The bad news is that market crashes⁠ — whether crypto or otherwise⁠ — are inevitable. And, as many traders can attest, they can wreak havoc on even the most resilient portfolios. A crypto winter, for example, can last well into the spring and summer months. And if you’ve decided to hibernate and wait it out by HODLing, then you’re bound to take some significant hits to your portfolio, at least in the short term until the market recovers and enters a new cycle.

During a crypto crash, most investors typically opt to “buy the dip,” which is otherwise known as the “catching a falling knife” strategy. The obvious problem is that you never know how low the dip will go, making it quite challenging to identify the absolute bottom of the dip. It’s also a passive trading strategy; you’re simply waiting for the market to turn around rather than actively leveraging opportunities for profit.

Are crashes and all doom and gloom, then? Can savvy traders spot opportunities to take profit even under the most challenging of market conditions? One way to beat a bear market is through crypto shorting, which is different from margin trading with leverage. In the following article, we’ll look into crypto shorting — its many advantages as well as a few of its disadvantages along with the best exchanges to short crypto. Let’s get to it!

What Causes Crypto Market Crashes?

First things first — what actually causes the crypto market to crash? Effectively, there are two primary causes of crypto market crashes: 1) the collapse of major players in the crypto ecosystem and 2) interest rate hikes in centralized finance.

Crypto collapses and crypto contagion

The collapse of major crypto exchanges or projects often has a domino effect across the entire industry, causing FUD among many traders.

Most market crashes are precipitated by a liquidity crunch in the market after the collapse of a major crypto exchange or project. Recent examples of this are the collapse of Terra Luna in May and the implosion of centralized crypto exchange FTX in November 2022. In the case of Terra Luna, a bear run wiped out about $6 billion in less than two weeks, while approximately $230 billion was wiped from the crypto market in just six days in the case of Samuel Bankman-Fried’s FTX scandal.

As we’ve seen in the case of FTX, subsequent aftershocks can result in further market instability. Hong Kong-based cryptocurrency exchange Genesis Block had to cease trading as a direct result of the FTX fiasco.

Interest rate hikes

Since its inception, crypto has been touted as an alternative to centralized finance. But interest rate hikes coupled with inflation reduction measures make centralized finance relatively attractive, particularly for institutional and high net-worth investors who see it as a haven. In such cases, capital tends to flow from the crypto market to fiat investments, or simply remains in the fiat market in the first place.

Capital flight, especially by whales, can often be seen as a form of signaling to retail investors, who in turn sell their crypto holdings (the classic domino effect). It’s crucial to remember that market sentiment plays an important role when it comes to price fluctuations in the crypto market. Consequently, crypto investors tend to flee from what they think are risky assets when market sentiment sours.

Compounding this is the fact that the crypto market doesn’t have circuit breakers like the stock market. If the price of a share drops by 10% in a day, its trading is halted, thereby avoiding a worst-case-scenario situation. Conversely, a persistent synchronized selloff could lead to crypto market flash crashes.

What is Crypto Shorting?

Now that we know some of the primary causes of crypto market crashes and retracements, let’s explore crypto shorting. The underlying idea behind crypto shorting is an anticipated fall in an asset’s price. You’re essentially betting against it. If you’ve seen Netflix’s documentary “Eat the Rich: The GameStop Saga,” then you’ll already know quite a bit about shorting.

The same principle applies to crypto. If you think that the value (and thus the price) of a particular crypto is going to drop, then you might consider borrowing and subsequently selling it — buy high and sell low. And this can be done in a number of ways, such as trading on margin, buying futures or options, or by using something called contract for difference (CFD).

During a crypto market crash, the primary goal of crypto shorting is to sell when the price is higher with the intent to buy back after the price drops. In other words, it is the opposite of going long in which you expect prices to rise, and thus buy crypto in the hope of selling at a higher price. But during a crypto market crash, crypto prices are in a steep decline, meaning the best way to profit is to trade in the direction of the market trend.

A basic illustration of crypto shorting (source: Shutterstock)

One key thing to note about crypto shorting is that you don’t actually own the crypto you short. You have to borrow them from your crypto exchange and will naturally incur interest charges for the service.

How Does Crypto Shorting Work?

Let’s say we’re in a crypto market crash, and you want to short ETH during this period. You borrow ETH from your trading intermediary, say 1 ETH, and sell it at the prevailing market price. For simplicity, let’s assume the prevailing market price of 1 ETH is $1,500. Now, since it’s a market crash, the price falls to, say, $1000. So, you buy back ETH at $1,000 and return it to your broker or exchange. In this case, you’ve made a profit of $500 minus any additional charges you may incur, including interest.

As deceptively simple as all of this sounds, traders should note that it’s an advanced strategy, one requiring a deep knowledge of markets and trading fundamentals. Gains can accumulate quickly, but so, too, can losses, which brings us to some of the risks and rewards of this popular trading strategy.

What are the Risks and Rewards of Crypto Shorting?

We now know that crypto shorting allows you to profit during market crashes. It also allows you to capitalize on short-term market volatility and hedge your portfolio against potential market downturns. But it isn’t without risks. Here are the advantages and disadvantages of crypto shorting.

Advantages of crypto shorting

• Shorting allows you to take advantage of market volatility. Crypto markets are inherently volatile, and shorting enables you to capitalize on short- and long-term bullish and bearish trends.
• Allows you to hedge and protect your crypto portfolio during a bear market. Say you already HODL $10,000 worth of BTC and you believe that a bear market is just around the corner. In this case, you short bitcoin and if the prices drop, the profits from the short sell should cover any depreciation in your portfolio, or significantly reduce the losses.

Disadvantages of crypto shorting

• Potential limitless losses. The same volatility that makes crypto shorting attractive also makes it risky. When you buy crypto, you can hold it for as long as you want. Even when the price drops, it will never reach zero. When shorting, however, a bullish spike followed by a sustained uptrend could push the losses beyond your initial investment, especially if you don’t have a stop-loss order in place.
• When short-selling, you’ll incur margin interest. Short selling usually involves borrowing crypto from your exchange, and this comes at a price. You’ll incur interest on the borrowed cryptos for as long as you hold them. This eats into your profits or increases your losses if the market goes against you.

How to Short Crypto Profitably

The example we’ve given above is the basic principle of crypto shorting. However, different trading platforms have different ways in which you can short crypto, and these usually involve crypto derivatives. Crypto derivatives include crypto CFDs, crypto futures, and options. When trading derivatives, you can use margin and leverage, which allow you to open significantly larger positions compared to the capital you have. However, you must first deposit your initial capital into your trading account to access margin trading and leverage facilities from your crypto exchange. Below are some of the practical ways you can short crypto.

Shorting crypto CFDs (Contracts for Difference)

A crypto contract for difference (CFD) allows you to speculate on a crypto price without owning the underlying crypto. It’s a type of derivative that serves as a contract between a trader and a broker or crypto exchange.

Shorting a crypto CFD means that you are banking on the price of the underlying crypto to drop, in which case your position closes at a profit. Note that your position will remain open until you manually close it or if it hits your stop loss or profit target. You’ll be closed out if the price of the crypto rises and the losses incurred exceed the amount of capital you have in your trading account.

Shorting crypto futures market

A futures contract is an agreement between two parties to buy or sell an asset at a predetermined future date and price. A crypto futures contract tracks the price of the underlying crypto, making it ideal for speculating on the future price of a given cryptocurrency.

When you buy a crypto futures contract, you expect that the price will increase. On the other hand, selling futures contracts means you expect the price of the underlying crypto to drop. In this case, you can short the crypto market by entering into a futures contract that bets on the price dropping in futures. When the contract expires, the transaction is settled and the contract is closed.

For crypto futures, you can use standard futures contracts, perpetual contracts, or futures. Perpetual crypto futures have no expiry date, and they trade close to the crypto’s price on the spot market. Its primary pricing mechanism is made possible through the funding rate.

Crypto put options

A crypto option is a type of derivative that gives you the right to either buy or sell a specified amount of particular crypto in the future for a specific price. As such, if you want to short a particular crypto, you can use put options. A put option contract allows you to sell your portfolio at a specific price even if the future market price is significantly lower than the current price.

For example, let’s say the current price of BTC is $21,000, and you’ve done your analysis and believe that it’s going to drop in the coming weeks. You can buy a put option, which allows you to sell BTC in, say three weeks, at the current price of $21,000. If the value of BTC drops to, say $16,000, in three weeks when the option expires, you earn a profit of $4,000 minus the contract fees. Note that if the price of the underlying crypto goes up, you will only lose the option premium — the fees paid to hold the options contract.

Prediction markets

Crypto prediction markets allow you to bet on the outcome of particular events. To short crypto in prediction markets, you must predict that a specific coin will drop by a certain amount of percentage. Also, another person, or a counterparty, must take you up on the bet. And for you to receive the payout, the crypto must fall by at least the specified amount or percentage. Otherwise, you lose the wager.

Crypto Shorting Strategies

Now that you know how crypto shorting works, let’s see which methodologies you can employ to effectively short the crypto market.

Sentiment analysis

One thing about which you can be certain is that the crypto market is moved by investors’ and traders’ sentiments. Unlike fundamental and technical analysis, sentiment analysis doesn’t rely on quantifiable metrics. It encompasses psychological aspects such as fear of missing out (FOMO), and fear, uncertainty, and doubt (FUD). Usually,although not always, news reports can play an oversized role in creating crypto market contagion. Two words: Luna and FTX (well, okay, that was technically three).

Technical analysis

Technical analysis and fundamental analysis are two sides of the same coin. More precisely, technical analysis involves examining a crypto’s historical price and trends in order to attempt to determine its possible future trends.

Technical analysis is a core aspect of crypto trading strategies such as shorting.

It’s based on key principles, which hold that price action is not random and that the market fluctuates in a discernible and predictable manner. And that means we can always expect that historical trends will repeat themselves, particularly since crypto markets are cyclical. For the curious: there are hundreds of technical analysis indicators that can be used to determine the onset of a bear market.

Fundamental analysis

Fundamental analysis helps determine the intrinsic value of a cryptocurrency. It encompasses every other qualitative aspect of cryptocurrency and its blockchain. Generally, fundamental analysis requires a bit of expertise and thorough due diligence since it involves the analysis of a variety of intrinsic and extrinsic factors. Ideally, crypto fundamental analysis revolves around the analysis of three main metrics: fiscal metrics, on-chain metrics, and project metrics.

Best Exchanges for Shorting Crypto

Virtually all of the top crypto exchanges support crypto shorting, and the following are some of the best options.

Binance

Binance is the largest crypto exchange and one of the most trusted in the world. You can short crypto through margin trading, futures trading, shorting Binance Leveraged Tokens (BLVTs), or with options contracts. You can trade with isolated or cross margin and switch between them as well as short USDS-M futures contracts and USDS-M futures contracts.

For a deep dive into Binance and how you can trade profitably on the exchange, check out our in-depth review of Binance as well as our comprehensive guide to creating a Binance crypto trading bot.

Bybit

Bybit is one of the best derivative exchanges. You can short the crypto market with USDC/USDT options and perpetual contracts as well as inverse contracts. You can also short the crypto spot market with leveraged tokens.

OKX

OKX is the third largest crypto exchange in terms of derivatives trading, and you can short cryptos through contracts and margin trading. It offers perpetual swaps, futures, and options.

Final Thoughts on Crypto Shorting

There never seems to be a shortage of clickbait news stories about how a crypto crash has wiped out billions of dollars from the market. And a perennial favorite is the death of Bitcoin. For those of you keeping score at home, BTC has now died some 466 times (and counting). And yet crypto keeps on keepin’ on.

The necessary questions follow: can you short crypto and can you profit from it, particularly during market crashes? As we’ve seen in the above article, the answer is a definitive “yes!” You can indeed profit during market crashes through crypto shorting, but it takes a fair amount of skill, research, and expertise (anything worthwhile always does).

Throughout this guide, we’ve discussed some of the ways that traders profit during market crashes with crypto shorting along with some of the strategies that they use to do so. We’ve also highlighted a number of exchanges for shorting, with Biance being the best and safest option for most people (in our humble opinion).

Nevertheless, while shorting crypto is a great way to profit during market crashes, it’s not without its risks, which is why it’s so important to always do your own research and never risk more than you can afford to lose.

Originally published at https://www.trality.com/blog/ on November 29, 2022.

Crypto Shorting: Profit During Crashes and Retracements was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Margin trading is very similar to spot trading. In both cases, a trade is simply the conversion of one currency for another.

