Fundamental analysis: Decrease in price
Speculating on the increase of bitcoin value can be accomplished by reading news reports. The bitcoin value is affected by important and global news headlines. Less important articles will have a very minimal affect on the bitcoin price.
The extract below reports on a large amount of bitcoins being stolen from a Chinese exchange company. It also describes that there is a chance bitcoin users were also affected by the hackers.
Figure 1: Investing in bitcoins – News article on bitcoins.
This news puts the bitcoins in a negative light. It appears that using bitcoins is no longer safe for owners. Fortunately, by trading online, you can invest in the forecasted price drop that is likely to happen following such news.
In the graph below we have an example of a trade made on the speculation of a price drop. Here we have also used a stop loss and profit call function, which you can read more about in the practical matters section. Briefly, with a stop loss you can set a limit on the maximum amount you can afford/want to lose. Because it may be that you expect the price to fall but it doesn’t. With this function you can never lose more than you instigate. The profit call allows you to a return that you would be satisfied with. Because you might be profiting but suddenly the price dramatically increases and the amount you could’ve gained is lost.
Imagine having an investment amount of £150, and you would be happy with a £15 return. This would be a 10% return. You would then set the profit call to 10%. We have chosen to set a profit call of 10% in the graph below.
Figure 2: Investing in bitcoins – Decreasing value of bitcoins.
This method is of course not the only technique you can use. Ultimately, it does not guarantee a successful trading experience.