How I’m Trading Bitcoin, Cryptocurrencies For Profit

Bitcoin and other cryptocurrencies are very volatile. Their prices in euros or dollars fluctuate a lot, sometimes with multiple digits per day. Trading bitcoin can, therefore, be very risky. In this article, I will explain how I trade bitcoin and other cryptocurrencies as a fun side project.

The Basics of Trading any Asset

The basics of trading any asset (such as stocks) is that you buy them low, and sell them high. If you can do that reliably you will make a lot of profit. The problem is of course, how do you predict when an asset is going to rise and dip.

Professional traders use a technique called “technical analysis” to predict the movement of prices. They are using patterns they see on the charts to predict where the price is going to. Personally, I don’t really believe in this technique. I mean, there is some truth to it, but it all depends on being a self-fullfilling prophecy to work.

That’s why I own most of my assets in a buy and hold portfolio. That simply means I buy every month, and never sell (unless I need the money). That prevents me from trying to time the market and losing a lot of gains that way.

Even though most of my money is in “boring” investments that I don’t trade, I do like to trade gamble a little bit on the side with cryptocurrencies. I mean, there is money to be made and who doesn’t like that? Let’s look at how I do this.

Swing Trading Bitcoin and Litecoin

Swing trading is a very simple technique I like to use when trading bitcoin and other cryptocurrencies. You simply rely on volatility to execute a pair of orders. Let me give you an easy example.

Say coin XYZ is trading at 10 euros, but experiencing 20% volatility on a regular (daily) basis. I could then put in two orders: a buy order at 9 euros and a sell order at 11 euros. Since I can reasonably expect the price to fluctuate that much, I’m fairly certain the order will execute, leaving me with more money than I had before.

trading bitcoin
trading bitcoin

Swing trading relies on the price of the asset going through a curve, both up and down. A problem occurs when the price dips below your buying point but then continues to drop, potentially never executing the sell order. This is especially dangerous when trading between crypto and real money – i.e. euros and dollars.

Trading Bitcoin to Other Crypto

In the past, I have made (and lost!) some money trading several cryptocurrencies to euros making swing trades.

The problem was, however, that I lost quite some money when the swing trade executed the first order but then never executed the second order due to the price exploding in the wrong direction.

Therefore, I only execute swing trades these days between cryptocurrencies. I especially like to trade bitcoin and litecoin to each other. I look at the price ratio between the two and see that the pair usually trades between 0.010 and 0.016 bitcoin per litecoin. Within that bandwidth, I’m now trying to swing trade the two coins.

The risk I mentioned in the previous section is still there. It is never guaranteed that the price ratio of bitcoin and litecoin will stay within this bandwidth. However, I’m still “exposed” to crypto even though the trade fails. I mean, when I buy bitcoin with litecoin or the other way around, I’m not out of the market if it takes the trade a month to complete (generally I’m aiming for a week maximum).

Last month I made a fairly large trade, yielding in almost 2,000 euros profit (at current prices). I bought litecoin using bitcoin, at 0.0134 and sold it a few weeks later at 0.0165.

Going forward, I will try to make the trades much faster, looking at a 2-3% spread instead of 20-30%, lowering the risk of trades not executing. Plus, I get to play around with the API to automate this trading (otherwise it will be too much work).

Could I Automate Trading Bitcoin?

The algorithm I use seems to be pretty simple. I will be using the volatility of bitcoin and litecoin to perform a lot of small trades every day. This will incur some costs, yes, but it minimises the risk of having too many coins “stuck” in a trade when the price moves in the wrong direction.

What I plan to do is create an Excel spreadsheet with macros executing my trading algorithms. During the day, I can simply have the spreadsheet open on my computer to automatically execute these orders.

I’m still working on the exact algorithm, but it seems to be fairly simple. Every few minutes, the macro should check my BTC and LTC balance via the API. When the balance is sufficient, it should place a pair of orders with the buy side of the order at the spot price minus 1%, and the sell side of the order at the spot price plus 1%.

Every time the macro runs, let’s say every five minutes, it checks the balance, opens the orders, and that’s it. I can even make it fetch the orders that are executed to create all kinds of cool reporting. Even though he despises cryptocurrencies, Geldnerd could be proud of me using Excel macros to build this trading tool. I mean, it’s all fun and games. Most of my money will stay in the boring old index funds.

