Professional strategies

Tokenized asset exchange Coin Market Solution offers access to conduct financial transactions with both cryptocurrency pairs and classic financial assets (such as gold, oil, stocks and stock indices) denominated in cryptocurrencies.

How to apply trading strategies? To begin with, we will determine what professional strategies are.

Types of trading strategies

In relation to the transaction to the trend:

  • flat. It is used to trade in inactive balanced markets developing as part of the side channels. For example, selling from the upper borders of the channel (indicated by the number 1 in the figure below), and buying from the lower borders.
  • trend. The classic deal is buying an asset in a growing market. For example, a purchase on a growing candle (indicated by the number 2 in the figure below) after the rising price has broken through the side channel. Trend trading is always a higher probability of success.
  • countertrend. For example, selling an asset when it is overbought. In the picture below, it is indicated by the number 3. This pronounced bearish candle after a period of price increases implies that the market is “overbought” and prices must be adjusted (rolled down).

According to the duration of transaction retention, strategies can be:

  • long-term. This is an investment approach, the most prominent of which is Warren Buffett. He only buys the asset that he would be happy to own in 10 years. Another example is Buy & Hold, a strategy often used in the cryptocurrency market. This means that the coin is bought and held until the moment when it sharply rises in price.
  • medium-term. With this trading style, trades are held for longer than one day. For example, buying a stock for a retention period of 6 months.
  • short-term. These strategies involve transactions that open and close within one day. This is how intraday traders trade, they open and close positions during the working day.
  • Separate words deserve scalpers. Scalping strategies are designed for transactions whose duration is a few seconds-minutes. “Scalping a growing market” means buying and selling an asset quickly when it enters a boom phase.

According to the degree of algorithmization, there are strategies:

  • mechanical. These are fully automatic strategies that work without human intervention. They are robots.
  • semi-automatic. This is when a human trader uses robots to simplify the workflow, but does not completely trust them in decision making.
  • manual. These strategies are usually based on judgment. They are also called discretionary strategies. In this case, the person independently makes a decision on the transaction based on the information available to him, and personally sends an order to the exchange.

According to the methods of collecting information for making trading decisions:

  • fundamental. To make a decision on the purchase / sale of an asset, fundamental data are used: statistics, reporting, macroeconomic news, industry analytics, companies and other information that is outside the terminal’s charts.
  • technical. These strategies are based on technical analysis. In this case, traders analyze the chart, form trading plans based on price dynamics. They build support and resistance lines, identify characteristic price patterns, track indicators, and create trading plans without taking into account fundamental information.
  • combined. This is a classic example of decision making using two approaches. It is the analysis of fundamental information with the search for the best entry point using technical analysis.

We have told you a classification of professional trading strategies. In a sense, this classification may be considered simplified, but it clearly shows the variety of trading strategies that can be used to work on the tokenized assets exchange.

There is no single answer to the question - which strategy is right and which is wrong? They are all workable, but each of them brings results in its own way.

What strategy to choose?

There are 2 factors that influence your choice.

The first one is a market factor. Each financial asset has its own “character”. For example, the cryptocurrency market is characterized by violent price fluctuations. The value of cryptocurrency pairs usually fluctuates with an amplitude of approximately 5% per day. But on especially volatile days, the price can change by 10%, 50% or even more. Such explosive movements are less characteristic of the market for tokenized stocks, especially for those underlying assets behind which solid corporations stand. Each strategy must adapt to the nature of the market.

The second factor is the trader’s personality factor. There is a fair opinion which claims that there is no equally suits all types of traders universal strategy. A lot depends on the personal circumstances, the personal qualities of the trader, his experience, ability to take risks, the skills to make the right decisions and respond to a changing situation.

Therefore, if you can’t immediately decide which strategy to use, don’t worry, this is absolutely normal.

You should develop through experimentation.

  • Think about how much time you can devote to trading.
  • Analyze the chart and trading conditions for individual markets.
  • Choose the strategy and market that are most attractive to you at first glance.
  • Then try your trading in this market with a little capital, so that the potential losses are minimal, and could not bring harm. When you see your work brings the desired result, you can easily increase the position size and earn more.