The main difference with margin trading is that it introduces the ability for a trader to borrow a currency. While the currency is borrowed, interest is paid on the loan. Borrowing gives traders the ability to short sell the market as well as take more risk. In the case of short selling, an asset can be borrowed and sold immediately in the hope that the price will be lower at a later date. When the loan is repaid, the profit is the price for which the borrowed asset was sold and the price at the time the loan was repaid.

Let’s take an example. If a trader has a strong conviction that the price of BTC is going up, then they can borrow USDT to purchase BTC. This is known as leverage trading since it is possible to take a bigger position in BTC than would be possible without borrowing. This leverage multiplies both the profits and losses as a percentage of the traders account balance, which is why it can be risky.

In the following article, we’ll explore how you can get started with crypto margin trading bots by using Python, covering topics such as margin trading interest and fees, examples of short selling and leverage trading, margin ratio limits, and the issue of liquidation before concluding with a number of Python code examples (e.g., OCO, long-short QQE strategy, and calculating daily interest, among others).

Margin Trading Bots Use Cases

Essentially, there are three main use cases for a margin trading bot.

• Short selling: taking a position that profits from the price of the asset going down.
• Buying on leverage: long-only strategy but is able to take more risk than would be possible without borrowing.
• Long/short strategies: these are used by relative value strategies that buy one asset and sell another asset to make money from the relative performance.

Margin Trading and Borrowing

Margin trading can seem complicated, but it is much simpler to think of margin trading as similar to spot trading and separately understand the process of borrowing and repaying crypto loans. If the trader wants to buy ETH with BNB, for example, but currently does not have BNB, then they can either sell another asset to buy BNB or they can borrow the required BNB.

The ability to borrow cryptocurrencies the trader does not own is what makes short selling possible. To sell BTC in the spot markets, the trader is required to already own some. However, with margin trading, BTC can be borrowed and then sold without ever owning it. When the BTC is bought back at a later date, the BTC loan and interest can be repaid.

Margin Trading Interest and Fees

Borrowed currency accrues interest in the same currency. If BTC is borrowed, the interest is payable in BTC. The interest is computed by the exchange and, in the case of you run a Binance margin trading bot, it is compounded hourly at a rate of 1/24 times the daily interest rate. These rates can be found at Binance Margin Interest Rates.

The minimum amount of time that currency can be borrowed on Binance is 1 hour. It is also important to note that, when placing a limit order on margin, the currency is borrowed when the order is placed and not when it is filled. So if the order is not filled, interest will still be owed on the transaction.

An Example of Short Selling

Short selling using borrowing can be better understood by looking at the cash flow that occurs during a short sale.

In the end, the USDT balance has grown from 20,000 USDT to 30,000 USDT, which is the same magnitude as the price change of BTC from 35,000 USDT to 25,000 USDT.

An Example of Leverage Trading

A trader can also trade with up to 3x leverage on Binance Cross Margin, which allows a trader to buy more of an asset than they would otherwise.

The final balance is 55,000 USDT or a profit of 30,000 USDT from the starting balance of 25,000 USDT. The price of BTC during the trade changed from 25,000 USD to 40,000 USD, and so using 2x leverage doubles the profits.

Margin Account Balances

Margin balances are similar to spot balances with the addition of borrowed amount and an interest owed amount. Borrowed amount is the total amount borrowed of an asset and interest is the total interest accrued.

Spot balances example

Margin balances example

Free amount

This is the total owned and can be used to repay loans or buy assets, or allocated for limit orders.

Locked amount

This is the total of owned assets that are reserved for a limit or stop orders and cannot be used to trade or repay loans. When a limit order is placed, then the amount will be transferred from free to locked. Only free assets can be locked.

Borrowed amount

This is the total of all the loans on an asset and can only be repaid by free assets.

Interest amount

This is the total interest accrued on all of the loans for this asset. Interest is paid before the loan’s principal.

Margin Ratio

The margin ratio is calculated as the value of assets / the total liabilities. The total liabilities is the borrowed principal amount and all interest owed. The exchange ensures that this ratio is greater than 1.1. If this is not the case, then the assets owned by the trader will be forced sold and the liabilities repaid. The trader must do everything possible to avoid liquidation.

Margin ratio limits

• Margin trading limit: this is the minimum margin ratio at which no more borrowing will be allowed.
• Margin call limit: this is the margin ratio at which the trader will be notified that their account is at risk of liquidation if the loans are not repaid or if more collateral is added.
• Liquidation limit: below this margin ratio, the assets in the account will be automatically sold and interest and borrowed amount paid.

Liquidation

Liquidation will take place if the margin ratio drops below 1.1. This is an automatic process that is done by the exchange in which assets are sold to increase the margin ratio. Loans are repaid from the proceeds of sales and a fee is also taken by the exchange. In the case of Binance, the liquidation fee is 2% of the value of the assets sold. It is important to note that assets not associated with the trade may be sold to repay borrowed currencies. If the trader owns BTC and also has a 3x leverage long on LUNA, then some of the BTC will be sold if LUNA goes to zero.

Risk Associated with Margin Trading

It is important to understand the risks associated with margin trading, of which there are two main types: shorting risk and leverage risk.

Margin trading and shorting risk

The risk associated with short is that the asset price moves up without stopping. In the case of buying an asset, the price can only go to 0. If the price goes up, there is no limit. A short trade will be closed when the losses exceed the value of the collateral in the account. The position will be liquidated as a result and the loans on the shorted asset repaid.

Margin trading and leverage risk

If the trader has borrowed to buy an asset, then the margin account may be liquidated before the asset price has reached zero. In the case where leverage is 2x, if the value of the asset falls by about 50%, then the account will be liquidated. The maximum leverage allowed for cross margin on Binance is 3x. If a position is 3x leveraged, then it only takes a drop of about 33% for the account to be liquidated.

Loan and Repayment Refresh

When loans are placed, they are not immediately executed. They are similar to orders in that they are requests that can fail, if, for instance, the requested loan or repayment violates the margin ratios or available balances. The margin borrow repay logic returns a loan or repayment object that can be stored in the state and refreshed and queried later.

state.loan = margin_borrow("BTC", 0.01)

if state.loan is not None:
   state.loan.refresh()
   print(state.loan)

state.repayment = margin_repay("BTC", 0.01)

if state.repayment is not None:
   state.repayment.refresh()
   print(state.repayment)

On the next execution after the loan or repayment is created, the status will change from “Pending” to “Confirmed” or “Failed”.

Python Code Samples for Your Margin Trading Bot

Now let’s take a look at a few specific coding examples, which you can use with your margin bot.

One-Cancels-the-Other (OCO)

from enum import Enum

class Mode(Enum):
    Buy = 1
    Sell = 2

@enable_margin_trading()
def initialize(state):
    state.order = None
    state.tp_order = None
    state.sl_order = None

state.mode = Mode.Buy

def has_position(data):
    free = query_balance_free(data.base)
    locked = query_balance_locked(data.base)
    borrowed = query_balance_borrowed(data.base)
    interest = query_balance_interest(data.base)

    # calculate risk exposure
    exposure = free+locked-borrowed-interest

    price = Decimal(f"{data.close[-1]}")
    limit = symbol_limits(data.symbol)
    has_exposure = abs(exposure) * price > Decimal(limit.costMin)
    has_liabilities = (borrowed+interest) * price > Decimal(limit.costMin)

    return has_exposure or has_liabilities

@schedule(interval="1h", symbol="BTCBUSD")
def handler(state, data):

    has_pos = has_position(data)
    if not has_pos:

        free = query_balance_free(data.base)
        borrowed = query_balance_borrowed(data.base)
        interest = query_balance_interest(data.base)
        if (borrowed + interest) > 0 and free > (borrowed + interest):
            # clean up any residual borrowed amount by repaying loans
            print(f"repaying {data.base} borrowed {borrowed} interest: {interest}")
            margin_repay(data.base, borrowed + interest)
        elif state.mode == Mode.Buy:
            state.mode = Mode.Sell
            # buy margin order with borrowing
            value = float(query_portfolio_value()) * 1.1
            state.order = margin_order_market_value(symbol = data.symbol, value = value, side_effect = OrderMarginSideEffect.AutoDetermine)

            with OrderScope.one_cancels_others():
                # adjust for fees since purchase amount will be smaller
                order_qty = subtract_order_fees(state.order.quantity)
                tp_price = data.close[-1] * 1.01
                sl_price = data.close[-1] / 1.01

                # exit orders should repay.
                print("long stops", state.order.quantity, order_qty)
                state.tp_order = margin_order_iftouched_market_amount(symbol = data.symbol, amount = -order_qty, stop_price=tp_price,
                                                    side_effect = OrderMarginSideEffect.Repay)
                state.sl_order = margin_order_iftouched_market_amount(symbol = data.symbol, amount = -order_qty, stop_price=sl_price,
                                                    side_effect = OrderMarginSideEffect.Repay)

        elif state.mode == Mode.Sell:
            state.mode = Mode.Buy
            # sell short with borrowing
            value = float(query_portfolio_value()) * -0.5
            state.order = margin_order_market_value(symbol = data.symbol, value = value, side_effect = OrderMarginSideEffect.AutoDetermine)

            with OrderScope.one_cancels_others():
                # fees of sale are paid in quoted so no adjustment for fees is needed
                order_qty = state.order.quantity
                tp_price = data.close[-1] / 1.01   # take profit is below price
                sl_price = data.close[-1] * 1.01   # stop loss is above current price

                # exit orders should repay.
                # exit orders should be buys to close
                # note: this will leave dust when the position is closed due to accumulated interest
                print("short stops", state.order.quantity, order_qty)
                state.tp_order = margin_order_iftouched_market_amount(symbol = data.symbol, amount = order_qty, stop_price=tp_price,
                                                    side_effect = OrderMarginSideEffect.Repay)
                state.sl_order = margin_order_iftouched_market_amount(symbol = data.symbol, amount = order_qty, stop_price=sl_price,
                                                    side_effect = OrderMarginSideEffect.Repay)

Short selling

@enable_margin_trading()
def initialize(state):
    pass

@schedule(interval="1d", symbol="BTCUSDT")
def handler(state, data):
    print(query_balances())
    pos = query_open_position_by_symbol(data.symbol, include_dust=False)

    macd = data.macd(12,26, 9)

    if pos is None :
        if macd["macd_histogram"][-1] < 0:
            # short btc
            # since the btc free balance is 0 the btc will be borrowed first and then sold
            margin_order_market_amount(symbol = data.symbol, amount = -0.01,  side_effect = OrderMarginSideEffect.AutoDetermine)
    else:
        # close position by repaying loan
        if macd["macd_histogram"][-1] > 0:
            amount = float(query_balance_borrowed(data.base) + query_balance_interest(data.base))
            amount *= 1.01  # adjust for order fees

            margin_order_market_amount(symbol = data.symbol, amount = amount,  side_effect = OrderMarginSideEffect.AutoDetermine)

Buying with leverage

@enable_margin_trading()
def initialize(state):
    pass

@schedule(interval="1d", symbol="BTCUSDT")
def handler(state, data):
    print(query_balances())
    pos = query_open_position_by_symbol(data.symbol, include_dust=False)

    macd = data.macd(12,26, 9)

    if pos is None :
        if macd["macd_histogram"][-1] > 0:
            amount = 2.0 * float(query_balance_free("USDT")) /data.close[-1]
            # leverage long btc
            # since the usdt free balance is not enoug the extra usdt will be borrowed first
            buy_order = margin_order_market_amount(symbol = data.symbol, amount = amount,  side_effect = OrderMarginSideEffect.AutoDetermine)
            print("buy order side effect", buy_order.margin_side_effect)
    else:
        # close position by repaying loan
        if macd["macd_histogram"][-1] < 0:
            amount = -float(query_balance_free(data.base))

            sell_order = margin_order_market_amount(symbol = data.symbol, amount = amount,  side_effect = OrderMarginSideEffect.AutoDetermine)
            print("sell order side effect", sell_order.margin_side_effect)

Long-short QQE strategy

TRADE_SIZE = 500
MIN_TRADE_SIZE = 50

@enable_margin_trading()
def initialize(state):
    state.buy_order = None
    state.sell_order = None

@schedule(interval="1d", symbol="BTCUSDT", window_size=200)
def handler(state, data):
    portfolio = query_portfolio()
    pos = query_open_position_by_symbol(data.symbol)

    # use qqe indicator as the trend
    trend = -1 if data.qqe(21, 5, 4.2)["trend"][-1]  < 0 else +1

    exposure = 0.0 if pos is None else float(pos.exposure)

    # plot data
    plot_line("leverage", query_position_weight(data.symbol), data.symbol)
    plot_line("exposure", exposure, data.symbol)
    plot_line("value", portfolio.portfolio_value, data.symbol)

    if trend > 0:
        target_pos = TRADE_SIZE / data.close[-1]
        trade_size = target_pos - exposure

