When Bitcoin gets Aggressive, Should You?

Bitcoin is well known for its sporadic volatility. When it gets quite volatile, traders are typically caught unaware and don’t know how to respond. 

With spot trading in my HODL account, I typically favor the ‘set orders and wait’ approach rather than the reactive approach. However, there are times when a reactive approach can be far more profitable. Take a look over the examples of this below that go over the two different methods. Trader A takes trade as immediately as possible when he sees volatility, Trader B uses the set orders and wait approach. 

(Scenarios from the chart above)

Trader A: He is trying to sell his BTC because he’s bearish and is waiting for a good price to do so. He sees BTC drop on high volatility on a 1H candle and then decides to sell at 39000. 

 

Trader B: He is also trying to sell his BTC, but he decides that a good area to do so would be between 41000 and 41300 because this area is likely full of short’s stop losses. He sets offers throughout that price area. 

In this example, Trader B would have fared far better than Trader A as he had sold at a price more than 2000 USD higher by using the set and wait approach. 

 

However, there are times that Trader A will outperform Trader B in the short-term/medium-term. 

(On the chart above)

Trader A: He is trying to buy BTC because he’s bullish and is waiting for a good price to do so. He sees BTC rise on high volatility on a 1H candle and then decides to buy at 39500. 

 

Trader B: He is also trying to buy BTC, but he decides that a good area to do so would be between 38500 and 38700 because this area is likely full of trapped sellers. He sets bids throughout that price area. 

 

 

In this example, if both traders were short-term or medium-term minded, then trader A would be doing better because he would have a large profit in the coming days after his buy. However, if both traders were long-term minded, trader B is doing better because he was able to buy at a lower price.

 

Which trader is making the better trade in the example above? There is no correct answer to this question, rather just pros and cons for both. Trader A was able to get a better situation in the short-term as buying at a great price allowed him ample opportunity to take profit at a higher price. On the flip side, trader B was able to actually buy at a lower price in the long run which gave him more BTC.

 

Many beginning traders fall into the Trader A category. They solely react to what is happening in the present moment rather than thinking about the possible outcomes of the future. Is there a single best way to handle volatile market movements against you? There is not a single best method.

 

However, know that short-term momentum in one direction tends to fuel more momentum in that direction, thus Trader A strategies can outperform in the short-term. In the longer term, Trader B’s strategy tends to perform far better due to an increased probability that comes with time that any limit order you set price will be filled. 

 

Both of these earlier examples covered what happened when BTC didn’t move in the direction that one of these traders wanted. Let’s look over strategies where price moves aggressively in both of these Traders’ favor. 

(On the chart above)

Trader A: He market bought BTC at an average price of 60000 on the strong upmove that occurred 10 hours prior. He plans to sell on a strong bearish candle.

Trader B: He set bids just below the lows at 58000 and was fortunate to get filled at an average price of 57800 on an aggressive price wick indicated by the arrow. He plans to sell 50% of his BTC holdings just above 62000 at an average price of 62200 and the other 50% of his BTC holdings just above 64000 at an average price of 64100. 

 

Trader A ends up selling at an average price of 65000 after the strong selling occurred on the bearish candle indicated while both of Trader B’s offers filled far earlier. 

 

Trader A’s momentum trading is only a successful strategy if you are incredibly good at recognizing the short-term strength of the buyers/sellers. 

 

Trader B’s slower strategy of setting good bids/offers and letting moves happen without reacting is a great method for those who have a farther out timeframe to HODL and are not afraid of volatility. 

 

However, in my experience I have found that trader B’s slow strategy of waiting for limit orders to fill is far better in the long-term whereas trader A’s strategy can at times be slightly better in the short-term.  If you can afford some time, patience is usually the better route to take.

error: