Managing profits and losses when performing a trade is key, and beginner traders do not use tools such as Stop-Loss and Take-Profit. The following article will introduce the reasons why you should learn how to use Stop-Loss and Take-Profit as soon as possible, and share some advice for beginner traders.

How to Manage Risk in Trading?

By far, the most important task of risk management is to preserve capital. You can make gains of 5,000% on your capital, but the loss will always be maxed out at 100%. And once you lose it, there is no way to make it back without funding the account again. Period. So when you manage risk properly, you are acting in your own best interest.

The type and way and style that you employ to concretely manage risk, vastly depends on what you are doing. But, it is also important to understand that risk in trading does not only come from having a position on.

There are other forms of risk for example:

  1. Operational risk in the form of an exchange going under, being seized over by the SEC, or simply getting hacked
  2. Systemic risk related to the stablecoin you might be using to trade 
  3. Credit risk where, if you get too leveraged but do not have enough liquidity in the account, you might be margin called to forbid you from defaulting on the position

Trading related risks can be easily mitigated with Stop Losses or different mechanisms available in your exchange or trading platform. Systemic and Operational risks are harder to mitigate, but it can be done in the form of diversifying yourself by being on multiple exchanges, and trying to use as many different stable coins as you can.

What is a Stop-Loss Order?

A Stop-Loss order is an order that stops the position when a certain target is reached. This is probably one of the most important types of orders in your risk management toolbox.

It can either be used to close a losing position, or, as in the case of a trailing stop, it can be used to let a winner run, but protecting the made capital with the Trailing Stop.

How to set a Stop-Loss?

This depends on the trading platform you are using, as well as the exchange. Some exchanges don’t allow stop orders in the traditional sense.  Here are the different ways to set a Stop-Loss while you trade crypto:

  1. If the platform supports then use it, but be mindful that these orders often take from the order book as it executes as a Market order. This will most of the times increase your fees.
  2. Some platforms offer ‘Reduce Only’ type of orders where you’d have to place an order on the opposite side with the same volume as your position, but with the reduce only flag. This flag is useful to make sure the order is executed only if the position is still open and it was not stopped/liquidated.
  3. In crypto futures trading, you have the possibility of using the ‘One Way Mode’ as opposed to the ‘Hedge Mode’. In ‘One Way Mode’ mode, if you set an order with the same size of your position, but in the opposite direction, when filled it will automatically close your existing position. If you want to have 2 different positions, one long on a bigger timeframe and another short on a smaller time frame, then you will use Hedge Mode.

Pros and Cons of Stop-Loss Orders

While a Stop-Loss can be a great way to protect your capital from taking massive hits, it comes with a big con. Essentially, and depending on how you set the location of the stop, this ‘protection’ can actually take you out of what would otherwise be a very profitable position.

As a matter of fact, Larry Connars argues that the use of a Stop-Loss is bad, and in his backtests, found that it does nothing but kill a winning position. Most of the statistics that we gathered inside Vestinda show that a small value for Stop-Loss is shrinking the returns. 

However, you can use a bigger value for a Stop-Loss for peace of mind and for the moments when the market really goes south. In crypto, usually something around 10-12 percent is a good value. There could be a middle ground found in using DCA (Dollar Cost Averaging) in order to swim out of a loser. But, you need to be mindful that this could exponentially amplify your losses.

What is a trailing Stop-Loss?

A trailing Stop-Loss  is not used to protect you from a loser, but rather to protect a winner from losing, when it gets past a certain level. Or to protect profits.

How to set a trailing Stop-Loss?

Nowadays, most if not all crypto brokers and exchanges do not offer an automatic trailing stop order. Traditional platforms like MT4 or cTrader might offer that feature if it is supported by the broker. But it often is limited in that it trails based on a change in pip in the direction of the position.

The best way to trail a stop depends on your strategy. First you need to define your targets. You can do it either with a simple formula or using an indicator such as the Average True Range, or Stochastic Indicator. Once the target is defined, you can either place the stop order manually, or use platforms that can do it algorithmically for you, such as Vestinda.

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What is a Take-Profit Order?

A Take-Profit order is an order to take profit once a certain price level is reached. It allows you to lock in the unrealized profits, and it is essentially the order that closes the position in green.

How to set Take Profit?

Setting a Take-Profit is very similar to how you would set a Stop-Loss, as described above.

The one thing to note is that on some exchanges, you can actually get paid a rebate for placing such orders, because, unlike Stop-Loss orders that take from the books, Take-Profit orders actually put liquidity in the book. You’d essentially become a market maker, and crypto exchanges tend to reward that. Something that traditional markets rarely if ever, do.

What is a trailing Take-Profit?

A trailing Take-Profit is very similar to a trailing Stop-Loss, but it activates only after the price closes above the target set for the Take-Profit. In a way it is a trailing stop that is activating only after the price closes above the Take-Profit price.

How to set a trailing Take-Profit?

Native exchanges do not offer this kind of feature yet. But you can find it on platforms such as Vestinda that add up to your trading toolset.

To set a trailing Take-Profit in Vestinda you will use the Trailing Stop Multiple Levels feature. It helps you manage different levels of stop based on the price appreciation. You can set multiple levels of stop based on how much the position has gained. Format is “5/3, 10/4”. First number is the profit activation level and the second number is the stop percentage. With this example, if the price appreciated with 5% since the entry point, then the stop is activated and set at 3%. Then if the price reaches a 10% appreciation (closes 10% higher than the entry point), the stop is changed to 4%. The position will be closed when and if the price moves against you with the current stop value. So, if the price closes 10% above the entry point and then it decreases 4%, the position will be closed.

Pros and Cons of Take-Profit Orders

Take-Profit orders are great to help you lock in the profit and ensure that your hard earned patience is rewarded. Knowing how and where to set it is an important element in order to define Risk Reward Ratios that can, along with win rate, tell you how profitable or not your strategy is.

The downside of a Take-Profit order is that it could take you out of the market earlier than expected, leaving much of the future potential profits on the table. Trust us, there is nothing more frustrating than seeing a potential 10:1 Risk Reward Ratio position closed at a poor 1:1 due to a fixed take profit. To mitigate this, you can use a trailing Take-Profit with multiple levels instead if available in your platform.

 

All in all, trading can make you uncomfortable if you don’t use protective strategies. Using Stop-Loss and Take-Profit orders can create a reasonable comfort level and secure your investing experience.

 

One of the most crucial aspects of making a trade is determining the price levels at which the buying and selling of security will occur. Many traders use one of two methods to make this decision: The market order or limit order. In this piece, we will be diving into the order types, the difference between market and limit order, and how to use them. 

What is an order book?

Before diving into understanding the two different types of orders mentioned above, let’s get first a basic understanding of what an order book is. An order book is an electronic or manual list that shows the level of interest that investors have in a particular asset. 

When a trader seeks to execute a trade, they could request from a broker the need to trade an asset. That request is known as an order. When that order is made, it is then put in an order book. This order book contains a list of requests made by other traders for an asset. They are also arranged according to price levels. An order is known to be open if its trades have not been executed. Meanwhile, an order is closed if its trades have already been executed.

What is a limit order?

A limit order is an order type where trade is only executed when an asset reaches a specific price. This type of order has released traders from a bit of restriction. Traders now have the liberty to decide the price they would like to buy or sell an asset.

Unlike market orders, limit orders are not executed immediately. An order will only be executed when the target price is attained. They are suited for assets that are thinly traded and very volatile. Limit orders help to reduce risks that could come with such assets. 

A big downside to limit orders is that some orders might never be executed. If a trader has set their limit price on an asset and it never reaches that price point, execution will not be possible. 

How does a limit order work? 

