Using Technicals to Navigate Bitcoin & Crypto Volatility
One of the major factors that puts traditional traders off from trading Bitcoin is its volatility. This is understandable as Bitcoin regularly has 50% swings in price. If you look at the charts below you can see a 50% swing in price in a period as short as a few weeks.
It is moves like these that can get traders into trouble quickly. The moment any amount of leverage is used then accounts can be quickly drained. This is one of the reasons that BTC puts off some investors. With such huge swings in volatility and trickier fundamentals, many traders find it an easier market to avoid. However, there are some simple tools that traders can use to help manage this volatility.
The Bitmex volatility indicator (BVOL24H) can be a helpful tool to flag up a potential fall in Bitcoin prices. As a general rule of thumb as volatility in an underlying asset trends higher, the price of the assets trends lower. You can see in the chart below that as volatility rises, prices tend to drop.
This means that if you see volatility starts to move higher, it can be a good warning sign that perhaps Bitcoin prices are about to fall.
However, one of the simplest ways of managing Bitcoin prices is to use very little leverage when trading and then just use the key technical levels to define and limit risk. This is far superior than leaving yourself exposed to 50% equity swings in the instrument. In the chart below you can see the major support level marked and a major potential trendline. Simply using these key levels to define and limit the risk can make the instrument far easier to manage. This has been a great technique to use in BTC in order to get on some great moves. See here for an example posted in October 2020.
This same principle applies to trading other key crypto markets too. Here is a major trendline of note on the Ethereum chart and the key support provided by the 200EMA.
Exclusive free webinar
To learn more about the challenges and opportunities that are there right now in trading Bitcoin and cryptocurrencies, you can join an exclusive free HYCM webinar “Bitcoin & Cryptocurrencies: How to trade these volatile markets” with Giles Coghlan, Chief Currency Analyst, on the 22nd of March at 14:30 GMT.
The webinar will cover the following topics:
- * Understanding the impact of volatility in trading cryptos
- * Managing risk and limiting leverage
- * New market opportunities and 2020 in retrospect
- * How the ‘attention trade’ can help crypto traders
- * How to use technical analysis in the crypto markets
- * Looking at Bitcoin, Ripple, and Ethereum’s key technical levels