Which strategy do you follow for bitcoin trading? Are you able to earn profits from the strategy? Well, every strategy has its own advantages and disadvantages, you must be aware of it and execute it properly. No matter how well you execute your strategy, there are still some risks associated with the market.
In fact, you can only increase the possibility of a trade to be right but you can never be certain about the market. When you accept this, it will help you to move forward without any disappointment that the strategy didn’t work.
Now, in this article, you will learn about one of the best bitcoin trading strategies named “Trend Following Strategies”. This can be used in all types of trading such as stock market, forex trading, cryptocurrencies, etc. Let’s get started.
Trend Following Strategies
Trend following strategies generally uses two indicators namely moving average and breakout. You will understand both of them, continue reading.
Here in this article, two major trends following strategies are described namely “SMA crossover for the long position” and “SMA crossover for the short position”.
Moving average is a term used in statistics that uses data points of a data set for calculating a series of averages. There are different types of moving averages such as simple, cumulative, weighted, and exponential.
However, this article is focused on simple moving averages. In trading, moving averages are used to highlight trends by smoothing out the short-term fluctuations in the price chart.
Simple Moving Averages (SMA)
A simple moving average is calculated with time-series data. The moving average line is different for different time series. That means the line of a simple moving average for a particular time-series data in the chart is different from another simple moving average line with a different set of time-series data. It can be understood with a real example.
Consider the data points of a price chart in a one-day time frame in your trading platform. In the trading platform, if you draw a 100-day SMA and a 50-day SMA, then both the line will be different in terms of their sensitivity. The 50-day SMA will stay above the 100-day SMA in a sustained uptrend. Whereas it will stay below in case of a downtrend. But both the lines cross at a point which is a signal for entry or exit a trade.
Simple Moving Average for a Long Position
A long position means you enter the market by buying at a lower price and exiting the market by selling at a higher price. It is used when the market shows an uptrend.
Entry: When the faster moving average line crosses over the slower moving average line at a support level then enter the market by giving a buy order.
Exit: When the faster-moving average gets closer to the slower SMA and tries to cross below at a resistance level, then exit your position.
Simple Moving Average for a Short Position
A short position means you enter the market by selling at a higher price and exiting your position by selling at a lower price. It is used when the market shows a downtrend.
Entry: When the faster moving average crosses below the slower SMA at a resistance level, then enter the market by giving a sell order.
Exit: When the faster SMA gets closer to the slower SMA and tries to cross over at a support level, exit your position.
Hopefully, the above strategies will help you to gain profit from the crypto market. One important thing to note is that your online Bitcoin software must be a good one that can load data points faster. If you don’t, you might get a late entry and lose some profits. You can try https://bitcoins-era.io