        # check trade size is large enough to be accepted by the exchange
        if trade_size * data.close[-1] > +MIN_TRADE_SIZE :
            print(f"buying {trade_size:.5f} {data.base}")
            state.buy_order = margin_order_market_amount(symbol = "BTCUSDT", amount = trade_size,
                                                    side_effect = OrderMarginSideEffect.AutoDetermine)
    if trend < 0:
        target_pos = -TRADE_SIZE / data.close[-1]
        trade_size = target_pos - exposure

        # check trade is size is large enough to be accepted by the exchange
        if trade_size * data.close[-1] < -MIN_TRADE_SIZE :
            print(f"selling {trade_size:.5f} {data.base}")
            state.sell_order = margin_order_market_amount(symbol = "BTCUSDT", amount = trade_size,
                                                    side_effect = OrderMarginSideEffect.AutoDetermine)

Calculate daily interest cost

@enable_margin_trading()
def initialize(state):
    state.run = 0

@schedule(interval="1d", symbol="BTCUSDT")
def handler(state, data):
    if state.run == 0:
        margin_borrow("BTC", 500/data.close[-1])
        margin_borrow("USDT", 500)

    print(f"margin_level {query_margin_ratio():.3f}")

    btc_debt = query_balance_borrowed(data.base) + query_balance_interest(data.base)
    base_borrow_cost = btc_debt * query_margin_daily_interest_rate(data.base) * Decimal(f"{data.close[-1]}")
    print(f"{data.base} {btc_debt} debt daily borrow cost is {base_borrow_cost:.2f} {data.quoted}")

    usdt_debt = query_balance_borrowed(data.quoted) + query_balance_interest(data.quoted)
    quoted_borrow_cost = usdt_debt * query_margin_daily_interest_rate(data.quoted)
    print(f"{data.quoted} {usdt_debt} debt daily borrow cost  {quoted_borrow_cost:.2f} {data.quoted}")

    state.run += 1

Final Thoughts on Margin Trading Bots with Trality

Obviously, there is far more to say on the subject, but the above guide is meant to serve as an informative introduction to getting started with margin trading bots by using Python.

Once you’re happy with your margin bot, the next step is to link it with the best crypto margin trading exchange. In terms of trading on a centralized exchange, a Binance trading bot will likely offer the best benefits to a broader range of traders, but there are excellent decentralized exchanges from which to choose if you decide to go that route.

Here at Trality HQ, we are constantly refining and optimizing our platform’s tools to meet the needs of our users. If there are any specific code instances that you would like to see covered, then by all means get in touch!

Crypto Margin Trading Bots: Getting Started Using Python was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Given the many ways to buy and sell cryptocurrencies, you might be wondering whether swing trading crypto is profitable. Or perhaps you’re interested in the best cryptocurrency for swing trading. Or maybe you’re just curious about swing trading itself — what it is and how to do it.

The good news is that swing trading is popular with investors of all skill levels, meaning that beginners often find significant success when experimenting with it and even adding it to their trading strategy toolkit, while seasoned veterans might benefit from approaching swing trading with fresh eyes.

In fact, pairing swing trading with automated algorithmic trading bots can be an excellent way to leverage the power of artificial intelligence and machine learning for short- and long-term trading gains. As regular readers of our blog will know already, manual trading is guaranteed to result in losses, which is especially true with trading strategies with shorter time frames, making crypto trading bots absolutely essential tools.

In the following article, we’ll explore the basics of swing trading crypto before delving into some of the finer points, such as the benefits and drawbacks, how to get started, common swing trading strategies, swing trading risks, how it compares to day trading, and whether it’s a profitable approach to trading in general.

What is Swing Trading Crypto?

A basic truism is that markets move in cycles, fluctuating up and down based on a variety of factors. Now let’s say that, as a trader, you’d like to benefit from some of those short- and medium-term fluctuations or “swings” in an asset’s price. In this case, we’re talking about fluctuations that occur over a few days to a few weeks.

Anything shorter is referred to as day trading, which we’ll cover in more detail later in this article. Anything longer is a buy-and-hold strategy otherwise known as HODLing or position trading, which by definition isn’t actually trading. Swing trading, then, occupies something of a middle ground between day trading and a buy-and-hold strategy.

Since swing trading is a shorter-term strategy, traders often combine technical analysis with fundamental analysis in order to gauge the best trade entries and exits. The key is to know how to combine technical analysis and many of its indicators with fundamental analysis in order to identify and predict price movements for optimal trade entries and exits.

Swing Trading Crypto: Benefits and Drawbacks

We’d be remiss if we didn’t first describe some of the ways in which traders can benefit from swing trading as well as some of the strategy’s possible pitfalls. After all, a simple tally of pros and cons can inject your decision-making process with a healthy dose of objectivity, making it easier to reach a more informed decision.

Advantages of swing trading

Time: Day trading takes time, and time is money. Swing trading, on the other hand, doesn’t necessitate you spending hours glued to your screen since positions are held for longer than a day.

Stress: You already know that stress kills, and day trading is stressful work. By entering a position and establishing a stop-loss order, swing trading allows you to concentrate on other important things in life. Serenity now.

Simplicity: Rather than spending time on fundamental analysis and establishing intrinsic value, technical analysis indicators allow you to focus strictly on price and volume.

Agility: Unlike position trading in which you are committed to longer periods of time, swing trading allows for fleet-of-foot traders to buy or sell for small gains or small losses in order to optimize their strategy at any given time.

Disadvantages of swing trading

After-hours risk: Traders need to deal with overnight and weekend market risks.

Seesawing: More generally, given their inherently volatile nature, crypto needs to be watched consistently in order to ride trends or avoid abrupt market reversals, which can result in unexpected losses.

Missed opportunities: Making moves is all well and good, but short-term market moves can sometimes mean that swing traders miss long-term opportunities.

Now that you know some of the strengths and weaknesses of swing trading, let’s take a look at some of the next steps in terms of getting started.

Getting Started with Crypto Swing Trading

In order to get started with crypto swing trading, one of the most important steps is to select an exchange on which you wish to trade. The best overall choice for a majority of traders is clear in this respect: Binance.

Since it’s the largest and arguably most popular centralized crypto exchange in the world, Binance offers an array of options as well as considerable flexibility for beginners and intermediate traders. Users can take advantage of a large number of market pairs (in this case hundreds), futures, margin trading, and leverage, among many other features, which are often ideal for swing trading.

And since Binance and Trality are completely free to use, traders can open accounts quickly and easily in order to create an automated Binance crypto trading bot, which ensures consistent, reliable, and profitable trading, even during the most challenging of market conditions.

Crypto Swing Trading Strategies

There are a number of tools in a swing trader’s toolbox. Chief among them are technical indicators, which can either be leading or lagging (momentum indicators, trend indicators, and volatility indicators, among others). The consensus among crypto traders is that indicators such as Exponential Moving Average (EMA), Bollinger Bands, Relative Strength Index (RSI), and the Fibonacci retracement tool are the most popular and useful when swing trading crypto.

An illustration of a Relative Strength Index (RSI) indicator (source: TradingView)

Swing traders are particularly interested in support and resistance levels, which makes the ability to read and interpret candlestick patterns and crypto charts especially important. Generally speaking, crypto swing traders can employ a number of different approaches, from trying to catch and ride an uptrend to buying the pullback (or retracement or consolidation).

Curious beginners along with more advanced traders interested in some of the best indicators and trading strategies for swing trading crypto should consult our dedicated article on the subject.

The Best Crypto for Swing Trading

As with everything in the crypto space, there are no one-size-fits-all solutions, and so it’s virtually impossible to say whether any one particular crypto is the best one for swing trading. Ultimately, there are many different reasons that a trader may choose to swing trade, with a number of additional variables. The simple fact is that some coins may be a better fit than others given those reasons, which will obviously vary.

However, as a general rule, Bitcoin (BTC) is often seen as an ideal entry into swing trading, with Ethereum coming in a close second. Of course, traders can also try their hand at swing trading altcoins, but they should bear in mind that the risk is far greater, particularly when smaller coins are involved.

The Best Time Frame for Swing Trading Crypto

As with so many things in life, timing is everything and the same can be said for swing trading (or any type of trading, for that matter).

Generally speaking, swing traders work with four-hour charts (4H) and daily charts (D1), but can obviously employ weekly charts, too. One of the benefits of using daily charts is that it avoids the possibility of curve fitting your strategy, which is to say tailoring your strategy based on historical data rather than actual market conditions. Lower time frames will result in the increased randomization of data, which can lead to more difficulty with regard to making reliable price predictions.

The simple fact is that there is no “best” time frame, or anything else within the crypto space, since so much depends on a trader’s individual needs, aptitude, goals, experience levels, etc.

Is Crypto Swing Trading Profitable?

With millions of people actively swing trading crypto daily, the answer is obvious (otherwise why would they continue doing it). But that’s not to say that it’s easy or a quick way to turn a profit.

Given its many moving parts, swing trading requires a sound understanding of fundamental analysis, technical analysis, market dynamics, and tokenomics as well as a more advanced knowledge of swing trading indicators and strategies.

But this shouldn’t dissuade new traders from exploring swing trading. The underlying principles are easy to grasp, but the mechanics of swing trading profitably can (and often does) require a fair bit of knowledge, experience, and, to be perfectly honest, trial and error.

While practice might not necessarily make you a perfect swing trader, it will make you a more profitable one, which is why backtesting and paper trading are so important when getting started.

Is Crypto Swing Trading Risky?

Since positions are held for a shorter period of time, the level of risk is mitigated to an extent. Nevertheless, there are risks of which traders should be aware when swing trading. The biggest concern is well-timed trade entries and exits. Too soon or too late can mean the difference between a profitable trade and a significant loss, which is why it’s imperative to use technical indicators to your advantage when determining optimal trade buy and sell points.

A stop-loss order is an especially important tool for managing risk when swing trading. As its name suggests, it stops a trader’s losses when a coin’s price reaches a certain level. Think of it as an emergency brake. As a trader, you know exactly how much of your capital is on the line and the precise limit of each position. Incidentally, Caroline Ellison, the former CEO of Alameda Research, bragged about not being a fan of stop-loss orders. ‘Nuff said.

Swing Trading Crypto vs Day Trading: What’s the Difference?

In a word? Stress. Day trading — whether crypto or otherwise — is extremely stressful. If you prefer to look older than your years, then day trading just might be for you. In all seriousness, though, day trading requires a great deal of skill and experience and can certainly be profitable, which is one of the reasons why many traders are in fact day traders.

As mentioned earlier in the article, day traders try to capitalize on intraday movements, typically based on momentum and market news. Market monitoring throughout the day is a must, especially in a market as volatile as crypto, but it’s also time consuming. Casual traders or those new to trading simply won’t have the time, tools, or expertise to trade efficiently and effectively as day traders.

What happens, say, when a new day trader encounters short-term momentum, which then triggers positions against the larger overall trend? Losses can mount up fairly quickly for the uninitiated, which is why, under such circumstances, day trading is best left to the professionals. In other words, one of the main differences between day trading and swing trading is risk, with day trading being the far riskier strategy of the two.

Swing trading, on the other hand, will be (and is) inherently less risky precisely because positions are held for a longer period of time (but not too long). Along with reduced risk comes reduced exposure of a trader’s money, which can be used for larger moves. A 8% increase on intraday trading is far more difficult to achieve than a 8% increase averaged out over a two-week period, for example. And less exposure and less capital committed mean that the swing trader can concentrate on longer-term profits without the inherent risks and worries of day trading.

However, it’s also important to note that day trading and swing trading are not mutually exclusive. A day trader can take an intraday position, but the trader may then need to maintain it for an additional day or more in order to make a profit. Alternatively, a day trader can stay in a position for too long in an attempt to reverse losses, effectively becoming a swing trader or even a position trader.

Final Thoughts

There are many benefits to be had from swing trading, making it a popular trading strategy for traders of all levels.

Unlike intraday trading, for example, you don’t have to be glued to your computer throughout the day watching positions and price movements. One of the knock on effects is that you’ll have lower stress levels as a trader. Also, when using technical analysis indicators, you can focus your efforts on price and volume rather than some of the more challenging aspects of fundamental analysis. And since swing trading occupies a middle ground, you’re not committed to long positions, offering more flexibility than HODLing.

Still, swing traders share a common set of characteristics. They know markets inside-out; they are skilled in technical analysis and fundamental analysis; they keep an eye on stop loss; and they don’t over complicate matters.

If you do decide to add swing trading to your trading strategy, always remember the golden rules: never risk more than you can afford to lose and always do your own research.

