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The second post in our bitcoin trading series covers the basics of making a successful trade. From identifying a trend, to timing positions, this post will show you the tactics used by top bitcoin traders.
This post is divided into three sections:
How to read charts
Identifying market trends
Opening and closing positions
Section 1: How to Read Charts
At first charting websites, like BitcoinWisdom, appear to offer an overwhelming amount of information. However, they are easy to learn when you break it down section by section.
Candlesticks / price chart
Candlesticks are the most widely used method of tracking prices. This because they convey a lot of information in little space.
A candlestick is the rectangles and lines that resemble a candlestick shape. They are used to show what the price has done within a chosen time interval, which in this example will be one hour.
Price direction
As the closing price is less than the opening price, the price of bitcoin fell. Therefore the candlestick is red. If the price rose the candlestick would be green.
Highest price
The highest point of the stick shows that, during this hour, the price reached approximately $238.
Lowest price
The lowest point of the stick shows that, during this day, the price fell to approximately $233.
Opening price
This is the part of the rectangle that is horizontal to the candlestick to the left. In this hour, the price opened at approximately $237 (which was the closing price of the hour before).
Closing price
This is the part of the rectangle that is horizontal to the candlestick to the right. In this hour, the price closed at approximately $234 (which was the opening price of the next hour).
Sometimes the highest and lowest price can occur at the same time the hour begins or closes. The first candlestick on the left is an example of this.
Volume
This is perhaps the most simple part of a charting interface. Volume measures the amount of trading that has taken price in a certain time period. By default, most bitcoin charting websites measure volume in terms of bitcoin.
Order Book
An order book is an integral part of a bitcoin exchange. The order book is a record of market makers wanting to buy/sell at specific prices and quantities. A full explanation of an order book is covered in part 1 of our bitcoin trading guide.
At BTC.sx, we offer direct market access, which means that the trades you make on our platform include the exchanges order books.
Trades
The trades list is a record of recent trades. In this case, the most recent trades was a the sale of 10 bitcoins at $234.80 per bitcoin. This can be used to see at a glance what is happening in a high amount of detail.
MACD
MACD stands for moving average crossover divergence. Do not worry if this sounds complicated all will become clear in the next section. For now, just think of the MACD as a rough guide of the momentum price changes have.
The MACD is an important tool for many traders for identifying market trends, which is our next section.
Section 2: Identifying Market Trends
A trend is a general direction that the price is moving towards - either upwards, flat or downwards. An upward trend is often called a bull market, while a downward trend is called a bear market.
Looking back at bitcoins price history, we can see numerous bullish and bearish trends. The price of bitcoin is rarely stable!
Generally, beginner traders should attempt to trade according the broader market trend. Although it is possible to profit from a long / buy position in a bear market, this requires traders to time their entry and exit points very carefully. This is covered towards the end of this post.
How can I spot a trend?
It is quite easy to look back a plot the bull and bear markets on a chart. However it is more difficult to identify the current market trend .
To help traders identify the current trend, there are three common tools that are used.
1. Moving Averages
A moving average is the average price of bitcoin over a rolling time period. Moving averages are particularly useful for bitcoin because they smooth out random price fluctuations which are common in bitcoin markets.
There are two types of moving averages. Firstly, simple moving averages (SMA) average prices equally and is calculated by:
(price+price+price ) / number of price intervals = SMA
Secondly, exponential moving averages (EMA) average prices unequally. Instead, EMA places greater importance to more recent prices. A formula for EMA looks something like:
((price * large weight)+(price * medium weight)+(price * small weight )) / number of price intervals = EMA
If you hear the phrase 30 day moving average, this means that 30 price intervals have been used in the formula, with each interval being 1 day long.
Below is comparison of how different the SMA and the EMA looks on a chart. The blue line represents a short-term average, which uses shorter price intervals. The orange line represents a long-term average, which uses longer intervals.
SMA
EMA
Although there does not appear to be too much difference. The points at which the short-term and long-term averages crossover are very different. For beginners, using a SMA is generally sufficient to identify trends.
Identifying trends with moving averages is simple. When the short-term average (blue line) is above the long-term average (orange) line, the price is rallying. When the short-term average (blue line) is below the long-term average (orange) line, the price is falling.
Moving averages also provide data for the MACD, which is our next recommended tool to spot trends.
2. MACD
The MACD, as mentioned earlier, shows both price momentum and direction. It is calculated by subtracting a long-term EMA from the short-term EMA.
Moving averages simply show the price direction. The MACD also shows the price momentum. If there is a large difference between the two moving averages used in the calculations, then this indicates strong momentum. Or a small difference indicates weak momentum.
Momentum is shown in two formats on the MACD, but represent the exact same calculation. These formats are the histogram and the lines, which look similar to moving average lines.
Worked explanation
Using the right hand-side of the above MACD, we can see that the price has upward momentum. This because the histogram is green and pointing upwards. We can also see this because the short-term moving average (blue line) is above the long-term moving average (orange line).
This must mean that when the MACD was calculated, a positive number was obtained.
Top trading tip: the MACD is more useful as a long-term indicator. In particular, the three day MACD chart is popular among traders at /r/bitcoinmarkets. It has historically been a good predictor of incoming price movements for bitcoin (shown above).
The third tool are crossovers, which can apply to both moving averages and the MACD.
3. Crossovers
Moving averages and the MACD are great for identifying trends. But as a trader you want to be buying low and selling high. To do this you need to know when a trend begins and ends. This is what crossovers show.
Crossovers can apply to both moving averages and the MACD. Lets first look at moving average crossovers.
Moving average crossovers
A moving average crossover is when the short-term moving average crosses over the long-term moving average. These have been identified on the below chart with yellow circles.
As you can see, each crossover signals the end of the previous trend and the start of the next trend.
As a trader you should aim to buy when a bull trend starts the short-term moving average (blue line) moves above the long-term moving average (orange line).
Conversely, you should aim to sell when a bear trend starts the short-term moving average (blue line) moves below the long-term moving average (orange line).
BTC.sx CEO, Joe Lee, used moving average crossovers to turn $100 into $200k in trading bitcoin. Read our interview with him here.
MACD crossovers
MACD crossovers are very similar to moving average crossovers. A crossover occurs in two circumstances:
When the MACD calculation stops producing a negative number and starts producing a positive number. This is a bullish crossover.
When the MACD calculation stops producing a positive number and starts producing a negative number. This is a bearish crossover.
Dont worry if this sounds complicated! Remember that this can be easily seen from the histogram or lines. The below chart has highlighted MACD crossovers with yellow circles.
These circles have been drawn on the histogram, but could have been drawn on the lines. You can use whatever you prefer in your own trading.
You should aim to buy when a bull trend starts the histogram becomes green.
Conversely, you should aim to sell when a bear trend starts the histogram becomes red.
Armed with this knowledge, you can now start thinking about what your next trade should be.
Section 3: Opening and Closing Positions
You may recall from our the first part of our bitcoin trading guide, that a position has an open and a close. We will now walkthrough how this is done.
By this point you should have a few ideas on where the price of bitcoin might be headed, signed up on BTC.sx and have made a deposit. These are also explained explained in the first part of the trading guide.
First lets look at opening positions.
Opening Positions
1. Ensure there is a sufficient Balance to Open the Trade.
Cross-check your Account Balance, and ensure their are enough funds to cover the following -
Trade Deposit, Open Fee and Close Fee.
2. Choose Position Size (trade size out to market)
This can be adjusted by moving the slider, or selecting the over-type icon to manually input the value. Similarly, you can use the up/down and left/right arrows on your keyboard.
3. Choose Trade Leverage Option
4. To Execute a Trade position
Click the Buy or Sell Button depending on the market trend.
Trade execution in progress is indicated with spinning arrows.
Trade confirmation is indicated by pop-up timestamp
5. Position is now open
Initially all positions open with a negative profit. This is because the price has not moved enough to cover trade fees. It is important to be patient and allow the price sufficient time to change in order to become profitable.
Closing a position
1. Timing the close
The exact time that you close a position is very important because it is the final action that determines your profitability.
As mentioned above, one strategy is to close your position when the market trend changes against you. For example, if you opened a long during a bullish crossover, you may want to close that long if a bearish crossover happens afterwards.
Another strategy is to close your position at the peak of a price rally or the bottom of a price crash. Although this is much harder to spot, it can be more profitable if you time your close well.
Worked example
In this example we have spotted a bearish crossover on the MACD and have decided to enter a sell position at $230.
Initially the trade screen tells us that our position is not profitable. However, we are patient and the price continues to fall. The trade screen is now telling us that we are profitable and we are now looking for an exit price.
If we wait for the next crossover we close our position at $220 not a bad profit. However if we close near $213 we make an even larger profit.
Top trading tip: to spot the bottom of the price crash, we should continue to watch the MACD. When the histogram bars start becoming smaller, this indicates that trend may be starting to reverse.
Although this signal is not as reliable as a crossover, it is the point of maximum financial opportunity:
2. Closing the position
Simply click the trade Liquidate button to execute the Close Order with the exchange.
Trade Engine executes a Market Close Order at the Exchange.
Trade Liquidation Profit/Loss calculations take place.
3. Position is Reconciled
The account balance has now increased as a result of the profitable trade
Conclusion
You should now be in a position where you can make basic trades on BTC.sx that are based on a simple analysis on the market direction.
In part 3 we will be covering the basics of technical analysis, including support and resistance patterns. Like us on Facebook or follow us on Twitter for future updates.
If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents.
This post is divided into three sections:
How to read charts
Identifying market trends
Opening and closing positions
Section 1: How to Read Charts
At first charting websites, like BitcoinWisdom, appear to offer an overwhelming amount of information. However, they are easy to learn when you break it down section by section.
Candlesticks / price chart
Candlesticks are the most widely used method of tracking prices. This because they convey a lot of information in little space.
A candlestick is the rectangles and lines that resemble a candlestick shape. They are used to show what the price has done within a chosen time interval, which in this example will be one hour.
Price direction
As the closing price is less than the opening price, the price of bitcoin fell. Therefore the candlestick is red. If the price rose the candlestick would be green.
Highest price
The highest point of the stick shows that, during this hour, the price reached approximately $238.
Lowest price
The lowest point of the stick shows that, during this day, the price fell to approximately $233.
Opening price
This is the part of the rectangle that is horizontal to the candlestick to the left. In this hour, the price opened at approximately $237 (which was the closing price of the hour before).
Closing price
This is the part of the rectangle that is horizontal to the candlestick to the right. In this hour, the price closed at approximately $234 (which was the opening price of the next hour).
Sometimes the highest and lowest price can occur at the same time the hour begins or closes. The first candlestick on the left is an example of this.
Volume
This is perhaps the most simple part of a charting interface. Volume measures the amount of trading that has taken price in a certain time period. By default, most bitcoin charting websites measure volume in terms of bitcoin.
Order Book
An order book is an integral part of a bitcoin exchange. The order book is a record of market makers wanting to buy/sell at specific prices and quantities. A full explanation of an order book is covered in part 1 of our bitcoin trading guide.
At BTC.sx, we offer direct market access, which means that the trades you make on our platform include the exchanges order books.
Trades
The trades list is a record of recent trades. In this case, the most recent trades was a the sale of 10 bitcoins at $234.80 per bitcoin. This can be used to see at a glance what is happening in a high amount of detail.
MACD
MACD stands for moving average crossover divergence. Do not worry if this sounds complicated all will become clear in the next section. For now, just think of the MACD as a rough guide of the momentum price changes have.
The MACD is an important tool for many traders for identifying market trends, which is our next section.
Section 2: Identifying Market Trends
A trend is a general direction that the price is moving towards - either upwards, flat or downwards. An upward trend is often called a bull market, while a downward trend is called a bear market.
Looking back at bitcoins price history, we can see numerous bullish and bearish trends. The price of bitcoin is rarely stable!
Generally, beginner traders should attempt to trade according the broader market trend. Although it is possible to profit from a long / buy position in a bear market, this requires traders to time their entry and exit points very carefully. This is covered towards the end of this post.
How can I spot a trend?
It is quite easy to look back a plot the bull and bear markets on a chart. However it is more difficult to identify the current market trend .
To help traders identify the current trend, there are three common tools that are used.
1. Moving Averages
A moving average is the average price of bitcoin over a rolling time period. Moving averages are particularly useful for bitcoin because they smooth out random price fluctuations which are common in bitcoin markets.
There are two types of moving averages. Firstly, simple moving averages (SMA) average prices equally and is calculated by:
(price+price+price ) / number of price intervals = SMA
Secondly, exponential moving averages (EMA) average prices unequally. Instead, EMA places greater importance to more recent prices. A formula for EMA looks something like:
((price * large weight)+(price * medium weight)+(price * small weight )) / number of price intervals = EMA
If you hear the phrase 30 day moving average, this means that 30 price intervals have been used in the formula, with each interval being 1 day long.
Below is comparison of how different the SMA and the EMA looks on a chart. The blue line represents a short-term average, which uses shorter price intervals. The orange line represents a long-term average, which uses longer intervals.
SMA
EMA
Although there does not appear to be too much difference. The points at which the short-term and long-term averages crossover are very different. For beginners, using a SMA is generally sufficient to identify trends.
Identifying trends with moving averages is simple. When the short-term average (blue line) is above the long-term average (orange) line, the price is rallying. When the short-term average (blue line) is below the long-term average (orange) line, the price is falling.
Moving averages also provide data for the MACD, which is our next recommended tool to spot trends.
2. MACD
The MACD, as mentioned earlier, shows both price momentum and direction. It is calculated by subtracting a long-term EMA from the short-term EMA.
Moving averages simply show the price direction. The MACD also shows the price momentum. If there is a large difference between the two moving averages used in the calculations, then this indicates strong momentum. Or a small difference indicates weak momentum.
Momentum is shown in two formats on the MACD, but represent the exact same calculation. These formats are the histogram and the lines, which look similar to moving average lines.
