How to Make Money on Volatility
In this new series of articles we give you some useful tips and info on trading cryptocurrencies. I share my knowledge on trading, blockchain, strategies and much more. I want to help you up your trading game in the world of future currencies. Come and join me on this new series. I hope to teach you some great stuff and also reveal some tricks up my sleeve.
Trading with high volatility
Almost every time I talk about trading cryptocurrencies, someone will bring up its high volatility. Why would you trade something with such volatility? Trading with volatility like Bitcoin is crazy, might as well go gambling! Trading Bitcoin is too risky. These are just some of the objections that are brought up. So what’s the deal ? Why does high volatility scare so many traders ? Firstly let’s just explain what volatility means:
What is volatility?
In finance, volatility is the degree of variation of a trading price series over time. Historic volatility is derived from time series of past market prices. An implied volatility is derived from the market price of a market traded derivative (in particular an option). Read the definition on Wiki https://en.m.wikipedia.org/wiki/Volatility_(finance)
Volatility is essentially a measure of the diffusion of returns of a currency, asset or commodity. It is most commonly measured by using the standard deviation or you could also look at the variance between the returns from that same asset. High volatility is seen as risky – that is when the price can fluctuate or change its course dramatically during a certain period of time. And the opposite of that – ow volatility is considered safer when trading.
To trade with high volatility or not to trade? That is the question!
I know I keep banging on about Bitcoin’s volatility in a lot of my articles. But I truly see it as a great thing. To quote Sir Richard Branson “There’s a lot of volatility in cryptocurrencies but people make a lot of money out of volatility.” I totally agree with the great entrepreneur. If you time it right you can make a lot of profit with cryptocurrencies thanks to their high volatility. Now yes of course it could also go the other way if you speculate and time it wrong. However, if you keep hold of your coins for long enough, right now I can say with confidence, that you will eventually break even or make a profit out of your coins in a few months.
Longer term investments
One way to take advantage of Bitcoin’s volatility is to trade longer positions. The golden rule of buy low, sell high. If we look at the price movements during the past year it seems that the lows of the Bitcoin price could be around the $200 mark. So simply put – buy at $200 and wait. This year the price has already bounced back from around $200 mark 4 times. If you are not in a rush and are not that into day trading you can hold long positions like this. On the downside – it takes a lot of time of course. But so far there have been 4 opportunities this year.
Let’s have a look at how much possible profit that makes this year if investing $1000:
- 1st possible opportunity in January – buy at $200 and sell in March when Bitcoin price climbed back up to $300. Profit of $500.
- 2nd opportunity in April – buy at $220 and sell at $250. Profit $135.
- 3rd opportunity in May – buy at $220 and sell at $290. Profit $318.
- 4th opportunity in August – buy at $200 and sell… This is still ongoing but if you were to sell at the beginning of November, the profit would be a whopping $950 as the price on the 3rd of November is $390.
That in total comes up to $1903. So in less than a year you could’ve tripled your investment. Just imagine what the profits would be with $10 000 or $100 000. You couldn’t make this much money with any traditional asset on the market.
For example let’s look at EUR/USD: Let’s see how much we could’ve made with $1000.
- 1st opportunity in March – EUR/USD buy at 1.045 and sell in April for 1.100. Profit of $52.63
- 2nd opportunity in April. Buy at 1.05 and sell in May at 1.15. Profit $95.23.
- 3rd opportunity in May. Buy at 1.08 and sell in June at 1.145. Profit of $60.18
- 4th opportunity in July. Buy at 1.08 and sell in August for 1.17. Profit of $83.33.
Making a total profit of $291.37.
Shorter term trading
If you are more into day trading or shorter term investments, let’s also compare Bitcoin to fiat currencies.
- If you were lucky enough to catch the best price on November the 3rd and invest $1000. Buy at $360 and sell at $395. Profit of $97.22.
- EUR/USD best case scenario on November the 3rd – buy at 1.010 and sell at 1.030. Profit of $19.80.
Clearly you can make a lot more trading Bitcoin. Of course with greater volatility comes greater risk. But if you do your research on Bitcoin price movements and get in at the right prices the return can be truly awesome. And you can find the support and resistance levels of Bitcoin rather easily. We have also implemented some indicators on our platform – like Exponential Moving Averages. You can also learn to trade with us.
Start taking advantage of Bitcoin’s volatility here!
I must point out though that the speculation of the price and its future movement is my personal opinion – although I do have a lot of experience in trading and cryptocurrencies I urge everyone to make an educated decision and never trade with money you cannot afford to lose.