Master Bitcoin Volatility: A Practical Guide to Short-Term Trading Strategies

The Crypto industry has developed over 15 years, experiencing multiple bull and bear cycles. Although each bear market has seen astonishing declines, the continuous new highs in trading volume and market capitalization prove the true value of this market. From the perspective of asset allocation and risk hedging, Crypto has become an indispensable part of modern investment portfolios.

As the largest market cap Crypto, Bitcoin’s price volatility is intense, and market reactions are敏锐, attracting a large number of short-term speculators. Profiting from Bitcoin’s price fluctuations has become a primary strategy for many traders. However, it must be recognized that the Bitcoin market carries higher risks and short-term trading is more challenging. This article will delve into how to conduct Bitcoin short-term trading and share core indicators to focus on in practice.

Definition and Classification of Short-term Trading

What is short-term trading?

Short-term trading refers to completing buy and sell operations within a short period. For example, if you buy Bitcoin at $20,000 and sell when it rises to $20,050 on the same day, this is a typical short-term trade (day trading).

But “short” and “long” are relative concepts. Buffett once said: “If you’re not willing to hold a stock for 10 years, don’t hold it for more than 10 minutes.” Although this is well-known advice, most people lack that much patience. Traders will close positions when the target price hits stop-loss or take-profit points, which is considered short-term trading compared to value investing. Because each person sets different stop-loss and take-profit levels, this article focuses on intraday trading and next-day trading.

Intraday Trading: Enter and close the position on the same day. Since positions are not held overnight, even with leverage, no interest needs to be paid, making it suitable for small capital seeking high returns.

Next-day Trading: Enter today and close tomorrow. Because it spans over one day, if leverage is used, overnight fees are payable, so it is more suitable for more volatile assets. If the asset’s trend is stable, interest costs can erode profits.

Who is suitable for short-term trading?

Investment methods vary widely. Some adopt value investing, some trade based on major news releases, and others seek intraday opportunities when the market is exhausted. Each approach has successful and unsuccessful practitioners.

But if your capital is limited and you need high turnover to increase returns, short-term trading becomes a relatively suitable choice. On one hand, small trading volume won’t cause significant price swings; on the other hand, increasing turnover can quickly boost total returns, making it a preferred method for many young investors.

Trading Mode Selection

Crypto trading is divided into spot trading and margin trading. Because short-term trading aims for short-term price fluctuations, margin trading, which supports both long and short positions with leverage, is more suitable for short-term operations.

Spot Trading Example: Suppose you have $10,000 and predict Bitcoin will rise 10%. Buying spot can only yield a 10% profit, i.e., $1,000.

Margin Trading Example: With the same $10,000, you can leverage 2-10 times. If your prediction is correct and Bitcoin rises 10%, you can profit $10,000 (100% return), or you can invest only $1,000 with leverage, leaving $9,000 to wait for opportunities.

Another scenario is shorting. If you expect Bitcoin to drop sharply, spot trading can only wait for the decline to buy the dip. But margin trading allows short selling; with accurate judgment, you can earn substantial profits.

Core Indicators for Judging Buy and Sell Signals

Predicting Bitcoin price trends requires paying attention to market news and using multiple technical indicators as references. Common indicators include moving averages, RSI, support and resistance levels, Bollinger Bands, etc. Here is a detailed explanation:

Moving Average (MA)

Moving averages are lines drawn based on past price changes. Short-term traders often use MA50 and MA200 to determine buy and sell timing.

Here, 50 and 200 refer to the number of 5-minute K-bars, not days. MA50 is calculated based on the closing prices of the past 50 five-minute bars, MA200 based on the past 200 bars.

Golden Cross: When MA50 rises and crosses above MA200, it indicates strong short-term buying momentum, surpassing the long-term average, and is usually a buy signal.

Death Cross: When MA50 falls and crosses below MA200, it indicates the support of MA200 has been broken, and short-term sellers dominate, usually signaling a sell or short opportunity.

RSI (Relative Strength Index)

RSI measures the magnitude of recent price gains and losses, ranging from 0-100, with different zones indicating market states:

When RSI is between 30-70, the market has no clear trend, and prices may oscillate sideways.

RSI below 30 indicates oversold conditions, and prices may rebound; consider buying.

RSI above 70 indicates overbought conditions, and prices may fall back; consider selling or shorting.

Support and Resistance

When the asset price fluctuates within a certain range over a period, a trading zone is formed. When the price rises to a certain level and encounters selling pressure, it falls; when it drops to a certain level and finds buying support, it stabilizes. The upper boundary is called resistance, and the lower boundary is support.

Investors can buy low and sell high within the range but must closely monitor changes. If the price breaks above resistance, it indicates buyers are in control, and the price will likely continue upward—follow the trend to buy. If the price breaks below support, it indicates sellers dominate, and the price may continue downward—sell or short promptly.

Bollinger Bands

Bollinger Bands consist of a middle line and upper and lower bands. The middle line is the moving average, and the bands are based on standard deviation of prices.

Long-term, the asset price tends to follow a normal distribution, with about 95% of prices within two standard deviations. When the price breaks out of the ±2 standard deviation bands, it is a low-probability event, and contrarian trades tend to have higher success rates.

Therefore, when the price falls below the lower Bollinger Band, consider going long; when it rises above the upper band, consider selling or shorting.

Important Reminder: All the above indicators are tools to improve win rates. Do not rely solely on a single indicator. Use multiple indicators together and consider market news to increase trading success.

Practical Experience Sharing in Short-term Trading

Capital Management Principles

When starting trading, it is essential to identify appropriate entry points and develop a reasonable capital allocation strategy to keep risks within acceptable limits.

• Develop a reasonable capital allocation strategy. Avoid overemphasizing turnover and trading excitement; adjust and strictly follow your plan at all times.

• Control the size of each trade. Short-term trading is volatile; avoid investing too much capital. It is suitable for small funds to test waters, and increase allocation as capital grows.

• Keep short-term positions light. Even if your overall portfolio is ample, the proportion of short-term trades should remain small; otherwise, a misjudgment can significantly impact your overall assets.

Entry Timing

You can refer to technical indicators like MA, RSI, Bollinger Bands, etc., and choose different time frames based on your trading frequency.

• For intraday trading, look at daily K-lines, but also consider 5-minute or 30-minute K-lines for details.

• For longer trading frequencies, select longer time frames.

Leverage Usage Tips

Never over-leverage or “go all-in” with leverage. Always remember, while performance is amplified, so is risk.

Set and Strictly Execute Take-Profit and Stop-Loss

Setting clear take-profit and stop-loss points and strictly executing them is crucial. The profit percentage must be greater than or equal to the loss percentage. Avoid taking small profits while hesitating to cut losses. Such asymmetric trading will eventually erode returns.

Conclusion

Returns always come with risks. Short-term trading can generate high returns through high turnover and leverage in a short period, but it also involves corresponding risks. Therefore, investors must carefully control the total amount of capital used for short-term trading and strictly follow stop-loss and take-profit strategies. Sharing these strategies with others can help you become a market winner.

Bitcoin short-term trading is not easy and requires traders to have sufficient knowledge, skills, and psychological resilience. We hope this detailed explanation can assist your Bitcoin trading practice. The road of trading is long; stability and discipline will always bring longer-term gains better than impulsiveness and recklessness.