Worked explanation
Using the right hand-side of the above MACD, we can see that the price has upward momentum. This because the histogram is green and pointing upwards. We can also see this because the short-term moving average (blue line) is above the long-term moving average (orange line).
This must mean that when the MACD was calculated, a positive number was obtained.
Top trading tip: the MACD is more useful as a long-term indicator. In particular, the three day MACD chart is popular among traders at /r/bitcoinmarkets. It has historically been a good predictor of incoming price movements for bitcoin (shown above).
The third tool are crossovers, which can apply to both moving averages and the MACD.
3. Crossovers
Moving averages and the MACD are great for identifying trends. But as a trader you want to be buying low and selling high. To do this you need to know when a trend begins and ends. This is what crossovers show.
Crossovers can apply to both moving averages and the MACD. Lets first look at moving average crossovers.
Moving average crossovers
A moving average crossover is when the short-term moving average crosses over the long-term moving average. These have been identified on the below chart with yellow circles.
As you can see, each crossover signals the end of the previous trend and the start of the next trend.
As a trader you should aim to buy when a bull trend starts the short-term moving average (blue line) moves above the long-term moving average (orange line).
Conversely, you should aim to sell when a bear trend starts the short-term moving average (blue line) moves below the long-term moving average (orange line).
BTC.sx CEO, Joe Lee, used moving average crossovers to turn $100 into $200k in trading bitcoin. Read our interview with him here.
MACD crossovers
MACD crossovers are very similar to moving average crossovers. A crossover occurs in two circumstances:
When the MACD calculation stops producing a negative number and starts producing a positive number. This is a bullish crossover.
When the MACD calculation stops producing a positive number and starts producing a negative number. This is a bearish crossover.
Dont worry if this sounds complicated! Remember that this can be easily seen from the histogram or lines. The below chart has highlighted MACD crossovers with yellow circles.
These circles have been drawn on the histogram, but could have been drawn on the lines. You can use whatever you prefer in your own trading.
You should aim to buy when a bull trend starts the histogram becomes green.
Conversely, you should aim to sell when a bear trend starts the histogram becomes red.
Armed with this knowledge, you can now start thinking about what your next trade should be.
Section 3: Opening and Closing Positions
You may recall from our the first part of our bitcoin trading guide, that a position has an open and a close. We will now walkthrough how this is done.
By this point you should have a few ideas on where the price of bitcoin might be headed, signed up on BTC.sx and have made a deposit. These are also explained explained in the first part of the trading guide.
First lets look at opening positions.
Opening Positions
1. Ensure there is a sufficient Balance to Open the Trade.
Cross-check your Account Balance, and ensure their are enough funds to cover the following -
Trade Deposit, Open Fee and Close Fee.
2. Choose Position Size (trade size out to market)
This can be adjusted by moving the slider, or selecting the over-type icon to manually input the value. Similarly, you can use the up/down and left/right arrows on your keyboard.
3. Choose Trade Leverage Option
4. To Execute a Trade position
Click the Buy or Sell Button depending on the market trend.
Trade execution in progress is indicated with spinning arrows.
Trade confirmation is indicated by pop-up timestamp
5. Position is now open
Initially all positions open with a negative profit. This is because the price has not moved enough to cover trade fees. It is important to be patient and allow the price sufficient time to change in order to become profitable.
Closing a position
1. Timing the close
The exact time that you close a position is very important because it is the final action that determines your profitability.
As mentioned above, one strategy is to close your position when the market trend changes against you. For example, if you opened a long during a bullish crossover, you may want to close that long if a bearish crossover happens afterwards.
Another strategy is to close your position at the peak of a price rally or the bottom of a price crash. Although this is much harder to spot, it can be more profitable if you time your close well.
Worked example
In this example we have spotted a bearish crossover on the MACD and have decided to enter a sell position at $230.
Initially the trade screen tells us that our position is not profitable. However, we are patient and the price continues to fall. The trade screen is now telling us that we are profitable and we are now looking for an exit price.
If we wait for the next crossover we close our position at $220 not a bad profit. However if we close near $213 we make an even larger profit.
Top trading tip: to spot the bottom of the price crash, we should continue to watch the MACD. When the histogram bars start becoming smaller, this indicates that trend may be starting to reverse.
Although this signal is not as reliable as a crossover, it is the point of maximum financial opportunity:
2. Closing the position
Simply click the trade Liquidate button to execute the Close Order with the exchange.
Trade Engine executes a Market Close Order at the Exchange.
Trade Liquidation Profit/Loss calculations take place.
3. Position is Reconciled
The account balance has now increased as a result of the profitable trade
Conclusion
You should now be in a position where you can make basic trades on BTC.sx that are based on a simple analysis on the market direction.
In part 3 we will be covering the basics of technical analysis, including support and resistance patterns. Like us on Facebook or follow us on Twitter for future updates.
If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents.
The first part of our bitcoin trading guide series explains the basics of bitcoin and trading terminology. Instructions are also provided for buying bitcoin and getting ready to trade on BTC.sx. We originally produced the first part of this guide for our own traders to get started with our platform. However, after some really good feedback we thought we should share it publicly too. So please bear with us if it is quite orientated to our own platform. Future parts will be much more applicable to trading in general.
Here is what we have planned for the series:
1) Getting ready to trade (this post)
2) Making your first trade
- Fundamental analysis
- How to read a chart (candle sticks, volume, log vs linear scales)
- How to spot a trend (moving averages)
- How to open and close a position
3) Basics of technical analysis
- Assumptions / theory behind TA
- Classic support / resistance patterns e.g. head and shoulders
- MACD
4) Advanced TA
- Elliot Waves
- Ichimoku Clouds
- Bollinger Bands
- Parabolic SAR
5) Developing a sustainable strategy
- Timing entry and exit points
- Managing multiple open positions
- Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning.
Why should you listen to what we have to say?
Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician.
This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx.
What is bitcoin?
Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as digital gold it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations.
Why is bitcoin so volatile?
Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoins price often changes by 10% or more even in a flat market.
Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets.
The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here).
For example, bitcoin has a market cap of about $3 billion vs $31 billion for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million vs approximately $939 million for the gold ETF.
The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand.
For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence golds price.
Further information
The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources:
We Use Coins
Bitcoin.org
Bitcoin Wiki
2. How to Manage Risk
Risk of buying bitcoin
As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoins price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose.
You cannot lose more than you put in, so dont put in more than you can afford to lose and youll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor
Risk of trading bitcoin
Furthermore, investing more than one can afford to lose reduces a traders ability to make good decisions. In particular, there is a risk of panic selling when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price.
Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx, losses cannot exceed your deposit so simply make sure this is a comfortable amount for you to trade with.
3. Understand Basic Bitcoin Trading Terminology
Trading
Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading.
Position
A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls.
Unlike a trade, a position has an open and close. At BTC.sx you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited this depends on how profitable your position was.
Trading platform
A trading platform, like BTC.sx, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage.
Leverage
Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading.
Trading with 10x leverage on BTC.sx, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made.
For example, lets say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin this is the power of leverage when used correctly.
Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own.
Exchange
Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoins price because they contain an order book.
At an exchange you can either be a market maker or a market taker.
Market maker
A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price.
Market taker
A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them.
Order book
An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand.
Sell orders: Asks
This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks.
Buy orders: Bids
This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids.
Current bitcoin price
This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid.
In this example, the price is $244.39 the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder.
Order book depth
This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the deeper the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle.
If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market.
Order book execution
An important feature of BTC.sx is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks.
Why is this important?
Firstly, when you trade on BTC.sx you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally.
Secondly, order book execution means that BTC.sx does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx we want our traders to be profitable so they can keep trading.
4. How to Buy Bitcoin
As a bitcoin-only trading platform, BTC.sx only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity.
If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including:
Circle
Coinbase
LocalBitcoins
Click here to see other ways to buy bitcoin in each region of the world.
To store your bitcoin you will also need a wallet, such as MultiBit or Blockchain.info.
5. Create an Account on BTC.sx
Once you have bitcoin, you are ready to start trading. Head over to BTC.sx to begin the registration process.
1. Click Sign Up
2. Enter your details and read and agree with the terms of service
3. Click on the email activation code
4. Login to your account
5. Visit trade screen
6. Send a deposit to BTC.sx
You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions:
1. Click on Deposit in the trading screen
2. Send bitcoin to your wallet address
If you do not know how to send bitcoin please contact your wallet provider for assistance.
Conclusion
You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx to begin trading.
In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook or follow us on Twitter for future updates.
If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents.
Here is what we have planned for the series:
1) Getting ready to trade (this post)
2) Making your first trade
- Fundamental analysis
- How to read a chart (candle sticks, volume, log vs linear scales)
- How to spot a trend (moving averages)
- How to open and close a position
3) Basics of technical analysis
- Assumptions / theory behind TA
- Classic support / resistance patterns e.g. head and shoulders
- MACD
4) Advanced TA
- Elliot Waves
- Ichimoku Clouds
- Bollinger Bands
- Parabolic SAR
5) Developing a sustainable strategy
- Timing entry and exit points
- Managing multiple open positions
- Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning.
Why should you listen to what we have to say?
Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician.
This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx.
What is bitcoin?
Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as digital gold it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations.
Why is bitcoin so volatile?
Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoins price often changes by 10% or more even in a flat market.
Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets.
The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here).
For example, bitcoin has a market cap of about $3 billion vs $31 billion for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million vs approximately $939 million for the gold ETF.
The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand.
For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence golds price.
Further information
The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources:
We Use Coins
Bitcoin.org
Bitcoin Wiki
2. How to Manage Risk
Risk of buying bitcoin
As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoins price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose.
You cannot lose more than you put in, so dont put in more than you can afford to lose and youll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor
Risk of trading bitcoin
Furthermore, investing more than one can afford to lose reduces a traders ability to make good decisions. In particular, there is a risk of panic selling when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price.
Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx, losses cannot exceed your deposit so simply make sure this is a comfortable amount for you to trade with.
3. Understand Basic Bitcoin Trading Terminology
Trading
Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading.
Position
A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls.
Unlike a trade, a position has an open and close. At BTC.sx you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited this depends on how profitable your position was.
Trading platform
A trading platform, like BTC.sx, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage.
Leverage
Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading.
Trading with 10x leverage on BTC.sx, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made.
For example, lets say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin this is the power of leverage when used correctly.
Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own.
Exchange
Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoins price because they contain an order book.
At an exchange you can either be a market maker or a market taker.
Market maker
A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price.
Market taker
A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them.
Order book
An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand.
Sell orders: Asks
This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks.
Buy orders: Bids
This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids.
Current bitcoin price
This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid.
In this example, the price is $244.39 the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder.
Order book depth
This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the deeper the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle.
If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market.
Order book execution
An important feature of BTC.sx is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks.
Why is this important?
Firstly, when you trade on BTC.sx you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally.
Secondly, order book execution means that BTC.sx does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx we want our traders to be profitable so they can keep trading.
4. How to Buy Bitcoin
As a bitcoin-only trading platform, BTC.sx only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity.
If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including:
Circle
Coinbase
LocalBitcoins
Click here to see other ways to buy bitcoin in each region of the world.
To store your bitcoin you will also need a wallet, such as MultiBit or Blockchain.info.
5. Create an Account on BTC.sx
Once you have bitcoin, you are ready to start trading. Head over to BTC.sx to begin the registration process.
1. Click Sign Up
2. Enter your details and read and agree with the terms of service
3. Click on the email activation code
4. Login to your account
5. Visit trade screen
6. Send a deposit to BTC.sx
You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions:
1. Click on Deposit in the trading screen
2. Send bitcoin to your wallet address
If you do not know how to send bitcoin please contact your wallet provider for assistance.
Conclusion
You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx to begin trading.
In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook or follow us on Twitter for future updates.
If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents.
This post reveals a surprising strategy used by bitcoin traders to beat the market with long-term positions.
Strategy introduction
At BTC.sx we provide bitcoin margin trading, with leverage of up to 10x. When trading at BTC.sx, long or short bitcoin positions are opened that create actual buys and sells on exchanges. This is known as order book execution. When a position is open for a greater period of time, the more interest a trader pays because they are borrowing the bitcoin used for leverage.
You would suspect that short-term positions are more profitable because less interest is paid, right? Surprisingly, this may not be the case. Our internal testing first indicated that holding positions for longer can be just as profitable as quick positions.
We then analysed thousands of trades to see if real bitcoin traders were also keeping positions open for more than three days. While it was less popular than day trading, those doing so were able to make more consistent profits.
Lets take a closer look at the exact strategy these successful traders use.
1. The Swing Trader
Trade summary:
Chart summary:
Please note that the two Bitfinex positions have been put on the same Bitstamp chart for the purposes of this post. The yellow circles represent opens and the pink circles represent closes.
The primary strategy of this swing trader is to patiently trade major market movements. The first trades in August are a great example of taking a long-term view on the market and opening an appropriate position even if the market is flat.
Our trader here had confidence that when the bitcoin price does move, it moves massively. These significant price movements in bitcoin gave the swing trader an ROI above 100% for six unique positions .
2. Waiting for the bear whale
Trade summary:
Chart summary:
This trader adopted a great strategy of trading after price pumps, on the logic that the market is likely to correct itself.
Their best trades were going short after the October 2014 rally. Despite opening their positions during flat price movements, their strategy was to wait for a price drop. This happened when other traders took profits and the long-term bear trend recommenced.
Another interesting observation is that most of their positions were open for 57 days. At BTC.sx we have observed that, generally, a major price swing happens once a week. For those looking to time entry and exit points to catch price swings, make sure to have a sufficient account balance to keep your position open for at least five days.
3. The Bull Rider
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Our bull rider is skilled in following upward momentum, even in a downward market. Their strategy begins with opening long positions when the price already has upward momentum watch the MACD to spot this for yourself.