If a trader wants to buy an asset, they can set a limit for the price they are willing to buy that asset. If the price reaches or falls below that point, the trade is executed. This is otherwise known as buy limit order.

Conversely, a trader interested in selling an asset at a higher price can set a limit to how much they are willing to sell the asset. Hence, if the price reaches or rises above the targeted price point, execution will occur. This is otherwise known as sell limit order. 

Let’s assume you want to buy the shares of X Company. But you feel the price of $240 is too high. Although you are still interested in buying the shares and will be willing to purchase them at $200. You can set a limit order so if the prices of the shares reach $200, you can purchase them. But keep in mind that if the shares do not reach that price point, the trade will not be executed. So you may need to monitor your open order and adjust the level according to market fluctuation.

What is a market order?

A market order is an immediate order which is placed to trade an asset at a market’s current price. Simply put, you will pay close to or the requested ask when you want to buy a stock. Conversely, you will receive close to or the required bid when you want to sell a stock. This type of order is for people who are ready to buy or sell a stock at a given moment. Market orders are mostly preferred for trading assets that have good liquidity.

Market orders are the fundamental order type used in trading. This is because trade executions are instant and straight to the point. Many investors opt for market orders which is why there are always available buyers and sellers. 

Although they have their advantages, a market order can be unfavorable for a few reasons. The volatility of assets plays a major role in the stock market, and it could work either to the advantage or disadvantage of a trader. In the case of market order, volatility can cause great disappointment when buying or selling an asset.  

While executing a trade, there is a short time interval from when the trader hits the “buy/sell” button, to when the trade gets executed. During that time frame, stock prices could skyrocket or experience a massive dip. Assume a trader wants to buy an asset for $1000 when he hits the buy button. During the short time frame to get it executed, the price of the asset could increase to $1050. Hence, the trader ends up buying it for more than the previous market price. This happens more often in asset categories like Crypto where liquidity is not always the best for specific assets.

How does a market order work?

In the order book, pending limit orders are arranged according to price. The best ask price is the first in the Sell area of the book. While the best bid price is the first in the Buy area of the book. Obviously, the rate at which an order is executed depends on the price a trader pays. Orders with the best prices automatically get executed first. 

When a Market Order is sent to the Exchange, it gets executed according to each side of the Order book. If the Market Order is a Buy order, then it takes from the Order Book the first best asks, until it fills the volume it wants to trade. Same goes for a Sell order, it takes from the Order Book the first best bids from the Buy area.

Difference between market order and limit order

Even though market orders and limit orders share great value to various traders, they are still widely dissimilar. One might ask: How are market orders and limit orders different? Well, we will be analyzing that in this piece:

  • Speed of execution: Market orders are executed immediately and are suited for buyers and sellers that are ready to trade in an instant. Meanwhile, limit orders are executed only when the target price is attained.
  • Asset types: Market orders are mostly executed on assets of large caps and good liquidity. Even with their size, market orders offer the ease of quick trade execution. Meanwhile, limit orders are mostly executed on thinly traded assets. This is because they possess high volatility. Hence, limit orders help to gauge that volatility and limit risks.

How to use limit order and market order in crypto markets?

It is obvious that both order types are suited for their specific types of traders, and the types of assets traded. This is why you should know how to use either the crypto market order or the crypto limit order. You should also understand the right moments and situations to use them. 

Here is how to use a crypto market order:

  • You should use a market order when you want to sell or buy an asset immediately. If you are fine with the current market price and willing to make your trade at all costs, the market order is the best option. 
  • Market orders are also an amazing option for assets of high liquidity. It is also beneficial when the bid-ask spread of the asset you are trading is significantly low. 

Here is how to use a crypto limit order:

  • You should use a limit order when you have a specific price in mind. If you feel like the value of that asset would reach a certain price level, then you can go ahead. 
  • Unlike market orders, limit orders are better for illiquid assets. Also, they can be very helpful if you want to trade a large number of shares. 

How do market order and limit order work in Vestinda strategies?

Order types are essential to the performance of your trades. This is why it is important to be well-informed on different order types before executing a trade. 

While using automated strategies with Vestinda to improve your trading experience and save time, you can choose to either use LIMIT or MARKET orders when the platform is placing the orders.market and limit order

A LIMIT order is used to buy or sell at a predetermined price and will not execute unless the price meets those qualifications. The price determined by the platform is one that goes in the Order Book in front of all the other orders that exist already. For example, if a new long Position is being opened then the LIMIT order will be sent to the Exchange with a price between the best bid and the best ask price, closer to the best bid. 

A MARKET order is trying to find the right price in the Order Book to increase chances of getting filled. 

A common word used in the discourse of crypto is “volatility”. This is the concept in which crypto and the stock market are built.  But one might ask: What does crypto market volatility mean? In this piece, we will be making sense of the volatility in crypto markets, volatility predictions, and ways to handle it. 

What is market volatility?

Market volatility entails the rise and fall in the price movement of a security. Volatility in the crypto market illustrates how a coin can be at an all-time high at one point, and then dip tremendously the next. This is not new to the crypto market as volatility is one of the main principles that surrounds trading crypto. 

Now you might wonder: What causes volatility in the crypto market? Well, the crypto market is highly fuelled by emotions. Why would you invest your money into something? The answer is that you probably see that investment grows and yields returns in the future. There you have it, your emotions have triggered you into investing a certain amount. Then, a lot of people probably share the same emotions as you and put their money into that same investment. 

If the investment in question is Bitcoin, the value of Bitcoin will probably increase with more people buying it. In that case, the market cap of Bitcoin increases. Then suddenly, a public figure announces their displeasure with Bitcoin. What happens next? Investors will fear that the announcement will cause Bitcoin to reduce in value and will start pulling their money out. With more investors pulling money out, Bitcoin will continuously experience a dip. A dip is an event where the value of an asset continuously decreases. 

This description goes to show how volatile the crypto market is. The market thrives on “speculation” in the short term but relies on future beliefs and technology in the long run. That is why a coin can be at its peak in one day, then experience a severe dip the next day.

How to predict market volatility?

With the nature of the crypto market, one might assume that predicting volatility will be impossible. After all, the market is driven by news and speculations. But with the right methods, volatility prediction is possible. 

Here are the methods you can use to predict market volatility:

  • Standard deviation: Standard deviation measures the range at which prices of an asset move from the average price point over a period of time. Even though the crypto market experiences high volatility, it still has its average value. This value is the yardstick used to measure how volatile the market is. The volatility is thereby measured by how far a current price point moves from the average price point. If it moves very far, then the market is highly volatile. On the other hand, if it experiences small movements, it has lower volatility. 

Bollinger Bands indicator can be used to measure the standard deviations of securities. This indicator comprises lines that are meant to represent the “bands”. The wider the lines deviate from the average point the higher the volatility, and vice versa. 

  • Maximum drawdown: The maximum drawdown uses the previous losses of an asset to determine its chances of volatility. 

One tool used in limiting maximum drawdown is the stop-loss order. The stop-loss order is a tool you can enforce to control the risks of an asset. This order is enforced when the value of an asset reaches a particular point. When it reaches that price, the asset is either bought or sold according to the will of the trader and to the direction of the position.  

Why is crypto so volatile?

Recently, the world has experienced the turmoil of price movements in the history of crypto. Starting the year with crypto at a high, then its value dipping almost mid-year. One thing has been on everyone’s mind: Why is the crypto market so volatile? 

The leading cause of the volatility of crypto in 2021 is the media. Let’s face it, it is no shocker that Elon Musk would have such an impact on the crypto market. After releasing his tweet that Tesla would no longer accept bitcoin, there was a continuous dip in its value. 

The earliness of crypto also accounts for its volatility. Crypto has not fully gained ground yet unlike other forms of investment. This could lead to lots of fluctuations in price movements. 

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What is the most volatile crypto?

