Trend following system is still short with stop @ 610

Please click on the image above to see the full daily analysis.

Short Position Overnight 18 Dec 2013

I sold BTCUSD at 703.84 just after midnight. My earlier short position expired at 00:00 at a small loss. I set a price alarm to wake me periodically to alter my stop and set a target price of USD595. I got to that figure by taking the previous low USD 562, adding the Plus500 spread of USD 13 and another USD 20 in case buyers had the same thoughts as me!

I woke this am to find my position closed and a whopping GBP 66.66 added to my trading account. Using margin of GBP 37 approx, I have generated profits of 180%.

I wrote earlier that Plus500 have changed their minimum contract size per trade (100 contracts). Earning this magnitude of profit means I can now trade a minimum of 200 contracts per trade. And the drop in the BTCUSD price means my margin requirements have dropped even lower. A win all round.

Trend following system remains short with a stop at 749.

Click on the image above to see daily analysis for BTCUSD on MtGox.

Plus500 - Changes to Bitcoin Daily CFD Contract

Plus500 have changed their daily Bitcoin CFD contract: The minimum number of contracts that you can buy or sell is 100. Previously the minimum was 10 contracts. The initial and maintenance margins are the same at 10% and 5% respectively. Leverage is unchanged at 1:10.

The impact to you the trader is that the amount of capital you require in your account needs to be increased to be able to provide the necessary margins to support an open position of minimum no of contracts (approx. GBP 75.00) and to have sufficient equity to allow your open position to go offside i.e towards your stop of USD 60.00 plus the spread of USD15.00 (approx. GBP 46.00). The absolute minimum capital you should have in your Plus500 trading account is therefore GBP 121.00.

Triangle Pattern Trade 6 DEC 2013 Recap

Yesterday I posted details about an upward sloping triangle pattern seen on the 1 hour BTC USD chart. This is a continuation pattern and indicates that the prior downtrend should continue. This is how the trades based on the pattern played out:

I placed a short position overnight which assumed the pattern would resolve normally i.e. trade in a narrow rising channel then break the lower triangle support line and resume the downtrend to USD 900. However, these trades were stopped out for a loss of GBP 11.50 around 07:30 as the price rose towards resistance. I stood aside and waited to see if this rally would fail where I would place a further short position.

A further short position was placed around 08:00 and then the long wait began! The lower support line was broken around 11:00 but it wasn't till 13:00 that the downtrend began. Slowly.

My estimated target was USD 900 and when prices paused around USD 984, I closed half of my position. The remaining half was closed a little lower because BTC was looking very oversold on all timeframes (15m, 1H & 4H) and I felt further possible downside was limited. My total profit for the day was GBP 25.15 (this includes the earlier losses of GBP 11.50!).

My account balance now stands at GBP83.10 and is approx GBP 45 higher than the start of the week. A couple of zeros on the end of those figures would be nice but if I can nearly double every week ... the point of this blog is not to get rich but to learn how to trade safely. Bitcoin is very volatile and requires careful trading to avoid total loss of capital.

Join in the fun and sign up for an account with Plus500 now - you will get a GBP 20 signup bonus and no deposit is required. Click on the banner below to register your account - only your email address and a password is required. Get set to trade bitcoin next week and learn how to trade volatility.

Today's Trade Signals

I will place details of my trades on Twitter because the info gets published very quickly and can be seen on this blog by clicking on the SIGNALS page (see page menu above). Let me know if this works for you or if you would prefer another solution to keep notified of my trades placed.

Overnight Trades 6 DEC 2013

I placed 2 trades overnight based on the triangle pattern seen on the 1 hour chart. Both have been stopped out on the recent upward price run. The triangle pattern is intact until the price starts to probe and test overhead resistance. I will stand aside and wait for a reversal pattern / signs of exhaustion of this recent price spike. Or maybe resistance is futile and the price heads back towards former highs?

Triangle Pattern on the 1 hour BTC Chart

On the 1 hour chart you can see an upward sloping triangle formed by bitcoin price action since the 27% sell off this morning. The lower upward sloping trendline of the triangle has been broken and as I write the BTC price remains below it. The typical resolution of this triangle pattern is a continuation of the prior trend i.e. more downside to follow. The downtrend in RSI which is now below 50 supports that view.

Using ATR To Determine Your Stop

Stops

The above system is a reversal system because you buy on a positive moving average crossover and then close and sell on a negative moving average crossover. But this means that an existing open position can potentially go into a loss larger than you account can sustain before it goes into profit. Stops are used as part of money management - to manage the capital in your account and to prevent large losses if you are unable to watch your positions in real time. With bitcoin, stops are valuable because the price is very volatile and can move rapidly. Such movements can trigger a margin call and wipe out the capital in your account.

One method of determining stops uses a calculation of recent price volatility called the Average True Range or ATR. Typically, a trader would place a stop on their trades at 3 x ATR. Most trading platforms provide an ATR indicator which is plotted below the price chart. When you are looking open a trade, you can see from the ATR chart the current value and place your stop at 3 x ATR value. 

