Ethereum Trading Strategies
In This Article
In 2015, a new coin came into existence, Ethereum, and today it is the second most ranked crypto coin as per market capitalization after Bitcoin. It has remained in the second spot for a long time. This article will discuss Ethereum trading strategies that most traders employ to profit considerably.
So make yourself ready as we dive deep to explore Ethereum.
Ethereum Trading Tips for Success
In recent years, the popularity of cryptocurrency has exponentially grown. Although it is profitable, there are a few things that you must remember before you indulge in Ethereum trading.
We need to understand what ticks the price factor of Ethereum, how to trade it, and when is the ideal time to start trading?
You can use traditional methods like trading platforms or use cryptocurrencies for trading Ethereum. Several exchanges offer Ethereum in exchange for fiat currency and other cryptocurrencies like Bitcoin and other digital currencies.
The most popular method is to create an online account on a platform, deposit money into your account, and start Ethereum trading.
Nonetheless, you should be aware of the inherent risk involved while investing in Ethereum, and it would be helpful if you were to do research before choosing an exchange and if it suits your needs.
Factors influencing Ethereum price
Ethereum price is influenced by market sentiment, market capitalization, and technical analysis.
Market sentiments are influenced by what the investor feels about the current price trend of a specific cryptocurrency. When the investors feel the price will go up, they invest, and when they think the price will fall, they divest.
Market capitalization is the total money invested in a cryptocurrency at any given time. But, of course, this tends to change as it is influenced by what people think of it in terms of investments from a future prospective.
Last but not the least, using technical analysis. The price of Ethereum is predicted by considering its historical records. These historical records are represented in the form of charts that give the past price trend of Ethereum.
Plan out a strategy and think ahead:
One of the most popular and essential strategies is to buy Ethereum when its price is low and sell at a profit when the price is high. Another strategy popular among the traders is to keep some funds in the account and quickly buy as and when the opportunity arises. Thus they don’t have to waste precious time by shifting funds into the account and then miss out on the opportunity of buying Ethereum.
Research is the key to success:
Like any cryptocurrency, Ethereum is also volatile in nature. The price predictability of Ethereum is as dicey as that of any cryptocurrency. You need to weigh your options if investing in Ethereum. There are many factors to consider before investing in Ethereum. Factors like the market value, Ethereum price, and its inherent volatility.Some believe that there is no ceiling for Ethereum that can restrict its price; its price is bound to surge over time. On the other hand, some are pessimistic, suggesting that it is too early to predict the price since it is a relatively new type of crypto or digital currency.
Use caution while trading on margin:
The first thing to understand about margin trading is that the money used as collateral must be worth more than the amount of your transaction, or you will not be able to get into a position. Since margin trading is riskier than average trade, only people with enough funds enter and trade.
The chances of losing huge amounts of money cannot be ruled out. Thus margins required while trading cryptocurrency like Ethereum are higher compared to other financial instruments like stocks or Forex due to their inherent volatility.
With such risk, the chances of you being forced to sell at a price lower than the price you bought remain, and you might lose more than what you can afford. But, all said and done, if the trade goes as you have predicted, an enormous profit can be gained in a short time.
Three Strategies for Trading Ethereum
Moving average trading
Market analysts and investors use a technical indicator to determine the direction of a trend. It calculates an average by adding all of the data points from financial security over a given period and dividing the total by the number of data points. Since this average is continuously recalculated based on the latest price data, it is called the Moving Average or MA.
Analysts evaluate the price movement of Ethereum by examining support and resistance using the moving average. A moving average reflects the previous price action or movement of Ethereum. The price direction, that is, if the price is moving up or moving down of Ethereum, is determined by using the moving average by analysts or investors.
It is an active investing strategy that identifies a range where the investor would buy or sell over a short period. For example, suppose Ethereum is trending at $1,200, and you believe that the price will surge to $1,270, then the trading range is between $1,200 and $1,270 over the next few weeks. So you start to trade if the selling rises to $1,270. You would keep doing this until you think the stock will no longer trade in this range.