Bitcoin has shown a historical record of high volatility since its inception. The performance of Bitcoin in 2021 was quite astonishing with the sharp dips it experienced from April until mid summer. 

Ethereum, on the other hand, had a round of highs in 2021. The price history of Ethereum in 2021 reveals a very progressive rise in price. With a price of about $730 in early January, it crossed $4,288 in early November. 

Other examples of the most volatile crypto coins include Stellar, Ripple, and Bitcoin Cash, among others. 

Why is Bitcoin so volatile?

Volatility in crypto is largely affected by speculations and the news. Likewise in Bitcoin, these factors greatly influence the highs and the lows. But aside from these forces, other factors can come into play to influence the market. 

An interesting influence of Bitcoin is “Bitcoin whales.” A Bitcoin whale is an entity that buys and holds a large amount of Bitcoin. The amount of coins they hold is so much that it can influence Bitcoin prices. They are termed whales due to how large of a currency they hold in comparison to the “smaller fishes” in the crypto market. 

How to use volatility and profit from it?

Volatility can actually be the hidden gem for traders. You can use it to your own advantage if you know how to transform it into a profitable strategy. As explained in another section of this article, volatility measures the deviation from the mean. So you can simply use this difference to find a good signal in your strategy. Also, there are lots of good strategies that work well in volatile markets; and that can easily be implemented in Vestinda. 

Crypto Volatility Index

A volatility index, otherwise known as VIX, is used to show the likelihood of volatility in the market. The VIX represents price volatility in a period of about 30 days of the S&P 500 index (SPX). Crypto investors use this medium to determine the level of fear, anxiety, or emotions in the market. The VIX is so versatile that it can even be traded with different options. 

As you invest in crypto, it is important you tread carefully. You should aim to use the crypto market volatility to your full advantage, and make returns from it. Ensure you are well informed on your trades and do not hesitate to use this article as your ultimate guide.  

 

Trading indicators are essential trading tools used to gauge past and present financial trends. It is no news that predicting the outcome of future trends in the market can be very challenging. But with the right indicators, this task can be made easier. This piece will be exploring the best crypto trading indicators you can use to improve trading. 

What are trading indicators?

Indicators are used by traders to provide more clarity on market trends. The use of indicators has served as a profitable trading strategy. It takes data from the previous state of the market and uses them to predict the future market state. 

A trading indicator can either be: leading or lagging. Leading indicators predict the price action of a trade while lagging indicators show previous reports of a trade. Both indicators can be merged and employed to make trading decisions. 

What are technical indicators?

Technical indicators are patterns that traders use to predict price movements. As a trader, you may use technical indicators to understand the way price movements work in the market. 

The accuracy of technical indicators is questionable without a doubt. This has struck a question to technical analysts: Do technical indicators really work? When it comes to crypto technical analysis indicators, accuracy is not 100% guaranteed. But the goal is to have more accurate predictions than inaccurate ones, obviously. Once that is accomplished, technical indicators can create winning strategies. 

What are the best crypto indicators for technical analysis?

Regardless of the numerous trading indicators, people still look out for the one that is just right. Choosing the best technical indicators for bitcoin, ethereum and other crypto assets can greatly improve the accuracy of price predictions and overall trading performance. 

Here are the best indicators for crypto trading you can use:

Moving Average Convergence Divergence (MACD)

What is MACD?

MACD is an acronym and stands for Moving Average Convergence Divergence. MACD represents the average price of an asset over a particular period. 

The two types of MACD are simple moving average (SMA) and exponential moving average (EMA). Calculating a simple moving average requires you to find the average of prices of securities through a particular time frame. The EMA, on the other hand, is calculated in a similar way. The difference between these two is that EMA places more emphasis on recent prices. 

How to read a MACD chart?

Here are a few things to note when learning how to read a MACD chart:

  • MACD comprises three major lines: MACD line, signal line, and zero line. 
  • There is an uptrend when the MACD line rises over the zero line.
  • There is a downtrend when the MACD line falls below the zero line.
  • A bearish movement occurs when a MACD line dips below a signal line. A trade is said to be bearish when there is a continuous decline in price action. This is an indication that a trader should sell to avoid further losses.
  • Conversely, a bullish movement occurs when a MACD line rises above a signal. A trade is said to be bullish when there is a continuous rise in price action. This is an indication that a trader should sell to make returns.

Relative Strength Index (RSI)

What is RSI?

RSI is an acronym that stands for relative price index. It is an indicator that evaluates past and current price movements to determine securities that are overbought or oversold. 

An asset is said to be overbought when it has experienced a rapid uptrend within a short period. This occurs when the demand for an asset increases. The rise in demand thereby causes a relative increase in price that rises above the upper band.

An asset is said to be oversold when it has experienced a rapid downtrend within a short period. The price of an oversold asset is usually below its true value which leads to an increase in supply. 

How to read RSI indicator?

Now that you know how it works, you can now learn how to read RSI. RSI uses an oscillator that has an upper boundary of 100 and a lower boundary of 0. The RSI is overbought when its level is above 70. Conversely, it is oversold when its level is below 30. To determine the RSI of an asset, you need to understand the calculations behind it. 

Here is a step-by-step guide on how to calculate RSI:

  • Determine the upward change (U) and downward change (D).
  • Find the average of the Upward change (AVgU) and the average of the downward change (AVgD).
  • Calculate the Relative Strength (RS). 
  • Find the RSI using this formula:
    RSI= 100–100/(1+RS).

On-Balance Volume

What is OBV?

OBV is one of the best indicators for crypto trading that stands for On-Balance Volume. OBV shows the relationship between trading volume and price, and how one affects the other. Joseph Granville brought this indicator into the limelight and used a spring analogy to describe it. He explained that when there is a sudden increase in trading volume without a price change, the price would eventually rise or fall. 

When choosing this indicator, you need to have a proper understanding of how to use and read OBV. Here are the main instances to look out for when reading OBV charts:

  • An uptrend can occur when there is a decrease in price and an increase in OBV. This is known as a bullish divergence.
  • A downtrend can occur when there is an increase in price and a decrease in OBV. This is known as a bearish divergence.

How to calculate OBV?

The calculation for OBV depends on the situation of the trade. Here are the three possible scenarios and their respective calculations. 

  • When the present closing price of an asset is greater than that of the previous day:

             OBV= Previous day OBV+ Present volume

  • When the present closing price of an asset is the same as that of the previous day (no change):

            OBV= Previous day OBV

  • When the present closing price of an asset is less than that of the previous day:

            OBV= Previous day OBV- Present volume

Bollinger Bands

What are Bollinger Bands?

Bollinger bands is a type of crypto chart indicator that assists traders in navigating trading entry and exit points. A major element employed in the use of Bollinger bands is the standard deviation. Standard deviation is simply how far apart the current price of an asset is from its usual price. In trading, prices tend to deviate as a result of volatility. But there is usually an average point at which the price falls. Standard deviation is measured by how much the price moves closer or further from the average price point. Bollinger bands are good examples of a buy-sell indicator.

How to read Bollinger Bands?

When learning how to read Bollinger bands, you need to consider the things that make up the chart. Here are the major things you would find in a Bollinger band:

  • The lower band
  • The upper band 
  • The middle band

The middle band represents the average price of an asset. The lower band represents the lowest point in which the price is expected to move while the upper band represents the highest point in which the price is expected to move. The upper and lower bands of the indicator contract with decrease in price and expands when there is an increase in price. 

Bollinger band is also a means to determine if an asset is overbought or oversold. The price of an asset is overbought when it moves towards the upper band. Meanwhile, the price of an asset is oversold when it moves towards the lower band. 