For example, in the chart below the current 21 period ATR reading for Bitcoin is USD 60. Therefore, if I place  trade now the stop would be plus or minus USD 180 (3 x USD 60). When you are buying, your stop is below the buy value at (buy price - stop) and when you are selling, the stop is higher than the sell value at (sell price + stop). For the type of trading I am doing with the Plus500 daily bitcoin CFD, I am using a 1 ATR stop plus the spread which is about USD 15.00 currently.

How to trade Bitcoin

What do I need to do to trade bitcoin?

There are 2 ways to get involved with bitcoin:

1. open an account with a reputable exchange like MtGox and deposit a sum of money with them which enables you to buy and sell bitcoins. However, you cannot take a short position i.e. sell bitcoins you do not already own. There is the additional risk of protecting your wallet from theft.
2. open a trading account with Plus500 (simply click on the banner ad above), provide an email address and a password and thats it!

Signup Bonus

Under the current signup promotion, once you have registered your account, GBP 20.00 will be credited to your account so you can trade immediately without risking any of your money. At a bitcoin price of USD 1,000, you could trade 10 contracts requiring approx GBP 8 initial margin and GBP 4 maintenance margin. But that will only leave you with an available balance of GBP 12.00 - a downmove of USD 200 in the price would wipe out your account. The ID Verification bonus of GBP 10.00 would help keep your account in positive territory if you  suffer losses. Setting up the account is free but the signup bonus is a time limited offer.

Demo Account Mode

You can also trade a demo account which allows you to place buy and sell orders with a dummy balance. These types of account are a great way to practice your trading skills without risk to your capital. When you have registered your account by clicking on the banner above, the main account menu allows you to switch between real money mode and demo mode in a single click.

Deposit Bonus

When you are ready to trade real money, you can add funds easily to your account: credit & debit cards, PayPal, Bank transfers and Skrill are all accepted. If you deposit any money, you will get a further 5% bonus e.g. GBP 20.00 on a GBP100 deposit. This is a time limited bonus.

ID Verification Bonus

Plus550 will give you a further cash bonus of GBP10.00 if you verify your ID. Simply take a photo or scan your ID document (passport, driving licence) and use the link in your account to upload the image. Again this bonus is time limited so register your account now to secure these useful bonuses.

5 DEC 2013 Trades

Bitcoin sees 27.6% Sell Off

At 08:15 this am, BTC sold off 27.6% in 1.5 hours. Maybe triggered by news from China that banks there are banned from handling Bitcoin but not individuals. Maybe it was just a wave of sellers looking to cash out their abnormal profits. In any case, Bitcoin started the rout at 1208 and ended up at 874 - a decline of 27.6 percent.

By the time I got to look at Bitcoin, the selling was done. So what was my next trade? After a quick look at the chart below, I saw that:

•  RSI was rising from very oversold levels and that on the 5m BTC chart
• there was a higher low (start of an uptrend?) after the 874 low and
• the short exponential moving average (pink line) had crossed the slower moving averages (blue/red) from below

These factors supported a long position. Also bitcoin daily volatility is approx 20% and, at the time of my purchase, the currency was about -20% on the day. I felt overall that the odds were in my favour for a long trade. So I bought 20 contracts at 1,004.89 and sold them at 13:11 at 1,057.24 for a profit of GBP 6.40.

My exit was determined by candlestick pattern - the doji (see below). This is a strong reversal pattern and I decided to exit. Additionally, with bitcoin being so volatile at the moment, time is an important factor: the longer the time your position stays open, the more chance you have of making losses. Or profits. My returns were already satisfactory and therefore I closed my position.

I will post the live trade details in a moment so that you know I am not retrofitting or trading with hindsight.

The Trend Is Your Friend

The trend shows you which way prices are headed over time and helps you predict where prices are headed next. The idea is that once a trend is set in motion, it carries on until it reverses. A sort of Newton's Law. So if prices have been rising over the last n days, then they are likely to continue rising at the same rate. Trend following strategies buy into a rising trend and sell when that trend fails e.g. by price falling through the trendline which acted as support. And vice versa.

Overbought & Oversold

Overbought and oversold are extreme conditions and are seen when prices have moved because of heavy demand or supply beyond their fair value. Overbought similar to a buying 'war' seen in auctions where determined buyers push prices ever upwards until only one bidder is left. Overbought and oversold are also the terms used when an oscillating indicator is at or near its extreme values.

Sold BTC - Overbought

Using a 15m chart of Bitcoin, its looking overbought according to my RSI indicator. I have just sold 10 contracts and placed my stop at the all time high of 1236 and my first target at 1055 - the support line identified yesterday.

Trade Summary 031213

Today was a fun day!

Lots of volatility and opportunity to trade. Six trades were placed and only one lost money. All times are London UK.


