Why I recommend a Long Term Bitcoin Strategy?
Let’s be clear, the only strategy I seriously consider for Bitcoin is long term buy and hold. An accumulative strategy if you like.
When I say Long Term, I mean 5 to 10 years, at least.
Since the price swings in bitcoin are still huge, I don’t see it advisable to trade bitcoin short term, unless you’re an expert scalper.
If you’re wondering why, read my section on why Bitcoin is a unique opportunity.
There is also regular suspicion that heavyweight investors or bots are manipulating Bitcoin prices. Every now and again a story comes up, such as this one on a single trader nicknamed “Spoofy”.
Enter on dips with Buy Limit orders
Since my objective is long term, I am moderately concerned with my entry points.
However, a very simple way to ride the bitcoin wave is to enter on market dips. That sounds simple, but in practice the high volatility of BTC makes it difficult to define a dip, as opposed to a mere ripple.
The idea is to leave Buy limit orders at levels of around -10 to -20% and -30% from current price, and catch volatility spikes that for any reason sends the price temporarily rocketing down and back up again.
Buying the dips
What is a Buy Limit order ?
A Buy Limit order is basically an order to buy at a price lower than the current level. So if price is currently 6,500$ I would place a Buy Limit order at 6,300$.
It is different than a Market order in the sense that it does not trigger until price reaches the level you have specified.
And there is therefore a chance that your order will not get filled.
Strict money management, but no stops
Remember that trading Bitcoin is a very, very, very speculative activity.
Volatility of Bitcoin prices can be huge, daily variations of 5-10% are not uncommon. Furthermore, trading with leverage or with tight stops can be lethal.
So there is one absolute recommendation => forget traditional money management using stop losses, it is absolutely key to forget trading Bitcoin like you trade stocks, Forex or any other traditional asset.
You have to define beforehand what amount of money you are ready to loose, and that’s your money management, full stop.
Unlike stocks or Forex trading, do not use stop losses or you will inevitably get hit by brutal volatility spikes.
Usually it would not be recommended to trade more than 1% of your account on any of your entries.
This is very unorthodox but Bitcoin is not yet an asset that can be traded like stocks or Forex. You cannot yet allocate the same amounts of money to Bitcoin trading (unless you decide to).
By playing long term we are considering dips (even large ones) as buying opportunities, or a way of getting a satisfying entry price.
Option 1: Buy and hold
The first option once you are in, is just to BUY and HOLD ! Early investors in Bitcoin would have been well advised to do just that.
For that you need to be patient and disciplined.
Option 2: Sell at specific levels
The second option is to sell your coins each time a trade reaches a designated level, usually defined through technical analysis.
That exit strategy will give you regular profits, but you might miss part of the momentum on the way up.
It’s as simple as that….. or is it?
So the strategy is very simple, even simplistic. However recent price appreciation for Bitcoin shows that the potential for upside is important but could maybe be surpassed by other altcoins more recently introduced, or riding more powerful waves.
Stay tuned for more…