However, instead of opening just one position, the bull rider opens two positions. This allows them to close one position earlier, at a profit, which provides insurance in case the second position becomes unprofitable.
During the March 2015 rally, our trader was careful to take profits on the way up. A good trader never gets greedy. Yet the bull rider methodically opened position #3 before closing position #2. This tactic prevents traders from being caught-out by sudden price movements while they do not have a position open.
4. Steady Eddy
Trade summary:
Chart summary:
Steady Eddy is a great example of profitable trading, without taking unnecessary risks. After the price crash to ~165 USD in January 2015, this trader identified medium-term bull market.
Steady Eddys strategy is very simple. Enter a position that follows the overall direction, wait for a price rise even if this takes several days and then close the position.
Remember: just because you have closed a long position, does not mean it is a good idea to enter a short position. A safe approach is to only enter positions in favor of the wider market movement.
5. The Risk-Taker
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Unlike Steady Eddy, The Risk Taker had a more aggressive approach to trading. To begin with they opened two positions, similar to The Bull Rider, and was patient enough to wait for a significant price movement.
The Risk Taker later closed positions #1 and #2, then began waiting for a buying opportunity. This arose around the 5th of March and they opened three positions a bold, but profitable move.
Our trader sets a great example of here of the two best times to close positions. Firstly when the rally looses steam at #4 (mostly profit takers here). And secondly, after a plateau, when the market heads down again at #3 and #5.
6 Tips to trade bitcoin more successfully
Based on the strategies of our trading pros, consider trying these six tips to replicate their success:
1. Do not be afraid to hold positions open for several days if you are confident you can predict the overall price direction.
2. Experiment with opening two positions, closing one sooner and the other later. The profit from the first position will act as insurance if the second becomes unprofitable. If the price moves in your favour the second position will become highly profitable.
3. When taking profits, try opening another position before closing the original position. This allows you to continue to profit from a sustained rally/crash while realizing your profits from the original position.
4. Open trades only in the direction that follows the long-term market trend to reduce your risk levels.
5. Closing one position does not mean you should open another position in the opposite direction.
6. Make sure to have a large enough account balance to cover the interest fees for borrowing leveraged bitcoin.
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 order book execution on Bitfinex, Bitstamp and itBit.
Strategy introduction
At BTC.sx we provide bitcoin margin trading, with leverage of up to 10x. When trading at BTC.sx, long or short bitcoin positions are opened that create actual buys and sells on exchanges. This is known as order book execution. When a position is open for a greater period of time, the more interest a trader pays because they are borrowing the bitcoin used for leverage.
You would suspect that short-term positions are more profitable because less interest is paid, right? Surprisingly, this may not be the case. Our internal testing first indicated that holding positions for longer can be just as profitable as quick positions.
We then analysed thousands of trades to see if real bitcoin traders were also keeping positions open for more than three days. While it was less popular than day trading, those doing so were able to make more consistent profits.
Lets take a closer look at the exact strategy these successful traders use.
1. The Swing Trader
Trade summary:
Chart summary:
Please note that the two Bitfinex positions have been put on the same Bitstamp chart for the purposes of this post. The yellow circles represent opens and the pink circles represent closes.
The primary strategy of this swing trader is to patiently trade major market movements. The first trades in August are a great example of taking a long-term view on the market and opening an appropriate position even if the market is flat.
Our trader here had confidence that when the bitcoin price does move, it moves massively. These significant price movements in bitcoin gave the swing trader an ROI above 100% for six unique positions .
2. Waiting for the bear whale
Trade summary:
Chart summary:
This trader adopted a great strategy of trading after price pumps, on the logic that the market is likely to correct itself.
Their best trades were going short after the October 2014 rally. Despite opening their positions during flat price movements, their strategy was to wait for a price drop. This happened when other traders took profits and the long-term bear trend recommenced.
Another interesting observation is that most of their positions were open for 57 days. At BTC.sx we have observed that, generally, a major price swing happens once a week. For those looking to time entry and exit points to catch price swings, make sure to have a sufficient account balance to keep your position open for at least five days.
3. The Bull Rider
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Our bull rider is skilled in following upward momentum, even in a downward market. Their strategy begins with opening long positions when the price already has upward momentum watch the MACD to spot this for yourself.
However, instead of opening just one position, the bull rider opens two positions. This allows them to close one position earlier, at a profit, which provides insurance in case the second position becomes unprofitable.
During the March 2015 rally, our trader was careful to take profits on the way up. A good trader never gets greedy. Yet the bull rider methodically opened position #3 before closing position #2. This tactic prevents traders from being caught-out by sudden price movements while they do not have a position open.
4. Steady Eddy
Trade summary:
Chart summary:
Steady Eddy is a great example of profitable trading, without taking unnecessary risks. After the price crash to ~165 USD in January 2015, this trader identified medium-term bull market.
Steady Eddys strategy is very simple. Enter a position that follows the overall direction, wait for a price rise even if this takes several days and then close the position.
Remember: just because you have closed a long position, does not mean it is a good idea to enter a short position. A safe approach is to only enter positions in favor of the wider market movement.
5. The Risk-Taker
Trade summary:
Chart summary:
Feb/March 4 Hour chart:
Unlike Steady Eddy, The Risk Taker had a more aggressive approach to trading. To begin with they opened two positions, similar to The Bull Rider, and was patient enough to wait for a significant price movement.
The Risk Taker later closed positions #1 and #2, then began waiting for a buying opportunity. This arose around the 5th of March and they opened three positions a bold, but profitable move.
Our trader sets a great example of here of the two best times to close positions. Firstly when the rally looses steam at #4 (mostly profit takers here). And secondly, after a plateau, when the market heads down again at #3 and #5.
6 Tips to trade bitcoin more successfully
Based on the strategies of our trading pros, consider trying these six tips to replicate their success:
1. Do not be afraid to hold positions open for several days if you are confident you can predict the overall price direction.
2. Experiment with opening two positions, closing one sooner and the other later. The profit from the first position will act as insurance if the second becomes unprofitable. If the price moves in your favour the second position will become highly profitable.
3. When taking profits, try opening another position before closing the original position. This allows you to continue to profit from a sustained rally/crash while realizing your profits from the original position.
4. Open trades only in the direction that follows the long-term market trend to reduce your risk levels.
5. Closing one position does not mean you should open another position in the opposite direction.
6. Make sure to have a large enough account balance to cover the interest fees for borrowing leveraged bitcoin.
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 order book execution on Bitfinex, Bitstamp and itBit.
The European Central Bank is finally launching its major quantitative easing (QE) in order to fight the euro zones slide towards deflation. But with the evident failure of this monetary policy so far and the emergence of negative interest rates, is the ECB creating the perfect storm for virtual currencies as a viable alternative?
From March this year until September 2016 the ECB will buy 60 billion (US$68 billion) of assets a month, a total of 1.1 trillion over the given period. Moreover, the President of the ECB, Mario Draghi, left room to extend the program if necessary. The ECB has been historically slow to take action and that begs the question whether this is too little, too late.
What is Quantitative Easing?
Quantitative easing (QE) is monetary policy used by a central bank to stimulate an economy when standard monetary policy has become ineffective. This is done by the a central bank buying assets from commercial banks and other financial institutions in order to increase asset prices and lower yields.
This policy is expansionary because at the same time it increases the monetary base. i.e. the amount of money in the system. The purpose of this is to try and stimulate an ailing economy and can be done in a variety of ways.
The ECB has only one mandate, which is a target based inflation number, as opposed to the Federal Reserve, which has 2 mandates the consist of a target based inflation number and a target based unemployment number.
Currently, a whole slew of countries in Europe (Germany, Finland, Switzerland, Denmark, Netherlands, Sweden and Austria) have negative interest rates. This means borrowers are paying lenders to hold their bonds. This suggests that people perceive these bonds as extremely safe and are willing to pay to hold them due to the risk averse nature of European investors.
QE has been launched to move investors out on the risk spectrum and into riskier asset classes, which in theory will help stimulate the EU and create a wealth effect and trickle down to all citizens. Unfortunately, this is usually not the case.
The EU has failed in their inflation target number, and as mentioned above are fighting off massive deflation. The chart below shows this:
Implications of European QE
The USD has strengthened against all other major currencies. This is because as the US economy is perceived to be the strongest economy in the world right now, it has stopped asset purchases (QE).
It is also believed by the majority of pundits that the Fed will begin an interest rate hike cycle. Below is a 10 year chart of the USD vs. the Euro. As you can see, the USD has surged to new highs and broken through major resistance levels, while the mirror opposite has happened for the Euro. It has fallen through major support as a result of the announcement of QE and fears of a Grexit.
Elliott Wave has put together a great chart of the USD. It appears that this is just the beginning of a larger move that will have really bad implications for commodities and and apply additional deflationary pressure.
Short term the USD might be ripe for a pullback, but the chart below shows that a major new uptrend is underway and has only just started. With 16 Central Banks worldwide actively involved in monetary easing policies, and the Fed looking to tighten at some point relatively soon, this move will very likely continue for the USD.
This has also had major implications in the commodities space as the USD and commodities have an inverse relationship. This is mainly due to commodities being priced in USD. Again, this is very deflationary. The chart below shows the USD vs CRB. CRB is an index that includes all major commodities.
This has also had a big impact on bitcoin like all other commodities priced in USD, as it is down dramatically year over year.
Deflation Is Still Winning
Despite all the monetary policy being used, deflation is still winning. This is a problem because all traditional measures that are being implemented are not working.
While Central Bankers believe they have the answers, it appears they couldnt be more wrong. Does the chart below represent a successful policy for a recovery? Quite the opposite. What will be even worse are the unintended consequences wrought on the citizens of the world.
All of these measures are failing despite historic fiscal and monetary easing. Notice that Eurozone prices are already in negative territory, and the trajectory of the others suggests that the rest of world is not far behind. At this point it seems unlikely the ECB will be able to fix a broken monetary union from the throes of deflation and perhaps outright depression that may be on the horizon.
As Central Banks continue to cause currency wars with global fiat devaluation alongside Negative Interest Rate Policies and QE, the existing monetary regime is proving inferior due to irresponsible policies that are simply not working. This opens the door for a new system based on virtual currency, as suggested by Greeces new Finance Minister, Yanis Varoufakis, to take the torch and build a more transparent ecosystem while providing the necessary liquidity to maintain a healthy economy.
Written by George Samman, Adviser to BTC.sx - a Bitcoin trading platform offering up to 10:1 margin trading on Bitfinex, itBit and Bitstamp
From March this year until September 2016 the ECB will buy 60 billion (US$68 billion) of assets a month, a total of 1.1 trillion over the given period. Moreover, the President of the ECB, Mario Draghi, left room to extend the program if necessary. The ECB has been historically slow to take action and that begs the question whether this is too little, too late.
What is Quantitative Easing?
Quantitative easing (QE) is monetary policy used by a central bank to stimulate an economy when standard monetary policy has become ineffective. This is done by the a central bank buying assets from commercial banks and other financial institutions in order to increase asset prices and lower yields.
This policy is expansionary because at the same time it increases the monetary base. i.e. the amount of money in the system. The purpose of this is to try and stimulate an ailing economy and can be done in a variety of ways.
The ECB has only one mandate, which is a target based inflation number, as opposed to the Federal Reserve, which has 2 mandates the consist of a target based inflation number and a target based unemployment number.
Currently, a whole slew of countries in Europe (Germany, Finland, Switzerland, Denmark, Netherlands, Sweden and Austria) have negative interest rates. This means borrowers are paying lenders to hold their bonds. This suggests that people perceive these bonds as extremely safe and are willing to pay to hold them due to the risk averse nature of European investors.
QE has been launched to move investors out on the risk spectrum and into riskier asset classes, which in theory will help stimulate the EU and create a wealth effect and trickle down to all citizens. Unfortunately, this is usually not the case.
The EU has failed in their inflation target number, and as mentioned above are fighting off massive deflation. The chart below shows this:
Implications of European QE
The USD has strengthened against all other major currencies. This is because as the US economy is perceived to be the strongest economy in the world right now, it has stopped asset purchases (QE).
It is also believed by the majority of pundits that the Fed will begin an interest rate hike cycle. Below is a 10 year chart of the USD vs. the Euro. As you can see, the USD has surged to new highs and broken through major resistance levels, while the mirror opposite has happened for the Euro. It has fallen through major support as a result of the announcement of QE and fears of a Grexit.
Elliott Wave has put together a great chart of the USD. It appears that this is just the beginning of a larger move that will have really bad implications for commodities and and apply additional deflationary pressure.
Short term the USD might be ripe for a pullback, but the chart below shows that a major new uptrend is underway and has only just started. With 16 Central Banks worldwide actively involved in monetary easing policies, and the Fed looking to tighten at some point relatively soon, this move will very likely continue for the USD.
This has also had major implications in the commodities space as the USD and commodities have an inverse relationship. This is mainly due to commodities being priced in USD. Again, this is very deflationary. The chart below shows the USD vs CRB. CRB is an index that includes all major commodities.
This has also had a big impact on bitcoin like all other commodities priced in USD, as it is down dramatically year over year.
Deflation Is Still Winning
Despite all the monetary policy being used, deflation is still winning. This is a problem because all traditional measures that are being implemented are not working.
While Central Bankers believe they have the answers, it appears they couldnt be more wrong. Does the chart below represent a successful policy for a recovery? Quite the opposite. What will be even worse are the unintended consequences wrought on the citizens of the world.
All of these measures are failing despite historic fiscal and monetary easing. Notice that Eurozone prices are already in negative territory, and the trajectory of the others suggests that the rest of world is not far behind. At this point it seems unlikely the ECB will be able to fix a broken monetary union from the throes of deflation and perhaps outright depression that may be on the horizon.