Although this indicator is widely used, people often wonder how accurate are Bollinger bands? Just like many other indicators, Bollinger bands are not 100% accurate. Not all data produced by Bollinger bands are correct but the indicator has proven true many times. A trader should also use their knowledge and precision when using this indicator. 

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Ichimoku Cloud

What is an Ichimoku Cloud? 

An Ichimoku Cloud is an indicator used to measure support and resistance levels and other relevant data, including trading momentum. The Ichimoku cloud chart contains so much information that with just a glance, you can decipher a lot. But attaining this level of understanding is not easy as the charts may seem complicated. This is why you need to learn how to use and read the Ichimoku cloud. 

How to use Ichimoku Cloud?

Here are some things to note when you want to use Ichimoku Cloud:

  • The Ichimoku cloud has two major lines. The leading span A line, as well as the leading span B, work hand in hand.
  • There is an uptrend when the leading span A rises above the leading span B. This is known to be a bullish indicator. 
  • There is a downtrend when the leading span A dips below the leading span B. This is known to be a bearish indicator.
  • An uptrend is about to occur when the cloud turns green. Conversely, a downtrend is about to occur when the cloud falls downward and turns red.
  • Together with the Leading Spans, Ichimoku Cloud indicator also plots a Conversion Line, a Base Line and a Lagging Span. 

Having seen the features of the Ichimoku cloud, one might ask: does the Ichimoku cloud work? The answer lies in the numerous testimonies of traders that have used this indicator. It has been known to be very effective and reliable. Even greater results are reaped when paired with other indicators like RSI. 

Moving Average 

What is the Moving Average? 

A moving average is an indicator that uses the average price of future trends to determine present ones. It is calculated by adding all the prices of a security over a period, y and dividing it by the number of periods, y. A moving average indicator is continuous because it is frequently calculated.  

The two main types of moving average traders use are Simple Moving Average (SMA) and Exponential Moving Average (EMA). The SMA calculates the average price of a security over a particular time frame.  The EMA performs the same operation but lays more emphasis on recent prices during calculation. 

How to use Moving Average?

A moving average can determine when an asset is experiencing an uptrend, downtrend or when it is ranging. When the price rises above the moving average line, it is a signal to buy. But if it falls below the line, it is a signal to sell. 

Divergences

What are divergence indicators?

A divergence occurs when the price of a security moves in an opposite direction with the indicator. Just from the look of it, divergence sounds like a strange concept. But the truth is, it can either be positive or negative! A divergence is positive when the price of an asset hits a low but the indicator hits a rise in price. This signifies that there is a possible uptrend coming soon. Likewise, a divergence is negative when the price of an asset is high and the indicator signifies a low. 

How to use a divergence indicator?

  • A good indication to take action is when you spot a divergence (either bearish divergence or bullish divergence). If you have the patience and nerves to wait for a triple divergence, or even a quadruple one, then the market will reward you.
  • A stop-loss order can be placed when the price reaches a certain level against you to avoid further losses.
  • Timely price confirmation is important in determining the right entry point. 

Now that you have learned about the best indicators for crypto trading, you can now put them to use. Note that you can use more than one indicator simultaneously. But to do so, a proper understanding of indicators is needed. This article is your ultimate guide in tackling decisions relating to the best indicators for crypto trading, what they are and how to use them. 

 

If scalping crypto was so easy, everybody would be doing it. The reality is way more complicated and hard. Institutions are fighting for the big pie, but you are the scalper trying to get all these little crumbs, because, for you, it makes a difference. Keep reading to find out how to scalp crypto by choosing the best indicators and strategies. 

What is scalping?

Scalping is the most aggressive form of trading right after HFT (High-frequency trading). A scalper takes positions that last a few seconds to a few minutes maximum. It is a more advanced version of day trading.

By scalping, the trader is looking to accumulate a big amount of tiny profits. Think about it this way. Let’s say that you make about 0.1% per trade net of fees and commissions. And let’s say that you take 100 trades in a session of about 1h. You find yourself with a net 10% profit. Repeat that multiple times in a single day, and you can say goodbye to having to buy and HODL dogecoin waiting for daddy Must to drop its name on Twitter!

How to scalp crypto?

In order to scalp crypto, you need to drop on small timeframes. If this was the CME futures markets, it would make sense to use tick charts adapted to each of the indexes. But, in cryptos, and in our experience, tick chart trading is complicated because:

  1. No matter how much you pay for TradingView, it will never show you ticks.
  2. In the CME futures, you really only scalp one of the 4 indexes, so it’s easy to fine-tune the tick count to your index. In crypto, you will most likely be scalping different assets every time depending on which one is most volatile, so adapting ticks charts would become a problem

So, the best is to stick to a 1 min chart, combine it with a technical indicator you are comfy with and take trades over and over again!

Pros & cons of crypto scalping?

There are a couple of obvious pros to scalping 👍
  • It can be fun but also addictive. Seeing the furious movement of a candle is a pleasant sight
  • It can be very profitable because you accumulate large profits.
  • It is a fantastic tool to sharpen your skills. You will see patterns and setups over and over again at the speed of light. This will let you learn faster than any seasoned hedge fund manager who got lucky on a single multi-year bet.
But, the cons are less obvious and more vicious 👎
  • Scalping is like going to war behind enemy lines without air support and reconnaissance. You have to be a warrior and fight hard because your life depends on it. You can literally blow an account over a single badly managed scalp turned into an investment.
  • You will make money yes, but on the condition of showing up day in, day out. At some point that can be very draining, and normal life events can greatly impact your mental and emotions, and as a result, your performance. 
  • Fees and commissions could be a problem if you pick the wrong asset.
  • You risk doing ‘boredom’ trades if the market is not moving as fast as you want. If that is the case, just go away. Watch some Netflix!

 

Best crypto scalping indicators?

Scalping, day trading, and swing trading all use the same indicators. The market has a fractal nature meaning that things repeat no matter the time frame used. However, the internals of the market when looking at a 1 min chart can lead to unusual events like a pump or dump on a coin, or a short squeeze. Such movements can be insanely lucrative if you are on the right side of the trade, but also devastating if you are on the wrong one.

Some of the most popular scalping indicators are:

  1. The good old Relative Strength Index (RSI).
  2. The MACD
  3. Any volume indicator like the OBV, or Level2 Indicators

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Best crypto scalping strategies?

Here are some of the most popular scalping strategies:

  1. Buy or sell when the coin touches the outer edge of a Bollinger band
  2. Buy the mean reversion using a moving average
  3. Bet on a reversal after an RSI divergence

You can also explore non-technical analysis strategies such as arbitraging in the form of cash and carry between a crypto future and the underlying spot. Or, you can arbitrage between 2 exchanges having the same pair. 

But what matters more than the strategy is your risk management and trade execution. Or, you can simply copy some of the most popular strategies on Vestinda’s marketplace 😉

How do scalpers make money?

A scalper makes money primarily by accumulating a great number of winners. But, you can also try to make money from market-making. Indeed, some crypto exchanges offer rebates in particular on derivative products like futures or options. You can do this on bybit, FTX, bitmex, or deribit.

However, be advised that while you could make money on limit orders, they usually charge higher fees on market orders. This can also become a challenge when setting up Stop loss and Take profit orders. Some exchanges also have funding fees for their perpetual futures contracts. If you happen to be on the right side of the trade, you could earn funding fees. 

Crypto scalping tips

Here are some of our favorite scalping tips:

  1. Discipline, discipline, discipline. It doesn’t matter if you make 10 times 0.1% if you break your plan and lose 10% on a single trade
  2. Try and become a market maker by watching for what the swing traders and investors are waiting for on the 4h, and then provide liquidity at their levels
  3. As a human scalping can be very hard, so why not explore the usage of automation with tools like Vestinda?

