How to Hedge Bitcoin and Make Money – Short Guide

I’m going to talk about a trading strategy to be able to make money when bitcoin’s price goes up and down. If you can learn to hedge bitcoin effectively, you’ll always be growing your trading account. You don’t have to keep investing or continue to deposit coins every so often. The principles revolve around buying, selling, and holding. This means it has nothing to do with margin trading. I don’t margin trade because how risky it is. Bitcoin’s price movements itself are enough to make some big returns with your capital, unlike normal Forex trading. Margin trading is a thing to compensate for the micro price movements with Forex, unlike with bitcoin how it can move $100 in a week easy.

If you don’t consider yourself as a “bitcoin trader”, this guide still pertains to you as much as anyone else. As long as you have bitcoins and want to do more than just buying and holding for profits, this is the perfect guide for you to read! I will show you the perfect trading platform to use. To make credentials clear, I use this method whenever possible. Actually last week, I profited about $350 from hedging alone. Not to mention profits from buying and holding too.

The Right Exchange To Use – Kraken

If you’re not using an actual trading platform to trade bitcoin, you’ll need to find one. Kraken is the perfect platform to use because you have a fiat account and bitcoin account on there. To make it simple for you, I can sell all my bitcoins and buy it right back in the same minute if I want to. This is because your fiat currency ends up in your Kraken account immediately after a sell ready to buy again, unlike Coinbase where it is sent to your bank. Exchanges like Coinbase are good for people buying or selling bitcoins, but not trading. Also, Kraken has the highest limits anywhere in the world. To give you an idea, my account limits me to $500k a month for buying and selling. That should be plenty for anyone. And for the whales out there, you can request to increase your limits.

Hedging Defined & How To

In simple terms, hedging is an action made to reduce the risk of another investment. So in bitcoin terms, hedging is the action of selling bitcoins in order to reduce the risk of holding bitcoin, thus increasing or maximizing the reward of your profits. The concept is simple, especially with bitcoin’s price trending upwards steadily since late 2015. When the price goes up, you hold your coins. When you can predict that the price is going to drop, you’ll want to sell off as high as you can. Then when the price drops and starts to regain, you buy bitcoins back at a lower rate. If you can execute that, you’ll end up with more bitcoins resulting in an overall gain.

Is It Hard To Hedge With Bitcoin?

Hedging is apparently referred to as an advanced trading strategy, but the principles like I said are very simple. It’s just the process of selling high and buying back low. You might say it’s too hard to hedge or just not worth it. That type of response is just a limiting belief, so don’t be blinded. It’s actually pretty simple. You may ask, “How do you know when to sell then?”. With trading, fundamental & technical analysis that is the result of making good trades. These are the things like reading the candles, or indicators such as an EMA (exponential moving average).

You’ll need to know the fundamentals of technical analysis to be able to predict when the price will go down for hedging. This short guide isn’t to teach you about technical analysis, but what is hedging and how to apply it with trading bitcoin. There’s tons of free information out there on Youtube and Google. Just be an avid reader and you should find everything you need. I honestly don’t recommend paying for trading courses. I’ve been trading bitcoin for over a year now, and the best advice I can give you is to watch the price chart and news every day. Coindesk has the latest news for you to keep up with. They also have the live price rate in the header area of the site. Whenever I’m on my phone, I just have a tab open and glance at the price to understand the behavior.

What’s important is understanding time. I used to rush my trades, but I eventually learned that the price recovers slower than I thought. When Bitcoin’s price goes up a lot it’ll eventually go down, but you want to see clear signs of a reversal before making a trade. From time and practice, I eventually started to wait for those reversal indications to make a trade, rather than rushing myself because I didn’t want to miss out on an opportunity. There’s always opportunities for you to come. It’s better you missed out on an opportunity then to have lost money because of your emotions. You might think that wouldn’t apply to you, but emotions are something that’ll happen so don’t let it control your trades.

Why Hedging Bitcoin Will Make You Huge Profits

Bitcoin’s price behavior is the single reason why you’re able to make huge gains from hedging. The price movements being as high as $100 in one day isn’t a bad thing at all for traders. It’s an amazing opportunity for smart traders to make more gains. The reason I also say the big price movements aren’t a bad thing is because it’s all on an upward trend. It’s not like bitcoin is in a sideways market. It’s been an upward trend since late 2015. Whenever the price shoots up during the steady trend, it’ll eventually go back down, but it’ll always continue to regain somewhere above the major support trendline that it’s been climbing on.

With the price about to break through it’s all time high for good and the Winklevoss ETF that could be approved on March 11th, it only sounds like this type of price behavior will continue. And with that being said, there’s going to be plenty of time to hedge so you can grow your account to be way bigger than you once thought. This alone is just as rewarding as buying and holding.

Last Week’s Trade That Made Me About $350

Here’s the trade I made last week, on February 25th. The trade was executed the same day. I sold all my bitcoins when it was at $1,174.98/btc, and made a limit order at $1,121.80/btc to buy all my coins back. I knew it would eventually fall to the major support trendline seen from price history, so I sold off and put a limit order a little above the support line. You can see the trade in the picture above. That trade alone was a 4.7% gain of my capital. That trade profited me just around $350. This not even including the gains from just holding my coins either. Do you see how this could turn out to you? This is trading with a little over $7k, but the percentage return from hedging alone is what’s amazing.



Over time, you’re eventually going to create a compounding effect with your trading account. The more money you have, the more money you make! Since you’ll have more volume to trade with every time you hedge your account, you’ll eventually be making thousand dollar profits from one trade. Everybody trades with different amounts of volume, so don’t be discouraged if your trades are smaller. Just keep trading, stay dedicated, and be patient. I am doing this exact thing. It isn’t easier said than done, but it’s 100% possible. Think about it. There are tons of traders making a living out there. You can too.

One thought on “How to Hedge Bitcoin and Make Money – Short Guide

  • November 2, 2017 at 2:21 pm
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    Great Article. I hope Kraken allows Florida Customers to Margin Trade!

    Reply

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