What is Momentum-Based Cryptocurrency Trading and What Are Its Strategies?

 


Cryptocurrency has become extremely popular in the last few years. Since the invention of Bitcoin, the popularity of crypto has skyrocketed. Unlike traditional fiat currency, cryptocurrency is a decentralized digital currency. Many businesses are also getting into cryptocurrency. El Salvador became the first country to use Bitcoin as the legal tender in 2021.

Cryptocurrency trading

The inception of Blockchain has undoubtedly improved the safety and security aspects. As a result, many people are getting into cryptocurrency trading to earn a quick profit. But this asset class comes with high volatility.

Momentum-based cryptocurrency trading

High-frequency momentum cryptocurrency trading is becoming popular day by day. There are several valuable and beneficial momentum-based strategies for Cryptocurrency that you should know about. Having proper insight regarding this matter is essential for profit in cryptocurrency trading.

Price is considered an essential indicator in cryptocurrency trading as it reflects trading volume and traders’ confidence. One has to grasp and comprehend the changes in momentum of crypto-trading properly.

Concerning momentum trade, two effective strategies are (1) a cross-sectional method and (2) a time series method. These strategies have their pros and cons, and they were applied to the seven biggest cryptocurrencies as per market capitalization. Using momentum strategy in crypto trading can be helpful, and one can make a lot of profits through such strategies in a high-frequency setting.

A valid comparison shows that the results of the signal-based momentum strategy are better than that of the returns-based strategy. Nonetheless, not a single strategy works for everyone perfectly, and a fair comparison with some passive portfolio strategies is recommended. It is significant to explore more about what is momentum trading.

What are some momentum indicators in crypto trading?

It is essential to explore how to measure themomentum of a cryptocurrency. A few parameters are used which you can determine the momentum. The momentum indicator in this regard is calculated as CP (Closing Price)- CPn (Closing Price n-periods ago). It is also expressed in (CP/CPn)*100. It simply means closer to the lower or higher edge; the indicator equals stronger crypto price movement. If the momentum crosses Moving Average from below, it will be a BUY signal.

On the other hand, in a vice-versa scenario, it will be a SELL signal. ROC (Rate of Change) is another similar indicate to Momentum, calculated as (CP-CPn)/CPn. Momentum traders choose to go for specific momentum indicators that suit them best.

The future of cryptocurrency?

The future of cryptocurrency is excellent. As the past for cryptocurrency has been great, it can be said it will do good in the future too. The meteoric rise of cryptocurrency is attracting investors, businesses, organizations, and governments worldwide, and it will change the course of fit currency in the distant future. As momentum trading is getting even more popular, it will increase the popularity of crypto even more.

The growing technological advancement and advancement of blockchain are strengthening the security and encryption of crypt to its greatest extent. Hence, Cryptocurrency can be concluded that it can only go up from here.


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