Three Main Approach to Digital Assets Trading — Choose Yours
2017 with its nonsense trading incomes is fading away making the cryptocurrency traders and investors from all over the world sigh and “hodl” waiting for the bear market trend to change. The manual trade is no longer that efficient and therefore new instruments and trading assistants enter the scene. In this article we review different approach to gaining profits through digital assets buy and sell.
Paper trading first
To try the specifics of trading and hedge the losses the newcomers are provided with an opportunity to trade virtually using some of the traditional instruments. This is a good start for a beginning trader without committing any real money as you can test different strategies and choose one that appeals to you most. Cryptocurrency virtual trading simulators are few with the most popular being Bitcoin Hero, Altcoin Fantasy and eToro.
At Bitcoin Hero you start with 10,000 USD and you can buy and sell four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Dash. Altcoin Fantasy uses real-world market from a range of exchanges and includes several contests when you compete against other trading people. eToro practice account comes with up to $100,000 for trading and includes most popular currencies pairs to try.
Nevertheless, even if you’re a successful paper trading, the success on the real market is not guaranteed due to emotions and lack of real experience. But successful paper trading does give the trader confidence the system they are going to use really works.
So, when you have some paper trading experience and have some understanding of how all these bids and asks work it comes up to trying trade real money. The cryptocurrency exchanges are many; some support margin trading, others include some stop-losses functionality. But first we need to understand what actually influences the price changes.
Market sentiment analysis is crucial for a cryptocurrency trader, as it is likely that you will switch between multiple positions at a high frequency. Demand for a certain coin is determined by two basic parameters: market sentiment and trading volume changes which often leads either to panic sell or unstoppable buy.
Therefore, it becomes key that any position you take is well researched and has a positive market sentiment surrounding it. On the traditional stock market the impact of this parameter is much higher than on the cryptocurrency market as it is more mature, but still it can never be ignored.
When you intend to take a position on a certain currency investigate its market sentiment: read recent articles, subscribe to the mailout and to the social networks. If you invest in a cryptocurrency that has had no real coverage, it is likely that your position will stagnate, or even worse, decline in value.
The cryptocurrency traders remember well the recent November dump when Bitcoin price decreased from 6,300 USD to 4,500 USD and reached its bottom at 3,200 USD. The reason was Bitcoin SV hardfork and squabbling in Bitcoin Foundation which led to some miners leaving bitcoin blockchain. This resulted in bitcoin price drop and panic on the market which took the whole market down.
Buy low, sell high
This is one of the most important trading rules and on practice few manual traders follow it. They definitely want to, but the emotions make them exit the positions in the red when the market is embraced with panics.
One of the logical solutions is to put buy and sell orders at a time neglecting the unplanned decreases in price. If afraid that the market will never get to the entrance rate, use the stop-losses functionality to mitigate the risks.
A sell stop loss executes a sell order when the cryptocurrency reaches a certain price and are usually placed below the buy-in price and are an effective tool in mitigating risk. Conversely, buy stop losses allow you to collect profits if your cryptocurrency were ever hit a certain price above your buy-in price. This is an effective tool on the volatile cryptocurrency market.
The technical analysis graphs and charts usually seems scary. Practically, it uses the historical trends in order to help you predict the price changes without giving you any guarantees. Reading the charts is important and we will help you to get some basic understanding of its key principles. Let’s have a closer look at two main indicators.
- Relative Strength Index (RSI) measures the strength and speed of a market’s price movement by comparing the current price of a coin to its past performance. The magnitude of this movement helps the trader understand whether a certain coin is overbought or oversold.
The RSI ranges from 0 to 100. A cryptocurrency is said to be overbought once the RSI starts to approach 70. This suggests that the cryptocurrency is getting overvalued and so may soon experience a pull back. Conversely, if the RSI approaches 30, this is an indication that the cryptocurrency may be oversold, and thus is undervalued. This indicates that the cryptocurrency may be subject to a breakout at some point soon.
The formula is the following:
RSI = 100–100 : (1+ RS)
RS = CU : CD, where CU is the average positive close price changes in the period;
CD is the average negative close price changes in the period.
- The Moving Average Convergence/Divergence (MACD) indicator is made up of two exponential moving averages that help measure momentum in a cryptocurrency by using the difference between short-term and long-term price trends to help predict future trends. These two moving averages, and the distances between them, become the moving average convergence/divergence (MACD). This indicator is commonly used on many exchanges, including Binance.
One thing traders should look for when cryptocurrency trading using the MACD indicator is crossovers. When the MACD crosses above the signal line, this tends to be a bullish signal to buy the cryptocurrency. Conversely, when the MACD crosses below the signal line, this tends to be a bearish signal to sell the cryptocurrency.
Trading assistants and bots
Basically, a trading bot is a software program that interacts directly with financial exchanges often using API’s to obtain and interpret relevant information and places buy or sell orders on your behalf. The bots make the decisions by monitoring the market’s price movement and reacting according to a set of predefined and pre-programmed rules. The bots can be customized by your choosing the trading pair and the wished income.
Trading 24/7 and relying on technical and market sentiment information is not for human beings, and therefore a wide range of trading assistants and bots entered the market. Most rely on technical analysis data though there are some advanced solutions.
NeuronX and its armaX profit-driven AI
At NeuronX we develop advanced solutions for trading digital assets based on technical analysis, market sentiment analysis and signals. The armaX product is created to ease the trading process and mitigate the manual trading affiliated risks with the power of artificial intelligence and neural networks. The solution can be used on one or several of the offered exchanges as well as on the NeuronX marketplace.
The unique thing about armaX assistant is that it analyzes the data collected in mass media, social networks, forums etc. therefore providing a very deep market sentiment analysis.
The neural network that powers armaX analyzes the order book from the eight largest exchanges and examines the information about the volumes and the dynamics of rate changes. Every one and every four hours it determines the extremums and predicts the possible trends of price changes respectively the median rate. Besides the neural network analyzes the transactions made on the TOP-100 exchanges every one and four hours and compares the results to the order book on a certain exchange.
The armaX neural network learns all the time on its false predictions and improves its predictions on rates and volumes changes every 15 minutes and then every hour. This helps to improve the trustability of the predictions main constantly, 24/7. It builds two competitive models on the possibility of the future movements in short and long positions every hour and compares the differences in these respectively the set parameters of the rates and volumes.
The analysis methods used help the assistant achieve up to 70% predictions accuracy saving the money and the nerves of the trader.
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