Originally published at https://www.trality.com/blog/ on November 22, 2022.

Swing Trading Crypto: An Introductory Guide was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

By now, most of us are familiar with how to lose money during a crypto bear market, but there are many ways to actually profit during the current market doldrums, with one of the best being crypto margin trading.

By using the power of leverage, margin trading allows you to buy and sell more crypto than your existing capital would allow. You effectively borrow funds from the exchange in order to make the trade. The obvious upside is that, if successful, your leveraged position will yield far greater profits, but the inverse can also occur, namely significant losses. However, there are many safeguards in place, such as a stop-loss order, that offer a measure of security against this increased exposure.

You might think that the difficult work is over as soon as you’ve understood the finer points of margin trading versus leverage trading, but the next step necessarily involves choosing a crypto margin trading platform on which to trade. With so many choices available and the recent implosion of FTX (not to mention the FUD around Crypto.com), which one is the best and, more importantly, safest?

In the following article, we explore our top five picks for crypto margin trading exchanges as well as take a brief look at a handful that didn’t quite make the cut (but are nevertheless worth mentioning). Our criteria? Leverage amount, fees, reputation, reviews, and geographic availability (US-based traders will be especially interested).

Let’s get to it!

Binance Margin Trading

Binance is a top choice among traders of all experience levels and for good reason. It is the world’s largest cryptocurrency exchange by daily trading volume and boasts approximately 30 million users. It also has the highest liquidity in the market, making it an excellent choice for margin trading.

Traders can take advantage of up to 10x leverage, which is lower than some exchanges, but far from a deal breaker given the fact that Binance is such a feature-rich exchange. If you’re interested in derivatives trading, then you can use 125x margin. Cross and isolated margin are both available, although cross margin trading on Binance allows for only 3x leverage.

Your first port of call with Binance and margin trading should be their helpful Binance Margin Trading Guide, which has all of their exchange-specific information to get you started quickly and easily, including how to open a Binance margin trading account, transfer and borrow funds to margin level and actually trading on margin. Then check out their FAQs for Spot and Margin Trading for a deeper dive into their trading rules and limits, info on market makers and market takers, and stop-limit (otherwise known as a stop-loss) function, among other things.

Binance Futures margin trading

If you’re interested in futures trading, then check out Binance Futures, which is a derivatives-based exchange initiated by Binance in 2019. As the name suggests, futures trading involves borrowing in order to make predictions on future price movements of your chosen cryptocurrencies, which differs from margin trading (i.e., trading spot assets).

The fees for Binance Futures is structured in tiers according to 30-day trading volume, with maker fees starting at 0.02% and take fees starting at 0.04%. Spot trading fees are higher (0.1% for maker and taker), but Binance does offer a 25% discount if traders hold and use BNB to pay their trading fees. Keeping in mind those decimal places, daily interest for funds that have been borrowed are 0.004% to 0.04%.

Binance margin trading fees at a glance

Margin trading fees on Binance vary based on a number of factors.

Check their Trading Fees page for the latest information about their fee rate for things like spot trading, margin borrow interest, and futures trading as well as for specific deductions and their VIP program.

Kraken Margin Trading

Founded way back in 2011 (we’re talking ancient for the crypto space), Kraken is a US-based crypto exchange that is one of the largest and oldest Bitcoin exchanges in the world, making it among the most trusted crypto exchanges globally. And since it’s licensed in the US market, it’s one of the few exchanges that can offer margin trading to US-based traders.

Traders interested in margin trading crypto can take out long or short positions with Kraken using up to 5X leverage. Kraken also has low rollover fees, with its users never having to pay more than 0.02% (per 4 hours) in fees, along with high margin limits — eligible traders can access up to $500,000.

As with Binance, Kraken takes great pains to provide its users with a range of educational information related to margin trading, whether it deals with Margin Trading Terms and Concepts and a simple How to Trade Using Margin or a more advanced feature such as the differences in spot trading with and without the use of margin.

Kraken also offers Bitcoin futures trading with leverage, and their new margin mode functionality allows traders to use isolated margin to limit downside per contract (or take advantage of cross margin to use all of one’s collateral across all positions).

Kraken margin trading fees at a glance

Traders are encouraged to check their site for the latest fee structure, although the following can serve as a basic guide:

“In addition to the margin fees (opening and rollover), the usual trade fee will be applied to the opening and closing volume of a spot position on margin (but there is no fee for settling a spot position on margin). Margin fees are charged based on the total value of the amount that is extended as margin to effect the margin trade. Collateral also held in the account is not deducted from that amount.”

Kraken’s website is the best source of information regarding the various fees related to margin trading, as these can be updated regularly.

Phemex Margin Trading

Founded in Singapore in 2019 by Jack Tao, Phemex describes itself as “the most efficient crypto trading and investment platform.” Tao himself is the former global development VP of Electronic Trading (MSET) Benchmark Execution Strategies (BXS) at Morgan Stanley and his exchange has made significant strides since its inception. Phemex is among the top 10 global exchanges, with a peak trading volume in excess of $12 billion each day.

The exchange boasts 300,000 transactions per second, with order response times of less than 1 millisecond along with cold wallet storage and transfers requiring two-level human scrutiny offline signatures. In terms of margin trading with leverage, Phemex offers crypto spot markets and derivative contracts of up to 100x leverage.

One of the nicer features of Phemex is their informative blog articles, which cover a wide range of crypto trading topics, especially ones germane to margin trading on the exchange. From margin trading terms and related concepts, initial and maintenance margins, and adjusting the margin on a position to setting leverage and risk limit, among many others, there’s a wealth of well-written information at your disposal.

Phemex margin trading fees at a glance

As they explain on their dedicated fees page, Phemex employs a 0.01% maker fees and a 0.06% taker fee for contracts, while their maker and take fees for spot trading fees are 0.1%. And in line with other exchanges, they offer reductions for both via a VIP program.

As always, it’s best to consult Phemex’s website for the latest information regarding fees and how they are calculated.

Bybit Margin Trading

Born and raised in China (so to speak), Bybit started out in March 2018 as a little-known derivatives exchange, but has quickly transformed into a Singapore-based trading giant. With co-founder and CEO Ben Zhou at the helm, the exchange achieved a peak trading volume of $54 billion in May 2021, although it currently sits around $10 billion a day.

Whereas Binance has chosen the path of regulation, Zhou has decided on the path of least resistance: deregulation. Bybit is one of the best crypto exchanges without KYC; its users are not required to provide ID in order to trade, making it an attractive option for crypto purists.

For those interested in margin trading, Bybit has a lot to offer. If you like to live on the wild side of things, you can dabble in perpetual swaps and crypto futures with up to 100x leverage (yes, you read that correctly). To put that into perspective, if you open a position at $200, then you can use 100x leverage to trade a value of $20,000.

Bybit effectively takes a two-pronged approach to margin trading: cross margin and isolated margin, with cross margin being its default mode for this type of trading. In this case, a trader’s balance is used to prevent liquidation; if the equity is lower than the maintenance, then the trader’s position will be liquidated. Isolated margin, on the other hand, does exactly what it suggests, isolating the initial margin in a position from the trader’s available balance so that only the initial margin can be lost should the trader’s position be liquidated.

As Bybit explains in their documentation,

“Cross margin has a lower risk of liquidation than isolated margin and a lower margin requirement, but unlike isolated margin, it doesn’t have an option for adjustable leverage. The leverage in cross margin mode is determined by the position size and available margin. However, traders who take higher leverage in isolated margin mode will see their positions have the higher potential of being liquidated.”

Traders looking for longer positions or crypto arbitrage will most likely be interested in cross margin, while speculative traders will opt instead for isolated margin trading. Bybit even features its so-called “Auto-Margin Replenishment” (AMR) tool, allowing traders using isolated margin in USDT to add margin to their positions automatically, thereby avoiding liquidation. And if you’re wondering whether you can switch between cross and isolated margin on an open position, you can.

Bybit margin trading fees at a glance

As always, the most important source of truth regarding a respective exchange’s trading fees will be the exchange itself, as these fees can be updated. Nevertheless, let’s look at Bybit’s current margin trading fees below.

As is customary with many exchanges, Bybit adheres to a fee model based on maker fees and taker fees based on whether a user is a non-VIP trader or a VIP trader.

For derivatives trading, Bybit’s taker fee is 0.06% while its maker fee is 0.01%. For more information regarding their fee structure, consult their Trading Fee Structure page.

BitMEX Margin Trading

Based in the Seychelles and founded in 2014, BitMEX bills itself as “the most advanced crypto trading platform for Bitcoin.” While we here at Trality HQ are often wary of superlatives, what we can say is that Bitmex is a peer-to-peer margin trading platform offering leveraged contracts, which can be bought and sold in crypto. Crucially, the exchange does not handle fiat.

If you’re a margin trader looking for a large amount of leverage, then Bitmex offers you 100x just like Bybit. And similar to Binance and Bybit, among others, Bitmex offers both cross margin and isolated margin. In fact BitMEX is something of an OG when it comes to crypto margin trading exchanges. You’ll often see it referred to as the “longest running leverage trading exchange.”

However, BitMEX does not provide its users with a portfolio margin. As it explains in its overview of isolated and cross margin,

“Unrealised profit may not be used to offset any unrealised losses, or as margin to open new positions. This is especially important for those traders who intend to trade the spread between two derivative contracts that share the same underlying. You must realize your profit by closing a position in order for it to be used to offset losses on another contract.”

At the moment, users can trade BTC/USD, ETH/USD, ADA, BCH, EOS, LTC, TRX, and XRP for short or long positions with a stop-loss order to prevent a liquidation. Potential users might also be interested in learning more about how to adjust leverage and add margin to a position while using BitMEX.

And a special note to US-based traders: BitMEX is available worldwide, excluding the United States.

BitMEX margin trading fees at a glance

In order to simplify their fee structure, BitMEX has adopted a standardized approach.

For example, on derivatives their maker fee is 0.01% and their taker fee is 0.075%. Spot trading fees will vary depending on average daily volume (ADV).

Spot trading fees will vary depending on average daily volume (ADV).

It should be noted that deposits and withdrawals on BitMEX are free, making BitMEX an attractive option for margin traders, if not the absolute best one.

Crypto Margin Trading Exchanges: Honorable Mention

The above crypto margin trading exchanges are some of the best for many of the reasons that we’ve outlined, but there are others worth considering. Let’s take a brief look at some of the ones that didn’t quite make the cut.

KuCoin margin trading

KuCoin is an excellent crypto exchange in many respects, but it does have an achilles heel: inconsistent user reviews. As Investopedia reports, “KuCoin’s user reviews are especially poor. Reviewers report problems with withdrawals, customer service, and issues with market manipulation.” In our opinion, this raises red flags, but it certainly shouldn’t dissuade anyone from exploring Kucoin’s many offerings.

Established in 2017, KuCoin offers a wide selection of pairs with which to margin trade (over 220 pairs) with up to 10x leverage. For those interested in futures, you can trade over 100 coins with up to 100x leverage. And their Trading Fees page contains comprehensive information regarding their fee structure.

PrimeXBT margin trading

First launched in 2019, PrimeXBT has established itself in just a few years as a crypto exchange to be taken seriously when it comes to margin trading. With its sophisticated margin trading engine and charting platform, users have access to a range of crypto margin trading tools with multiple charts and asset views across various timeframes, which comes in handy when tracking more than one asset at a time.

With leverage up to 100x, PrimeXBT is one among a number of crypto exchanges offering a large amount of leverage. Margin fees on PrimeXBT for buy and sell orders are 0.5% for each transaction, and there is also something called an “overnight finance fee” for positions that are not opened and closed on the same trading day.

Final Thoughts

For the vast majority of crypto margin traders, Binance offers the best of all possible worlds.

For US-based traders, there are relatively few options available, though. Kraken does offer margin trading to users based in the United States and Canada, although Intermediate and Pro clients on the exchange must meet certain eligibility requirements.

For margin traders seeking an exchange without KYC, then ByBit should be at the top of your list.

And since no list can ever be an absolutely exhaustive one, there are bound to be omissions, such as Margex, CEX.io, StormGain, Derbit, and possibly Huobi.

All in all, margin traders are spoilt for choice when it comes to the best crypto margin trading platforms. But, with so many options available, it’s imperative to do your own research, understand the respective fee structures of each exchange, and familiarize yourself with key features in order to pick the right one to achieve your trading goals.

Originally published at https://www.trality.com/blog/ on November 15, 2022.

Best Crypto Margin Trading Exchanges was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Life cycles, election cycles, billing cycles, sleep cycles, and even vicious cycles. Although there seems to be an endless number of them all around us, as crypto traders we’re only really interested in one specific type: market cycles.