Advice #1. Learn more about Coin Market Solution promotions and bonuses. This will give you an advantage in finding a strategy that is most effective for you.

Advice #2. Get a shopping diary. Write down your ideas, results, conclusions. This is the best way to get to know yourself as a trader and find your strategy.

The example of a strategy. Trading on kickbacks.

We will analyze such a professional approach as trading on kickbacks.

We will use the ETH cryptocurrency chart.

  1. The trader notes that for a while Ethereum was trading around 175 USDT, after which growth began. Price does not rise by itself. With a high degree of probability, there is some good reason behind this growth. But not all traders learned about this reason at the same time, so the price rose rapidly at the beginning, and then progress slowed down. This is a sign of a strong market entering the trend.
  2. At point 2, a local peak is formed. The price makes an attempt to grow, but there are no followers, and the price slowly rolls back. This is a sign of overbought. So you should expect a rollback.
  3. A trader measures level 1 is 175 USDT, level 2 is 185 USDT, and expects the price to roll back by 50%. This principle is also known as the Fibonacci level. At point 3, the price slows down fluctuations at the level of 180 USDT - this is a sign that the rollback (or correction) has ended. In this case, the chances are on the side of buyers, because in most cases, the trend resumes. This is what happened in this case. The growth factor, which gave rise to an upward impulse from 175 USDT, kept the price at the level of 50% = 180 USDT. The market appreciated this support, and the uptrend resumed, bringing profit to the purchase made at point 3.

The mentioned example is an example of work:

  • on an intraday strategy (because we used a 15-minute timeframe)
  • using technical analysis (because the entry point was found at 50% Fibo levels)
  • according to the trend (because we were driven by a bullish impulse, which started from the level of 175 USDT)

This strategy can be used not only in cryptocurrencies but also in the markets of tokenized stocks, commodity assets; and also it can be used on hourly and daily timeframes. Open an account, try to find entry points on the chart.

Tip. Follow the publications on the Coin Market Solution blog, we will periodically share proven strategies in the “Training” section.

Work with support and resistance levels

Among exchange traders, such a concept as support and resistance levels is widely used. They are easy to visualize when looking at the graph.

  • The support level is a conditional line below, which means that the price does not fall; it seems to bounce off the support level.
  • Accordingly, the resistance level is an invisible line that prevents the price from rising. And as soon as the value of the asset approaches the level of resistance, it is likely to turn down.

Why has it happened? This is because there are no traders above the resistance level who are ready to buy a stock asset. That is, the strength of demand is running out, and the level of resistance seems to limit the market, showing that the asset is too expensive.

Accordingly, the level of support determines the boundary value of the price, below which no one wants to sell the asset. This means it is too underestimated under the level of support.

How to use support and resistance levels in trading? Consider the example of strategies.

Support hang up strategy

This example considers the dynamics of prices in the market of tokenized oil.

  • At points 1, the local peaks formed a resistance line at 32.25 USDT.
  • And at points 2, when the price approached the resistance line, professional traders got a chance to open sell positions.

This decision is supported by the fact that, firstly, the price has already confirmed the resistance level on the chart. And secondly, against the background, there was a decrease in prices from 35 USDT. Professional traders know that in a downtrend, local resistance levels have a stronger effect. Therefore, a trading strategy for rebounding from these levels has good chances of success.

Similarly, you can trade on a rebound strategy from the support level. An example is from the Bitcoin Cash market.

  • After price increases, a support level was formed at local lows at points 1.
  • The number 2 marks the entry point to purchases from the support level.

Mirror level strategy

Professional traders know that support and resistance lines have a unique property; it lies in the fact that:

  • after the breakdown, the support line becomes a resistance line.
  • And vice versa - after the price has overcome the resistance level, it will find support on it in the future.

This phenomenon is called the principle of “mirror levels”. How to use it in trade and investment? Consider an example.

Here is a chart of the daily period, it shows the dynamics of the value of the tokenized stocks of Aphria, it is a cannabis manufacturer, its securities are listed on the Canadian stock exchange.