The timing should be precise while range trading. A significant risk remains if the price of Ethereum does not go in the direction you have anticipated within the stipulated time frame.
The temporary overbought or oversold market conditions are calculated using the relative strength index or RSI. An intraday Ethereum trending strategy can be formulated with the help of the RSI that a market is overbought and, as a result, likely to retrace.
This technical indicator, the RSI, is quite popular among traders and an oscillator indicating a market condition. For example, if the RSI is over 70, it indicates Ethereum is overbought. And if the RSI is 30, it indicates that Ethereum is oversold. Some traders and analysts are known to use more extreme readings of 80 and 20 to determine the overbought and oversold condition of Ethereum. The only weakness is that sudden sharp changes in price can cause it to spike frequently up and down; thus, it starts to give false signals. Nonetheless, if those spikes were to be compared with other signals, they could be used to indicate a point of entry or exit.
It is quite common for the price of Ethereum to continue well beyond the point where the RSI had indicated the market to be overbought or oversold. Thus traders and analysts use other indicators rather than solely relying on RSI.
Risk-averse is a method Ethereum traders use to expand their exposure to the cryptocurrency
Last year in October 2021, Ethereum enjoyed a bullish run reaching roughly $4,800, an all-time high, while Bitcoin was trending at roughly $67,000 because Bitcoin launched its ETF. Then Chinese authorities started banning all crypto-related activity. Thus, the price of cryptos began to fall as China was the world’s largest crypto hub. The price of cryptos steadied a bit as most of the mining activity was shifted to America. Thus the price again increased.
Russia also joined China in banning all crypto-related activities. Thus, Russia is the third largest crypto hub. So the price of Ethereum, along with other cryptocurrencies, fell.
The ongoing war between Russia and Ukraine has taken a toll on crypto. Russia has begun accepting cryptocurrencies as a mode of payment for gas.
Thus each news floating on social media affected the price of Ethereum one way or the other. Thus it proved that cryptocurrencies have inherent volatility but traders can still make money if they observe the current market trend on the social media platform. We shall explore the two most used strategies that ensure that the traders make a profit.
There are two options: call and put when a trader has the right to buy but is not obliged to buy cryptocurrencies at the end of the specified period.
When a trader has a right to sell but is not obliged to sell cryptocurrencies at the end of the specified period.
If the trade does not go as the trader planned, then the trader has to pay only the premium. However, traders can expose unlimited negativity by selling derivatives similar to futures contracts.
Traders utilize the collateral in margin accounts to borrow funds from a broker, which must be repaid with interest. The beauty of this strategy is that traders can magnify their profit by investing little. However, although the profit margin might increase, there are equal chances of making a loss too.
Learn how to trade Ethereum
Traders are known to employ all kinds of various strategies and tactics to make a profit in the world of cryptocurrency. These strategies range from scalping, where a trader successively trades with minutes of price change by holding on to the investments for an extended period only to sell at huge profits. Ethereum is ranked next to Bitcoin in terms of market capitalization. We present the three most profitable trading strategies to trade in the second-most ranked cryptocurrency.
Traders tend to open up a position and close them on the same day. These traders will continue to make multiple trades keeping the position open for an hour or so. The trade is never held overnight.
The approach towards the crypto market is similar to day traders, only differing in the duration that the trade is kept open. A scalper will make multiple trades within a few minutes.
These types of traders will hold a position and close it once the price trend reverses. The position will be kept open for a few days to weeks.
Price action is thought to spend roughly 80% of its time trading in a range. Range traders believe that price activity can typically stay inside a stable and predictable range for a long time. Traders determine the range’s boundaries, or support and resistance levels, for Ethereum on the market, as the initial stage.
These traders will buy crypto and will keep the position open, ranging for a few months to a few years before making a profit.
This method is useful for anyone who trades Ethereum as the second source of income. Some bots run on algorithms predicting the price trend of Ethereum. Traders can customize the bot as per their trading style. Since little or no human intervention is needed, the bot trades on behalf of the trader.