In the world of trading, many factors come to play in driving a trader’s decision in the market. But to become a successful trader, you have to follow some strategies to guide your choices. Trading strategies keep traders firm in their principles and prevent careless decisions driven by emotions. This article will be digging deep into the top 5 trading strategies you can follow. 

What is a trading strategy?

Trading strategies are a set of techniques followed by traders to make profitable returns on their investments. Simply put, trading strategies are rules to follow when making trading decisions. 

It is no news that many traders in the stock market tend to make decisions out of panic especially when they sense a change in price levels. This is often associated with the disposition effect. The disposition effect occurs when investors sell assets of a higher value and keep assets with depreciating value. Trading strategies exist to eliminate such problems giving rise to following a set of rules in the market regardless of news or personal emotions. 

The provision of different strategies ensures that each type of investor can have a particular technique that suits them. Trading strategies are dependent on various factors like portfolio diversification, tax, leverage, and market capitalization, among others.  

Types of trading strategies

Here are the top 5 most popular trading strategies you can employ:

1. Day trading strategy

What is a day trading strategy? A day trading strategy involves the buying and selling of securities within 24 hours. This type of trading strategy is short-term as profit is made due to small movements in price in under 24 hours. A simple day trading strategy you can use is buying the dip. This entails buying an asset at a low price and selling when there is an increase in value.

Note that day trading strategies are not only used in stocks trading but also crypto trading. Similarly, crypto day trading entails that crypto assets are traded in under 24 hours. Since crypto is very volatile, this method could yield profitable returns or set you up for a great risk. Hence, you have to carefully weigh the options before employing this technique. 

Here are the pros and cons of day trading strategy: 

Pros 👍
  • It offers protection from overnight risk.
  • The volatility of day trading can yield profitable returns.
  • Availability of multiple strategies.
Cons 👎
  • Day trading involves constant monitoring since returns are made within a short period.
  • Like many short-term trades, it is very risky.
  • A high level of research and knowledge is required.

2. Swing trading strategies

What is a swing trading strategy? A swing trading strategy is a speculative strategy that centers on making smaller returns over a short timeframe. This strategy makes use of technical analysis to identify market entry and exit opportunities. Technical analysis is a common tool in trading used for making predictions in the market. It employs previous market data and charts to foresee a possible outcome to occur in the market.

Unlike day trading strategies, swing trading could last from days to months so you don’t have to constantly monitor the market. For this reason, it is often seen as an easier alternative to other demanding forms of trading. 

A high probability swing trading strategy would be the obvious no-brainer buy low and sell high in an uptrend, buy high and sell low in a downtrend. This is the fundamental rule of trading. You can look at it from the standpoint of cultivating cattle. You buy them when they are young and tender and sell them when they are mature at a higher price. However, the reverse is the case in a downtrend. Downtrends are characterized by the decrease in the price action of a security with time. In this case, an investor sells securities at a lower value than it was bought as the price action decreases thereby making a loss. 

Here are the pros and cons of swing trading:

Pros 👍
  • It does not require as much time and attention.
  • Sufficient profit can be derived from a single trade.
  • Swing trading enables easier market analysis leading to more relaxed decisions.
Cons 👎
  • Since technical analysis is a very important factor, a wide knowledge has to be involved. 
  • Overnight risks can be a threat as the market could make a drastic turn while you are asleep.
  • Capital is tied a lot longer than day trading.

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3. Scalping Trading Strategy

What is a scalping trading strategy? A scalping trading strategy is a technique that focuses on making returns from small fluctuations in the market and reselling at a fast rate. To properly understand this concept, we will be digging into what scalping means. 

What does scalping mean in trading? Scalping involves making as many profits as possible with high trading volumes. Although profits may be relatively small, the trading of many securities at a fast rate could account for its accumulated high returns. 

Scalping trading is a very competitive space that requires immense discipline and attention. A huge loss could destroy all the profit a scalper has previously worked hard to make. Hence, the goal in scalping is to keep profits relatively higher than losses. Market making is a scalping stock trading strategy used in the market. In this strategy, scalpers simultaneously place a bid and offer on a stock. This method is highly competitive and difficult to keep up with as scalpers have to compete with market makers. Another scalping strategy requires buying several securities and selling at a slight price movement. 

We should not neglect the fact that scalping has a high risk and can severely damage a trader at a wrong move. Suppose a trader does not have a stop-loss order or an exit strategy, they might face serious risks. This begs the question: do scalp trading strategies work across markets? The answer is yes! Scalping strategy can be very beneficial if you are well equipped with exit strategies. 

Here are the advantages and disadvantages of scalping:

Pros 👍
  • Scalping can yield very high returns with the right exit strategies.
  • It allows for the trading of several securities daily.
  • High movement in the market is not a cause for attention in scalping. This strategy centers on smaller timeframes with a relatively smaller individual trading profit. 
Cons 👎
  • Short-term predictions can be extremely difficult.
  • A consistent profit is needed to yield great results.
  • Regular monitoring is required. 

4. News trading strategy

What is news trading? News trading is a technique of trading where press releases, social and economic announcements are used to make investment decisions. The news plays a huge role in market trends which is why traders use news announcements to make trading moves. A news trader is always up to date with the news and economic reports because any slight announcement could affect the market drastically. But the effect of the news on the market is often short-lived so a trader has to fully utilize the news trading strategy in the moment. 

For a trader to be successful in news-based trading, they need to understand how to parse news to build a trading strategy. This involves planning strategies beforehand and recognizing if the announcements are worth acting on. 

Here are the pros and cons of the news trading strategy:

Pros 👍
  • News trading yields high profit since the effect of the news on the market can be very influential.
  • Trading the news does not last for a long time. Hence, monitoring one trade is not necessary as you will exit quite fast.
  • News trading can be carried out automatically.
Cons 👎
  • A trader might make wrong predictions leading to a loss.
  • Some brokers deceive traders on news announcements to fuel transactions. 
  • The opportunity to trade the news does not come frequently.

5. Buy and Hold trading strategy

What is the buy and hold trading strategy? The buy and hold trading strategy deals with buying securities at a low price and keeping them for months or years before selling them. It is known to be a long-term and safer form of investment. The buy and hold trading strategy is a preferable form of investment for investors that don’t have time to constantly monitor the market or engage in technical analysis. 

Here are the pros and cons of the buy and hold trading strategy:

Pros 👍
  • The buy and hold strategy reduces risk. Since there is enough time to manage your portfolio and work on strategies, the risk is reduced. 
  • It offers lesser trading costs as frequent trading is minimized. 
  • Frequent monitoring and attention are not needed.
Cons 👎
  • It takes time to yield profit.
  • Liquidity is limited since the ability to withdraw money for short periods is halted.
  • It does not give a trader the chance to be flexible. 

Now that you understand the different trading strategies, you can implement the one that suits you in your investment. Deep understanding is needed before employing any strategy so this article about top 5 most popular trading strategies can always be a useful tool. Ensure to weigh the pros and cons before delving into trading strategies so you won’t be found wanting. 

What is long term investment?

In order to understand what a long term investment is, let’s break it into its parts as if it was a rocket ship we planned to take to the moon. No pun intended!

The word investment is connected with the word ‘invest’. To invest, means to put one’s money in an asset, in the hope that it will gain value in the long term. It can of course be a stock or a crypto, but it could be in a house, or in the education of your children. Long term implies that if you are to engage in such an investment, you don’t expect the returns to happen instantly, but rather it should take time. As Warren Buffet said, you can’t have 9 women get pregnant in the hope of the baby to be born in 1 month! Some things, need *time*.

Is crypto a good long term investment?

But, you aren’t on our blog to read parenting advice. No. You are here because you want to know if satoshis and cryptos can be a long term investment. The answer would greatly vary on your definition of long term. If you invest in a 401K at 20, you know you want to get that investment back when you are 60. You know that others have done this way before you were born.

