Hello everyone. Here is a case study, basically an example trade, complete with my full research & analysis, that I did on the Bitmex platform. The intention of this case study is to detail a full trading strategy and show how money can be made trading on the Bitmex platform. Please read and comment! I would love to hear your thoughts. Thank you!
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https://bitcoincasestudies.com Case Study Parameters
For this case study, we will initiate a swing trade long on Bitmex. The trade will be placed when our indicators show that the trade is likely to be profitable with a high risk:reward (R:R) ratio. The indicators used for this trade will be StochRSI and volume. Basic candle structure will also be taken into account, as well as the position of the Bitcoin price in comparison to the most recent high. The goal of this case study is to show how a profitable swing trade long can be successfully done, using a relatively basic trading strategy that anybody can follow.
Exchanges
If you don’t already have some Bitcoin to trade with, you can purchase Bitcoin on Coinbase, Coinmama but moving forward, we will be doing some experimenting with the Cash App for our bitcoin purchases.
For trading, we are using the BitMex platform primarily for all of our leverage-based trading strategies. The reason for this is because Bitmex is not only the most well-known and popular exchange that offers leverage but also because they have far and away the most volume out of all the other exchanges that offer leverage. This means liquidity is usually not an issue. Also, their exchange is stable and has never once been hacked or lost funds. Furthermore, the Bitmex UI is intuitive and easy to learn, and also offers by far the most leverage options out of any exchange, all the way up to a maximum of 100x leverage, although it is generally not recommended to use 100x. We will in the future perform case studies involving highly-leveraged trades to study their profitability and potential strategies involving higher amounts of leverage.
Length Of Case Study
Since this is a swing trade, it could take anywhere from 1-2 days to 1-2 weeks of holding the trade before the price movement develops in our favor. This depends entirely on market volatility. Under optimal conditions, the trade will only last for 3-4 days at the most. The benefit of swing trading is that you can “set and forget” the trade, as long as you use stops and take profit orders, without having to constantly monitor the trade. This is extremely beneficial when you might have other responsibilities to attend to, such as work or school or family obligations.
Entry Strategy
For this trade, we will initiate a swing trade long using the 4-hour chart. Our trade will be initiated based on several parameters.
1. The RSI needs to start gaining strength and pointing upwards.
2. The candle structure needs to show signs that the price may reverse to the upside.
3. The position of the price needs to be considered compared to the most recent high.
When this trade was placed, on December 17th, we entered a trade worth 1K USD at an entry price of 3152. This was after the price had recently dropped from a price of over four thousand to a low of 3130. The level of selling was starting to run out of steam and was no longer sustainable, furthermore, Bitcoin was showing signs of stabilization at the 3100 price point. At the same time, there was both a reversal candle followed by a bull flag on the 4-hour chart, and our RSI indicator was also pointing upwards. All of these factors combined caused us to initiate a Long trade, as the probability that the price would now move upwards was a lot higher than it continuing to drop further.
Entry: 3152 (Long)
Size: 1,000 USD
Leverage: Cross
Position Sizing & Leverage
For this trade, we are using Cross leverage. Cross leverage is where a trade is initiated using the entire equity of the account as backing. This allows you to use all of your capitol to avoid liquidation, however, the downside is that if you are liquidated, your entire account is GONE. Using cross is not recommended for new traders, however, it was used for this case study. For most swing trades, we would recommend using between 2-5x on average and no more than 10x. This gives the trader a nice “cushion” so that even if the trade is not timed perfectly, there is some wiggle room to avoid being liquidated or stopped out. Our position size for this trade is 1,000 contracts, each contract being worth 1 USD on Bitmex.
Stops & Losses
For this trade, we set a stop at 3050 in case of a further continuation of the downtrend. In the case of a 3100 break, it was likely that the price would drop below 3000. A significant punch into the 2k’s could result in our liquidation or a massive loss. Therefore, it was wise to set a stop below the support level in the case of a major dump. Once again, this allows us to have peace of mind and “set and forget” the trade. In the case that Bitcoin dropped to 3050 or lower, our stop would hit and 1,000 contracts would be automatically sold to effectively close our long position. Learning how to manage one’s losses is an extremely important part of trading, and will help the trader stay profitable in the long run.
Exit Strategy
Here’s where it gets tricky. Once the trade starts going in our favor, where do we take profit? We decided to set a target of 3850, as any bounce from these levels is likely to be a big one. Luckily for us, we didn’t have to wait long. Three days after the trade was placed, our target was hit. The trade was a successful one. That said, it could’ve gone differently very easily. If we hadn’t waited until our indicators were showing that the market was oversold and a bounce was likely to go long, the trade could have been a failure.
Profit & Loss
All in all, this trade netted over 0.05 BTC in profits, or almost 200 USD worth of bitcoin but if you have more bitcoin to trade with, you can scale these numbers up. Not bad for three days of “work”. This study has shown that if the proper strategy is used, under the right circumstances, “buying the dip” in the form of a swing trade long can be quite profitable for the enterprising trader. That said, indicators, candle formation, and price location must all be taken into careful consideration before placing a trade. Also, without stops, taking any trade is dangerous and could result in the full liquidation of your entire account. This is why trading smart, and minimizing both risks and losses, instead of recklessly taking highly-leveraged trades for quick profit is what makes the difference between a successful trader and a failed one.
Conclusion
Luckily, this trade was successful, and is a good example of how a successful trading strategy can be put together in order to trade bitcoin on margin. The key is to keep emotions in check and focus on the analytical structure behind your strategy. For us, we want a price drop as well as our indicators to indicate oversold conditions before going long. That said, timing the bottom can be hard and not every trade will be as successful as this one.
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I hope you guys liked this case study. I am doing example trades, writing case studies on them and then posting the results. This way, I make profits or losses and other traders can learn from both my failures and my success, hopefully allowing them to make better decisions and implement a successful trading strategy.
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