BitMEX Trading Strategies

Contents:

Good trading strategies and sticking to them separate professional traders from gamblers. In this article we want to show you a couple of trading strategies suitable for Bitcoin margin trading on BitMEX. Being used correctly, those high probability trading strategies offer a realistic chance to make good money on BitMEX.

Calculate Correct Position Size

Before we start with the first actual BitMEX trading strategy, we should talk about the correct position size that should be used in a trade. Position size in margin trading isn’t something random – it has to be calculated precisely according to your stake and the individual trading parameters of the trade.

The reason why you should use this formula is simple: That way you keep control over your stake and you make sure you cut your losses short while you constantly increase your capital over time with the winning trades. Never just randomly put any amount of money in a trade. That’s not professional for a Bitcoin margin trader because this means no real control.

BitMEX Position Size For Long Trades:

In BTC Value:

(risk * budget) / (entry price – stop loss)

(0.01 * 1000) / (6500 – 6300) = 0.05 BTC

In USD value:

((risk * budget) / (entry price – stop loss)) * entry price

(0.01 * 1000) / (6500 – 6300) * 6500 = 325 USD

BitMEX Position Size For Short Trades:

In BTC Value:

(risk * budget) / (stop loss – entry price)

(0.01 * 1000) / (6500 – 6300) = 0.05 BTC

In USD value:

((risk * budget) / (stop loss – entry price)) * entry price

(0.01 * 1000) / (6500 – 6300) * 6500 = 325 USD

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If you already have an account – you can simply signup for a new one to make use of the discount.

Why Is the Correct BitMEX Position Size Calculated Like That?

Risk ManagementIf you find a trade setup, you look for a good entry price and you look for where to put your stop loss. With this difference between entry and stop loss you get the exact amount you’d lose in case the trade gets a loser.

Now you need to set this amount in relation to your trading capital. If you never want to lose more than 1% of your whole trading capital in a single trade, you can now calculate how much you are allowed to take for the trade in order not to lose more than the one percent, with respect to the potential loss of this particular trade.

So taking this formula to calculate how much money you should put into a single trade is critical for a professional trader.


Note: Position Size Grows When Stop Loss Gets Set Tighter

The smaller the risk gets (= the smaller the distance between entry and stop loss), the bigger the positions size gets. It can even exceed your account balance. That’s where you use cross leverage (At cross leverage the margin is shared between open positions. When needed, more margin from the total account balance / other positions will be added to avoid liquidation.)

Tip Regarding Stop Loss:

Never move your stop loss further away from your entry. Because position size was calculated with the initial stop loss position. If you move it further, risk gets too high and you would lose too much in a single trade.

The stop loss may only be moved towards the entry or above in case the trade is already in profit. That way you lock in profit.

Okay, so now let’s head over to the trading strategies:

Divergence Strategy

For this BitMEX trading strategy you mainly need two specific instruments for technical chart analysis:

  1. Support & Resistance (draw in chart with horizontal lines
  2. StochRSI – to find Divergences (mark divergences with line tool)

For charting we recommend tradingview.com where basic accounts are free and you have all kinds of charting tools.

Also use the Risk:Reward tool, when deciding entry, stop loss and target so you see if the trade makes sense. The ratio should be greater than 1:1, such as 1:1.5 for instance.

Steps

  • Learn the different Divergences by heart in order to identify them right away in a chart (4 Divergences)
  1. Decide the time frame you want to trade in, e.g. the 15 min chart for intra day trades.
  2. Identify swing highs and swing lows
  3. Identify significant levels of resistance and support in the time frame you trade in. Draw the levels with a line tool.
  4. Show the StochRSI (keep default settings): Compare the indicator’s highs and lows to the chart’s highs and lows and look for Divergences. Also draw the Divergences with the line tool.

In The Case Of A Long Trade Scenario:

  1. Price has to approach support (inner trend down wave to enter at a “dip”)
  2. Bullish divergence has to be there (signals price is likely to go further up)
  3. Trade only beyond overbought area of StochRSI / No trade if StochRSI is overbought

In The Case Of A Short Trade Scenario:

  1. Price has to approach resistance
  2. Bearish divergence has to be there (signals price is likely to go down)
  3. Trade only beyond oversold area of StochRSI / No trade if StochRSI is oversold

Important: Only enter at resistance or support area (resistance for short trades, support for long trades), not later; don’t wait for the stochRSI to reverse first before you enter – that entry will be too late if price then isn’t at resistance or support level anymore.

Beware Of The Following Major Pitfalls:

Entry too late: That happens when you miss the right entry exactly at resistance or support level

Stop loss too tight: A stop loss that is sitting too tight and stops you out even before the trade really begins is a typical mistake concerning any trading strategy, also this Divergence Strategy. Inexperiences traders tend to get caught by stop hunters when trying to keep risk as small as possible. The stop loss has to be put below the last swing low in long trades or above the last swing high in short trades.