As Central Banks continue to cause currency wars with global fiat devaluation alongside Negative Interest Rate Policies and QE, the existing monetary regime is proving inferior due to irresponsible policies that are simply not working. This opens the door for a new system based on virtual currency, as suggested by Greeces new Finance Minister, Yanis Varoufakis, to take the torch and build a more transparent ecosystem while providing the necessary liquidity to maintain a healthy economy.
Written by George Samman, Adviser to BTC.sx - a Bitcoin trading platform offering up to 10:1 margin trading on Bitfinex, itBit and Bitstamp
Read our case study trades to learn from real bitcoin traders and improve your own trading ability.
Background
There are two main trading opportunities that are covered in this article. Firstly, there was a rally following the announcement of Coinbases exchange on the 26th of January. Then later in February, there was another sizable rally on Valentines Day.
Click here to read our previous post on the January price crash.
These trades are not the most profitable recorded, but the trades that others can best learn from.
10. Buying the Rumor
This trader opened two simultaneous positions.
Position 1:
Open: 247.64 USD
Direction: Buy
Close: 285.16 USD
Profit: 4.20 BTC / 109.73%
Position 2:
Open: 247.88 USD
Direction: Buy
Close: 285.03 USD
Profit: 4.22 BTC / 108.62%
This trader entered two long positions on Bitfinex, with 10x leverage, before Coinbases exchanged was announced. After the grand reveal, their 7.7 BTC deposit produced a substantial 8.44 BTC profit the next morning.
The risk / reward balance of our trader is very impressive. To begin with, they did not instantly sell for a small profit immediately after their position was opened. Instead they held out to see what the market would do. When a major spike did occur, they did not get greedy and closed their position while they were in a profit.
9. The Panic Seller
Open: 254.88 USD
Direction: Buy
Close: 262.46 USD
Profit: 1.12 BTC / 12.03%
Unlike the previous trader, this speculator was not so quick to take their profits. They opened a long with 5x leverage while the rally was gaining momentum. When the trader closed the position, their 9.33 BTC deposit produced a respectable 1.12 BTC profit.
The timing of their opening was impeccable, however their returns could have been considerably higher by closing earlier. It was not until the price dropped significantly that they sold in panic. If you need to improve your trade opens, consider watching the MACD to identify significant trends to follow. But remember to take your profits, like our the previous trader, to realize your hard-earned bitcoin.
8. Following Momentum
Open: 258.88 USD
Direction: Buy
Close: 297.15 USD
Profit: 0.1 BTC / 107.53%
Lets take a look at a trader that was also following momentum, but remained prudent enough to take their profits. This time we have a smaller trader with a 0.096 BTC deposit, but using 10x leverage allowed them to generate a hefty 0.1 BTC profit.
Unlike the last trader, this person almost perfectly timed their position close. If you need to work on taking your profits, consider setting price targets that you will close at this helps prevent trading on emotions.
7. Selling the News
Open: 306.03 USD
Direction: Sell
Close: 232.42 USD
Profit: 1.96 BTC / 263.93%
A trend that has been prevalent over the last 9 months with bitcoin trading is for the price to rally on major news, but then return to pre-news levels. This can be seen with PayPals bitcoin partnerships, Microsoft accepting bitcoin and now with Coinbases exchange.
Identifying this trend helped our trader turn a 0.74 BTC deposit into a 1.96 BTC profit. While accurately calling the top may require a bit of luck, they did a great job of managing their open position for several days.
As the price was retracing over several days, it made financial sense to keep their position open and incur interest charges on the funds BTC.sx provide for 10x leverage.
A general rule of thumb is to consider closing unprofitable positions within 24 hours to avoid paying interest. However, the market was moving in their favor more than compensating for the interest charge. The end result was making approximately 90% ROI for every day their position was open.
6. Missing the Boat
Open: 280.12 USD
Direction: Buy
Close: 237.00 USD
Profit: -0.96 BTC / -75.81%
Unfortunately, unprofitable trades from time to time. But these are actually valuable learning experiences. This is certainly the case for our trader that missed the boat when both opening and closing their position.
This trader was slightly slower than the earlier momentum traders and went long at 280.12 USD with 5x leverage. Their potential profit would have been higher had they entered a position sooner, but this was initially not too much of a problem when they quickly became profitable.
However, they failed to realize their profit while they had the chance to do so. In fact, they only closed after the spike to cut their losses. Quite clearly, if they had entered the position sooner, their loss would have been much smaller. Or even better, if they did not miss the boat to close above ~283 USD, they would have made a profit.
Now Lets Look at the Lessons to be Learnt from the Valentines Day Traders
5. Honey, can you please stop trading bitcoin for 10 minutes?
Open: 234.66 USD
Direction: Buy
Close: 258.37 USD
Profit: 0.18 BTC / 76.47%
With 24/7 markets, bitcoin waits for no one. This trader was not going to let their Valentines Day plans get in the way of making a profit. Here we have a trader going long at 234.66 USD, with 10x leverage, then closing the position on Valentines Day evening to lock-in a 76.47% ROI.
As covered above, this trade demonstrates the effectiveness of both following momentum and taking profits sooner rather than later.
4. The Sneaky Mid-Date Trade
Open: 256.66 USD
Direction: Sell
Close: 236.50 USD
Profit: 0.09 BTC / 71.04%
Being a trader it can be hard to stop price-watching sometimes. Here we have a BTC.sx user taking an opportunity to short bitcoin will the price rallied during Valentines Day evening. By entering a 0.13 BTC short position, at 10x leverage, they set themselves up to profit from a price fall.
Our simple user interface also allows trades to be made on mobile devices for those moments when you cannot get to a computer.
A great lesson to be learnt here is to not set stop losses too small. Initially the market moved against the trader. However, our trader had a large stop loss to allow the price to move higher, before heading down, where a 71.04% ROI was later generated.
3. The Dumper
Open: 243.95 USD
Direction: Sell
Close: 234.24 USD
Profit: 0.02 BTC / 34.54%
Following momentum also works when shorting bitcoin. Shown by this trader, a sell was made 10x leverage, helping drive the price lower and generate a profit. At BTC.sx, all positions are executed on exchange order books. Consequently, leveraged trades help move markets in your favor, with greater influence than just an unleveraged buy or sell.
Following the dump to 227 USD, our trader failed to take his profits and the market crept back up over several days. On the 17th February, their profit even turned into a small loss. However, as the market fell lower the following day they were able to finally close their position in a profit.
2. The Coin Toss
Open: 243.38 USD
Direction: Buy
Close: 234.19 USD
Profit: -0.20 BTC / -32.72%
All trades should be based on research and technical analysis. Simply placing a trade, without a justified reason, reduces your chances of making a profit to the toss of a coin. This trader found out the hard way when the market moved against them with a 10x leveraged buy, resulting in a -32.72% ROI.
In this scenario it was more likely that the price was going to head downwards for several reasons. For one, by looking at the above chart it is easy to see that there is price resistance around $244, indicating limited upside potential. Additionally, volume was declining at this point which means that a significant breakthrough is unlikely. Lastly, the MACD showed the upward movement was loosing momentum, indicative of a trend reversal.
1. The Technician
Open: 245.05 USD
Direction: Sell
Close: 235.53 USD
Profit: 0.01 BTC / 33.68%
Over at Bitstamp, one of our traders made a similar trade, but went short instead of long. By correctly identifying the price resistance, declining volume and declining momentum, they concluded a price drop was likely. Their analysis produced a well-deserved 33.68% ROI.
This shows that, even in a seemingly flat market, there are opportunities to be found by trading one step ahead of the market to profit from when a price swing does come. And in bitcoin, that price swing is inevitable.
Conclusion
While it may seem obvious, the best traders on our platform always tend to have an objective and a clear reason for trading. This shows the more informed traders will always have that slight advantage over the rest of the market.
Another common pitfall is not taking profits sooner. Although hindsight is 20/20, it is generally more profitable to close a position too soon, rather than too late.
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 on Bitfinex, Bitstamp and itBit.
Background
There are two main trading opportunities that are covered in this article. Firstly, there was a rally following the announcement of Coinbases exchange on the 26th of January. Then later in February, there was another sizable rally on Valentines Day.
Click here to read our previous post on the January price crash.
These trades are not the most profitable recorded, but the trades that others can best learn from.
10. Buying the Rumor
This trader opened two simultaneous positions.
Position 1:
Open: 247.64 USD
Direction: Buy
Close: 285.16 USD
Profit: 4.20 BTC / 109.73%
Position 2:
Open: 247.88 USD
Direction: Buy
Close: 285.03 USD
Profit: 4.22 BTC / 108.62%
This trader entered two long positions on Bitfinex, with 10x leverage, before Coinbases exchanged was announced. After the grand reveal, their 7.7 BTC deposit produced a substantial 8.44 BTC profit the next morning.
The risk / reward balance of our trader is very impressive. To begin with, they did not instantly sell for a small profit immediately after their position was opened. Instead they held out to see what the market would do. When a major spike did occur, they did not get greedy and closed their position while they were in a profit.
9. The Panic Seller
Open: 254.88 USD
Direction: Buy
Close: 262.46 USD
Profit: 1.12 BTC / 12.03%
Unlike the previous trader, this speculator was not so quick to take their profits. They opened a long with 5x leverage while the rally was gaining momentum. When the trader closed the position, their 9.33 BTC deposit produced a respectable 1.12 BTC profit.
The timing of their opening was impeccable, however their returns could have been considerably higher by closing earlier. It was not until the price dropped significantly that they sold in panic. If you need to improve your trade opens, consider watching the MACD to identify significant trends to follow. But remember to take your profits, like our the previous trader, to realize your hard-earned bitcoin.
8. Following Momentum
Open: 258.88 USD
Direction: Buy
Close: 297.15 USD
Profit: 0.1 BTC / 107.53%
Lets take a look at a trader that was also following momentum, but remained prudent enough to take their profits. This time we have a smaller trader with a 0.096 BTC deposit, but using 10x leverage allowed them to generate a hefty 0.1 BTC profit.
Unlike the last trader, this person almost perfectly timed their position close. If you need to work on taking your profits, consider setting price targets that you will close at this helps prevent trading on emotions.
7. Selling the News
Open: 306.03 USD
Direction: Sell
Close: 232.42 USD
Profit: 1.96 BTC / 263.93%
A trend that has been prevalent over the last 9 months with bitcoin trading is for the price to rally on major news, but then return to pre-news levels. This can be seen with PayPals bitcoin partnerships, Microsoft accepting bitcoin and now with Coinbases exchange.
Identifying this trend helped our trader turn a 0.74 BTC deposit into a 1.96 BTC profit. While accurately calling the top may require a bit of luck, they did a great job of managing their open position for several days.
As the price was retracing over several days, it made financial sense to keep their position open and incur interest charges on the funds BTC.sx provide for 10x leverage.
A general rule of thumb is to consider closing unprofitable positions within 24 hours to avoid paying interest. However, the market was moving in their favor more than compensating for the interest charge. The end result was making approximately 90% ROI for every day their position was open.
6. Missing the Boat
Open: 280.12 USD
Direction: Buy
Close: 237.00 USD
Profit: -0.96 BTC / -75.81%
Unfortunately, unprofitable trades from time to time. But these are actually valuable learning experiences. This is certainly the case for our trader that missed the boat when both opening and closing their position.
This trader was slightly slower than the earlier momentum traders and went long at 280.12 USD with 5x leverage. Their potential profit would have been higher had they entered a position sooner, but this was initially not too much of a problem when they quickly became profitable.
However, they failed to realize their profit while they had the chance to do so. In fact, they only closed after the spike to cut their losses. Quite clearly, if they had entered the position sooner, their loss would have been much smaller. Or even better, if they did not miss the boat to close above ~283 USD, they would have made a profit.
Now Lets Look at the Lessons to be Learnt from the Valentines Day Traders
5. Honey, can you please stop trading bitcoin for 10 minutes?
Open: 234.66 USD
Direction: Buy
Close: 258.37 USD
Profit: 0.18 BTC / 76.47%
With 24/7 markets, bitcoin waits for no one. This trader was not going to let their Valentines Day plans get in the way of making a profit. Here we have a trader going long at 234.66 USD, with 10x leverage, then closing the position on Valentines Day evening to lock-in a 76.47% ROI.
As covered above, this trade demonstrates the effectiveness of both following momentum and taking profits sooner rather than later.
4. The Sneaky Mid-Date Trade
Open: 256.66 USD
Direction: Sell
Close: 236.50 USD
Profit: 0.09 BTC / 71.04%
Being a trader it can be hard to stop price-watching sometimes. Here we have a BTC.sx user taking an opportunity to short bitcoin will the price rallied during Valentines Day evening. By entering a 0.13 BTC short position, at 10x leverage, they set themselves up to profit from a price fall.
Our simple user interface also allows trades to be made on mobile devices for those moments when you cannot get to a computer.
A great lesson to be learnt here is to not set stop losses too small. Initially the market moved against the trader. However, our trader had a large stop loss to allow the price to move higher, before heading down, where a 71.04% ROI was later generated.
3. The Dumper
Open: 243.95 USD
Direction: Sell
Close: 234.24 USD
Profit: 0.02 BTC / 34.54%
Following momentum also works when shorting bitcoin. Shown by this trader, a sell was made 10x leverage, helping drive the price lower and generate a profit. At BTC.sx, all positions are executed on exchange order books. Consequently, leveraged trades help move markets in your favor, with greater influence than just an unleveraged buy or sell.
Following the dump to 227 USD, our trader failed to take his profits and the market crept back up over several days. On the 17th February, their profit even turned into a small loss. However, as the market fell lower the following day they were able to finally close their position in a profit.
2. The Coin Toss
Open: 243.38 USD
Direction: Buy
Close: 234.19 USD
Profit: -0.20 BTC / -32.72%
All trades should be based on research and technical analysis. Simply placing a trade, without a justified reason, reduces your chances of making a profit to the toss of a coin. This trader found out the hard way when the market moved against them with a 10x leveraged buy, resulting in a -32.72% ROI.
