There are two ways you can get into active trading. One has a cost advantage, so it is good to get started with this. The second has an accuracy and professional advantage but the costs are significantly higher. It’s not always a simple choice between one and the other, but rather a case of growing from one and moving on to the next.
Trading Strategies
There are three trading strategies introduced in this chapter. These strategies will form the foundation of other strategies that you will surely get used to as you mature in your trading abilities. This is assuming that you are new to cryptocurrency trading and have minimal knowledge and understanding of what it is and how to do it.
Remember that this market moves constantly. Hardly a second that goes by when a trade is not being conducted. With more than 50 pairs of currencies and fiats, trading can easily become a full-time occupation.
Buy the Dips
Always remember to buy the dips. Dips are moments in the price movement that a march
forward is followed by a momentary step back. This is the characteristic of most markets. When you are new to any market, it is an effective way to identify trends. When you are day trading, trends are not what they would be if you were a long-term trader. A long-term trader considers a trend to last anything from a few days to a few months, and enters his position and leaves it for days, weeks, or even months. A scalper in cryptos or a day trader doesn’t do that. He actively trades the waves, both up and down, and exits in minutes, or hours, at the most.
Arbitrage
This is an advanced strategy only as far as beginners go, but it is something that you should master right away. Arbitrage doesn’t focus on the ups and downs of the market, but rather the mispricing of the market. In cryptos, this is an underutilized strategy, and if nothing else, this is the strategy you should take away from this article.
In arbitrage, the thing that you are looking for is a mismatch in price between pairs. So, let’s say for instance you have the price of A vs B, price of B vs C, and the price of C vs A. If all goes well, and the A:B is 1:2, B:C is 1:3, then it should be that A:C should be priced at 1:6. But in a pricing mismatch, A (in this example) is bidding at 1:6.5. What happens in this case? Look at how simple this is. If I use one unit of A to buy C, I get 6.5 in return. With 6.5, I can use C to buy B at the rate of 1:3, which will get me 2.167 of B. With 2.167 of B I exchange that back into A to get 1.08 of A. When I first started the arbitrage exercise, I walked in with only 1 unit of A and I exited with 1.08 units of A. This example shows an 8% return. That’s not so important, because the numbers are only examples. The point is that this trade would take just 30 seconds to complete.
On Balance Volume
The two strategies you’ve seen so far are really enough to get you started, but here is a third one that goes beyond just buying and selling when and if you ‘feel’ like it. The logic behind the first one, on the surface, is designed to get you to identify market entry and market exit triggers. On a deeper level it is designed to get you familiarized with the nature of price movements and the use of charts to visualize them. The second strategy was arbitrage, and that was designed to get you to profit off the mispricing of the market. That’s on the surface. From a deeper perspective, it is designed to get you to open your mind to the different ways of taking advantage of the markets.
This last of the three strategies is designed to get you to see what the smart money is doing. By using this strategy, you are keeping an eye on where all the money is flocking to. If you can get comfortable with the movement of big money, then you can pretty much ride the trends and scalp the fluctuations.
To do this you need an OBV indicator. Bloomberg has it preinstalled on the Terminal. Some
prominent MT4 for cryptos have it as well. OBV stands for On Balance Volume.