August 14, 2020

How to Trade Bitcoin Cryptocurrency Using a Supply and Demand Trading Strategy

Cryptocurrencies are preferred over the traditional form of currency as it is free from fees and transactional charges associated with formal currencies.

But the question remains how one can buy, sell, and use Bitcoins as they are not usable like traditional currencies. Bitcoins are stored in a digital wallet that could be hardware or web-based. This article will be a simple guide on how one can use supply and demand strategy to trade Bitcoins, but first, let us define what is supply and demand trading and how it works.

Supply and Demand Trading

Supply and demand trading in easy words can be defined as a trading method in which previous data is analyzed and is used to predict future trends. Every product reaches a certain price point which it cannot exceed, usually, the price keeps on rising to the point where the consumers stop purchasing the goods and when the price starts going back down. The areas with strong incline or decline are known as supply and demand zones, the areas with high trading prices are known as demand zones whereas the zones where the price sees a steep drop is known as the supply zone.

In terms of currencies, there are instances when a certain currency reaches a certain degree of great selling potential at an overbought this is known as a selling zone. It’s opposite, the demand zone is where buyers perceive to buy because the price has dropped to significantly lower levels. 

These zones are observable areas in a chart where the price has been a number of times before in the past. In terms of Bitcoin, the same rules of supply and demand trading apply as usually Bitcoins are converted or used as a substitute for physical money like for example the USD.

The supply and demand strategy is applied to the exchange rates of Bitcoin to USD and vice versa. According to the supply and demand trading strategy, if the price of Bitcoin is climbing then it is in the demand phase, once the rates start to drop then it converges into the supply phase. Here are a few simple steps which you should follow while trading Bitcoins.

Gather Data

The first step is to gather a significant amount of data that you can use to check the previous exchange rates from BTC to USD. You can acquire this data from a simple Google search, once you have your data it is time to plot the Forex chart.

Identify Trends

Once you have your data charted out the next step is to look for possible patterns and trends. This is done in order to find supply and demand zones so that you can trade efficiently. Start by looking at the patterns from the past year or so for BTC to USD exchange rates, you will start noticing patterns in the chart indicating a rise in the price and then a sudden decrease in the value. These are known as supply and demand zones, there could be anomalies in the data as well like the 2017 hike in which Bitcoin jumped from under $1000 in January to nearly $20,000 in December.

Knowing When to Trade

Now armed with the newly equipped information you are ready to trade Bitcoins. Find the optimal time to buy coins when the market is facing excess supply and sell those coins if need be when the market is facing the highest demand.

Once you know the basics of how supply and demand trading works, you can efficiently analyze the situation and identify when to trade and when not to trade.following are some tips which might prove helpful while trading and identifying different zones.

Use Wider Windows

Sometimes people tend to focus only on the smaller picture while completely ignoring the bigger picture and because of that their attempts are not fruitful. The general practice is to have a wider time frame in which trends can be better identified. You can use different charts for this purpose and plot rectangles depicting different zones in the data. Usually, both the zones do not have to appear on the same chart.

Identify Steep Demand and/or Supply Zones

Steep demand and supply zones are created when an institution or big corporations see the potential profit to be made on something that is currently up for trade. These corporations buy in bulk most of the shares which are available for trading, this in return increases the price by quite much.

The opposite of this can also happen when an investor withdraws its investment from a project which plummets its value. Try to identify such situations so you could save yourself from potential ruin or get better profits.

Use of Indicators

Indicators are used as a source of confirmation of demand and supply zone, these indicators are also known as pivot points. These indicators are placed on a daily or weekly basis for identification and confirmation of supply and/or demand zones.it is advised that traders should employ the use of support and resistance levels to line up with the supply and demand zones so that greater profit is achieved while trading. The use of Fibonacci levels provides even better results in terms of accuracy on supply and demand turning points in the charts.

Conclusion

Over the past decade, Bitcoin has emerged as an alternative source of currency, In its initial days no one knew much about Bitcoins and now it has become the gold standard of cryptocurrency. Some people even think of it as a traditional form of currency as it is not governed by one authority or country. Bitcoin is not affected by a country’s economic condition, rather the value of Bitcoin is based on the underlying platform on which it is based. Bitcoin trading is a bit risky as compared to other forms of investments as it is highly unstable and people tend to avoid trading in it. The use of proper demand and supply strategies could result in better profit margins and can help in avoiding loss.

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