  • In the autumn and early winter of 2019, a stock on the chart formed a support level in the region of 4.2 USDT per share (1).
  • However, on February 6 (2) there was a breakdown of the support level.
  • And during the following sessions (3), the price fixed below this level.
  • On February 14, the quote rose (4) in time for the price of 4.2 USDT. Professional traders know that in this case, the stock must find resistance, as it has reached the former support level. Therefore, it was not surprising for them that on February 18 and 19 the price rolled back lower.
  • On February 20, a level of four and a half dollars per share confirmed its effect (5) as resistance.
  • And starting from February 21, a downtrend began (6), which culminated at the level of $ 2 per share.

Knowing the principle of mirror levels, traders could establish sales positions as close to the level of 4.2 USDT per share. Thus, they minimized risks and received an excellent risk ratio to the potential reward.

Similarly, the principle of mirror levels can be used for shopping. Consider an example from a 15-minute chart of tokenized gold prices. This example shows that this strategy works in different markets and different timeframes.

  • Several local peaks (1) formed a horizontal resistance level. And after breaking through it ...
  • ... this level began to act as support. This opened up opportunities for opening purchases at moments when the price fell to the indicated level (marked with the number 2).

Triangle Breakout Strategy

When working with charts in terms of classical technical analysis, traders usually recognize the so-called patterns to search for entry points. Patterns are visual figures (like constellations in the night sky) that are formed as a result of price fluctuations over time. The figures actually differ quite a lot - these are “flags” and “pennants”, there are figures “double bottom” or “triple peak”, the pattern “head and shoulders”, the pattern “butterfly”. The whole encyclopedia of patterns.

In this article, we will consider only one pattern - a triangle. But this is a very effective pattern because it correlates with the cause of price changes in the markets. The tapering sides of the triangle indicate that the market is in a temporary balance between the forces of supply and demand, and the price of an asset equally suits both buyers and sellers. However, when the price goes beyond the boundaries of a narrowing triangle, this indicates that the balance is upset and the market is entering a trend state. Therefore, opening a position on the breakdown of a triangle is a reasoned way to enter the beginning of a trend.

Consider this as an example. Before us is a chart of the ETH cryptocurrency in relation to the USDT. Red lines indicate the formation of a triangle. At point 1, the price went beyond the triangle; this event indicates that the asset is allegedly entering a growth phase. When buying breakdowns of a triangle, traders have a positive chance of capital growth due to the trend phase.

Indicator Trading Strategy

In the previous example, we looked at what patterns are. Now let's talk about indicators. Indicators are a very popular tool used by traders who trade according to the principles of technical analysis.

In the trading platform on the Coin Market Solution tokenized assets exchange, several classic indicators are presented. In this example, we will show how to trade effectively using 2 of them.

The graph of the LTC / USDT cryptocurrency pair has a smooth line which rushes up. This is an indicator of the exponential moving average with a period of 50. At the bottom of the graph is a broken line. This is a CCI (Commodity Channel Index) indicator with a period of 14. How can I use these indicators to trade? It’s not difficult at all.

First, you determine the direction of the trend using a moving average. Since the line is directed up, you should look for inputs into purchases. Selling is not recommended. The CCI indicator will help you find good points for opening a deal. When the indicator reaches its minimum values, traders enter into purchases (these points are indicated by green circles). And when the indicator reaches its peak values, traders close their positions profitably.

Summary

As you can see, the trading strategies that we have examined are quite understandable. Their apparent simplicity can be misleading. Is it that simple? But in fact, professional traders have successfully applied the described approaches for many years. The main thing here is discipline and systematicity.

You may come up with ideas for combining different strategies. For example, add CCI indicator signals to the back end trading strategy to gain more confidence in the signal accuracy. Here appears an element of creativity. By combining various strategies, traders can find unique rules that:

  • on the one hand, give a positive effect over a long distance
  • on the other hand, it corresponds to the personal preferences and qualities of the trader.

We advise you in your own trading rules:

  • observe consistency and systematicity and do not jump from one strategy to another too often;
  • keep a trading diary;
  • and follow the publications on our blog, where we regularly share ideas for building trading strategies that will help you achieve success on the Coin Market Solution tokenized asset exchange.