 I also got a GBP 10.00 bonus for validating my ID added to my Plus500 account. Yaay!

Key levels to watch next are 1155 for longs and 1126 for shorts.

The lines drawn in pink on the above chart are called support and resistance lines. The upper line shows the level where resistance has been seen - its the level that has not been surpassed since 17:50. If the BTC price moves above this level, we may see a continuation of the uptrend and the level that was resistance could become support. The same is true of the lower line which offers support - prices have not fallen below this level in the same timeframe. If  the BTC price moves below this level, we may see a retracement in prices.

Breakout Strategy

So here we have got 2 levels - above the higher one, we want to be long (buy) and below the lower one we want to be short (sell). This is the basis of a simple breakout strategy. I will look at enhancements to this strategy aimed at reducing false signals e.g. the price appears to move with conviction past a level, a trade is triggered and then price suddenly reverses and continues in the opposite direction creating a trading loss.

Once the bitcoin price has moved past one of the levels shown above, we want to have an idea of where our trade target or exit is located. The day's high is at 1177 and the low is at 1099 and would seem to be reasonable targets for a short term trade. Let's see how these levels work overnight & tomorrow.

Daily Bitcoin CFD

Trading Bitcoin with Plus500

Plus500 offer a daily Bitcoin CFD (Contract For Difference) which allows you to buy or sell Bitcoin using margin or leverage of 10:1 or 10%. The advantage of leverage is that a 1% change in the price of Bitcoin is amplified to a 10% change in the CFD price. However, leverage is symmetric so both LOSSES and PROFITS are amplified in the same way. The daily contract runs from midnight to midnight except Saturday & Sunday and can be traded from your PC, tablet or smartphone.

Personally, I use the Plus500 web trader software on my PC because it just sits in a tab on my browser and I use the iPhone app when I am out & about. It's not the most sophisticated trading platform but it works nicely, performs well and is easy to use.

Cash Bonus, No Deposit Required!

Currently, Plus500 are offerring GBP20.00 to open an account. This means you can open an account and trade BitSignals for free without fear of making a loss. GBP 20.00 when you deposit GBP 100.00 and a further GBP 10.00 to confirm your ID.  So that's a possible extra 50% on top of your GBP 100.00 deposit! You won't have to hunt around their website to find these bonuses - Plus500 are very good at notifying your bonuses available so you won't miss out.

Open an account now while these bonuses are still on offer.

Margin

An Initial Margin of 10% is required to support each open position. An additional maintenance margin of 5% of the account equity is required for open positions. When your equity (account balance + P&L of open positions) falls below your maintenance margin,  a margin call is triggered and Plus500 will close your open positions so that your account balance does not go below zero. This prevents you from ending up owing money to Plus500 if your trading is unsuccessful. In other words, the maximum you can lose is your account balance. This is a useful safety feature: In the event you have an open position and Bitcoin prices start swinging around wildly, your potential account losses are limited to the money in your trading account.

Account & Trading Balances

When you start trading, the Plus500 trading software (on your PC, smartphone or tablet) will show you your balance details in real time. You should understand what these numbers mean so you can prevent unwanted position closure because your account equity was too low. No trader likes to see a position get closed through lack of sufficient margin and then see prices finally move in your favour.

For example, if you start with an account balance of GBP 50.00 and

• You place a short (sell) trade of 20 contracts at BTC/USD 1,170.22

• The value of the contract is 0.2 * USD 1170.22 = USD 234.04 (1/5th of a Bitcoin)

• The open position requires an initial margin of GBP 14.25 (USD 23.36) or 10% of the contract value of GBP 142.25.

• Additional maintenance margin of 5% is required = GBP 7.13.

Your account balances are shown as:

• Available Balance = Balance + P&L of open positions - Initial Margin = GBP 35.75

• Equity = Balance + P&L of open positions = GBP 50.00

• Maintenance Margin = GBP 7.13

• P&L of open positions = GBP 0

Risk Management

A Margin Call gets triggered when your Equity balance falls below your Maintenance Margin amount but when your maintenance margin = 40% of your equity, Plus500 will send you a text / SMS/ push notification according to your preferences set in your Account Notifications settings. However, you should not rely on this mechanism to prevent a Margin Call. When prices are moving quickly, you may not have enough time to add further funds to your account or close the open position yourself: Bitcoin price volatility is currently around 20% and rapid swings of USD 30.00 in the price are common. You can see that in the example shown above, if the P&L of open positions were to fall to GBP -32.18 then a Margin Call would take place. Bitcoin price volatility makes the asset attractive to trade but you need to put in place measures to prevent your account getting wiped out during periods of high volatility.

BitSignals will provide educational material on how to trade safely and employ prudent risk management. The Bitcoin trading signals (BitSignals) provided are for educational purposes only. If you trade them on your own account, it's at your own risk. Trading Bitcoin CFD's on margin can result in the loss of your entire account balance. Please ensure you fully understand the risks involved.

Open an account now and learn how to trade Bitcoin.