Did you ever trade cryptocurrencies? How did you do?

8 thoughts on “How I’m Trading Bitcoin, Cryptocurrencies For Profit”

  1. Crypto space is very interesting and I am not suprised that many people (including myself) want to benefit from it.

    It is also interesting to see what the Bitcoin “halving” will do to the prices. Bitcoin block reward halving will happen in 19th of May 2020. We might see a long bull run before that. So now it can be very profitable times to trade (or just buy & hold) Bitcoin.
    I actually wrote a post about cryptocurrencies and their potential:

    – Nordic Fire

  2. I like this idea and would like to try myself: so far I’m moderately successful in FX-trading (I don’t quite understand why only a minority seem to generate a profit from FX-trading… the strategy you described above for the bitcoin works quite well for EUR/USD also). I make few hundred eur annually with this strategy on EUR/USD.. not spectacular, but I consider this a hobby)
    Given the volatility of BTC, my bet would be this should be more successful than my current EUR/USD hobby.
    – what platform are you trading BTC/LTC and maybe you can write-up a guide .. something like you did for the ETFs too.

    • Hi Vincent, I trade cryptocurrencies at both Coinbase Pro (used to be called GDAX) and Bitstamp. Lately, I have used Bitstamp more, in the past, I used GDAX a lot. I will definitely write an article about this once I’ve built my first automated trading tool. That might take a while though…
      Thanks for stopping by!

    • Hi Vincent,
      do you have any link to more info about this strategy for EUR/USD, before investing I started doing this social trading and also tryed trading myself, learning some harsh lessons, deciding that maybe it is not for me (burned 50% of my money allocated to try that) Evene though I tried to learn a lot (it wasnt enough) and followign some technical analysis, in the long run it was a big loss. but as mentioned, index funds is boring and if I could have some fun with minimum money and make it profitable I would give it a last chance :)

      • Hi Jan,
        the strategy for Forex trading in similar fashion as B describes in this post: sell/buy if certain ratio is favorable, take small profits (swings).
        Now my experience/learnings and approach in EUR/USD cannot (yet) be described in a fixed set of rules/strategy, but I’m happy to share my main strategies… perhaps somebody find it useful or even is able to comment and advice some more.

        First: I only sell (short), never buy… since the ” swap” (daily roll-over fee) yields a positive amount (with my broker: XM.COM, Standard account)
        Second: I mainly use the bollinger bands (Upper Band Pullbacks, time 1 minute) to indicate a sell trigger (only recently I added Relative strength (RSI) and moving average crossover strategies.. see this page: ).
        in short: when the signal crosses the upper band AND the rate at that point is above the 24hr average (actually, more like at 75% between min and max value or past day, I anticipate a drop.
        I initiate a sell, and a automated take profit at 0.00100 (e,g. open at 1.10600 take profit at 1.10500). Now the thing that most people probably find reckless: I do not use stop-loss… if I was wrong and the rate increases … my “losses” go up… but I never sell until the TP is triggered. Now… you need enough balance to be able to handle such… I started with 500 EUR, trade only 0.01 size initially. I open maximum 4 trades simultanously.
        Sometimes the “losses” increases over a few days… adding up till quite high “loss” (the balance of 500 eur can handle this).
        As long as you don’t sell, the lost money is only virtual…
        Eventually the rate drops again and you get your profit.
        Now: i know this leads to ” opportunity costs” … since i won’t open more trades (max 4) in such situation.. I just wait for the rate drop.
        .. been doing this for many months, until the total profits I made paid back my investments. Experienced pulling money out of the account (quite fast).. so basically my 500 eur investment got pulled out… so even if the account now goes to zero.. I have no real loss anymore).
        Since start of this year: the total balance is around 1000 eur and I started to increase trade size to 0.03…
        Oh.. and one last sharing: ignore monday’s (i know… sounds silly…but i’m serious)

        Again: I’m not ” professional” trader and this is only for ‘fun” for me… All trades I initiate manually… but I’ve been recently looking into automating (in Metatrader 4) above ” strategy” .. unfortunately not found the time to do so.
        If somebody can add to this discussion… I would find it interesting.