will get used to the steps, learn to trade the biggest cryptocurrencies, and earn hefty revenue efficiently. Trading bots are great, and they can help a lot. But you should manually trade some of your currencies so that you know the market conditions and whether you should continue your automated trading or not. So, keep an eye on the market, learn new strategies, and understand the risks.

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