In this scenario it was more likely that the price was going to head downwards for several reasons. For one, by looking at the above chart it is easy to see that there is price resistance around $244, indicating limited upside potential. Additionally, volume was declining at this point which means that a significant breakthrough is unlikely. Lastly, the MACD showed the upward movement was loosing momentum, indicative of a trend reversal.
1. The Technician
Open: 245.05 USD
Direction: Sell
Close: 235.53 USD
Profit: 0.01 BTC / 33.68%
Over at Bitstamp, one of our traders made a similar trade, but went short instead of long. By correctly identifying the price resistance, declining volume and declining momentum, they concluded a price drop was likely. Their analysis produced a well-deserved 33.68% ROI.
This shows that, even in a seemingly flat market, there are opportunities to be found by trading one step ahead of the market to profit from when a price swing does come. And in bitcoin, that price swing is inevitable.
Conclusion
While it may seem obvious, the best traders on our platform always tend to have an objective and a clear reason for trading. This shows the more informed traders will always have that slight advantage over the rest of the market.
Another common pitfall is not taking profits sooner. Although hindsight is 20/20, it is generally more profitable to close a position too soon, rather than too late.
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 on Bitfinex, Bitstamp and itBit.
Hi Marco,
This is most likely an issue with Blockchain.info, who process our deposits. Customer support have been made aware of your issue and we will resolve the problem as soon as possible. In the mean time, thanks for your patience.
This is most likely an issue with Blockchain.info, who process our deposits. Customer support have been made aware of your issue and we will resolve the problem as soon as possible. In the mean time, thanks for your patience.
To say these are unprecedented times is an understatement. Global Central Banks are using every single monetary policy tool at their disposal to try and fight the forces of deflation and this has resulted in currency wars. In fact, 15 central banks have eased monetary policy in one way or another this year. Since this is a global economy each move made has far reaching affects upon all nations and their abilities to control the imbalances being caused by central bank brute force.
The term currency war gained prominence in 2010 when Guido Mantega, Brazils Finance Minister, complained that quantitative easing (QE) was weakening the US Dollar and prompting other countries to respond so they wouldnt lose their export competiveness. This led to a race to the bottom in which all countries were engaged in trying to weaken their own currencies as much and as quickly as possible. Fast forward to today, as the chart below shows, and the opposite situation holds true. The USD has strengthened dramatically since 2011 and is sitting at decade highs. The biggest part of the move has come since the summer of 2014.
What is interesting though is that since the USD bottomed in 2011, all other currencies - as well as most other commodities - spiked. Below is a chart of the Australian Dollar which illustrates this perfectly, as it peaked out in 2011 and has been dropping ever since. The Australian Dollar is known as a risk on trade because it is tied heavily to commodities and China. The inverse relationship between the USD and commodities, along with Chinas growth slowing, has hurt. In an effort to stimulate the economy, the Reserve Bank of Australia (RBA), Australias central bank, cut interest rates for the first time in 18 months. All the way to the right on the chart, you can see the Australian Dollar move lower as a result of this move.
The Canadian Dollar has had a similar move as well, and topped in 2011. Canada is heavily tied to the energy sector, as it is one of the largest energy producers in the world. Canada also had an emergency rate cut a few weeks back.
The state of affairs of Europe and Japan have been talked about ad nauseum, and makes it needless to say that they are both trying to stave off deflation while stimulating growth in their respective economies. The European Central Bank (ECB) and the Bank of Japan (BOJ) are both actively engaged in QE. Below are the charts of both the Euro and the Yen.
Europe, Japan, and Australia are examples of countries using currency devaluation as a monetary policy tool to stimulate growth. With interest rates in the developed world at near zero, or even in some cases negative, this makes borrowing costs for the corporate sector almost nothing. It is also causing asset prices to rise since savers are being punished and are moving into riskier asset classes in search of higher yield. Monetary stimulus allows central banks to export deflation to other parts of the world. The Danish Kroner is pegged to the Euro and as a result has had to cut interest rates 3 times in the last 2 weeks due to a falling Euro, caused by the announcement of QE. This relationship is probably doomed to failure. The Swiss National Bank (SNB) learned its lesson the hard way and had to de-peg as it was becoming too costly with the sinking Euro to maintain the peg and continue buying Euros. The move has hurt the Euro and caused ripples all over the world as it was unanticipated by global markets. Below is a chart of the Swiss Franc. The peg started in September 2011 and ended in January. This is an extraordinary move in currency.
China has also joined the party and cut interest rates but it may have a bigger problem which is the loose peg it has to the USD currently, when the USD is surging and China is trying to loosen monetary policy. The trade weighted exchange rate has jumped 10% since July. This is having a negative impact on the profit margins of Chinese domestic companies, and caused issue with tightening monetary policy. Deflationary forces are at Chinas doorstep, and this may mean the yuan will need to devalue, and quite possibly de-peg.
All of these moves by central banks have caused huge amounts of volatility in the Foreign Exchange (FX) market. This is problematic because higher FX volatility makes hedging more expensive for companies and discourages foreign direct investment. Essentially, it causes countries to focus internally and hurts global growth, which we are starting to see happen.
Being that the US has ended QE (for now) and indicated it will raise interest rates at some point this year, coupled with what is perceived to be a strong domestic economy, the USD has strengthened and investment has flowed to the US. The USD and commodities have had a negative correlation, where as the USD goes up, commodities go down, and vice versa. Commodities are down dramatically since 2011, where they peaked and they continue to fall, which is very deflationary. Below are 2 charts of commodity prices. One of them is from 2011 until now, and the other the last 365 days. With the exception of gold, the fall in most commodities has been precipitous.
This should not be happening in a global economic recovery. What is even more perplexing is the yield on the 10 year bond. It has been falling and is near record lows. The bond market does not believe the recovery story and is worried about deflation as capital flows have moved into bonds and the USD. These are NOT signs of recovery. Below is chart of the 10 year bond yield:
The 30 Year yield is at a record low:
The world has been in a deflationary state since 2001, and the cause of this deflation has been the bursting stock market bubbles (Asian Crisis of 1997, Dotcom 2000, Great Recession 2008, and now possibly the currency wars). This has all led to competitive devaluations through central bank tools to try and stimulate respective economies, which has led to more deflation in a vicious cycle that has become a negative feedback loop. Deflation creates a loss of pricing power, a downward trend in prices, an erosion of profits, and an excess capacity, particularly in developing countries with low cost factories and huge new labor forces. What does this mean? There is a demand problem! Developed markets have embarked on QE (particularly the US, Japan, and Europe) has led to significant capital inflows into emerging economies (Brazil, Russia, India, China, and South Africa, commonly known as BRICS), particularly China. This liquidity came at a time when governments were involved in internal growth projects to stimulate domestic demand. This led to a boost in the demand of commodities, and possibly capital goods. This demand however was not real and was caused mainly by global misallocations of capital and speculation, as investors were looking for excess returns. This led to excess capacity and that is why commodity prices have been crushed by this house of cards. All the excess liquidity caused commodity prices to rise without real global demand for them, and now we are witnessing the fall out caused by deflationary forces at time when the USD is strengthening and global debt levels are at record highs.
This has led to a world of deep imbalances among different countries and different sectors of the global economy. Each country has its own inflation and monetary histories, along with boom and bust cycles. As a result, each country has formed beggar thy neighbor policies acting out of self-interest, and this has manifested itself in the form of trade and capital flow imbalances between countries.
Aside from liquidity, the world is awash in irresponsible monetary policy with unknown and certainly unintended consequences. If you are confused by what this all means, you are not alone. Fiat currencies have gone wild, and it is time for the people of world to be protected from the actions of a select few who pretend to have an idea of the future. Financial freedom is a right all people should enjoy. Former CEO of UBS and Credit Suisse Oswald Gruebel has openly voiced his support for Bitcoin and distrust of fiat currency. It looks like he is onto something.
Written by George Samman, former Wall Street Portfolio Manger and Adviser to BTC.sx. BTC.sx is a bitcoin trading platform offering up to 10x leverage across multiple exchanges, including Bitfinex
Follow George on Twitter for future updates
The term currency war gained prominence in 2010 when Guido Mantega, Brazils Finance Minister, complained that quantitative easing (QE) was weakening the US Dollar and prompting other countries to respond so they wouldnt lose their export competiveness. This led to a race to the bottom in which all countries were engaged in trying to weaken their own currencies as much and as quickly as possible. Fast forward to today, as the chart below shows, and the opposite situation holds true. The USD has strengthened dramatically since 2011 and is sitting at decade highs. The biggest part of the move has come since the summer of 2014.
What is interesting though is that since the USD bottomed in 2011, all other currencies - as well as most other commodities - spiked. Below is a chart of the Australian Dollar which illustrates this perfectly, as it peaked out in 2011 and has been dropping ever since. The Australian Dollar is known as a risk on trade because it is tied heavily to commodities and China. The inverse relationship between the USD and commodities, along with Chinas growth slowing, has hurt. In an effort to stimulate the economy, the Reserve Bank of Australia (RBA), Australias central bank, cut interest rates for the first time in 18 months. All the way to the right on the chart, you can see the Australian Dollar move lower as a result of this move.
The Canadian Dollar has had a similar move as well, and topped in 2011. Canada is heavily tied to the energy sector, as it is one of the largest energy producers in the world. Canada also had an emergency rate cut a few weeks back.
The state of affairs of Europe and Japan have been talked about ad nauseum, and makes it needless to say that they are both trying to stave off deflation while stimulating growth in their respective economies. The European Central Bank (ECB) and the Bank of Japan (BOJ) are both actively engaged in QE. Below are the charts of both the Euro and the Yen.
Europe, Japan, and Australia are examples of countries using currency devaluation as a monetary policy tool to stimulate growth. With interest rates in the developed world at near zero, or even in some cases negative, this makes borrowing costs for the corporate sector almost nothing. It is also causing asset prices to rise since savers are being punished and are moving into riskier asset classes in search of higher yield. Monetary stimulus allows central banks to export deflation to other parts of the world. The Danish Kroner is pegged to the Euro and as a result has had to cut interest rates 3 times in the last 2 weeks due to a falling Euro, caused by the announcement of QE. This relationship is probably doomed to failure. The Swiss National Bank (SNB) learned its lesson the hard way and had to de-peg as it was becoming too costly with the sinking Euro to maintain the peg and continue buying Euros. The move has hurt the Euro and caused ripples all over the world as it was unanticipated by global markets. Below is a chart of the Swiss Franc. The peg started in September 2011 and ended in January. This is an extraordinary move in currency.
China has also joined the party and cut interest rates but it may have a bigger problem which is the loose peg it has to the USD currently, when the USD is surging and China is trying to loosen monetary policy. The trade weighted exchange rate has jumped 10% since July. This is having a negative impact on the profit margins of Chinese domestic companies, and caused issue with tightening monetary policy. Deflationary forces are at Chinas doorstep, and this may mean the yuan will need to devalue, and quite possibly de-peg.
All of these moves by central banks have caused huge amounts of volatility in the Foreign Exchange (FX) market. This is problematic because higher FX volatility makes hedging more expensive for companies and discourages foreign direct investment. Essentially, it causes countries to focus internally and hurts global growth, which we are starting to see happen.
Being that the US has ended QE (for now) and indicated it will raise interest rates at some point this year, coupled with what is perceived to be a strong domestic economy, the USD has strengthened and investment has flowed to the US. The USD and commodities have had a negative correlation, where as the USD goes up, commodities go down, and vice versa. Commodities are down dramatically since 2011, where they peaked and they continue to fall, which is very deflationary. Below are 2 charts of commodity prices. One of them is from 2011 until now, and the other the last 365 days. With the exception of gold, the fall in most commodities has been precipitous.
This should not be happening in a global economic recovery. What is even more perplexing is the yield on the 10 year bond. It has been falling and is near record lows. The bond market does not believe the recovery story and is worried about deflation as capital flows have moved into bonds and the USD. These are NOT signs of recovery. Below is chart of the 10 year bond yield:
The 30 Year yield is at a record low:
The world has been in a deflationary state since 2001, and the cause of this deflation has been the bursting stock market bubbles (Asian Crisis of 1997, Dotcom 2000, Great Recession 2008, and now possibly the currency wars). This has all led to competitive devaluations through central bank tools to try and stimulate respective economies, which has led to more deflation in a vicious cycle that has become a negative feedback loop. Deflation creates a loss of pricing power, a downward trend in prices, an erosion of profits, and an excess capacity, particularly in developing countries with low cost factories and huge new labor forces. What does this mean? There is a demand problem! Developed markets have embarked on QE (particularly the US, Japan, and Europe) has led to significant capital inflows into emerging economies (Brazil, Russia, India, China, and South Africa, commonly known as BRICS), particularly China. This liquidity came at a time when governments were involved in internal growth projects to stimulate domestic demand. This led to a boost in the demand of commodities, and possibly capital goods. This demand however was not real and was caused mainly by global misallocations of capital and speculation, as investors were looking for excess returns. This led to excess capacity and that is why commodity prices have been crushed by this house of cards. All the excess liquidity caused commodity prices to rise without real global demand for them, and now we are witnessing the fall out caused by deflationary forces at time when the USD is strengthening and global debt levels are at record highs.
This has led to a world of deep imbalances among different countries and different sectors of the global economy. Each country has its own inflation and monetary histories, along with boom and bust cycles. As a result, each country has formed beggar thy neighbor policies acting out of self-interest, and this has manifested itself in the form of trade and capital flow imbalances between countries.
Aside from liquidity, the world is awash in irresponsible monetary policy with unknown and certainly unintended consequences. If you are confused by what this all means, you are not alone. Fiat currencies have gone wild, and it is time for the people of world to be protected from the actions of a select few who pretend to have an idea of the future. Financial freedom is a right all people should enjoy. Former CEO of UBS and Credit Suisse Oswald Gruebel has openly voiced his support for Bitcoin and distrust of fiat currency. It looks like he is onto something.
