Summer Trading Lessons from BTC.sx

Summer Trading Lessons

Hot on the heels of June’s Grexit rallies, the bulls have continued to enjoy further gains in July. Here are five real trades you can learn from to improve your own trading.

July was a surprisingly volatile month for Bitcoin. Summer is a time when traditional financial markets quiet down while traders take their annual leave. The price opened at $247, hit a peak of $316, and then settled around $290 at the end of the month.

This volatility presented great trading opportunities for going long and short. Here are a selection of real clients and their trades you can learn from to improve your own trading at BTC.sx.

The yellow circles indicate positions being opened, and the purple circles represent positions being closed.

1. The Permabull

https://i.imgur.com/XKVUt7r.png

Direction: Long
Leverage: 10x
Open price: $234
Close price: $293
ROI (inc. fees): 161%

This unique client kept a position open for 2.5 months. A common theme we see among BTC.sx clients is that those keeping positions open for longer are more profitable.

Although positions do not need to be kept open for months on end, positions open for 2–7 days tend to do well. This is because the price has sufficient time to rise or fall by large magnitudes.

This client also highlights the ability to hedge against price upward and downward fluctuations at BTC.sx. Brokers selling Bitcoin in a rally, as is the case here, may also wish to go long to protect themselves from large price movements.

2. Buying Support

https://i.imgur.com/0mDMAEd.png

Direction: Long
Leverage: 10x
Open price: $274
Close price: $284
ROI (inc. fees): 21%

Here we have a client going long after the big price action. Although they could not profit from the large rally, they did generate a 20% return with less risk.

Their strategy appears to be a mix of ‘buying the dip’ and ‘looking for stair steps’. Firstly, the client spotted a great opportunity to buy a dip when a sell-off failed to break support at $270. Secondly, the calm period suggested that the market had already gone through a short-term correction and would eventually resume the medium-term uptrend.

3. Failing to Take Profits

https://i.imgur.com/SMPqK2v.png

Direction: Long
Leverage: 10x
Open price: $286
Close price: $285
ROI (inc. fees): -9%

This client made a classic mistake: they made the correct trade but failed to take their profit. This is one of the most common mistakes we see amongst clients. Remember that timing your close is just as important as timing the open!

However, it is easy to say this in hindsight. In the heat of a rally, it can be difficult to resist becoming greedy. The best way to prevent greed, and remain rational, is to plan trades in advance and stick to your plan to exit at specific prices. Using trailing stops, which are supported by BTC.sx, can also help.

4. Hopping on the Bandwagon

https://i.imgur.com/UOkCZQP.png

This client traded with two simultaneous positions:

Trade 1
Direction: Long
Leverage: 10x
Open price: $288
Close price: $312
ROI (inc. fees): 58%

Trade 2
Direction: Long
Leverage: 10x
Open price: $287
Close price: $312
ROI (inc. fees): 58%

Unlike the previous trade, this client demonstrates the importance of taking profits. The long was opened at the same time as the previous trade. However, unlike the previous trade, they correctly closed at the peak of the rally.

Although it can be difficult to time an entry and exit during a strong rally, the MACD can be a useful tool. The MACD shows the price momentum. If there is a large difference between the short-term average price (blue line) and the long-term average price (orange line) then this indicates strong momentum.

When there is strong momentum, as is the case here, the current trend is likely to continue. This means that our client was correct to assume the price would rally higher. They were right again to close their position when momentum started to decline — indicative of an incoming trend reversal. This can be seen by the blue line (short-term average price) falling closer to the orange line (long-term average price).

5. Calling the Top

https://i.imgur.com/CZKKlcQ.png

Direction: Short
Leverage: 10x
Open price: $311
Close price: $290
ROI (inc. fees): 54%

Lastly, we have a bearish client calling the top. There are a range of indicators that can be used to gauge whether a rally has lost its steam — these include the MACD, declining volume and resistance. It appears that it was mainly resistance that influenced this client to go short at $311.

https://i.imgur.com/XAd9VUn.png

If we look at the medium-term bull trend since January, the price has failed to stabilize at $300 on two occasions. Round numbers, such as $300, tend to have psychological significance to traders. This means that traders keep a close watch to see if the price will hold at this price.

The rally to $300 in July was similar to the rallies in January and March. Specifically, it was a sharp rally that was quickly followed by a correction. This would have told this client that the price is unlikely to hold above $300.

Going forward, it will be interesting to see if the price continues to slowly rise to $300. If the price can reach this level on medium-volume, and minimal exuberance, this would be a much more bullish indicator that the price can hold at $300.

Conclusion

Overall, July has been full of great opportunities for traders. The key lessons from BTC.sx clients are:

1) Consider keeping positions open for 2–7 days. We find this is the ‘sweet-spot’ where clients gain exposure to more volatility without paying too much in fees.
2) Plan in advance at what price you will take your profits or cut your losses.
3) During a rally, check the MACD to gauge whether the uptrend is likely to continue.
Make sure to check long-term support and resistance levels — never forget the big picture!

Written by Joe Lee, BTC.sx / Magnr CEO. Joe first discovered Bitcoin in 2011 and built his own trading bots turning an initial $100 investment into $200k. He then turned his attention to building trading infrastructure and BTC.sx was born. After gaining rapid traction, Joe left his investment banking job to focus on BTC.sx.

If you want to use the power of leverage / margin trading to increase your potential returns, check out BTC.sx. We offer up to 10x leverage and direct market access to Bitfinex, Bitstamp and itBit.

Alternatively, if you prefer more passive investments, check out Magnr. We provide interest-bearing investment accounts for bitcoin, with a promotional interest rate of 2.18% AER.