Bitcoin Sideways Trading Strategies: What To Do When Crypto Consolidates
Bitcoins price has been stuck between a tight range of $35,000 to $40,000 for what feels like months now, and that’s because it is nearing several candles closes on the high timeframe chart.
The record-breaking selloff in May sent the market reeling, with buyers and sellers confused as to where bitcoin might go next. The violence and 50% drawdown was enough to turn sentiment bearish and spread fear that a bear market is already here, while others saw this as an opportunity to buy the dip.
The two opposing forces have left bulls and bears at a stalemate, and bitcoin price action is slowly moving sideways as a result. With very little movement or price action intraday, and certainly not enough for a worthwhile swing trade, what’s a trader to do to keep profits flowing?
Fortunately, there are several trading strategies to resort to when markets move sideways, and there’s less room for ROI.
Using technical indicators to tell when a trend is dead
First and foremost, it is important to understand when there’s a distinct lack of trend. When this occurs, it often isn’t worth attempting to go for large swing trades, and even some types of day trading strategies become less effective. What does continue to work is scalp trading.
To learn if a trend is paused there are certain clues to look out for. For one, volatility will decrease, and so will trading volume. Price action will be restricted to a tight range and this will become more clear as time goes by.
Technical indicators such as the Bollinger Bands will begin to tighten or “squeeze,” and the Ichimoku baseline will flatten during such phases. Price action also tends to hang around moving averages during this time and can lead to several confusing crossovers.
To clear out the noise, consider using the average directional index to view the strength of a trend directly. A reading of under 20 suggests there’s no trend at all and sideways consolidation could follow for some time.
Finally, a doji candle shows indecision which can also depict a lack of a trend on the highest timeframes. For example, a doji on a monthly candle represents a full month of sideways price action.
Scalp trading is the savior to sideways trading ranges
Moving onto scalping, the trading strategy we’ve highlighted above is among the most effective during tight trading ranges and sideways price action. The term has nothing to do with stories of “cowboys and Indians” when it comes to financing but instead references ultra-short timeframe trades with the intention of getting in and out quickly with profits.
Because of the short timeframe, profits are often smaller than higher timeframe intraday trades or swing trades, but with enough frequency can keep capital growing during sideways price action. But this strategy also requires shorting and longing at resistance and support throughout the duration of the trading range, which we’ll explain in more detail below.
Short trading bitcoin involves expecting the price of BTC to go down and is how professional traders profit from cryptocurrencies like bitcoin during tight trading ranges when large ROI moves aren’t as common. By shorting when bitcoin price is at resistance and going long when the crypto asset is at support, traders can effectively extract profits out of even the tightest of ranges especially when trading on the margin.
A long trade is the opposite – the trader expects the price to go up. By flip-flopping back and forth between the two position types, traders can stack up ROI quickly even when markets are sideways. One overlooked benefit of sideways markets is less risk overall. Stop losses are less likely to be triggered if placed above or below the range, and it makes a breakout of the range that much more clear.
If a stop-loss is hit, it can also be used as a signal to take a trade in the opposite direction of the original order since the breakout could lead to a sustained trend finally taking hold. Rather than wincing in pain the next time you see a tight trading range forming, don’t stress – instead, strategize with long and short scalp positions with PrimeXBT.