A trader places an order while entering and exiting the market. Below are the order types which you could encounter while trading.
You can buy or sell on an exchange. Sellers and buyers would be matched with your order to complete a trade. Market orders are executed at the current market price of the crypto.
As a trader, you need to give specific instructions regarding a trade; you set certain cross limits that will execute the trade. If the market prices fall below a certain level, it automatically buys. If the market price surges above a certain level, then it would automatically sell.
Stop loss order:
The trader again sets this. If you have bought Ethereum at a certain price and now the price is falling below it, you need to sell if the price continues to drop. The idea is that once the price drops below the price that you bought Ethereum, you sell them to reduce the loss. The order remains active until Ethereum is traded.
How to trade ETH? What drives it’s price?
Understanding the themes that have helped the growth of Ethereum in the past will help you improve your Ethereum trading strategies. In addition, the ability to read and analyze charts and data and recognize trends improves the chances of making a profitable transaction.
Ethereum trading: top techniques
Ethereum can be traded 24 hours a day against other cryptocurrency and fiat currencies. Since the crypto market is open 365 days a year round the clock, some traders are known to use stop losses and exit the market while making a profit.
Some traders are known to use bots that carry out trade on their behalf. The bot must be extremely good to maximize profits while keeping the loss low. However, a bot can never fully replace human involvement.
Most traders are known to trade Ethereum Contract of Difference or CFDs. It is a derivative that allows you to trade on the market price of Ethereum rather than owning it. You can take a long or a short position while trading on the price of Ethereum. If you have held a long position and the price rises, the broker will give you the price difference from the start to the end of the trade. Of course, you must pay the broker if the trade does not go as you predicted.
You can even buy a couple of Ethereum coins, as most investors do so that over a period when the price of ethereum is high, they can sell it off for a substantial profit.There are other products like futures and options that help the traders to mitigate loss while exposed to Ethereum volatility.
Top strategies for success while trading Ethereum
To succeed in Ethereum trading, a few things need to be kept in mind. We have laid down a few tips that can help you a lot.
- Read everything:
You must research before entering a position while trading Ethereum. Reading or gathering news on the latest development in Ethereum will help you, especially the market price movement. Make sure you collate data from several sources and then try to do your analysis. You should not stock only one crypto expert or analyst predicting the price movement of Ethereum.
- Think ahead:
It is wise to work on a strategy before entering or taking a position in the crypto market. As a trader, you should avoid giving into emotions. Greed and fear are the two age-old emotions that can affect a perfect trading day.
- Be cautious:
Many exchanges offer trading on Ethereum’s price instead of owning it. They allow margin trade, allowing the trader to enter a market with less capital while making a significant profit. For example, you can enter a $1,000 position with just $100 as capital. If the trade goes as predicted by you, your profit gets magnified ten times. However, the losses would also be substantial if you make a mistake.
It is advisable to invest an amount in an Ethereum trade that you can afford to lose. Do not use your retirement money for this kind of trade.
Ethereum is quickly gaining popularity as a cryptocurrency. Still, the question remains how do you know when the best time to buy Ethereum is? Unfortunately, it is challenging even for most seasoned investors to predict the next price surge or drop successfully.
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Frequently Asked Questions
Ethereum can be a secondary source of income. However, avoid thinking that Ethereum can be a primary source of income unless you have mastered the trick of understanding and making a substantial profit while trading in the crypto market.
It all depends upon the trading platform that you have chosen; you can start trading Ethereum with just a few dollars at hand. You can even leverage to trade for more. Nonetheless, you must also bear in mind that your losses could also magnify if you are to use leverages.
Ethereum’s latest upgrade from Proof-of-Work (PoW) to Proof-of-Stake (PoS) is referred to as Eth 2.0. Theoretically, this should reduce the gas fees, increase network participation, and streamline the blockchain application’s decentralized finance (DeFi). This may result in a price increase, but issues during the changeover may cause the opposite.
