If you wind the clock back 6 months there was only one direction associated with Bitcoin: up. Now, we are in a much different place than that mad December rush. Bitcoin and all other major cryptocurrencies have fallen, undergoing a widespread price correction that was, honestly, needed. But barely anyone has tried to make profit whilst Bitcoin has fallen.
What has happened to most people since the crypto craze is they have lost money. With price currently hovering around the $7,000 price line, not many are sitting in profit with their Bitcoin investments. Perhaps you already jumped ship and took the loss to fight another day.
Here is where the critical difference between investing and trading comes into play. Trading cryptocurrencies does not restrict you to one hopeful outcome of price pushing ever higher. You can make money by shorting Bitcoin – and any other crypto for that matter!
What do we mean by shorting Bitcoin? Well, with currency trading you have two options – buying or selling a currency. When Bitcoin is falling, you don’t want to buy Bitcoin because the value is decreasing. Instead, you want to sell Bitcoin.
Let’s take an example: BTC/USD valued at $7,000. If Bitcoin’s value is falling and you want to short it, you are selling Bitcoin and buying USD. When you exit the trade the value of Bitcoin has decreased against the USD. Let’s say the value of BTC/USD is now at $6,500. Since you bought USD and not Bitcoin, you have gained money!
The crypto trading market is in its early days. The the current crypto trading climate and the early forex trading climate are extraordinarily similar. Large forex brokers are penetrating the cryptocurrency market just as they did with the forex market back in the early 2000’s. Volatile currency swings are the norm for crypto pairs right now – this was the same with forex.
There is a big opportunity to make money by shorting Bitcoin and other cryptocurrencies. This is not on a long term scale – it is on an hourly basis. Day trading strategies for cryptocurrencies are in early developmental stages but the strategies range from hourly to monthly timeframes. So what should you be on the lookout for if you want to short Bitcoin or any other crypto?
A continuation trade gives you, the cryptotrader, a few advantages that are critical to trading cryptocurrencies:
- Trading with the trend.
- Trading from an established support or resistance area.
- Maintain simple but effective chart reading.
Reducing your exposure to risk is vital in a new and volatile trading market. This is why continuations are one of the best trade setups you should look out for.
Trading with the trend immediately reduces the risk of price turning against you. If price is trending, you can hop onto the momentum that bulls or bears currently have and enter a trade with relatively low risk. If you are an experienced trader, you will know that trend trading brings about great results with fiat currencies. With cryptos, trend trading can bring about some fantastic trades that give great returns.
Combining a continuation trade with existing support or resistance areas will reduce your risk even more. Support and resistance areas are placed based on previous price action. These SR areas help you to find entry points, target points, and stop losses. They are invaluable in a trader’s arsenal when combined with trend trading.
Lastly, continuation trading keeps your chart clean and easy to understand. Too many traders nowadays have two or more indicators that can quickly cause confusion – especially for new traders. This is why continuation trading is so effective. You are able to carry out your analysis of a pair without being bogged down by confusing indicators. Reading price action is great at keeping your analysis simple but incredibly effective.
Let’s see if you can spot the short continuation setup in the following image:
Do you see it? Take your time – remember that you are looking for a short continuation setup. Be on the lookout for price trending!
Alright, let’s see how you did!
Now, this is on the daily chart of Bitcoin and you can see that price is trending down quite strongly before the green arrow.
The continuation is when price pushed up (the white candle) and found resistance at an established SR area. How do we know it is established?
Well, price has previously struggled to push through this area, highlighted by the horizontal blue area. What has happened is that price pushed through support and then retraced back to it.
However, the line that previously acted as support is now acting as resistance at the green arrow. This confirmation of the SR area then provides us traders with an opportunity to trade with the downtrend.
So, with price struggling to push through resistance we can look for an entry to go short! Pretty simple, right?
This is why continuation trading is so effective. It reduces your exposure to risk by an incredible amount whilst keeping your analysis simple yet effective. There are no triangles or flags or fibonacci indicators needed to spot these continuations. You simply read price action and trade with the trend so you can take advantage of who currently holds control over price.
Shorting Bitcoin and other cryptocurrencies is more than viable – it is highly profitable. Don’t be afraid to short cryptocurrencies! We have seen in the past 6 months that trading cryptos is now possible. There is a reason all the big forex brokers are introducing cryptocurrency to their trading portfolios.
Start out small and simple with your crypto trading journey. Demo trading is available on multiple broker platforms. Use this to have some fun! Test some strategies and certain setups. Continuation trading is one of hundred of different options that lay in front of you. Making profit when Bitcoin falls is more than possible – it is highly profitable!