Written by George Samman, former Wall Street Portfolio Manger and Adviser to BTC.sx. BTC.sx is a bitcoin trading platform offering up to 10x leverage across multiple exchanges, including Bitfinex
Follow George on Twitter for future updates
2014 contained plenty of ups and downs for Bitcoin. Unfortunately, the price followed the latter direction. However, transaction volume, merchant adoption and venture capital funding followed an upward trajectory.
Attention has now turned to 2015. At BTC.sx we have compiled fifteen Bitcoin predictions for 2015 by researching and interviewing industry experts. As the price has proven simply too hard to predict, which past surveys show, this study also includes industry trends.
After putting our results in the below infographic, several common predictions emerged.
Use-Cases
The most frequently mentioned prediction is that in 2015 real use-cases will be found for Bitcoin. Marc Andreessen, Jon Matonis and Joseph Lee predict that Bitcoin will start being used in mainstream applications. In particular, Bitcoin may gain traction in remittances and serving the 2.2 billion under-banked people in emerging economies.
Stability
Bitcoin has been (in)famous for its volatility. However. in the latter half of 2014 the price and adoption rates became more stable. Industry leaders Nicolas Cary and Gavin Andresen expect to see the ecosystem grow steadily with improved infrastructure and security. This is likely to be welcomed as sustainable growth and help Bitcoin shake-off critics bubble accusations.
Change
Despite more stability, the only constant in disruptive technology is change. As such, Gavin Andresen conceds that there will be chaos and drama. The theme of change is echoed by Marc Andreessen, who expects to see new apps, innovations and ideas a plethora of possibilities exist in 2015. The participation of old money institutions, predicted by Adam Draper and Roger Ver, also has potential to dramatically alter the Bitcoin landscape.
Merchant Adoption
The key trend of 2014, merchant adoption, is likely to continue in 2015 according to Roger Ver. Paul Puey offers an interesting insight: he claims that the next phase of merchant adoption will be fueled by closer integration with traditional point-of-sale systems. This will eliminate the need for merchants to use cumbersome tablets to accept bitcoin.
Make or Break
Although most of the predictions have been favorable, there remains a possibility that Bitcoin may not succeed as a technology. The Washington Post believes that US regulation will be the end of Bitcoin. However, the proposed Bitlicense has recently been revised favorably. Juan Llanos and Vox offer a more balanced opinion, believing that Bitcoin must grow and mature faster if the digital currency is to flourish.
Attention has now turned to 2015. At BTC.sx we have compiled fifteen Bitcoin predictions for 2015 by researching and interviewing industry experts. As the price has proven simply too hard to predict, which past surveys show, this study also includes industry trends.
After putting our results in the below infographic, several common predictions emerged.
Use-Cases
The most frequently mentioned prediction is that in 2015 real use-cases will be found for Bitcoin. Marc Andreessen, Jon Matonis and Joseph Lee predict that Bitcoin will start being used in mainstream applications. In particular, Bitcoin may gain traction in remittances and serving the 2.2 billion under-banked people in emerging economies.
Stability
Bitcoin has been (in)famous for its volatility. However. in the latter half of 2014 the price and adoption rates became more stable. Industry leaders Nicolas Cary and Gavin Andresen expect to see the ecosystem grow steadily with improved infrastructure and security. This is likely to be welcomed as sustainable growth and help Bitcoin shake-off critics bubble accusations.
Change
Despite more stability, the only constant in disruptive technology is change. As such, Gavin Andresen conceds that there will be chaos and drama. The theme of change is echoed by Marc Andreessen, who expects to see new apps, innovations and ideas a plethora of possibilities exist in 2015. The participation of old money institutions, predicted by Adam Draper and Roger Ver, also has potential to dramatically alter the Bitcoin landscape.
Merchant Adoption
The key trend of 2014, merchant adoption, is likely to continue in 2015 according to Roger Ver. Paul Puey offers an interesting insight: he claims that the next phase of merchant adoption will be fueled by closer integration with traditional point-of-sale systems. This will eliminate the need for merchants to use cumbersome tablets to accept bitcoin.
Make or Break
Although most of the predictions have been favorable, there remains a possibility that Bitcoin may not succeed as a technology. The Washington Post believes that US regulation will be the end of Bitcoin. However, the proposed Bitlicense has recently been revised favorably. Juan Llanos and Vox offer a more balanced opinion, believing that Bitcoin must grow and mature faster if the digital currency is to flourish.
BTC.sx Trade Placement Update
At BTC.sx we continually develop user interface features that make trading with us a more enjoyable and profitable experience. Today, we are pleased to introduce a position size slider:
The slider allows users to quickly, and accurately, adjust position sizes before placing a trade. Traders will find this useful during volatile periods where speed is crucial.
How to trade with the position size slider
Selecting an exchange, choosing leverage and the changing advanced trade options remain exactly the same. However, adjusting the position size is now different.
To adjust the position slide quickly, simply click and drag the grey circle button:
If small adjustments to the position size need to be made, click on the edit button next to the position size value:
Now this field can be edited to achieve the exact position size value that is desired:
As usual, click the sell or buy button to execute the trade when the desired position size is selected.
Click here to visit our website and try the new position size slider for yourself.
At BTC.sx we continually develop user interface features that make trading with us a more enjoyable and profitable experience. Today, we are pleased to introduce a position size slider:
The slider allows users to quickly, and accurately, adjust position sizes before placing a trade. Traders will find this useful during volatile periods where speed is crucial.
How to trade with the position size slider
Selecting an exchange, choosing leverage and the changing advanced trade options remain exactly the same. However, adjusting the position size is now different.
To adjust the position slide quickly, simply click and drag the grey circle button:
If small adjustments to the position size need to be made, click on the edit button next to the position size value:
Now this field can be edited to achieve the exact position size value that is desired:
As usual, click the sell or buy button to execute the trade when the desired position size is selected.
Click here to visit our website and try the new position size slider for yourself.
Has bitcoin bottomed yet? And, what does the aftermath of major bubbles bursting look like and its implications for price?
Thursday, bitcoin had a relief rally in sympathy with most other commodities as the Swiss National Bank (SNB) de-pegged the Swiss Franc from the Euro. This was a surprise move by the SNB but was necessary as being pegged to the Euro has been killing the Franc as the Euro has been sinking against a strong dollar due to Eurozone economic malaise.
A previous article written on this subject can be found here. There is a lot of speculation as to why they did this now and the prevailing sentiment is twofold: the SNB expects the European Central Bank (ECB) to launch massive QE and this will further weaken the Euro so they wanted to get ahead of the curve as the SNB has had to purchase a ton of Euros to protect the Franc and their threshold has been reached.
As a result, the Swiss Franc surged and the Euro weakened, while the USD strengthened. All commodities (gold, oil, copper, silver, bitcoin etc.) also saw a sharp rise in anticipation of QE coming.
Has bitcoin bottomed yet?
The simple answer is no, not yet. As mentioned above, bitcoin had a relief rally yesterday in due to the SNB news in combination with an extremely oversold chart. A relief rally generally occurs in a downtrend, when buyers show up and shorts cover but it is nothing more than a countertrend move and is fleeting at best. As the chart below shows, the downtrend is still intact and yesterday on the daily chart shows a failed attempt to put in a bottom in the form of a Bullish Engulfing Pattern (see here).
As a result, there is more downside. Price discovery is a process, but its looking likely at the very least we get a retest of the 160 level, with an eye on 133, which is the Mt. Gox low as mentioned previously. Volume has picked up along with volatility, so the bottoming process continues.
Generally, price precedes news. With this downtrend strongly in place, one can assume whatever news comes out will be bad. As we continue to bottom, the bad news can be assumed to be in the price and will not lead to a leg lower. In other words, it will be priced in.
What the news will be is anyones guess, but certainly something is overhanging Bitcoin. In fact, one sign of a bottom will be when bad news comes out and price doesnt react to it or reacts in an opposite than most people expect.
What happens in the aftermath of bubbles?
The bitcoin price bubble has burst that can not be denied. This is a major bubble that has popped as bitcoin has broke through many major support levels on its way down, and is still sinking. Below are charts of other major bubbles and unless one is visually impaired the similarities should be striking. The reason I display these charts is because the aftermath of price bubbles is similar for all of them, and bitcoin should be no different.
This is the Japanese real estate bubble:
This is the Dutch East India Company:
This is the Dot-Com (19992000) bubble:
This is Silver in 1980:
And finally this is bitcoin:
Lets all admit that the bitcoin price bubble has popped. But what we can expect as price searches for a bottom?
For now, we can expect volatility to hold up since the bottom isnt locked in yet. Right now, it looks like we are seeing bottom fishing happening. This is when people are looking for a bottom without being presented of any evidence of such. Its a sort of front-running for a bottom in anticipation of prices going higher at some point.
Once again, bottoming is a process and takes time. History shows that as a bottom forms, volatility dies off as buying and investment interests wane. Traders also move away from the asset as volatility dies in search of better returns elsewhere. Fundamentals start to matter and price just doesnt begin a massive upside move.
In fact, it remains range bound for long periods of time. Within this range, I would expect to see large moves, though the price should not to go back to its highs for quite a long time. During this time, companies will continue building on the protocol with the price becoming ancillary as innovation moves forward, which in turn could lead to surges in price as well as many macro economic factors down the road.
In an interconnected global world, things change rapidly and the price is no different. This is a model based on past bubbles and could be different with bitcoin for a variety of reasons, but generally the pattern fits and I would expect a range bound price and a period of low volatility for a while once the bottom is established.
Below is a chart that shows the stages of a bubble bursting and the aftermath:
Written by George Samman, former Wall Street Portfolio Manger and Co-Founder and COO of BTC.sx. BTC.sx is a bitcoin trading platform offering up to 10x leverage to go long or short in bitcoin for bitcoin.
Thursday, bitcoin had a relief rally in sympathy with most other commodities as the Swiss National Bank (SNB) de-pegged the Swiss Franc from the Euro. This was a surprise move by the SNB but was necessary as being pegged to the Euro has been killing the Franc as the Euro has been sinking against a strong dollar due to Eurozone economic malaise.
A previous article written on this subject can be found here. There is a lot of speculation as to why they did this now and the prevailing sentiment is twofold: the SNB expects the European Central Bank (ECB) to launch massive QE and this will further weaken the Euro so they wanted to get ahead of the curve as the SNB has had to purchase a ton of Euros to protect the Franc and their threshold has been reached.
As a result, the Swiss Franc surged and the Euro weakened, while the USD strengthened. All commodities (gold, oil, copper, silver, bitcoin etc.) also saw a sharp rise in anticipation of QE coming.
Has bitcoin bottomed yet?
The simple answer is no, not yet. As mentioned above, bitcoin had a relief rally yesterday in due to the SNB news in combination with an extremely oversold chart. A relief rally generally occurs in a downtrend, when buyers show up and shorts cover but it is nothing more than a countertrend move and is fleeting at best. As the chart below shows, the downtrend is still intact and yesterday on the daily chart shows a failed attempt to put in a bottom in the form of a Bullish Engulfing Pattern (see here).
As a result, there is more downside. Price discovery is a process, but its looking likely at the very least we get a retest of the 160 level, with an eye on 133, which is the Mt. Gox low as mentioned previously. Volume has picked up along with volatility, so the bottoming process continues.
Generally, price precedes news. With this downtrend strongly in place, one can assume whatever news comes out will be bad. As we continue to bottom, the bad news can be assumed to be in the price and will not lead to a leg lower. In other words, it will be priced in.
What the news will be is anyones guess, but certainly something is overhanging Bitcoin. In fact, one sign of a bottom will be when bad news comes out and price doesnt react to it or reacts in an opposite than most people expect.
What happens in the aftermath of bubbles?
The bitcoin price bubble has burst that can not be denied. This is a major bubble that has popped as bitcoin has broke through many major support levels on its way down, and is still sinking. Below are charts of other major bubbles and unless one is visually impaired the similarities should be striking. The reason I display these charts is because the aftermath of price bubbles is similar for all of them, and bitcoin should be no different.
This is the Japanese real estate bubble:
This is the Dutch East India Company:
This is the Dot-Com (19992000) bubble:
This is Silver in 1980:
And finally this is bitcoin:
Lets all admit that the bitcoin price bubble has popped. But what we can expect as price searches for a bottom?
For now, we can expect volatility to hold up since the bottom isnt locked in yet. Right now, it looks like we are seeing bottom fishing happening. This is when people are looking for a bottom without being presented of any evidence of such. Its a sort of front-running for a bottom in anticipation of prices going higher at some point.
Once again, bottoming is a process and takes time. History shows that as a bottom forms, volatility dies off as buying and investment interests wane. Traders also move away from the asset as volatility dies in search of better returns elsewhere. Fundamentals start to matter and price just doesnt begin a massive upside move.
In fact, it remains range bound for long periods of time. Within this range, I would expect to see large moves, though the price should not to go back to its highs for quite a long time. During this time, companies will continue building on the protocol with the price becoming ancillary as innovation moves forward, which in turn could lead to surges in price as well as many macro economic factors down the road.
In an interconnected global world, things change rapidly and the price is no different. This is a model based on past bubbles and could be different with bitcoin for a variety of reasons, but generally the pattern fits and I would expect a range bound price and a period of low volatility for a while once the bottom is established.
Below is a chart that shows the stages of a bubble bursting and the aftermath:
Written by George Samman, former Wall Street Portfolio Manger and Co-Founder and COO of BTC.sx. BTC.sx is a bitcoin trading platform offering up to 10x leverage to go long or short in bitcoin for bitcoin.
You posted the 10 most profitable theoretically possible trades.
Thought you would show people that managed to make money during the free fall.
We did show people that made money during the free fall.Thought you would show people that managed to make money during the free fall.
If this was just theoretical, the most profitable trades would be shorting at the top and exiting at the bottom.
Are these all your trades ? Or is it from the profitable traders ?