With crypto, however, Bitcoin is this cute little internet thing that was born around the 2008 financial crisis. In 2021, BTC turned 13, and officially became a teenager! This means that, while crypto punks see it as a long term investment, they are essentially gambling that something that hasn’t been around for long, is here to stay for a long time. This isn’t right or wrong. It is up to you to decide whether a decade of data is enough for you to satisfy your risk appetite.

That being said, there are intrinsic elements in Bitcoin in particular, but also crypto in general, that make it quite attractive as a long term investment.

  1. Crypto came a long way. It used to be that the collapse of a single exchange, like MtGox, can cause all of the market to crash. Today, however, a China ban on crypto did not even cause price crashes or moon rallies among major coins.
  2. The CME, that is to say the traditional sophisticated investors, has had BITCOIN, and now ETHEREUM futures contracts. This means that these are here to stay. As a reminder, you can’t find lots of pairs on the CME other than mostly commodities, a few majors forex pairs, and the US indexes. No stocks, or ETF’s . In other words, you are in good company.

Benefits

A crypto asset has historically broken records in terms of ROI relative to any other asset. The volatility of crypto makes it such a fantastic and appealing long term investment vehicle. The fact that it is not tied to any government is also fascinating. It is not your crypto dollars that will be used to bail out the Wall Street bankers.

In general, crypto coins have a limited supply. Bitcoin, for example, is limited to 21Million coins that will ever be mined. This means that, whether you want it or not, there will always be a scarce supply, and by the time no more coins can be mined, the supply will no longer exist driving the price up. This is in stark contrast with how the federal reserve can print money without problem, essentially diluting your purchasing power and increasing inflation.

Risks

By far, your biggest risk when investing in crypto is related to how and where you store your crypto. 

  • If you decide to keep a harward wallet, and then you forget your wallet keys, well, you can say goodbye to your investment. 
  • If the exchange you stored your keys on happens to be hacked, then you also lose your money. 
  • Sometimes, the US federal government might decide to take over your exchange wallets like they did with btc-e. You then find yourself in a legal lawsuit with the US government. 

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Which crypto to invest in long term?

Choosing a crypto depends on your risk profile. Bitcoin, and Ethereum remain the top safest and most known coins out there. They have survived the test of time, and a massive part of the ecosystem depends on them, especially ETH.

  • You can visit CoinMarketCap to check out which crypto has the highest market cap at any point in time. 
  • Wallmine is a good place to do fundamental research on a coin to find the value of the coin.

Riskier investments can be made on DeFi itself. Be advised that this would require you to know what you are doing. But with every high risk, there’s always a high reward!

How to invest long term in crypto?

If you do not have experience trading, you can create a general basket of coins. Or, you can copy some of the best performing coins on Vestinda’s marketplace! The most important aspect of investing is learning to do nothing or almost nothing. And be consistent at doing just that. Remember, it is a long term investment. Not a scalp that you need to close after a few minutes of chart reading!

Make sure you understand the fundamentals of the coins you are interested to invest in. Research the team behind it, the GitHub page, code, white paper, social media etc. And try to make sure your investment is diversified across different sectors so as to avoid risk correlated losses.

How to choose the best platform for long term investing in crypto?

Once you decide on which coins you want to invest in, you will need to find a platform to purchase it from. Try to find a local exchange that is trusted, or use a regulated global exchange like Coinbase, Kraken or Bitstamp.

Crypto has intrinsic risk associated with it, so it’s best to avoid having risk related to the exchange. Once you have money in a crypto account, it’s time for you to purchase the coins you want based on your strategy. Or, again, you can use Vestinda to do that heavy lifting for you by using some of the best strategies curated on our marketplace.

How to store crypto safely?

There are a number of good software wallets out there that are pretty easy to set up. The safest way to store crypto though is in a hardware wallet. With both of the options, you own the keys, and no one but you has access to it. This approach does bear the risk of you losing access to your keys though.

If you do not want to take that risk, you can store it on a popular exchange. The custodian business has evolved a lot and most of the exchanges use advanced solutions from 3rd parties to store crypto in cold wallets.

But, at the end of the day, safety in storing crypto is just like having a safe password. If you don’t put in the effort, you expose yourself to the risk of losing your crypto, be it investment coins or trading coins.

What is day trading?

Day trading is a style of trading in which the trader executes intraday strategies to profit off of short-term volatility in the price of a financial instrument. Unlike swing traders, day traders typically do not hold a position overnight. They finish the day flat regardless of their position won or lost.

Day trading can be very lucrative since you execute a large number of positions in a short amount of time, but it can also lead to a fast loss of the account. If you do decide to manually day trade, you need to be aware of the mental and psychological toll it can have on your personal life. It is generally a bad idea to day trade when you are processing a break up for example. In such a situation, it’s better to look away and avoid trading at all costs, to avoid the potentially high cost. Or, you could have been making passive money with the help of Vestinda smart algorithms and tools!

Day trading crypto is often so volatile that it feels like riding a $DOGE space ship, beating daddy musk on a diamond hands road trip to the moon.

Are there day trading rules for crypto?

The most important rule in any form of trading is the preservation of capital.  It does not matter how often you can be right if a single trade can wipe out your account and all your hard-earned money. In cryptos, you need to be extra careful because of how volatile they are in nature.  There are also intrinsic risks associated with crypto products like Defi where your money could be lost to a hack.

However, unlike the US stock market, and similar to the CME futures, you are not subject to the pattern day trading rules. This rule stipulates that if you make more than 3 transactions per week, you will need to have at least $25,000 in your account. If the account value drops below that, you will no longer be permitted to trade. You can get that revoked only once after which, things get complicated

In crypto, however, you can trade with as low as $100 which can be great if you want to get started, or you need to deploy a small capital to test the strategy that you wrote on Vestinda.

Another problem you need to be aware of if you are deploying a cross-exchange arbitrage is related to the potential for wallets to be down for maintenance. This happens when an exchange forbids users to withdraw or deposit a coin for a limited or indefinite amount of time. During this event, the price of this coin can change violently due to traders liquidating the coins that they risk never being able to withdraw.

One last note you might want to be mindful of is related to taxes and withdrawal methods back into fiat. Depending on which jurisdiction you are in, you might be taxed as high as 30% like in France, while others might ban you from doing crypto business altogether like in China.

Advantages of day trading crypto

Day trading crypto is similar to what you would do in the stock market, but there are a few key differences compared to the traditional financial markets which give day trading crypto a big advantage.

First of all, crypto never ‘closes‘ and trades 24/7. This can make a big difference based on your time zone. If, for example, you trade the US stock market, you will need to wait for it to open at 9.30 AM New York time. However, if you are living in Europe, that time is around 3.30 PM for you, while if you are in Asia, this can be as late as 7.00 PM.

Another advantage of crypto is its volatility. You can trade penny stocks, but they are too risky due to the lack of liquidity, meaning that you risk finding yourself holding a bag. Bitcoin, on the other hand, is an incredibly liquid asset, that can be traded with leverage, and that is highly volatile. All of which are golden items to any day trader.

Given the programmatic nature of crypto, they can be easily day traded by the means of algorithms. This is not usually straightforward in the traditional markets where most of the time, just getting access to data like OHLC, is paid, and you might need to pay more to get LVL 2 data.

Crypto exchanges have, from day one, always had both an HTTP API, and a streaming API. This means that you can use tools like Vestinda to build highly sophisticated crypto portfolios and day trading strategies.

Last but not least, crypto leveraged products, like futures or options, allow you to trade with small capital. For example, you can trade with a $100 account on Binance futures. However, if you want to trade CME Nasdaq futures with a broker like AMP, you need to have as little as $1,700 to hold a micro NQ position overnight, and as high as $17,000 to hold a mini NQ contract.