Imagine being able to take the guesswork out of trading. Although it might sound impossible given crypto’s volatility, there is a systematic approach to trading that can be used to your advantage. By learning to identify the cyclical structure of prices, you’ll be able to make accurate predictions about future price movements, unlike so many of those amateur YouTube clairvoyants and their clickbait price prediction videos.

But what exactly are cycles? Can you actually predict them? And what happens when there are cycles within cycles? It can all get very complicated very quickly, which is why it’s absolutely essential to understand how crypto markets move in order to use market cycles to make consistent profit.

In the following article, you’ll learn how to demystify market cycles by identifying their specific phases. In order to trade like a professional, you need professional-grade methods such as multiple time-frame analysis as well as a healthy understanding of cycles within cycles. When armed with this knowledge, you’ll be able to spot the longer-term trend, which will be your insurance during rough market patches such as a crypto winter or bear market.

Let’s start off with the basics.

What are cycles and how to identify them?

As Howard Marks writes in Mastering the Market Cycle, traders should think of cycles as a swinging pendulum — the reasons for the movement will vary, but the movement itself will go on occurring forever. He further clarifies his point:

The cycle oscillates around the midpoint. The midpoint of a cycle is generally thought of as the secular trend, norm, mean, average or “happy medium,” and generally as being in some sense as “right and proper.” The extremes of the cycle, on the other hand, are thought of as aberrations or excesses to be returned from, and generally they are. While the thing that’s cycling tends to spend much of the time above or below it, eventual movement back in the direction of the midpoint is usually the rule. The movement from either a high or a low extreme back toward the midpoint is often described as “regression toward the mean,” […]. But it can also be seen that the cyclical pattern generally consists as much of movement from the reasonable midpoint toward a potentially imprudent extreme as it does going from an extreme back toward the midpoint.

To become an effective crypto trader, you need to possess a sound understanding of how crypto markets move and how to use market cycles to make consistent profit. If you learn how to identify them, crypto market cycles can reveal important information, such as when you should buy or sell.

The Four Phases of a Crypto Market Cycle

Unlike traditional assets such as stocks or bonds, cryptocurrencies are highly volatile, meaning that you’ll want to try to stay on the right side of them. Things can go south very quickly, with many investors getting caught off guard when the market crashes. To avoid being sucked into a crypto market sinkhole, it is absolutely vital that you understand how market cycles work.

The Accumulation Phase

The accumulation phase is a stage of consolidation after a decline in price over a longer period of time. The price at this phase is usually trading in a range.

Mark Up Phase (Bull Market)

The run-up phase (it can also be referred to as a bull market when looking at the market as a whole) is when the market begins to move to higher highs at an increasing rate. This is the time when the market direction has become clear and overall market sentiment has changed to optimistic.

The end of this phase happens when most market participants have bought as much as they can, and then they will eventually be forced to take profit and become sellers.

As prices begin to level off, this leads the market into the distribution phase with the final wave of investors jumping in. This is where excessive gains are seen in very short periods and it’s where the media attention on the market is at its all-time high.

Distribution Phase

In the third phase of the market cycle, the price plateaus and sellers begin to dominate. This part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns into a mixed sentiment. The price will seem to plateau as trading occurs within a narrow range, which can last days or weeks, and the price momentum slows down.

This phase concludes when the market reverses its direction. Classic technical analysis patterns such as head and shoulders or double or triple tops can be found during this phase as well, indicating a change in direction.

Since this phase marks the peak (top) of the market, it’s a period overrun by emotion. The majority of the market looks to the recent past with hopes of continued excessive gains, with greed overtaking common sense. It’s a time where smart money has already exited and where equal parts of anticipation and fear surround the market.

Mark Down Phase (Bear Market)

The last phase of a market cycle is the run-down. For the majority of investors, this is the most difficult period and a highly emotional time, as they either are not aware of the permanence of market cycles or choose to ignore them, resulting in either selling too late or not selling at all.

Forecasting and Cycles Using Indicators

Understanding cycles is fundamental to price forecasting because cycles tend to have a predictable structure. The sequence of accumulation, mark up, distribution and mark down is regular and predictable and this activity introduces patterns into prices. The cyclical structure of prices enables you to make predictions about prices assuming they continue to follow their previous cycle.

Knowing where the price is in the price cycle is important, which is why you need to ask yourself: How can you measure where prices are in the cycle? Thankfully, trading indicators can help to answer this question.

Quite simply, indicators are mathematical formulas that use information such as market prices and volumes to measure certain characteristics of the market. Outputs from trading indicators can be combined to decide if prices are more likely in the top or bottom of a cycle and if the trend or momentum has recently changed. Indicators are useful for measuring what has recently happened. In other words, understanding cycles will allow you to predict what is likely to happen next.

One of the biggest drawbacks to trading indicators, though, is that they are only able to measure the past. Trading indicators are computed using historical data and for this reason indicators have lag. By understanding the cyclical nature of prices and the interaction of cycles over different time frames, it is possible to make predictions about the future by using indicators to measure where in the current cycle prices are.

To better illustrate how an indicator can be used to identify where we are in a cycle, we can examine the relative strength indicator (RSI), which is an oscillator — meaning its value is bound between 0 and 100. Oscillators tend to have cyclical dynamics due to the bounded nature of their values. When the RSI is low, the expectation is that if the price is currently at the bottom of a cycle, then the most likely thing to happen next is for prices to rise as the price moves to the top of the cycle.

If you implement a long-only strategy, it is important to identify times when the price is about to rise. Using the theory of cycles, the time to buy is when the price is at the bottom of a cycle. Regarding the RSI indicator specifically, the assumption is that when the RSI value is low, the price is at a low of the cycle. Thus, identifying times when the RSI value is low can indicate when the price is also relatively cheap and presents a buying opportunity. The plot below shows the relationship between the prices and this RSI history.

This principle can be used with many different indicators. If a strategy favors high volatility, often indicators will target times when volatility is low but rising. The expectation is that high volatility follows low volatility, so the strategy only needs to know where it currently is in the cycle to predict the future.

Cycles within Cycles

If cryptocurrency prices looked like a sine wave, then trading would be much simpler. In a trading exchange, however, prices are set through the interactions of many participants, each with differing constraints and objectives. This activity leads to more complex price dynamics, which to the untrained eye can look chaotic. The price dynamics are, however, simply different cycles that interact with each other on different timeframes.

The hierarchical nature of cycles is important for trading, since being able to identify the primary cycle can give you an indication about the long-term price direction. The medium-term cycle is useful for identifying whether the price is in an area of value from which taking a position would be advantageous. Shorter-term cycles are often useful for timing and confirmation of the original trading hypothesis.

The chart above illustrates the closing prices of BTCUSDT from 4 July 2021 to 7 November 2021. The purple line represents the longer-term trend. There are smaller cycles represented by the green line, which mean revert to the longer-term trend. The red line represents even shorter-term cycles, which tends to revert to the green cycle line. The longer-term cycles are normally dominated by larger companies that likely hold long-term positions. The short-term cycles are dominated by shorter-term traders looking to make smaller and quicker profits.

How to Trade Cycles Within Cycles

Now that you know about the different crypto market cycles, you’re likely wondering how you can leverage this knowledge and take profits from the market. The fractal nature of markets means that prices tend to follow cycles within cycles. For this reason, it is advantageous to design strategies to analyze long-, medium-, and short-term cycles separately.

For example, if a hypothetical strategy only uses 1 hour time bars, the prices may look relatively cheap, prompting the trader to consider buying. The strategy, however, might overlook a few things: the price might be in a long-term bear market; on a longer-term basis, the prices might be at all time highs, and so unlikely to go higher; or, in the short-term, the momentum might still be strongly negative, indicating prices could go down even further.

These issues can be solved with multiple time-frame analysis and the concept of cycles within cycles. The general idea is to have a position that is synchronized with the long-, medium- and short-term traders because this provides the best risk adjusted returns. Another opportune time to buy is when all other actors in the market are either long or buying.

Multi-time frame analysis is the application of indicators for measuring price cycles across multiple periods of time, making it possible to determine the likely behavior of long-, medium-, and short-term traders simultaneously.

This longer-term trend can be thought of as the position’s insurance. Large investors (known as whales) determine the larger price moves, which is why it’s important for positions to be in the same direction as the dominant trend in order to take advantage of these price moves. That’s the thinking behind the well-known adage the trend is your friend. If done correctly, the probability of a significant drawdown should be low.

The second step is to identify the behavior of medium-term traders. Often in a bull market, the price can temporarily move lower, which can be due to profit-taking or other activity caused by constraints on traders. When the price moves opposite to the primary trend, otherwise known as a pullback, it can offer great trading opportunities. By identifying pullbacks, your aim is to measure price cycles on a medium-term time horizon and look for relatively cheap prices.

The final stage before sending an order is to identify the activity of short-term traders. This signal is known as the trade trigger. When the price is in a pullback, the short-term momentum is against the trend. Before taking a trade, it is essential that short-term momentum is complete and prices are about to continue in the direction of the primary trend. The trigger tries to time the trade by measuring the short-term momentum to determine when the pullback is likely to be complete. This trigger signal improves trade timing and aims to reduce the short-term losses associated with a position before it becomes profitable. If your strategy has good timing, it will also have good risk-adjusted returns.

The following code example demonstrates a combined signal consisting of the layering of a trend with setup and trigger signals. As a good exercise, you can modify the code and look at using different indicator combinations to achieve profitable trades as well as trades with good trade timing, i.e., high risk-adjusted returns.

As a crypto trader, you should always work towards gaining a better understanding of why cycles exist, how they are layered, and what their importance is within market regime forecasting. This knowledge, in turn, will also help when learning about different indicators and how they should be used to maximize their utility.

Conclusion

Unlike traditional assets such as stocks or bonds, cryptocurrencies are highly volatile, meaning that you’ll want to try to stay on the right side of them. Things can go south very quickly, with many investors getting caught off guard when the market crashes. To avoid being sucked into a crypto market sinkhole, it is absolutely vital that you understand how market cycles work.

In this article, we focused on a range of important issues related to understanding crypto markets, such as:

• Understanding market cycles and how the predictability of cycles gives prices predictability;
• The relationship between indicators and market cycles and how the interaction of heterogeneous market participants causes cycles within cycles;
• And, finally, how trading indicators can be layered to estimate the correct time to trade by predicting when the long-, medium-, and short-term cycles are in sync.

In summary, becoming a good trader involves acquiring a sound understanding of how crypto markets move and how to use market cycles to make consistent profit. Understanding cycles is an important aspect of price prediction and forecasting because cycles tend to have a predictable structure.

The cyclical structure of prices can enable traders to make predictions about prices. Multiple time-frame analysis and the concept of cycles within cycles can be used to identify the longer-term cycle and the current price trend.

However, understanding crypto market cycles is vital to successful trading, but it’s only one tool among many. When paired with an automated algorithmic trading strategy based on crypto trading bots, you can weather challenging market conditions and even accumulate a wealth of knowledge and experience in the process, priming you to take advantage of the next market cycle in a reliable, precise, and profitable manner.

Originally published at https://www.trality.com/blog/ on October 16, 2022.

Crypto Market Cycles was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Is margin trading the same as leverage trading? Is margin considered leverage? Can you leverage trade without margin?

Many crypto terms are often used interchangeably, but there can be subtle differences between them. Margin trading and leverage trading is a perfect example. You might think that the two are one in the same, but, as we’ll see in the following article, there are a few fine distinctions to make.

It’s impossible to discuss margin without talking about leverage, and vice versa. Ideally, for leverage trading to work you need to have margin, and for margin trading to work you need leverage. And since both trading strategies come with increased risk exposure, it’s crucial to understand the differences in order to use them advantageously.

Below is a brief overview of both margin trading and leverage trading, including a breakdown of some of the main benefits of each along with a few reminders of what to keep in mind when engaging in margin trading and leverage trading crypto.

What is Margin Trading Crypto?

Crypto margin trading involves using the funds deposited in your trading account as collateral for a loan from a crypto margin trading exchange. As with other types of trading, you can automate the process by creating a margin trading bot using Python. The loan advance increases your buying power to trade more crypto than you would if you were to use your own capital. To fully understand the nature of margin trading, let’s first examine the concept of margin.

Margin in crypto

Margin is the initial capital you deposit in your trading account. It is the amount that the crypto exchange requires you to deposit in order to actually access margin trading on the platform. If we think of it in very basic terms, you might consider margin as collateral required by the exchange so that they can loan you more funds to increase your trading position.