The top 10 most profitable tradersCan you post losing trades?
something tells me they won't
The price of Bitcoin has fallen 40% since the start of 2015. But with huge volatility comes the potential to make huge profits. Traders have been using platforms, such as BTC.sx, to profit from large price swings.
We have put together the top ten most profitable trades during the price crash. Some of them may surprise you.
10. Riding the Correction
Open: 181.66 USD
Direction: Buy
Close: 204.10 USD
Profit: 1.18 BTC / 88.02%
At number ten we have a trader riding the bounce after Bitstamp recorded a 152.4 USD low. This trader turned a 1.3 BTC deposit into a 1.18 BTC profit in just 21 minutes thanks to our 10x leverage.
What was particularly clever about this trade was the large deposit size. This meant that, if bitcoin followed a double bottom pattern, the trader could ride out any further declines and still profit from an upwards correction.
9. Following the Sell-Off
Open: 236.07 USD
Direction: Sell
Close: 202.79 USD
Profit: 1.27 BTC / 137.12%
Our trader at number nine opted to trade on Bitfinex at BTC.sx, traders can switch exchanges with a single click. Spotting fear in the market, this trader entered a short position, with 10x leverage, while the price was falling at 236.07 USD.
After recording substantial gains, the trader closed the short at 202.79 USD. While more profits could have been made by closing sooner, the trader exited the short before a large correction.
8. The Lunch Time Trade
Open: 191.20 USD
Direction: Buy
Close: 206 USD
Profit: 1.40 BTC / 56.41%
Our lunch time trader was able to make a tasty 1.40 BTC profit in just 45 minutes. While the trader did not catch the main market movement, a 2.47 BTC deposit and 10x leverage increased his potential exposure.
This lead to a 56.41% return by perfectly timing their entry and exit points. Not being too greedy helped this trader exit his long position well before the market continued to decline.
7. The Denied Double Bottom
Open: 175.99 USD
Direction: Buy
Close: 201.24 USD
Profit: 1.58 BTC / 100.10%
Back at Bitstamp another trader doubled his deposit by catching the major correction. This trader made a great call when they decided that the price would not retrace lower than 175 USD.
With a 1.58 deposit and 10x leverage, this trader made a 100% return as the market moved upwards. Like most successful traders, they did not get greedy rather the position was closed to realize their gains before the market changed direction once again.
6. The Quick Buck
Open: 191.65 USD
Direction: Buy
Close: 205.78 USD
Profit: 1.77 BTC / 53.32%
Just a few minutes slower than the previous trader, another user profited from the bounce. When it appeared that the correction still had more momentum, this trader went long with 3.33 BTC leveraged at 10x.
The importance of not getting too greedy when trading is very clear in this trade. They could have made twice as much profit in half the time if their position was closed sooner. However, making a 53.32% return in only ten minutes remains a great result.
5. Calling the Bottom
Open: 199.44 USD
Direction: Sell
Close: 175.87 USD
Profit: 1.82 BTC / 107.31%
Our trader at number 5 managed to close a short at a lower price than any other trader. Closing the position at 175.87 USD was just 9.42 USD above the Bitfinex low of 166.45 USD.
This brave trader anticipated a retrace before a major correction and timed their entry and exit points accordingly. Consequently, their 1.69 BTC deposit generated a profit of 1.82 BTC.
4. Playing the Long Game
Open: 225.21 USD
Direction: Sell
Close: 196.53 USD
Profit: 2.03 BTC / 121.57%
Just missing out on a podium spot, we have a trader who shorted bitcoin for 27 hours. Seeing the market declining, this trader followed the trend and shorted a 1.68 BTC deposit to more than double their holdings.
However, this trader could have easily made more by realizing their gains. It was not until the market began to correct with momentum that they decided to close the position.
3. The Early Bird
Open: 268.37 USD
Direction: Sell
Close: 245.99 USD
Profit: 2.07 BTC / 75.58%
In third place we have a very interesting short. This trader was shorting before the first sell-off and kept the position open even when the price rallied 7 USD higher.
Eventually the price dropped allowing the trader to net 2.07 BTC from a 2.73 BTC deposit. This trade shows the benefits of not setting stop losses too low. While they did miss out on most of the action, they should be praised for not getting greedy and taking profits.
2. The ROI Winner
Open: 228.07 USD
Direction: Sell
Close: 185.90 USD
Profit: 2.12 BTC / 194.11%
Although this trader came second in terms of BTC, they did win in terms of % gained. A 194.11% return on investment was achieved by opening a short position with 10x leverage after the price broke key support at 230 USD.
Similar to the previous trade, they initially lost money on their position. Thankfully, their stop loss was not set too low and they kept their position open to profit hugely from large sell-offs.
1. The Whale
Open: 226.23 USD
Direction: Sell
Close: 188.84 USD
Profit: 7.33 BTC / 137.47%
In first place we have a trader that generated a 137.47% return on a 5.33 BTC deposit to produce a 7.33 BTC profit. This trader followed the market lower and was not deterred by minor corrections on the way down.
This trader was smart to close his position within 24 hours, avoiding the daily funding charge and exiting close to the bottom. The remarkable profit shows the power of 10x leverage.
Lessons to be learnt:
Do not panic if the market initially turns against you many of our profitable traders initially lost money on their position.
Do not set stop losses too low setting a stop loss to low will force you to exit a position even if you are not worried about the market moving against you.
Consider closing your positions early before each 24 hour duration this allows you to avoid a daily funding charge.
Do not get greedy closing positions guarantees your profits.
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 on Bitfinex, Bitstamp and itBit.
We have put together the top ten most profitable trades during the price crash. Some of them may surprise you.
10. Riding the Correction
Open: 181.66 USD
Direction: Buy
Close: 204.10 USD
Profit: 1.18 BTC / 88.02%
At number ten we have a trader riding the bounce after Bitstamp recorded a 152.4 USD low. This trader turned a 1.3 BTC deposit into a 1.18 BTC profit in just 21 minutes thanks to our 10x leverage.
What was particularly clever about this trade was the large deposit size. This meant that, if bitcoin followed a double bottom pattern, the trader could ride out any further declines and still profit from an upwards correction.
9. Following the Sell-Off
Open: 236.07 USD
Direction: Sell
Close: 202.79 USD
Profit: 1.27 BTC / 137.12%
Our trader at number nine opted to trade on Bitfinex at BTC.sx, traders can switch exchanges with a single click. Spotting fear in the market, this trader entered a short position, with 10x leverage, while the price was falling at 236.07 USD.
After recording substantial gains, the trader closed the short at 202.79 USD. While more profits could have been made by closing sooner, the trader exited the short before a large correction.
8. The Lunch Time Trade
Open: 191.20 USD
Direction: Buy
Close: 206 USD
Profit: 1.40 BTC / 56.41%
Our lunch time trader was able to make a tasty 1.40 BTC profit in just 45 minutes. While the trader did not catch the main market movement, a 2.47 BTC deposit and 10x leverage increased his potential exposure.
This lead to a 56.41% return by perfectly timing their entry and exit points. Not being too greedy helped this trader exit his long position well before the market continued to decline.
7. The Denied Double Bottom
Open: 175.99 USD
Direction: Buy
Close: 201.24 USD
Profit: 1.58 BTC / 100.10%
Back at Bitstamp another trader doubled his deposit by catching the major correction. This trader made a great call when they decided that the price would not retrace lower than 175 USD.
With a 1.58 deposit and 10x leverage, this trader made a 100% return as the market moved upwards. Like most successful traders, they did not get greedy rather the position was closed to realize their gains before the market changed direction once again.
6. The Quick Buck
Open: 191.65 USD
Direction: Buy
Close: 205.78 USD
Profit: 1.77 BTC / 53.32%
Just a few minutes slower than the previous trader, another user profited from the bounce. When it appeared that the correction still had more momentum, this trader went long with 3.33 BTC leveraged at 10x.
The importance of not getting too greedy when trading is very clear in this trade. They could have made twice as much profit in half the time if their position was closed sooner. However, making a 53.32% return in only ten minutes remains a great result.
5. Calling the Bottom
Open: 199.44 USD
Direction: Sell
Close: 175.87 USD
Profit: 1.82 BTC / 107.31%
Our trader at number 5 managed to close a short at a lower price than any other trader. Closing the position at 175.87 USD was just 9.42 USD above the Bitfinex low of 166.45 USD.
This brave trader anticipated a retrace before a major correction and timed their entry and exit points accordingly. Consequently, their 1.69 BTC deposit generated a profit of 1.82 BTC.
4. Playing the Long Game
Open: 225.21 USD
Direction: Sell
Close: 196.53 USD
Profit: 2.03 BTC / 121.57%
Just missing out on a podium spot, we have a trader who shorted bitcoin for 27 hours. Seeing the market declining, this trader followed the trend and shorted a 1.68 BTC deposit to more than double their holdings.
However, this trader could have easily made more by realizing their gains. It was not until the market began to correct with momentum that they decided to close the position.
3. The Early Bird
Open: 268.37 USD
Direction: Sell
Close: 245.99 USD
Profit: 2.07 BTC / 75.58%
In third place we have a very interesting short. This trader was shorting before the first sell-off and kept the position open even when the price rallied 7 USD higher.
Eventually the price dropped allowing the trader to net 2.07 BTC from a 2.73 BTC deposit. This trade shows the benefits of not setting stop losses too low. While they did miss out on most of the action, they should be praised for not getting greedy and taking profits.
2. The ROI Winner
Open: 228.07 USD
Direction: Sell
Close: 185.90 USD
Profit: 2.12 BTC / 194.11%
Although this trader came second in terms of BTC, they did win in terms of % gained. A 194.11% return on investment was achieved by opening a short position with 10x leverage after the price broke key support at 230 USD.
Similar to the previous trade, they initially lost money on their position. Thankfully, their stop loss was not set too low and they kept their position open to profit hugely from large sell-offs.
1. The Whale
Open: 226.23 USD
Direction: Sell
Close: 188.84 USD
Profit: 7.33 BTC / 137.47%
In first place we have a trader that generated a 137.47% return on a 5.33 BTC deposit to produce a 7.33 BTC profit. This trader followed the market lower and was not deterred by minor corrections on the way down.
This trader was smart to close his position within 24 hours, avoiding the daily funding charge and exiting close to the bottom. The remarkable profit shows the power of 10x leverage.
Lessons to be learnt:
Do not panic if the market initially turns against you many of our profitable traders initially lost money on their position.
Do not set stop losses too low setting a stop loss to low will force you to exit a position even if you are not worried about the market moving against you.
Consider closing your positions early before each 24 hour duration this allows you to avoid a daily funding charge.
Do not get greedy closing positions guarantees your profits.
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 on Bitfinex, Bitstamp and itBit.
Re: Bitcoin Price Drops Below $200: Have We Reached the Bottom?
$20-80 will be the bottom.
Gosh, that's incredible. How do you know? If you know for sure then that is actionable to make a profit. Are you taking a short position today?Probability, hunches, and market sentiment. I know as much as everyone else. Yes I did take a short position.
On the 13th of January 2015, trading on Bitstamp through the BTC.sx trading platform resumed. The re-opening of trading has commenced smoothly with users reporting quick and reliable order execution.
Those users that had active trades on Bitstamp with our trading platform have received a full refund. We remain dedicated to operating with fiduciary responsibility and continue to refuse to impose socialized losses. Furthermore, our traders funds remained safe in cold wallet storage during the breach of Bitstamps hot wallet.
Those choosing to trade with BTC.sx had full access to their accounts during the Bitstamp downtime. Besides being able to make deposits and withdrawals, our traders were also able to switch to trading on Bitfinex or itBit instantly. This allowed many traders to take advantage of a falling bitcoin price by entering short positions with up to 10x leverage.
Click here to visit BTC.sx and see for yourself how easy it is to switch between trading on multiple exchanges.
A few days ago bitcoin reached the Denial phase of the famous cycle, now it appears to be at a point of Fear and Desperation going into Panic. Volumes are picking up to an appropriate level and price has followed surging lower as of this writing it reached a low of US$166 and is now near US$190. See the charts below:
As was pointed out, the bottom did not lock in because the down move in price was too orderly without massive volume and no typical bottoming patterns had formed.
This is still the case: volume has picked up dramatically once we broke the last visible support level at U$255. It has been running well above its 50 day moving average and the down move is beginning to look more disorderly, which are good signs that we are progressing towards a bottom.
In fact, the last 2 days have brought the highest volume days of the year. Huge surges in volume are typical in big down moves. Buyers are still coming in at certain prices in an attempt to support the stock. These buyers will be overrun as we search for a bottom. As a side note, the Mt. Gox low was U$133 and I believe this area is one that we should note as the next area, especially after the price dipped to US$166 overnight.
What is the price looking for?
This is essentially a search and discovery mission as for the most part over the last few years where bitcoin has been a traders paradise due to its volatility and respect of many technical levels. This is beginning to change as we move from trading on technicals to trading on fundamentals.
This means that the price will find a comfortable place to rest based on what people perceive the value of the technology itself is worth as well as where in the timeline of deployment with regards to the many of the projects that have been announced.
This is called price discovery and it usually happens once bubbles burst. There is an old saying: Fundamentals only matter at extremes. As bitcoins price continues its decline, we are learning this lesson right in front of our eyes.
Bottoming is a process and will not take place overnight as the price still has more work to do on the down side before any type of real bottom forms. Signs of a bottom include a tremendous drop in volume and a buying strike as people wait to see if a bottom has truly formed so they do not get burned again.
Traders may want to consider entering a short position to profit from further price declines. BTC.sx allows traders to enter short positions on Bitfinex, Bitstamp and itBit with up to 10x leverage. Click here to try us out!
Written by George Samman, Co-Founder & COO of BTC.sx
As was pointed out, the bottom did not lock in because the down move in price was too orderly without massive volume and no typical bottoming patterns had formed.