Steps to build your crypto day trading strategy

In order to build a crypto day trading strategy, you can use similar ideas from day trading forex or the stock market. However, you have access to information such as volume and live order book data that would not be normally available in forex or CFD’s. Volume and order books can be used to spot areas in which whales are waiting with sitting orders. 

Whales can be either institutions waiting to buy at certain levels or stop losses grouped in a zone. In either case, these are strong liquidity areas and often serve as magnets.

Simple technical analysis is also very popular in crypto trading. The RSI, the MACD, Ichimoku, and moving averages are often used to build simple strategies. You can create such strategies using Vestinda, and automate your day trading strategies.

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You can also employ other day trading strategies:

  • Scalping: this strategy attempts to make numerous small profits on small prices changes throughout the day
  • Range Trading: this strategy is based on the idea of using support and resistance areas to buy the low and sell the high until a breakout is confirmed with a potential new trend.
  • News-based trading: this strategy typically tries to find trading opportunities by scouting news for potential pumping coins or ideas. Twitter is a notorious location for such data mining. Back when Trump was the US president, some of his tweets had a direct impact on the stock market. The same has happened after Elon Musk tweeted about both BTC and DOGE.
  • High-frequency trading (HFT): this strategy uses sophisticated algorithms to get in and out of trades at a  very high speed. The idea would be to exploit market inefficiencies no matter how small they can be, as long as they are profitable. You can use Vestinda to create HFT strategies.
  • Arbitrage: This strategy finds discrepancies between the price of an asset based on where it is located. For example,  you can do cross-exchange arbitrage, or arbitrage between a spot of an asset, and a futures asset.

Best crypto coins for day trading

In day trading, the best coin or asset to trade is the one that will be offering the highest return on investment. Ironically, but household names such as bitcoin or Ethereum, are rarely of interest to day traders, unless you have a deal with an exchange that would give you rebates.

The problem is that there are too many stakeholders interested in Bitcoin, meaning that the price, while volatile, is not as volatile as other smaller coins. For example, when Bitcoin might be up 10%, another small coin, like MANA or RUNE, might be up 50%.

Can you make money day trading crypto?

Day trading can be very lucrative, be it in crypto markets or traditional markets. Let’s say that you decide to risk 1% of your capital and that you win on average with a 3:1 risk-reward ratio.

If you trade on a higher timeframe, you will need to wait longer to get a signal. Sometimes weeks pass by without any. While, in day trading, you can get a couple of signals in a single hour. When you combine this with leverage, you can essentially aim to make it much faster.

How to choose the best crypto day trading platform?

No matter what, the crypto exchange and the trading platform that you use, can make or break your day trading career. You need to make sure to choose an exchange that provides:

  • Reliable connectivity, especially in times of high volatility
  • Big variety of coins. The more, the better, because it increases your chances of coming across a volatile coin, which would greatly increase your profits.

Why choose Vestinda to build your crypto day trading strategies?

Vestinda is a brand-new platform that can take your day trading to the next level.

  1.  You can build your own trading strategy first with an easy-to-use, no code strategy builder
  2.  You can backtest your trading strategy before using it in simulation mode
  3. Once you make sure that your strategy is profitable, you can use Vestinda to deploy it on the supported exchanges. Currently, supported exchanges are Binance, Kraken, and Poloniex.
  4. You have tools that help you do proper risk management. For example, commissions are taken into consideration when calculating returns.
  5. The most important thing in trading is data. You need to make sure that you have up to date, and real-time data. Something that is taken care of in Vestinda.

If you’re a beginner at trading, you have probably heard about paper trading but might not be 100% sure what it is or how it works. This trading mode has been quite a common way to practice for a lot of crypto traders out there, and has established a high level of relevance within the finance world. It is also called demo trading, so we will use the 2 terms interchangeable in the article.

What is Paper Trading?

This essentially involves buying and selling crypto assets in simulation mode. Its intention is to replicate real-world market conditions without putting your own capital at risk. 

You can think about paper trading as a car driving simulator, where you can drive in a virtual environment before you are eligible to drive in the real world.

You are using demo account funds to drive your trading strategy to success through the usage of an online cryptocurrency exchange or brokerage, and as such, aren’t putting any real money at risk.

You are usually required to use or connect to an online brokerage or exchange to access demo trading functionality. Even though trading is simulated, you need live data in order to make decisions on buying or selling your assets. What you usually need is at least the price of the assets and the order book; and it must be as up-to-date as possible.

You can access paper trading either in the form of a web-based trading platform or through a mobile/desktop tracking software that you will download and install on your device.

How to do Paper Trading or Open a Demo Account?

In order for you to be able to engage in paper trading, you need to open a trading account within a platform. In the majority of crypto exchanges and brokerages, this is referred to as a “demo account.” Search for this option and create your account first. 

1. Demo Account on the Exchange or Broker

A demo account gives you an amount of virtual crypto assets in the very beginning, where you can start trading by opening positions. The account shows market movements, mimicking real price. Hence, you can practice buying and selling and following position returns to validate and improve your trading strategy.

Your exchange is not offering you a demo account or do you need more advanced paper trading functionality? You can go with option 2.

2. Trading Platform That Offers Paper Trading Functionality on Top of the Exchange or Brokerage

This is an option that offers you the opportunity of exploring trading in simulation mode on top of any crypto brokerage or exchange out there from a single user interface. Additionally, you can use functionalities that are not available on the exchange.

Typically, there is also no requirement to make a deposit in order to gain access, as the platform comes pre-loaded with a specific balance. 

However, you need to know that you cannot withdraw any money gained by either of these options, as you were not using real money to trade in the first place. You were just using virtual crypto assets to test out trading strategies that will potentially prove to be profitable. However, they only will be profitable the moment you engage in live trading with them.

Think of paper trading as trying out free samples of a specific new food that’s on promotion at a supermarket. You can taste it for free, and it won’t cost you anything, but the moment you decide to buy it for yourself, you’ll need to pay for it.

How to use a Paper Trading Platform?

When it comes to crypto paper trading, you are essentially looking for a platform that will help you simulate trades. You need to find a platform that offers you a simulation on top of the exchange or brokerage in question. Specifically, these trading simulations are built using the order book and the real price from the exchange.

Manual

You can use charts like in live trading and buy or sell configurations that are similar with the ones used on a live exchange. You can use technical analysis to make your decisions, but in the end no money movements will be done.

Additionally, you will see charts about orders that are filled, canceled, and rejected. 

Automated

This allows you to test your trading strategy in current market conditions without having to stay in front of the screen the whole time. Another advantage of automated paper trading is that you can deploy multiple trading strategies in parallel easier and still have time to enjoy life.

An important feature for beginners is finding a paper trading platform that allows you to reset the account balance at any time, as this trading process will involve a lot of trial and error initially.

Pros and Cons for Paper Trading

Pros 👍
  • It helps you validate a trading strategy on the current market conditions.
  • You get access to trade analytics, and see the results trade by trade with ease.
  • You can validate multiple strategies and multiple assets risk-free.
Cons 👎
  • You aren’t using real money, so you cannot really make any withdrawals or earn money this way.
  • As you are not risking real money, you are not sure if your emotions will not mess up with your trading in real life.
  • Since you aren’t using real money, you can take risks that you wouldn’t otherwise consider. As far as investing goes, if you can’t imagine losing your money, you may not be ready for live trading.

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Paper trading vs. Live trading

  • In paper trading, you make stress-free trades and can really get creative with your strategies as a result. 
  • Paper trading does not account for order partial fills or for orders that are not filled at all and this can be a massive drawdown in real trading when you miss an important trade.
  • Slippage and commissions may differ in paper trading when compared with live trading. Make sure the platform you choose takes this into account and models it close to real world numbers.