Let’s say you have $1,000 and want to trade a position worth $5,000. You deposit the $1,000 in your margin account, and the crypto exchange fronts you the additional $4,000. In this case, the $1,000 you deposited is the initial margin. Margin is usually expressed as a ratio, and, in our example, the margin offered by the exchange is 5:1. Note that once you close your position, you pay back the amount borrowed plus the accrued interest.

To avoid your position being liquidated, your account should always be above the maintenance margin, which is simply the minimum amount of capital you need in your account to ensure that your open trades remain active. Otherwise, the exchange will liquidate your position. When you receive an alert that your account has dropped to such an extent that it’s close to the maintenance margin, you can add more funds to your initial margin or sell part of your portfolio to ensure that your account doesn’t drop below the maintenance margin.

What Are the Advantages and Disadvantages of Margin Trading?

Margin trading works by using a loan from the exchange to increase your buying power. The primary objective here is to increase potential returns. Let’s briefly consider some of the benefits and drawbacks.

Advantages of margin trading

• Higher potential for increased earnings: The increased buying power allows you to open larger positions, potentially increasing your profits if the trade goes in your favor.
• Portfolio diversification: The increased buying power means you can afford to hold various assets, effectively diversifying your portfolio.
• Short selling: With margin trading you can go long or short the market, allowing you to profit in both bull and bear markets, unlike spot markets where you can only go long.
• Lower interests: Although you must repay the margin lent to you, the interest accrued is still much lower than if you were to take out a loan and trade all cash.

Disadvantages of margin trading

• Amplified losses: The increased buying power also means increased potential losses if the trade doesn’t go your way.
• Risk of portfolio liquidation: If the market goes against you and your account falls below the maintenance margin, the exchange could liquidate your entire position. Different crypto exchanges and trading platforms have different rules regarding margin trading and violating them will result in liquidation.
• Risk of margin calls: In a market as volatile as crypto, short-term fluctuations could push your account below the maintenance margin, triggering a margin call. But if you were trading all cash, you could withstand momentary price fluctuations.
• Interest: You’ll be required to pay interest on the borrowed margin. Although it is significantly lower than in other markets, it’s still a drain on your potential profits as well as an additional cost if your trade runs losses.

What is Leverage Trading Crypto?

Leverage trading involves using a credit facility extended to you by the trading platform to magnify your position, which depends on the capital deposited in your trading account. Leverage is basically a position multiplier. It’s simply a tool that enables you to gain greater market exposure.

One of the most common misconceptions is that leverage trading is similar to taking a loan for trading. Unlike in margin trading where the exchange loans you additional funds, which you must repay with interest, leverage is not a loan and you won’t have anything to repay. The profits you earn from leverage trading are all yours.

Typically, leverage is usually expressed as a ratio or using the “X” to signify the multiplier. For example, a leverage of 10X means you can open a position 10X the value of your initial deposit. Generally, you are free to choose the leverage you want, which can be as low as 2X or as high as 1000X. For example, if you have $1,000 and leverage of 10X, you can open a position worth $10,000. Note that the maximum leverage varies depending on your geographical locale and the crypto exchange that you are using.

What are the Advantages and Disadvantages of Leverage Trading?

The advantages and disadvantages of crypto leverage trading and margin trading are more or less similar.

Advantages of leverage trading

• Neither interest nor loan repayments: Unlike margin trading, the profits you earn in leverage trading are all yours.
• The increased market exposure increases the potential for significantly higher profits.
• Since leverage trading enables you to trade crypto derivatives, it allows you to trade under any market condition. You can trade crypto futures and seamlessly buy or short sell a given crypto.
• You have the ability to trade different cryptos with limited capital, effectively diversifying your trades.

Disadvantages of leverage trading

• Magnified losses: Leverage trading also magnifies the potential losses that you can incur. For example, say you’re trading with a leverage of 10X. A slight market fluctuation of, say, 1% loss translates to 10% in your trading account. And given the inherent volatility in the crypto market, your account can easily be wiped out as a consequence.
• Leverage trading may not be suitable for longer-term traders. Ideally, leverage trading is most suitable for short-term traders, whether you’re an intraday trader or day traders.

Is Trading with Leverage Better?

In a word, yes. But this will depend entirely on your risk appetite and trading style. As we’ve seen, both leverage trading and crypto margin trading allow you to open larger positions than you normally would if you were trading all cash. However, leverage trading offers significantly larger positions than margin trading. As we’ve seen, though, this also comes with a significantly higher downside.

Also, unlike margin trading, leverage trading doesn’t attract any interest payments or loan repayments, meaning that your trading doesn’t come with additional costs.

Can You Leverage Trade Without Margin?

No. Leverage trading and margin are inextricably linked. Margin is the initial capital you deposit in your trading account; this is the amount you use for leverage trading. Margin is a prerequisite for leverage trading. Without it, you cannot access the leverage. A margin account allows you to have increased buying power. Leverage lets you trade bigger positions than the amount of capital in your account.

Remember that leverage is simply a multiplier, an added buying power, to your capital. The key takeaway here is that margin is the capital required to access leverage, and leverage is added buying power to your positions.

Final Thoughts

Even though margin trading and leverage trading are closely interconnected, the two are not interchangeable. Margin trading involves using the capital deposited in your trading account to borrow more funds from the crypto exchange for trading. Leverage trading, on the other hand, involves using a credit facility extended to you by the trading platform to magnify your position. In this case, leverage measures the increase in buying power of your capital, which is the margin you deposited.

Knowing the differences between margin and leverage is crucial before trading. Naturally, crypto margin trading and leverage trading carry risks, and you should always do your own research before deciding on the best option based on your risk tolerance and investing goals.

Originally published at https://www.trality.com/blog/ on October 16, 2022.

Margin Trading vs Leverage Trading Crypto was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Is leverage trading good for beginners? What leverage is best for beginner traders? Is leverage trading profitable during a crypto bear market?

Leverage trading may seem confusing at first for beginner traders, which is why it’s crucial to understand the basics of trading with leverage and how it works. In the following sections, we’ll explore leverage trading, looking at how it works in crypto, entering short and long positions with leverage, the many benefits of leverage trading, a number of the risks associated with it, and a number of effective strategies for mitigating those risks.

Let’s get started!

What is Leverage Trading?

Leverage trading enables individuals to increase their investment positions by using borrowed funds. With a margin trading account, you can increase your leverage when trading, particularly when using automated margin trading bots, in order to maximize your potential profits. As such, it’s an excellent way to realize significant returns, even (or especially) during a crypto bear market. But leverage trading is slightly different than margin trading. And there is a downside of which investors should be aware: where there is reward, there is also risk.

Leverage uses borrowed capital to trade cryptocurrencies, increasing your buying power and allowing you to trade with more capital than you might have. Depending on the crypto exchange that you use, leverage trading can also give you control of up to 100 times the amount that you need to open, helping you to maximize your potential profits and minimize your losses.

The amount of your leverage is called a ratio, such as 1:10 (10x) or 1:20 (20x). It indicates the amount of times your starting capital gets multiplied. For example, you would only need $1,000 to invest $10,000 at a leverage ratio of 1:10. In leverage trading, substantially less initial capital is needed to generate the same amount of profit.

How Does Leverage Trading in Crypto Work?

Leverage trading in crypto starts with funding your trading account, and the initial capital you provide is called collateral. The required collateral varies depending on the leverage you choose and the total value of the position that you wish to open, which is called margin.

The first step in leverage trading crypto is to fund your trading account. The capital you invest is referred to as collateral, and its required amount varies according to the leverage you select and the total value of the position you wish to open (the margin).

For example, if you were to invest $1,000 in Bitcoin (BTC) with a 10x leverage, the required margin would only be 1/10 of $1,000. This indicates that the minimum deposit amount required is only $100, which will serve as collateral. If you use higher leverage, say 20x, your required margin would be a lot smaller at $50 since it is equivalent to 1/20 of $1,000.

Aside from the margin deposit, you need to set a margin threshold, also referred to as the maintenance margin. In order to keep your position from being liquidated, you will have to add extra funds to your account if the market swings against your position and the margin falls below the maintenance threshold.

Crypto Leverage Trading in Long and Short Positions

You can use leverage trading for both long and short positions. Opening a long position indicates that you anticipate an asset’s price to rise. Opening a short position, on the other hand, indicates your prediction that the asset’s price will decline.

Crypto leverage trading and long positions

The easiest way to describe crypto leverage trading and long positions is to begin with a concrete example. Let’s say that you open a long position on Bitcoin for $10,000 with 10x leverage. In this case, your collateral is only $1,000. With this position, you can get a $2,000 profit if the price of Bitcoin increases by 20%, an amount far greater than the $200 you would have earned if you had traded your $1,000 initial capital without leverage.

On the flip side, your position would be down $2,000 if Bitcoin’s price drops by 20%. With your meager $1,000 in collateral, a 20% drop results in the position being closed out before the 20% swing has fully occurred. In this case, you will be fully liquidated and your balance goes to zero.

Crypto leverage trading and short positions

Let’s assume in this case that you want to open a $10,000 short position on Bitcoin with 10x leverage. You borrow Bitcoin from someone else and then sell it at the current market price. Because you chose to trade on 10x leverage, you’ll have the chance to sell $10,000 worth of Bitcoin while only having a $1,000 collateral.

On the other hand, suppose you borrowed 0.25 Bitcoin, sold it, and the price of Bitcoin at the time was $40,000. In this case, you can purchase the 0.25 Bitcoin back with only $8,000 if the price falls by 20% amounting to $32,000, netting you a profit of $2,000.

However, if Bitcoin increases by 20% to $48,000, you would need an additional $2,000 to buy back the 0.25 Bitcoin. Since there is just $1,000 left in your account, your position will be liquidated.

What are the Advantages of Leverage Trading?

Its primary advantage is that leverage trading provides a way to trade an asset without having to pay its full price. A trader using leverage can gain considerably by using a smaller amount of money to acquire assets with a higher potential return.

Higher profits with leverage trading

When compared to conventional trading, you can make significantly bigger gains with a far smaller investment. You only pay a small fraction of the asking price for a position rather than the entire amount.

More assets with leverage trading

You can grow your assets with less capital if you are confident in your investment. By investing in a variety of assets rather than just one or two, you can make the most out of your money and maximize its potential.

More flexibility with leverage trading

Leverage allows you to trade more often and execute more transactions to maximize the return on your investment. Similar to momentum trading, leverage trading also allows you to profit more quickly from short-term price fluctuations thanks to your greater flexibility.

What are the Disadvantages of Leverage Trading?

Leverage trading has many advantages over conventional trading, but there are also some disadvantages about which you should know beforehand.

Higher losses with leverage trading

With leverage trading, the odds are decent that you will experience a significant loss at some point, which requires a keen eye to recognize. Leverage can be detrimental in the long run, particularly when the money market is struggling, making it more suitable for short-term trading.

Leverage trading can be difficult for new traders

Due to the high level of risk associated with cryptocurrencies, only very experienced traders may be able to fully realize the many benefits of leverage trading. Experience helps, but practice makes perfect. Unfortunately, the stakes can be quite high for newer traders.

Leverage trading and psychological traps

Newer traders frequently attempt to raise a losing position to recover their losses. It’s a trap that can ensnare even the best of us, since we’re working with borrowed money. However, it’s crucial to maintain your composure, start small, and take short positions in order to avoid potentially costly mistakes.

How to Manage the Risks of Leverage Trading

Leverage trading is a double-edged sword that can dramatically increase both your profits and losses. Here are some suggestions for managing the risks of leverage trading and leveraging it to your advantage (see what we did there).

Leverage trading and a stop-loss order

If the market goes against you, a stop loss can save your assets. A stop-loss is a risk management strategy that is intended to automatically cancel a position at a certain price. Because it places a strict limit on how much you can lose, it is an effective way to safeguard yourself from damaging losses.

Leverage trading and a take-profit order

You can also place a take profit order that will close your position whenever the gains reach a certain amount. It is wise to protect your gains before the market conditions change since cryptocurrency is volatile.

Leverage trading and position sizing

You can avoid situations in which you could lose a significant percentage of your trading money by thoroughly planning out your position sizing. If you lose a significant percentage of your trading capital in one unsuccessful leveraged trade, you could be less motivated to practice discipline when managing the remaining funds.

Never risk more than you can afford to lose

Regardless of the effectiveness of your approach, leverage trading can turn against you quite quickly, which is why you should never invest more funds than you can afford to lose. In general, putting more than 5% of your crypto portfolio at risk is a bad idea. You would want to invest money that you can pay back in case your trade doesn’t work out.

