The most popular and most-used strategies in bitcoin futures markets are often the simplest.
In this article, you will discover three practical bitcoin futures trading strategies that anyone can execute.
Long Bitcoin Futures
“Going long” is arguably the most used and simplest strategy in the bitcoin futures market. If you think the price of bitcoin is going to rise you buy a futures contract – also known as going long.
You can buy futures that expire soon, say in a month or two, or futures that expire far in the future, like a year or more. The timing of the future will also affect the price you pay for it. Learning about the time value of futures is a smart thing to do because sometimes it might be better to buy a future with four months until expiration instead of one with three or two months.
If you are right about the direction the price of bitcoin will take, you can sell the futures contract for a profit.
On the other hand, if you’re wrong about the direction price will take, you’ll end up with a loss when you sell the future. In fact, the loss could be even greater than your initial investment when bitcoin futures contracts are purchased on margin. While leverage can increase profits dramatically, it can also increase losses dramatically.
Short Bitcoin Futures
While buying futures is easy enough for most, the concept of selling something you don’t already known – called “going short” – can create confusion for new traders. It’s easy enough to get past though, you just have to keep in mind that a futures contract is a commitment to buy or sell something in the future.
When you sell a futures contract, it simply represents your commitment to sell the underlying asset, in this case bitcoin, at a set price at a set time in the future. You don’t actually need to own the bitcoin when you sell the futures contract. Plus, you’ll never have to actually buy any bitcoin because you won’t be making delivery on the contract.
Aside from the psychological roadblock associated with going short, selling a bitcoin future is no harder than buying. If you believe the price will fall, you go short. You get to sell as easily as buying.
If your analysis of the market is correct and the price of bitcoin falls, you earn a profit. However, if the market moves against you you’ll be facing a loss.
Day Trading Bitcoin Futures
The third bitcoin futures trading strategy – day trading – combines the previous two strategies into one. Day trading is a popular strategy used by traders who want to get in and out of positions to make a small profit on each trade. They do that several times throughout the day.
Bitcoin is known for its volatility, and traders who close their futures positions at the end of each trading day know they will avoid any strong moves against them that could cause a massive loss.
Learning to day trade isn’t difficult but there is a learning curve. One of the most important things to learn is the psychological aspect of this trading strategy. There will come a time where the trading day ends and the price of bitcoin is moving in your favor. You may be seeing the position erasing earlier losses or you may see it adding to your gains. Your impulse will be to keep the trade going because right now price is trending in your favor.
You will need to learn not to give in to that impulse. The primary rule of day trading is to close out all your positions at the end of the trading day. If you can’t follow that rule you aren’t day trading.
In Conclusion
The leverage of futures contracts and the volatility of bitcoin combine to create some of the most exciting trading opportunities you’ll find the markets. It can also yield substantial profits. So, it’s no wonder traders are attracted to it.
Futures markets will present newcomers with some challenges, but learning practical bitcoin trading strategies can put anyone on the right path towards successful bitcoin futures trading.
Additional Reading:
- How Do Bitcoin Futures Work?
- Bitcoin vs. Bitcoin Futures: Which is the Smarter Investment?
- NASDAQ Bitcoin Futures: The Complete Guide
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