How to Choose the Best Paper Trading Platform?

If you are looking for the best paper trading platform, ensure that it gives you a paper trading functionality that has analytics to validate your assumptions and works as similar as possible with live trading (data is not delayed, slippage is taken into considerations, order book is accounted for order fills).

Why Choose Vestinda as Your Main Paper Trading App?

  • you can build your own trading strategy first with an easy-to-use, no code strategy builder
  • you can backtest your trading strategy before using it in simulation mode
  • once you’re confident with your strategy, you can test your assumptions on any integrated exchanges by starting your strategy in paper trading mode with just a click of a button (no separate account in Vestinda, no paper trading account needed at exchange)
  • commissions are taken into consideration when calculating returns for paper trading 
  • data used is from the live exchange and is up-to-date (as much as the exchanges offer it) 
  • orders fills are modeled based on the real order book 

If you are a crypto trader, you know how demanding crypto assets trading can be. In order to keep up with the highly volatile crypto market you either follow the charts 24/7 or you pay the opportunity cost. Even if you have a high degree of expertise, time is actually the most important asset you have to invest to turn profitable. So you may want to consider to automate your crypto trading strategies.

In order to spot market movements, you scan huge piles of information from various sources, perform different analyses using technical indicators, use on chain market intelligence or watch for signals. It calls for 100% concentration in entering and exiting positions at the right time. And for mastering emotions like a pro.

But why spend all that time when there is a better way to trade crypto? 

You can automate your crypto trading strategy to save yourself most of the hustle and get extra perks: 

  • earn more money than you would earn when trading manually 
  • and get back your time

This article will help you understand what automated crypto trading is, how to choose the best crypto trading platform, and how to automate your crypto strategy. 

So, let’s get started.

What is Automated Crypto Trading?

Automated crypto trading refers to the use of a software, also known as a trading platform, to automate your positions in the crypto assets market with the purpose of making a profit and never miss out on an opportunity. 

What Can Automated Crypto Trading Platforms Offer?

  • Some give you the possibility to build your own conditions and automate those for entering and exiting the market. 
  • Other software also have embedded algorithms that analyze the market to find out if the right conditions for buying or selling crypto assets are met. These then go ahead to either buy or sell the crypto assets autonomously or provide the trader with a signal.

Types of Crypto Trading Automation Platforms

  • Most automated crypto trading platforms act as intermediaries and trade on your behalf on any of the integrated Crypto Exchanges. This is done in a secure way; you connect your credentials from different Exchanges and allow the platform to place orders for you. 
  • Some trading platforms offer both an Exchange and a quant zone where traders can build their own strategies.
  • Other automated crypto trading platforms offer downloadable trading bots that can be managed locally or on a server. These bots are also referred to as crypto trading robots and can be activated or deactivated anytime.

How Does Automated Crypto Trading Work?

We’ll focus on how to automate using a platform that works on your behalf in your Exchange account.

Step 1

You start by finding your preferred automated crypto trading platform and creating an account.

Step 2

In order to automate your crypto trading, you first have to build a trading strategy.

Step 3

Once you create your strategy, you validate it through heavy backtesting.

Step 4

As an optional step, you can run your strategy in Demo Trading until you are confident enough to commit real money.

Step 5

Connect your preferred Crypto Exchange and start automating. The platform will take it from there and run your strategy day and night, without you having to watch the market continuously.

There is a last step: You take your time back and enjoy life. :)

Advantages of Using a Platform to Automate Crypto Trading Strategies

Using an automated crypto trading platform offers the following advantages:

  • Saves time – You can free up the countless hours you would otherwise spend analyzing the market to find optimal opportunities for opening and closing positions in the market.
  • No emotional trading – Robots do not have emotions (yet) and will therefore not place revenge trades or let emotions mess up the plans of winning in the market. 
  • Sticks to the plan – Since the automated trading platforms use software, they are able to stick to the set trading parameters no matter the conditions or outcomes unless the parameters are changed to new ones. This allows you to stick to your trading strategy, while you enjoy your life.
  • Helps boost trading skills – You can use automated trading platforms to quickly test and validate or invalidate your trading strategies and find out what works and what doesn’t more quickly than if you were to do that manually. This also allows for an iterative process that enables you to fine-tune your trading strategies.
  • Faster response to market conditions – Automated crypto trading uses a software to analyze the market and place trades. Therefore, the trades are opened and closed faster than if they were being opened or closed manually. This is a huge advantage since crypto assets prices are very volatile and delays in opening or closing trades, after conditions in your trading strategy are met, could lead to lower profits or in a worst-case scenario, losses.

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Things to Consider Before Using an Automated Crypto Trading Platform

Before settling to use a specific automated crypto trading platform, you should consider the following things:

  • Technical issues may occur with the Exchanges you’re trading on or within the automation platform. Choose a platform with focus on building the best product. Make sure there is a good team behind and technology is always up to date.
  • You need experience in order to build good strategies that give you a positive alpha. But this goes for manual trading also :) On some platforms you can choose ready-made strategies or you can copy trade other traders out there.
  • Make sure you don’t get caught in the dreams of getting rich fast. An automation platform is about … well, automating your current trading strategies. And we all know there is no getting-rich-fast strategy. Or maybe it is? 

How to Choose the Best Platform to Automate Your Crypto Trading Strategies

When choosing an automated crypto trading platform, you should consider the following:

  • Flexibility – Can you control the entire life cycle of your trading plan? Can you build strategies that cover most of your ideas? Can you combine different data points and use different tick intervals for your indicators?
  • Backtesting – Can you test your assumptions on historical data
  • Demo trading – Can you simulate your strategy before using it?
  • User fees – Some automated crypto trading platforms require you to pay a certain amount of fees to access the platform’s services. Make sure you pay for the right amount of features.
  • Compatible Crypto Exchanges – Some crypto trading automation platforms are integrated with a specific list of Crypto Exchanges. Look up and see if your preferred Exchanges are on the list. Does it also offer crypto portfolio tracking?
  • Nature of the automated crypto trading platform – Some provide external trading signals for you to use in placing and closing orders while others go ahead and autonomously place and close the trades without any intervention. If you want full control over creating your own trading strategy and rules, there are also options for you. Just make your choice.
  • The assets that you intend to trade – Some automated crypto trading platforms only support a bunch of the assets out there. 
  • Security – check if the platform follows security standards and how good the technical team is. 
  • Customer support – How easy is it for you to get your questions answered? Choose a platform that offers fast support and the team is always trying to improve their product.

Why Choose Vestinda to Automate Your Crypto Trading Strategies?

Vestinda allows both beginners and experienced traders to automate trading strategies. Our promise is to help you take back your time and experience life while we take care of delivering high quality automation execution on your strategies. 

Below are some of the reasons that makes Vestinda one of the must-try automated crypto trading platforms out there:

  • Easy to use – You simply drag and drop various tools like technical indicators to build trading strategies. Implementing your trading ideas will become a breeze. In time, you will feel like you’re doing it with your eyes shut.
  • Backtesting – It allows you to validate your ideas using past market prices. You can go as far back as the asset was listed on the Exchange and you get advanced statistics on how your strategy would have performed.
  • Demo trading – Still not confident after Backtesting? You can try paper trading your strategy on the current market conditions for a while before staking real money.
  • Very flexible – You can build any trading strategy by combining different custom indicators, each with different tick intervals. Logical conditions, math equations or indicator compounding, you name it. All inside our Strategy Builder.
  • Accurate automation and execution – Any condition in your trading rules is evaluated in a snap. Then the order reaches the Exchange in a few milliseconds to make sure you get the best possible execution.
  • Most popular Crypto Exchanges are integrated within the platform. Choose your preferred one and start automating.