Practical tips for short-selling Bitcoin
By the time you think about trading Bitcoin for short-term profits, you already know its characteristics. For instance, you’re aware that Bitcoin is highly volatile, with significant price movements and unpredictable swings. Despite the ups and downs, Bitcoin’s value has increased since its inception and introduction to the market.
Many people trading this virtual currency for short-term profits want to take advantage of Bitcoin’s volatility. But short-selling Bitcoin is not something a novice trader can easily do because it comes with risks. This article provides tips for any trader that wants to trade this virtual currency for short-term profits.
What Trading Bitcoin for Short-term Profits Means
Also called shorting Bitcoin, short-term trading is an activity where you aim to sell this virtual currency at a higher value and buy it at a lower price. Most crypto traders aim to purchase this virtual currency low and then sell it high. However, short sellers use the philosophy of selling high and buying low. Thus, if a short seller is collected and Bitcoin’s value drops, they profit from price movement between the time they sell the asset and when they purchase it back.
Since Bitcoin is a financial tool, traders can sell it and go short. But short selling this virtual currency could be a complex process varying depending on how a trader wants to use it. Today, some people short-sell Bitcoin on platforms like Bitcoin Loophole. Also called crypto exchanges, these digital platforms allow individuals to purchase this virtual currency using fiat money.
Analyse the Market Trends
You can make a profit or a loss when short-trading Bitcoin. However, this depends on your ability to analyze the crypto market. Here’s what will lead to your profits when trading Bitcoin.
- Understand the bull trend: Bitcoin’s bull trend happens when prices keep increasing. When this happens, most people’s hope becomes optimism and a belief that transforms into a thrill—eventually, euphoria sets in when prices hit astronomic highs.
- Understand the bear trend: Bitcoin’s bear trend is when prices drop, and investors become complacent about selling their crypto holdings, thinking the movement will continue. However, anxiety sets in with declining prices, leading to panic, denial, depression, and anger.
A complete market cycle starts with a boom and ends with a bust, taking several months or years. For instance, January 2018 was the month for Bitcoin’s boom when the price hit $17,000. The bust bottom was December 2018, when it dropped to $2,700. Therefore, analyze the market trends to make informed decisions.
Perform Fundamental and Technical Analysis
Maybe you think this cryptocurrency doesn’t have fundamentals, and you can trade it with technical analysis only. Well, this is untrue. While the Bitcoin market is new without the historical value of most assets, you can perform a fundamental analysis of it.
The fundamental analysis enables a trader to uncover the forces behind Bitcoin’s demand and supply. Bitcoin’s demand variables can include market sentiments, transactional activity, trading, adoption, and news. Since Bitcoin is a virtual asset with a finite amount, its supply variables are more straightforward. Nevertheless, performing a fundamental analysis will enable you to make more accurate decisions when short-trading Bitcoin.
Technical analysis will enable you to follow a trading strategy based on the cryptocurrency’s price charts and historical review. Ideally, technical analysis entails observing trends and employing technical indicators to make crypto trading decisions. Using moving average signs, you can summarize the volatile price history of this cryptocurrency into a single trend line.
This article has revealed that you can short-sell Bitcoin like other assets. However, trading Bitcoin for short-term profits requires careful market analysis and following specific tips. Also, performing fundamental and technical analysis will enable you to make more informed Bitcoin trading decisions.