Long Trade Example of Divergence Strategy


First we detected a bullish devergence and drew the light green lines to make it more visible. Then we drew the blue dotted horizontal lines to make significant layers of resistance and support more visible. The stop loss level was a bit tricky when watching the latest price action and this uptrend where no significant level of support is visible, so we looked at earlier price action where we detected those dominant lower wicks. So we decided to put our stop below that layer. Targets were those obvious recent swing highs. Now look how it turned out:

Price went up as expected and perfectly hit our targets.

Short Trade Example of Divergence Strategy

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Bollinger Bands Strategy

For this BitMEX trading strategy you need the following two specific instruments for technical analysis:

  1. Bollinger Bands (20, close, 2.5)
  2. Exponential Moving Average (EMA – set to 12)

Additionally it’s helpful to notice market cycles (as always, in every trade). Also you should be aware of the significant Resistance and Support levels which always play a role when deciding entry, stop and target since price is mostly running between those layers and either it bounces on those levels or it breaks through them. In this strategy the Bollinger Bands help us to estimate the likelihood for a bounce or a breakthrough at R&S levels.

Uptrend:
EMA above middle BBand

Downtrend:
EMA below middle BBand

1. Bollinger Band Strategy – Border Breach Setup:

  1. Look for price going outside of BBands
  2. Enter at first candle that opens inside of BBands
  3. Stop loss above the last swing high/low outside of BBand
  4. Target: at the EMA line

Bollinger Band Border Breach Strategy – Long Trade Setup Example

Bollinger Bands Border Breach Strategy – Short Trade Setup Example

2. Bollinger Bands Strategy – EMA Bounce Setup

  1. Look where price is either resisted or supported by the EMA line
  2. Entry as close at the EMA as possible
  3. Stop beyond the middle Bollinger Band
  4. Set target at the respective BB (on lower band in long trade, on upper band in short trade)

Bollinger Bands EMA Bounce Strategy – Long Trade Setup Example

Bollinger Bands EMA Bounce Strategy – Short Trade Setup Example

3. Bollinger Bands Strategy – Breakouts Setup

  1. Look for price action to breakout (price about to cross the middle Bband)
    A candle crosses the line
  2. Entry at first candle opening on the other side of (above / below) middle Bband
  3. Set stop beyond EMA
    Trade only valid if EMA crosses middle Bollinger Band
    After EMA cross you can use trailing stop loss order
  4. Target at respective BBand

Breakout definitions in this case:
When candle opens above Middle BBand in a downtrend
When candle opens below Middle BBand in an uptrend

Bollinger Bands Breakout Strategy – Long Trade Setup Example

Bollinger Bands Breakout Strategy – Short Trade Setup Example

(At too high volatility either increase the Bollinger standard diviation from 2 to 3 for example, or use a higher time frame)

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Fibonacci Strategy

For this BitMEX trading strategy you need the following two specific instruments for technical analysis:

  1. Indicator: StochRSI (default settings)
  2. Fibonacci Retracements tool

What you need to do first in order to find suitable trade setups:

  1. Identify trend – up or down, sideways?
  2. Identify swing highs and swing lows
  3. Identify breaches of swings

For Long Trades:

  • find a swing high that has been breached so a new swing low will form soon. From this SW to the next swing high – draw the FIB retracement
  • after this next swing high has been formed, another swing low will often be formed at about the 0.618 – 0.786 level → that’s where you go long (buy)

For Short Trades:

  • find a swing low that has been breached so a new sing low will form soon. From the Swing High in between to the next swing high – draw the FIB retracement
  • after this next swing high the new swing low will often be formed at about the 0.618 – 0.786 level → that’s where you go short (sell)

Draw the Fibonacci levels and use the 0.618 – 0.786 range for entries (you can split your entry in several orders covering the interval).
Stop loss and target are at 0 and 100% of the Fibonacci levels, respectively, depending on long or short trade. For long trades stop will be the bottom of the Fibonacci levels, target will be at (/slightly below) the upper Fibonacci level. Setting targets slightly below the expected target layers enhances chances that target will be hit – as sometimes price reverses right below a target.

Fibonacci Strategy – Short Trade Setup Example

Fibonacci Strategy – Long Trade Setup Example

Most Common Pitfall:

If a stop loss gets hit and price retraces way further than you had expected, it could be that you missed another significant retracement in the bigger picture. You might find a level to reenter on the Fib levels of the higher time frame retracement, to repeat the trade.

Learning Process Of Margin Trading on BitMEX:

  • Check indicators in your chart (on the time frame you choose to trade in)
  • Find a trading setup fitting to strategy (might take some patience)
  • practice in Tradingview chart by marking entry, stop and targets
  • calculate position size
  • paper trade in the tradingview chart till you’ve got it
  • use chart replay function of tradingview to watch again what happened

And! Keep a trading journal where you note especially the failures in order to learn from them.

Trading Setup:

  1. Check chart with indicators to find a trade
  2. Decide entry, stop, exit targets
  3. Calculate position size
  4. Enter the trade, manage the trade
  5. Exit the trade at targets

Start with small capital. Like only 20% of your trading capital, for example.

Happy trading!

Top Image: © Wit – stock.adobe.com