If you have an account on a derivative exchange, you don’t need to convert your cryptocurrencies into fiat currencies. However, if you have traditional brokerage services that operate fiat currencies, then, in that case, you may have to liquidate some of your Ethereum to allow trading capital.
When you buy Ethereum coins, you need a place to store them, an e-wallet, to be precise. An e-wallet has two elements: a private key and a public address. A private key of an e-wallet allows the user access to the e-wallet, while a public address is required to send Ethereum or other cryptocurrencies. Ethereum is stored in an e-wallet and is also called a public key. Thus, any cryptocurrencies or Ethereum coins are sent across public addresses or public keys.
Like cryptocurrency exchanges, cyber threats or theft can also target online wallets. Mt Gox Bitcoin exchange is an excellent example of a cyber attack. Until 2014, Mt. Gox was the largest global Bitcoin exchange. Mt Gox had 850,000 Bitcoin with an estimated value of $450 million in February 2014 before hackers attacked and cleaned off all the Bitcoin from the exchange. It is believed that the private keys of Mt.Gox were compromised as early as 2011.
When a trader trades in Ethereum CFDs, such threats are mitigated since you are only dealing with the price of Ethereum and not the coin itself.
When the asset’s price exceeds its intrinsic value, it is called a “bubble.” A classic example would be the dot-com bubble between 1995 and 2001. The sudden boom in information technology boosted the stocks of firms irrespective of their profits or even the chances of succeeding. Then, finally, in March 2000, the market crashed.
It is quite challenging to determine the intrinsic value of cryptocurrencies. Even though many investors treat it like equities and hold them for a long time when in reality they are not, they do not even function like a real currency, making it all the more difficult compared to currency valuation. Caution is usually suggested while dealing with new technology. One cannot rule out the chance that Bitcoin and Ethereum are overvalued, and if a bubble does exist, it could very well be due to several new cryptocurrencies that market sentiments might drive. There have been times when certain stocks were overvalued and filed bankruptcy within a year. For example, since they were overvalued, Pets.com went from IPO to bankruptcy in 268 days. Only time will tell if the market is overheating. In any case, there is an option of exercising CFDs for both long and short positions.
We have repeatedly observed that Bitcoin crashed after hitting all-time highs. Each high was replaced with a new high. Not only did Bitcoin crash, but all the other cryptocurrencies also crashed. Most cryptos are viewed on their potential and their future application in our ever-evolving advanced society. The question still remains that the intrinsic value of cryptocurrency will not be known until the institution accepts it. However, whether this suggests that cryptocurrencies are overvalued is a different matter.
A venture capital fund called The DAO in May 2016 raised roughly $168 million, intending to invest in projects through smart contracts based on Ethereum. In the same month, concerns regarding security vulnerabilities with the DAO, which could allow the stealing of Ethereum coins, were released in detail. In the same year, somewhere in June, 3.6 million Ether coins, roughly $50 million, were stolen from the DAO accounts. These coins were stolen just as vulnerabilities regarding security were raised in May.
It was then decided by the DAO and Ethereum community members to adopt a hard fork since it is a substantial chain to the Ethereum blockchain code to transfer the Ethereum tokens to a new smart contract and return them to their rightful owners. However, when certain members of the Ethereum community objected to the hard fork due to “immutability,” or the premise that the blockchain cannot be changed, Ethereum Classic was created.
ETH is the ticker symbol of ether.
When one considers all the cryptocurrencies, Ethereum seems the only likely candidate to replace Bitcoin, which is still the undisputed king of cryptocurrencies. However, 2017 witnessed significant market share being taken away by the young upstart, and the chances that Ethereum could make significant gains in the next few months cannot be ruled out.
Some experts are skeptical about Ethereum replacing the position of Bitcoin as the latter is a currency while the former’s primary function is to allow dapps and smart contracts. As a result, its status as a viable alternative currency could diminish.
Although the annual limit is restricted to 18 million Ethereum coins, there is no limit to the amount of overall Ethereum coins to be released. Even when processing power improves, this assures that there is always a consistent supply of ether on the market.
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