Bitcoin price is volatile. Everyone knows that. Not only the big swings like from 13 to 266, back to 50, up to 100, back to 50, and up to where we are now, to recap just this year. This post is about not losing money in the smaller fluctuations that occur all the time.
I am usually setting both a sell and a buy order, about 15% away from the current price. And inevitably, sooner or later, it will be filled. When I receive my email that my order has been filled and log on to the exchange, the price usually already bounce back, so I can just place the opposite order. Rinse and repeat. It is a stupid way to make money, but it is very effective. But if I gain, someone has to lose. That loser is you, but this is not the reason I write this. But there is another loser of volatility, and that is the Bitcoin community as a whole. To avoid losing money and help Bitcoin strive, please read on.
There are 2 ways to place an order. You can either take liquidity or you can add liquidity. Doing the former increases volatility, doing the latter decreases volatility.
Doing the former will lose you money, doing the latter will save you money. The following image is the market depth from MtGox today - a lot of liquidity has just been taken as you can see from the flat red line at the price of ~ $140:
Now what if you want to sell Bitcoins? Place a market order to sell before the price drops even lower? That's indeed what some do, they panic. And lose. The way not to lose money is to place the order within the range of low liquidity - maybe $141. This way it is very likely that your order gets filled quite quickly. And indeed, as I just added the last 2 lines, the liquidity takers took revenge and the price bounced to $141.
You would have saved $3 per Bitcoin, just by being patient for 5 minutes.
The same is true if you buy Bitcoin, just vice versa. Just place your order so that it will not be filled immeditely.
What we all want is a market with a lot of depth. If only a few of the shaky hands would learn more patience, they would save their money, but more importantly, they would make Bitcoin much better suited for business.
Images from
http://bitcoinity.org/markets