The Bottom Line

Leverage trading allows traders to start with smaller initial capital but still be exposed to higher profits. Consequently, leverage trading can also result in sudden liquidations, especially at higher leverage levels of up to 100x.

With the right risk management and a sound understanding of the mechanics of leverage trading, you can realize significant profits while simultaneously mitigating the potential risks involved. As with any type of investing, remember to do your own research, consider the risks, and never use more money than you can afford to lose.

Originally published at https://www.trality.com/blog/ on September 22, 2022.

Leverage Trading in Crypto: A Beginner’s Guide was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

The importance of risk management cannot be overstated, especially in an environment as volatile as the crypto market. Quite simply, stop-loss is one of the most straightforward risk management measures that a trader can take. Not only does it limit your potential downside, but it also helps you avoid irrational trading.

In the following article, we’ll take a closer look at stop-losses and, in the process, learn all about why they are important and the many different types of stop-losses as well as how and why you should be using them whenever you’re trading crypto.

Let’s get started!

What is a Stop-Loss?

A stop-loss is an order that traders attach to their trades to exit a position if the market moves against them.

As the name suggests, they are designed to limit a trader’s downside by closing out a position if the market trends in the opposite direction. For example, if you open a short position, you hope the price drops. Instead, if the currency pair rises, you are accruing losses on your trading account. If these losses continue, your account could be wiped out. Setting a stop-loss order lets you automatically close your position if the losses accrued in your trading account reach a specific level.

When setting your stop-loss and take-profit levels, consider the current market volatility and the duration you intend to hold your position. Technical indicators that measure market volatility, such as the average true range (ATR), will come in handy here. Note that you can also set your stop-loss arbitrarily depending on your risk profile. H

Curious about how they’re set? Read on!

Stop-loss for short positions

The stop-loss level is set above the selling price when taking a short position. When you short the market, you expect that the prices will drop. If the market adopts an uptrend, it means that your trading account will accrue losses. Setting a stop-loss ensures the losses you take are capped.

Stop-loss for long positions

The stop-loss is set below the entry price for a long trade. When you open a long position, you expect the price to rise. So, in this case, your downside is the price dropping. On the off-chance that the price drops, setting a stop-loss ensures that your trade will be closed at a specific level, preventing your account from further losses.

How Important is Stop-Loss in Trading?

Stop-losses can be extremely important, whether you’re trading long or short. Let’s take a look at some of the advantages.

Stop-loss limits the downside

As we mentioned, stop-loss limits your downside. Setting the stop-loss ensures that, if the worst comes to pass, you will only lose what you can afford to lose, especially when trading with leverage as is the case with margin trading. It ensures that any one bad trade cannot significantly impact your account beyond the amount you’ve set.

For example, let’s say you have a $1000 account and set your stop-loss at $50. When the market goes against you, you will only lose a maximum of $50. But if you didn’t have a stop-loss, your account could be wiped out by a bad trade.

Stop-loss prevents premature exits

Both inexperienced and experienced traders are not immune to emotional impulses when trading, especially when they find themselves in a losing position. Setting a stop-loss insulates you from making emotional decisions that may negatively impact your trade. Without a stop-loss, you may panic and prematurely close your position. Conversely, you may also be prone to staying longer in a losing trade. The stop-loss ensures that you stick with your strategy.

For example, say you’ve done your analysis and bought Ethereum, but your position doesn’t have a stop-loss. When ETH begins to drop, as it did following the Merge, you still have the conviction that your analysis is accurate and that it will begin to rise again. You’ll be tempted to keep the position open even if ETH goes into a freefall, which could wipe out your account.

Stop-loss and continuous monitoring

Once you’ve set your stop-loss after opening a trade, you don’t need to continue monitoring the trade. When you combine it with take-profit targets, your trade will automatically close when the price reaches the SL or hits the profit target. This frees you up to pursue other interests and relieves you of the stress of continuously watching a fluctuating market.

Stop-loss protects accumulated profits

This applies to trailing stops. Trailing stops are used to protect losses of accumulated profits. Trailing stop orders are often attached to some pips below the prevailing market price for a long position and above the market price for a short position. This means that when the price fluctuates, the trailing stop changes along with it. When the trend changes, your position will be closed when the market price reaches the trailing stop level.

Types of Stop-Losses

There are four common types of stop-losses: trailing stop-loss, time-based stop-loss, equity stop-loss, and volatility stop-loss.

Trailing stop

A trailing stop is a variation of the stop-loss, but it doesn’t have a fixed stop price. Instead, the stop price is attached at some pips below or above the prevailing market price. As the asset price trends in a favorable direction, the trailing stop level adjusts itself (i.e., trails) the market price by the predetermined amount. However, if the asset price trends in an unfavorable direction, the trailing stop remains intact, and the position will be closed if the price reaches the trailing stop price.

Trailing stops are ideal for securing the profits you have earned up to a certain period. For example, if the market trends your way for some time, your trade is profitable, but, if the trend reverses before the price hits your take-profit level, you stand to lose all the profits accumulated up to that point. This is where the trailing stop comes into play.

The trailing stop is attached at some pips below the prevailing market price in a bullish position. This means that when the price rises in an open position and your profits accumulate, the trailing stop also rises along with it. When the trend changes and the market adopts a bearish trend, your position will be closed when the market price reaches the trailing stop.

The trailing stop is placed at specific points above the market price for a short position. As the downtrend continues, the trailing stop will continue moving downwards, ensuring your profits are secured if the market reverses into a bullish trend.

Volatility stop-loss

Volatility stop-loss depends on the prevailing market volatility, and the open position is closed if the asset price fluctuates at predetermined market volatility. Technical indicators, such as the ATR that show market volatility, are used here. Naturally, when the volatility is high, the stop-loss is higher to account for larger market swings. And when volatility is low, the stop-loss should be conservative.

Time-based stop

A time-based stop is a stop-loss triggered after a predetermined amount of time has elapsed. This means an open position is closed after a specific period, regardless of the price fluctuation. Typically, you let your trade run for some time and then close it if there isn’t sufficient market movement, allowing you to free up your capital and trade more favorable assets rather than remain tied in a “dead trade.”

You can set the time-based stop-loss depending on your trading strategy in minutes, hours, weeks, etc. For example, day traders can set their positions to close at a specific time of the day since they do not hold positions open overnight.

Equity stop-loss

Equity stop-loss is the most common type of stop-loss. They are also called percentage stops because the stop-loss level is based on the amount of capital you’re comfortable losing. Your position will be closed when the loss reaches the predetermined amount. Naturally, this type of stop differs depending on one’s risk profile.

Chart stop

The chart stop-loss uses chart patterns and technical indicators to determine the optimal stop-loss level. In this case, traders use support and resistance levels, previous highs and lows, trendlines, and moving averages, among others.

Disadvantages of Stop-Loss Orders

Despite their proven advantages as a risk management tool, stop-loss orders can put traders at a disadvantage. The biggest disadvantage is that extreme short-term volatility could trigger the stop-loss, especially if there’s a small margin between the entry price and the SL.

Typically, a market as volatile as the crypto is prone to short outbursts of extreme volatility occasioned by bouts of momentary price retractions. In these instances, your stop-loss may be triggered before the price retraces without adopting a new trend. To avoid this, you should consider combining different stop-losses, such as volatility, equity, and trailing stop-losses.

Final Words

As one tool in your risk management portfolio, stop-losses are absolutely essential. In fact, their importance cannot be overstated.

And yet they are one of the most underrated aspects of healthy trading habits. Stop-loss targets help ensure that your downside is finite and limited if the market goes against you. They also prevent you from panicking and exiting your positions prematurely by engaging in emotional trading.

If you’re serious about your crypto trading game, then you’ll add stop-losses to your arsenal of weapons, particularly during a crypto winter, if you haven’t already done so!

Originally published at https://www.trality.com/blog/ on September 21, 2022.

Why Is Stop-Loss Important When Trading Crypto? was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

With geopolitical turmoil in Europe and elsewhere, a strong dollar, the US Fed raising interest rates, inflation, a schizophrenic S&P 500, high energy prices, and supply-chain bottlenecks and shortages, investing in crypto isn’t as easy as it used to be. Even Ethereum can’t seem to catch a break, despite news of their recent Merge, which sent the price of ETH down almost 19%. To add insult to injury, we’re deep into a crypto winter.

What’s the crypto investor to do? Can you make money during a bear market, or even take profit? Are you better off HODLing? Or DCAing to build your stacks over time? Believe it or not, there are ways to beat the bear market, but it’s going to take a fair bit of creativity and, frankly, a smidgeon of luck. But it’s possible.

In this article, we’ll take a look at crypto bear market basics and see how they compare with a bull market before exploring some of the possible strategies for making money in a crypto bear market, ranging from earning passive income to short selling or margin trading.

What is a Crypto Bear Market?

In very basic terms, a crypto bear market is a period of low prices or sustained falling prices. Typically, supply is greater than demand and investor confidence is low, resulting in “bears” who are reluctant to trade. The end of a bear market can be difficult to predict since it’s often based on a number of factors, some of which work in conjunction with each other.

It’s important to note, though, that bear markets are not the same thing as corrections. The latter are short-term trends that usually last no longer than two months. When the crypto market is in a correction, value investors often have the chance to find a good entry point, unlike in a crypto bear market in which such opportunities are infrequently available. Falling markets can make it challenging for investors to recoup losses, unless they use certain strategies such as margin trading to amply their positions and take profits.

What Causes a Crypto Bear Market?

What exactly causes a bear market? It’s a good question, one that has a number of answers. Let’s take a look at a few of the most common ones below.

Crypto bear market and regulatory changes

Regulations that hinder cryptocurrency transactions will significantly affect the crypto sector and cause a drop in market prices.

Crypto bear market and negative news

A drop in crypto asset prices often comes after negative publicity, comments, and sentiment from traditional financial and media sources.

Crypto bear market and reduced trading volume

As a result of market uncertainty, cryptocurrency traders usually close off trading and hold onto their assets, resulting in a marked reduction in trading volume.

The Differences Between a Crypto Bear Market and a Bull Market

With a sound understanding of how a bear market is defined as well as some of the causes that lead to it, let’s briefly consider the other, more positive side of the coin — a crypto bull market.

A bull market is one in which asset prices are rising or are expected to rise in the near future. Traditionally, some analysts have defined a bull market as a period in which prices increase by more than 20% after two 20% losses. If you can remember the halcyon days of October and November 2021, then you know exactly what a crypto bull market looks and feels like. Bull markets are marked by investor confidence and economic growth.

What Causes a Crypto Bull Market?

Crypto ads featuring Matt Damon? In all seriousness, economic growth, falling unemployment, and low-interest rates are all part of the puzzle when it comes to the various causes that can lead to a crypto bull market (and a spot by Matt Damon doesn’t hurt).

Some of the major differences between a bull and bear market include:

Crypto bull market and supply and demand

In a bull market, demand is considerably strong, and supply is weak or limited. While a bear market is marked by more sellers than buyers, a bull market is marked by fewer sellers. Although it can be somewhat intangible, there’s a general positive or optimistic feeling in the market.

Crypto bull market and consumer confidence

Increased gross domestic product (GDP) and consumer spending usually signal a growing economy and, with it, bull market conditions (imminent or otherwise). When times are tough, consumers tighten their belts; when there’s extra cash available, consumers usually buy more stuff or invest their disposable income.

Crypto bull market and economic strength

Energy is cheap. The fundamentals are sound. The economy is growing. People are working. Businesses are recording profits. While a weak economy is associated with a bear market, overall economic strength and vitality are generally suggestive of bullish market conditions.

Can You Make Money in a Crypto Bear Market?

TLDR: Yes!

Now that I have your attention, there are certainly ways to make money and even profit during a crypto bear market. While the majority of traders are only active during the crypto market’s bull phase, opportunity does indeed knock during a crypto bear market. The key is to pair the right trading tool(s) with the right market conditions and overall investment goals.

One reason investors realize negative returns is that strategies that work during a bull market don’t work (or work well) during a bear market. And the crypto market’s notorious volatility only complicates matters, but there are ways to identify undervalued coins as well as even glimpse the light at the of the tunnel and spot the next crypto bull run.

Strategies for Profiting in a Crypto Bear Market

In case you hadn’t noticed, the cryptocurrency market has been in a bit of a tailspin lately. Prices either continue to stagnate or, worse, fall, and volatility remains uncomfortably high, making it tough to beat the market. But it’s not an impossible task.

Crypto margin trading

Margin trading (short selling or shorting) is among the most popular strategies for making money during a bear market. Buying on margin basically involves amplifying your position by borrowing from an exchange. The point is to leverage the borrowed among to increase your gains exponentially. The benefit is that you don’t need to make a substantial investment up front, but one of the drawbacks is that margin trading can be risky (everything carries some degree of risk).