This is still the case: volume has picked up dramatically once we broke the last visible support level at U$255. It has been running well above its 50 day moving average and the down move is beginning to look more disorderly, which are good signs that we are progressing towards a bottom.
In fact, the last 2 days have brought the highest volume days of the year. Huge surges in volume are typical in big down moves. Buyers are still coming in at certain prices in an attempt to support the stock. These buyers will be overrun as we search for a bottom. As a side note, the Mt. Gox low was U$133 and I believe this area is one that we should note as the next area, especially after the price dipped to US$166 overnight.
What is the price looking for?
This is essentially a search and discovery mission as for the most part over the last few years where bitcoin has been a traders paradise due to its volatility and respect of many technical levels. This is beginning to change as we move from trading on technicals to trading on fundamentals.
This means that the price will find a comfortable place to rest based on what people perceive the value of the technology itself is worth as well as where in the timeline of deployment with regards to the many of the projects that have been announced.
This is called price discovery and it usually happens once bubbles burst. There is an old saying: Fundamentals only matter at extremes. As bitcoins price continues its decline, we are learning this lesson right in front of our eyes.
Bottoming is a process and will not take place overnight as the price still has more work to do on the down side before any type of real bottom forms. Signs of a bottom include a tremendous drop in volume and a buying strike as people wait to see if a bottom has truly formed so they do not get burned again.
Traders may want to consider entering a short position to profit from further price declines. BTC.sx allows traders to enter short positions on Bitfinex, Bitstamp and itBit with up to 10x leverage. Click here to try us out!
Written by George Samman, Co-Founder & COO of BTC.sx
Has Bitcoin Gone for a Random Walk?
This analysis will look at bitcoins cycles of volatility and stability to identify trading strategies during random walks.
Background Information
What is Random Walk Theory?
A random walk is a large pattern that is formed by the cumulative effect of small changes. This is often applied in finance to mean the price of an asset drifting in a particularly direction, with no major price swing being the sole cause. Consequently, price changes appear to be random and hard to predict.
What do random walks have to do with bitcoin?
Although bitcoin is (in)famous for its volatility, the price has been through two periods of random walks. These periods are the majority of 2012 and the second half of 2014.
Why should bitcoin traders care about random walks?
As our analysis shows, traders should adopt different trading strategies when bitcoin enters phases of random walks. Namely, keeping positions open for longer and using more leverage can help traders earn returns during random walks. This is because price changes are less sudden and smaller, requiring greater patience and more funds to achieve the same profits enjoyed outside of random walks.
Bitcoin Technical Analysis
Introduction to analysis
This analysis was made using a Random Walk Index (RWI) and the Chart Mill Value indicator (CVI).
The RWI measures the strength of market movements by comparing price movements to acceptable trading ranges. Thus a small price movement can be explained by random walk, while larger movements are part of a larger market trend.
The CVI identifies price ranges that are over-bought or over-sold. Relying on moving averages to identify extreme price deviations is less accurate because a long-term price deviation is hidden when the moving average follows the price closely. This happens frequently during random walks. In contrast, the CVI divides the spread by the average true range to give more accurate results.
The TradingView scripts were written by LazyBear. This author highly recommends following LazyBear on TradingView and thanks him for his scripts that made this analysis possible. LazyBears extensive range of scripts can be downloaded here.
Long-term bitcoin analysis
One should read this chart from the bottom to the top.
RWI chart
Starting from the bottom of the chart, the RWI is plotted with a red line for price highs, and a blue line for price lows. When these two lines are closer together, the price is less volatile thus, price movements are much more likely to be a result of random of walk. Conversely, when the two lines are further away, price changes are more likely to be driven by market trends, particularly greed-fear cycles.
When the RWI of price highs (red line) is above 1, there is a good chance of a sustainable rally. However when the RWI of price lows (blue line) is above 1, there is a good chance of a deep correction. A trader can use these indicators in the same way that moving averages are used to identify bullish or bearish trends. The histogram above this simply presents the same data on just one scale.
A key observation from this RWI chart is that crossovers appear to be consistent indicators of an incoming change in price direction.
It looks like the next crossover will occur in late March 2015, which is shown by the RWI chart; this is consistent with support/resistance levels.
Logarithmic chart
It is apparent that bitcoin enters phases of bubbles, separated by random walks. This becomes more clearer when charting basic long-term support and resistance levels.
With a good degree of fit, it looks as if there is a channel in which bitcoin enters a random walk. When the price drifts out of this random walk channel, it is because of a significant market trend. The price breaking out of this channel is a very bullish sign, with further gains to be made in most occasions.
This random walk channel theory provides good evidence for bitcoins price following a biennial (two year) cycle: a volatile year, and then a year of random walk. If one were to add data from Mt. Gox, a biennial cycle is even clearer:
2011 Price rally
2012 Positive random walk
2013 Two price rallies
2014 Negative random walk
If this pattern holds true, one can expect 2015 to feature a price rally, followed by a positive random walk in 2016.
Lets take a look at how this information can be used for short-term bitcoin trading.
Short-term bitcoin analysis
This chart should be read from the top to the bottom.
Logarithmic chart
The top price chart simply examines the price directly before and after entering the random walk channel. The trend line being broken in July is when bitcoin starts the random walk.
By simply looking at the chart, the price exhibits more gradual price movements, which are indicative of a random walk, after July. Up to July, the price is much more volatile.
RWI chart
This time the RWI chart is using seven periods (days in this case) to assess short-term volatility. It is interesting to see that there are fewer large price movements defined as movements greater than a RWI of 4 after the price starts its random walk. Before July, the price mostly changes direction at a RWI of 4. After July, volatility rarely exceeds a RWI of 3.
A trader can use this RWI chart to time the opening and closing of short positions. Namely, when the RWI of price lows (blue line) is increasing and moving towards a RWI of 3, a short position should be opened. When a RWI of 3 is reached, the position should be closed. This is the acceptable range of price movement within a random walk, and the market is likely to start correcting at this point.
CVI chart
The CVI chart identifies over-bought/sold prices with greater accuracy than moving averages. Unfortunately, since bitcoin entered the random walk, there is less scope to profit from a less volatile price. This means that in percentage terms, traders are likely to be experiencing lower returns since July.
However, traders can still achieve the same returns in BTC. If leverage / margin trading is used, the same profits in BTC can be made because the trader is using more funds to compensate for the lack of volatility. If the volatility drops by 50%, trading with 100% larger positions will lead to equal gains of BTC.
Furthermore, beginner traders could benefit from using a simple CVI chart to time entry and exit positions. By trading to this chart, emotions can be removed from trading decisions, leading to buying when the price is low and selling when the price is high. This method helped BTC.sx CEO turn $100 into $200,000.
Conclusion
The purpose of this analysis has been two-fold: one, analyse whether bitcoin is following a random walk; two, provide trading recommendations. The key trading recommendations can be summarized as follows:
1. Watching the long-term RWI chart for crossovers can help traders find the start of bullish or bearish price trends.
2. Significant levels of price volatility is not expected until late March 2015.
3. When the RWI of price lows (blue line) is increasing and moving towards a RWI of 3, a short position should be opened. When a RWI of 3 is reached, the position should be closed.
4. The CVI chart can be used to time the opening and closing of positions with greater accuracy than moving averages.
5. To compensate for the lack of volatility, consider trading with leverage.
Written by Josh Blatchford, CMO of BTC.sx, a bitcoin trading platform that supports up to 10x leverage on Bitfinex, Bitstamp and itBit
This analysis will look at bitcoins cycles of volatility and stability to identify trading strategies during random walks.
Background Information
What is Random Walk Theory?
A random walk is a large pattern that is formed by the cumulative effect of small changes. This is often applied in finance to mean the price of an asset drifting in a particularly direction, with no major price swing being the sole cause. Consequently, price changes appear to be random and hard to predict.
What do random walks have to do with bitcoin?
Although bitcoin is (in)famous for its volatility, the price has been through two periods of random walks. These periods are the majority of 2012 and the second half of 2014.
Why should bitcoin traders care about random walks?
As our analysis shows, traders should adopt different trading strategies when bitcoin enters phases of random walks. Namely, keeping positions open for longer and using more leverage can help traders earn returns during random walks. This is because price changes are less sudden and smaller, requiring greater patience and more funds to achieve the same profits enjoyed outside of random walks.
Bitcoin Technical Analysis
Introduction to analysis
This analysis was made using a Random Walk Index (RWI) and the Chart Mill Value indicator (CVI).
The RWI measures the strength of market movements by comparing price movements to acceptable trading ranges. Thus a small price movement can be explained by random walk, while larger movements are part of a larger market trend.
The CVI identifies price ranges that are over-bought or over-sold. Relying on moving averages to identify extreme price deviations is less accurate because a long-term price deviation is hidden when the moving average follows the price closely. This happens frequently during random walks. In contrast, the CVI divides the spread by the average true range to give more accurate results.
The TradingView scripts were written by LazyBear. This author highly recommends following LazyBear on TradingView and thanks him for his scripts that made this analysis possible. LazyBears extensive range of scripts can be downloaded here.
Long-term bitcoin analysis
One should read this chart from the bottom to the top.
RWI chart
Starting from the bottom of the chart, the RWI is plotted with a red line for price highs, and a blue line for price lows. When these two lines are closer together, the price is less volatile thus, price movements are much more likely to be a result of random of walk. Conversely, when the two lines are further away, price changes are more likely to be driven by market trends, particularly greed-fear cycles.
When the RWI of price highs (red line) is above 1, there is a good chance of a sustainable rally. However when the RWI of price lows (blue line) is above 1, there is a good chance of a deep correction. A trader can use these indicators in the same way that moving averages are used to identify bullish or bearish trends. The histogram above this simply presents the same data on just one scale.
A key observation from this RWI chart is that crossovers appear to be consistent indicators of an incoming change in price direction.
It looks like the next crossover will occur in late March 2015, which is shown by the RWI chart; this is consistent with support/resistance levels.
Logarithmic chart
It is apparent that bitcoin enters phases of bubbles, separated by random walks. This becomes more clearer when charting basic long-term support and resistance levels.
With a good degree of fit, it looks as if there is a channel in which bitcoin enters a random walk. When the price drifts out of this random walk channel, it is because of a significant market trend. The price breaking out of this channel is a very bullish sign, with further gains to be made in most occasions.
This random walk channel theory provides good evidence for bitcoins price following a biennial (two year) cycle: a volatile year, and then a year of random walk. If one were to add data from Mt. Gox, a biennial cycle is even clearer:
2011 Price rally
2012 Positive random walk
2013 Two price rallies
2014 Negative random walk
If this pattern holds true, one can expect 2015 to feature a price rally, followed by a positive random walk in 2016.
Lets take a look at how this information can be used for short-term bitcoin trading.
Short-term bitcoin analysis
This chart should be read from the top to the bottom.
Logarithmic chart
The top price chart simply examines the price directly before and after entering the random walk channel. The trend line being broken in July is when bitcoin starts the random walk.
By simply looking at the chart, the price exhibits more gradual price movements, which are indicative of a random walk, after July. Up to July, the price is much more volatile.
RWI chart
This time the RWI chart is using seven periods (days in this case) to assess short-term volatility. It is interesting to see that there are fewer large price movements defined as movements greater than a RWI of 4 after the price starts its random walk. Before July, the price mostly changes direction at a RWI of 4. After July, volatility rarely exceeds a RWI of 3.
A trader can use this RWI chart to time the opening and closing of short positions. Namely, when the RWI of price lows (blue line) is increasing and moving towards a RWI of 3, a short position should be opened. When a RWI of 3 is reached, the position should be closed. This is the acceptable range of price movement within a random walk, and the market is likely to start correcting at this point.
CVI chart
The CVI chart identifies over-bought/sold prices with greater accuracy than moving averages. Unfortunately, since bitcoin entered the random walk, there is less scope to profit from a less volatile price. This means that in percentage terms, traders are likely to be experiencing lower returns since July.
However, traders can still achieve the same returns in BTC. If leverage / margin trading is used, the same profits in BTC can be made because the trader is using more funds to compensate for the lack of volatility. If the volatility drops by 50%, trading with 100% larger positions will lead to equal gains of BTC.
Furthermore, beginner traders could benefit from using a simple CVI chart to time entry and exit positions. By trading to this chart, emotions can be removed from trading decisions, leading to buying when the price is low and selling when the price is high. This method helped BTC.sx CEO turn $100 into $200,000.
Conclusion
The purpose of this analysis has been two-fold: one, analyse whether bitcoin is following a random walk; two, provide trading recommendations. The key trading recommendations can be summarized as follows:
1. Watching the long-term RWI chart for crossovers can help traders find the start of bullish or bearish price trends.
2. Significant levels of price volatility is not expected until late March 2015.
3. When the RWI of price lows (blue line) is increasing and moving towards a RWI of 3, a short position should be opened. When a RWI of 3 is reached, the position should be closed.
4. The CVI chart can be used to time the opening and closing of positions with greater accuracy than moving averages.
5. To compensate for the lack of volatility, consider trading with leverage.
Written by Josh Blatchford, CMO of BTC.sx, a bitcoin trading platform that supports up to 10x leverage on Bitfinex, Bitstamp and itBit
Again, nice post!
Chart #2 by Dan is one that I would like to comment on. Elliot wave theory does not tell what the amplitude of a wave will be. That is down to the ability of the chartist to use other tools like Fibonacci. Even then, you only have "typical" results to expect and must use other means to determine when a wave is complete. EW gives you the direction and the structure to look for, Indicators/Fibo tell you when to exit.
Great insight. We just might have to do a follow-up article explaining how to use EW and Fibo together...Chart #2 by Dan is one that I would like to comment on. Elliot wave theory does not tell what the amplitude of a wave will be. That is down to the ability of the chartist to use other tools like Fibonacci. Even then, you only have "typical" results to expect and must use other means to determine when a wave is complete. EW gives you the direction and the structure to look for, Indicators/Fibo tell you when to exit.