With margin trading, investors can (and do) take out long positions, but the inherent risk level means that most investors will opt instead for short positions. And since margin trading involves borrowing, there are additional fees that need to be factored into each position.

Nevertheless, margin trading can be a great way to boost returns during a crypto bear market. If you do your research, take a conservative approach, margin trade in moderation for short positions, and factor in interest costs and fees, you can definitely come out ahead during a stagnant market.

Dollar-cost averaging (DCA) or “buying the dip”

A bear market can be an ideal time to invest in different crypto tokens, particularly since prices are low. This practice is known as “buying the dip” and Bitcoin maximalists are renowned for pushing this approach each time BTC “dips” in price.

Dollar-cost averaging or DCA might sound complicated, but it simply entails investing at regular intervals rather than all at once with a lump-sum investment. By investing small sums incrementally over time, irrespective of price, you are both building a stronger position as well as averaging out the negative effects of short-term volatility.

Let’s take a practical example. Say that you want to invest $20,000. You could commit the entire amount to BTC (or a combination of cryptocurrencies). Or, you could split this amount over several investments progressively over time. For example, if you buy $500 worth of coins every two weeks over the course of months, you will have eventually invested $20,000, but with reductions in risk and exposure as well as the elimination of emotion-based investment decisions and bad timing.

Investing at regular intervals also instills discipline. The easiest way to go about dollar-cost averaging is with the help of crypto trading bots, which automate the process based on the initial parameters that you define.

Crypto and earning passive income

During a bear market, lending or saving your cryptocurrency is a wise way to make passive income. Think of it. When you deposit your assets on a platform or protocol, you automatically receive a free cryptocurrency token. As these tokens accumulate, you can gradually start to make up for bear market losses. And, with the help of crypto savings accounts, you may store your funds while earning interest on several of the best crypto exchanges.

Additionally, you can earn interest on your crypto assets by lending them, a process in which investors lend their cryptocurrencies to various borrowers (simple enough, right?). In exchange, they’ll receive interest payments, known as “crypto dividends.” Many platforms that specialize in crypto lending accept stablecoins in addition to cryptos. Binance, the world’s most popular crypto exchange, has an excellent guide to crypto lending and borrowing.

Crypto yield farming and liquidity mining

Yet another way to beat the bear-market blues is through yield farming and liquidity mining. As a “thank you” for your efforts, you will receive free crypto tokens since you’re adding liquidity, particularly if you’re doing it on DeFi (Decentralized Finance) platforms.

Here’s how it works. Yield farming means that you are lending your crypto to exchange for rewards and/or interest. Unlike staking, which we’ll cover in the next section, yield farmers can move their crypto from one pool to another, making it a more flexible option for earning passive income during a crypto bear market. Crypto investors who lend their crypto to decentralized exchanges, on the other hand, are engaging in liquidity mining. Not only do you put your crypto to work for you, rather than simply HODLing them, you earn rewards and contribute to the growth and long-term viability of decentralized finance.

Crypto staking

Another profitable way to generate income in crypto during a bear market is to stake some of your crypto tokens, and there are platforms that will reward you with extra crypto tokens if you lock in your tokens. In addition to receiving free tokens, you won’t have to bother with panic selling since your tokens are locked into the platform.

Staking is similar to receiving dividends from equities. Generally, proof-of-stake blockchain networks such as Cardano (ADA), Secret (SCRT), Solana (SOL), and Fantom (FTM), among others, offer staking. For example, you can stake SOL tokens on the Solana network, contributing to the network’s overall security. As a reward, the network will give you additional SOL tokens.

Final Thoughts

So there you have it. Even in the deepest, darkest depths of crypto winter, there are legitimate ways to beat the market, make money, and return a profit. And since markets move in cycles, there’s no need to sell your stack. What goes down will definitely go up once again.

For all of your diehard HODLers, keep on HODLing. For everyone else, consider some of the ways to earn passive income during a crypto bear market, which we’ve already outlined. For those looking for more robust returns, then margin trading should definitely be on your radar.

And take comfort in the fact that experience in trading counts. The next time the market starts to move south, you’ll be able to quickly spot the next crypto crash. More importantly, while everyone else around you is losing their heads, you’ll already know how to survive and indeed prosper!!

Originally published at https://www.trality.com/blog/ on September 21, 2022.

How to Make Money in a Bear Market was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.

Properly investing in crypto means doing your own careful research. Sure, it can be time-consuming to read through the many sources of information when it comes to crypto investing, but it’s a necessary first step.

Once you’ve managed the basics, though, you’ll want to expand your coverage by examining things such as tokenomics to ascertain the many factors that impact a token’s use and value. Crucially, this step typically involves what is known as fundamental analysis and technical analysis.

But if you’re relatively new to crypto (or indeed investing), you might not know what they mean, even though you’ll have come across these terms. Just what is meant by fundamental analysis and technical analysis? When investing in crypto, is fundamental analysis better than technical analysis (and vice-versa)? Can you combine fundamental analysis and technical analysis in crypto investing?

In the following guide, we’ll introduce you to the basics of fundamental analysis and technical analysis in crypto, offering a clear overview of their benefits and drawbacks, key tools and indicators, and how to use them to your advantage.

What is Fundamental Analysis?

Fundamental analysis measures the intrinsic value of a crypto asset to evaluate and determine its price and feasibility as a potential investment. It encompasses every qualitative data about a cryptocurrency, ranging from industry conditions, the performance of individual projects, financial strength, and the overall economy. The project’s financial status as well as market demand and supply metrics are also part of fundamental analysis.

To establish a token’s intrinsic value, you should approach the market from a broad outlook and progressively narrow it down to the most important metrics. The three major components in the crypto fundamental analysis include project metrics, fiscal metrics, and on-chain metrics. Let’s have a brief look at each one below.

Project Metrics

The project metrics include things such as the whitepaper and tokenomics. Generally, the whitepaper should include an iIntroduction, description of the market and the problem, description of the product and how it’s going to solve the problem, token description (e.g., how many, why, etc.), how the raised funds are going to be used, and a description of the team. Tokenomics provides an in-depth view of the token’s consensus mechanism, token distribution, and token utility. An undefined use case for a coin is a red flag. Finally, the team behind the project plays a pivotal role in instilling trust among investors. It’s generally good practice to invest in coins whose team has the relevant academic background(s) and practical expertise.

Fiscal metrics

The two core fiscal metrics are the crypto’s liquidity and market capitalization. Liquidity measures how easily a coin can be converted into fiat currency, but it can also be used to measure market sentiments and overall public trust in a digital asset. On the other hand, market cap equals the total number of coins circulating multiplied by the price.

On-chain metrics

A crypto’s on-chain metrics include its hash rate, the status of active addresses, transaction value, transaction count, and transaction fee. The transaction value is the total monetary value of all the transactions that occurred within a specific time frame, while transaction count is a measure of the volume of the trading activities associated with a coin. The higher the transaction count, the higher the chances of growth for that particular token. Finally, its transaction fee indicates the demand being generated for a coin. Higher fees show the willingness on the part of investors to pay more to miners to get their transactions validated quicker.

Benefits and Drawbacks of Fundamental Analysis

Performing detailed fundamental analysis requires a significant amount of time and effort, but it can pay dividends. Below are some of the key advantages of fundamental analysis as well as a few things to bear in mind.

Benefits of Fundamental Analysis

• Not only does fundamental analysis help you to identify short opportunities, but it also highlights a coin’s value as a long-term investment. By doing so, you won’t have to stay glued to charts all day.
• With solid fundamental analysis, you can spot coins whose prices have been undervalued or overvalued.
• Over time, fundamental analysis allows you to build a thorough understanding of how coins operate and what drives their value.

Drawbacks of Fundamental Analysis

• Fundamental analysis could take some time to pay off and may therefore be best-suited for longer-term traders and investors.
• No two coins are the same, meaning that each crypto will require a different approach. As a trader, you’ll have to do your homework for each crypto.

What is Technical Analysis?

Technical analysis involves evaluating investments by analyzing historical price action and using technical indicators to predict future price movement. As such, it has three basic tenets.

Firstly, the market discounts itself, meaning that the price of cryptocurrency reflects everything that could possibly impact it in the market. One can learn everything there is to know about a crypto asset from its price. To predict the price movements of a crypto asset, an investor doesn’t need to consider the fundamental variables that influence it. Secondly, market price moves in trends and not at random, which is why it is assumed that the past trend will continue. Regardless of the timeframe, price action will always exhibit a trend. And thirdly, past price trends are likely to repeat themselves in the future. The repetitious structure of the cryptocurrency market makes it possible to predict future market movements by looking at historical patterns.

Technical Analysis Tools

There are thousands of technical tools, but we can broadly categorize them as trend indicators, volume indicators, magnitude indicators, and chart analysis.

Trend Indicators

As the name suggests, these indicators only show the direction of the price action, whether uptrend, downtrend, or a non-trending market. They analyze the current trend in the market, determining if there is a sideways phase or a well-established bullish or bearish trend. Popular trend indicators include moving average convergence/divergence (MACD), relative strength index (RSI), Bollinger Bands, and moving averages (MA), among others.

Momentum Indicators

Momentum indicators show the strength of the current market trend, which is to say whether the asset is overbought or oversold. The RSI and the MACD are the most popular momentum indicators (note that MACD is a trend-following momentum indicator).

Volume Indicators

In the crypto market, few things are a better marker of market sentiment than volume traded. Volume simply indicates the level of activity in the market. The assumption that volume runs ahead of prices is the basis of volume analysis. In an uptrend, the volume should increase with rising prices and decrease in the case of falling prices. In a downward trend, volume is expected to increase with falling prices and decrease in phases with rising prices. Popular volume indicators include the money flow index (MFI) and on-balance volume (OBV).

Chart Analysis

Chart analysis involves studying candlestick and chart patterns on different timeframes. With chart analysis, you can use various charting tools to determine support and resistance levels.

Benefits and Drawbacks of Technical Analysis

You need more specialized knowledge for technical analysis than you do with fundamental analysis, but it’s worth investing the time and energy into understanding indicators. Think of it this way. If manually trading crypto is like flying blind, then technical analysis is akin to flying a plane according to charts and precise coordinates. Let’s have a look at some of the advantages and disadvantages of technical analysis in crypto.

Benefits Technical Analysis

• The markets have already factored in all of the information and research into any given coin’s price. A trader using technical analysis can profit from studying the charts and data, spending less time on unnecessary information and more time learning about price fluctuations within the crypto market.
• A trader has access to charting tools and indicators, hundreds of which are made available for free by crypto exchanges and trading platforms.
• TA is convenient for short- and long-term traders. Once you’ve selected your preferred technical indicator, simply adjust the time frame to suit your trading style.

Drawbacks of Technical Analysis

• Technical analysis may break down in the long term since the crypto market is notoriously driven by market sentiment and therefore notoriously volatile and difficult to predict.
• Technical indicators can be laggy, increasing the chances of inaccurate entry and exit signals.
• Many technical indicators can give conflicting signals.

Differences Between Fundamental Analysis and Technical Analysis

Fundamental Analysis vs. Technical Analysis: Which is Better?

Whether one chooses fundamental or technical analysis will depend entirely on one’s trading style and objectives. Technical analysis is suitable for short-term traders, while fundamental analysis is suitable for long-term investors and traders. However, it’s also important to remember that it’s not a zero-sum game, as fundamental analysis and technical analysis can be combined. Long-term traders, for example, can also incorporate technical indicators to inform their trading decisions.

Final Thoughts

Crypto trading strategies can be based on technical analysis, fundamental analysis, or both.

Technical analysis involves crypto chart patterns and using technical indicators to determine the trend and momentum of a particular crypto in order to identify the optimal entry and exit points. Fundamental analysis involves analyzing a given crypto project’s metrics, fiscal metrics, and on-chain metrics. Ultimately, your choice will depend on your trading style.

However, it’s crucial to bear in mind that the most profitable crypto traders will be adept at both fundamental and technical analysis. Otherwise, you’re just flying blindly through the crypto trade winds. In fact, there’s a word for it: gambling.

It’s far better to take a systematic approach to crypto investing by developing, testing, and implementing an automated algorithmic trading strategy that incorporates insights from technical and fundamental analysis. Doing so will allow you to remove your emotions from the equation, execute trades quicker, more reliably, more precisely, and therefore more profitably.

Originally published at https://www.trality.com/blog/ on September 21, 2022.

A Guide to Fundamental Analysis and Technical Analysis in Crypto was originally published in Trality on Medium, where people are continuing the conversation by highlighting and responding to this story.