Trading Guide for Cryptocurrency: Unconventional Crypto Trading Strategies

This sixth article in our series explores unconventional crypto investing strategies. Each strategy follows its own reasoning, carries distinct risks and rewards, and presents unique opportunities. Whether you’re seeking to capitalize on market inefficiencies, leverage complex trading algorithms, or explore niche market trends, these strategies provide alternative avenues for those looking to diversify their crypto portfolios.

1. Key pointers

• Arbitrage: Theoretically risk-free, but watch out for costs, fees, slippage, and liquidity risks.
• Statistical Arbitrage: Not true arbitrage; relies on correlations between different crypto assets’ price trends.
• Seasonal Crypto Trading: Driven by predictable market participant behavior.
• Scamming Coins: These can spike in value; high risk, high reward if you surf the wave.
• Investing in ICOs: Early investment can lead to huge gains, but it’s high risk, high reward.
• Buy Low, Sell High: Simple, but no guarantee of profit
• Automated Trading: Technically and strategically challenging, but can be effective with the right setup

2. Arbitrage crypto trading strategy

In theory, arbitrage trading is the only risk-free trading strategy. It works by buying a cryptocurrency on one exchange where the price is lower and then selling it on another exchange where the price is higher. To do this, you’ll need accounts on multiple exchanges like Binance or Tokenize Xchange and monitoring tools to spot price differences. Most arbitrage traders use automated scripts to find and act on these opportunities, as they don’t last long and competition is fierce.

On the other hand, the price discrepancies may not be opportunities, instead, they could be attributed to fees, slippage risk, and liquidity problems. Crypto exchanges and their fiat partners have many fees that could affect your profit: deposit fee, withdrawal fee, and transaction fee. There’s also slippage risk, where the price is adjusted before you can lock in profit. Finally, an unpopular token may not be easily traded in different exchanges.

Triangular arbitrage crypto trading strategy

Triangular arbitrage is a trading strategy that exploits price differences between three different cryptocurrencies on the same exchange. It works by trading one cryptocurrency for a second, the second for a third, and then the third back to the first, all within a loop. If the exchange rates are slightly off, you can end up with more of the original cryptocurrency than you started with, making a profit. Traders often use automated bots to quickly identify and execute these trades, as opportunities are brief and profit margins are small. However, fees, market volatility, and liquidity can impact your realized profit.

Example:

Suppose trader A notices that on an exchange, 1 BTC = 15 ETH, 1 ETH = 150 USDT, 1 BTC = 2200 USDT.

1. He converts 1 BTC into ETH at a rate of 1 BTC = 15 ETH.
2. Then, he converts 15 ETH into USDT at a rate of 1 ETH = 150 USDT, getting 2250 USDT.
3. Finally, he converted 2250 USDT back into BTC at a rate of 1 BTC = 2200 USDT, ending up with slightly more than 1 BTC.

3. Statistical arbitrage crypto trading strategy

Statistical arbitrage involves trading two assets with historically correlated prices, meaning they usually move together. When their prices diverge or converge, you can buy the undervalued asset and sell the one that is overvalued, expecting them to correct back to their usual relationship. This strategy requires advanced algorithms to detect these correlations and price changes. While it’s similar to traditional arbitrage, it’s not risk-free and opportunities are brief due to intense competition.

Example:

Trader A notices that ETH and TKX generally move together.

1. If ETH rises by 30% while TKX stays the same
2. Trader A would buy TKX and sell ETH
3. If TKX then rises by 30%, or ETH falls by 30%, or ETH falls by 15% while TKX rises by 15%, Trader A can profit in any of these scenarios

4. Seasonal crypto trading strategy

Even though cryptocurrencies operate independently of time zones and borders, the people who trade them are still influenced by factors like economic cycles, interest rates, holidays, and overall market sentiment. For instance, during holidays, people might sell their crypto to have cash for spending, or if stocks and real estate are underperforming, they might invest in crypto instead.

Studying historical data shows how cryptocurrencies behave during specific times, like holidays or major events. Recognizing these patterns may allow you to trade at the right times, aiming to profit from predictable seasonal trends.

5. “Follow the scammers” crypto trading tactic

“Follow the scammers” is a highly unconventional trading tactic where you intentionally follow projects that appear to be potential scams. The idea is to invest early, take advantage of the price surge, and quickly sell off your investment before the scam is exposed and the project collapses.

This tactic is extremely risky and demands strong risk management and discipline to avoid being greedy. The opportunity to profit is tight; you must exit before the scam unfolds and prices crash. Because of the high risk involved, this approach is not recommended.

6. “Bet on the ICOs” crypto trading strategy

Do you wish you could invest early on in BTC? The ICOs are your chance to be the early adopter of a prospective coin. Investing this early means an enormous return if the coin gains traction and succeeds. On the other hand, startups’ failure rate is high, and that goes double for cryptocurrency projects. Potential scams and rug-pulls further exacerbate risks. New, unpopular coins usually have low liquidity, so even if the price rises to your target, it can be hard to realize your gain.

ICOs are truly high-risk high-reward investments, even for the crypto space.

7. Passive “Buy low – Sell high” crypto trading strategy

The idea is to trade passively, setting buy orders below the market price and selling orders above it, instead of reacting to every minute price movements. This approach is less time and effort-intensive than most other strategies.

However, it comes with risks. When your sell order is completed, the price might continue rising, and you could miss out on higher profits. Conversely, when you buy low, the price could drop further and never recover.

Additionally, your orders might not be executed, leading to missed opportunities or locked-up funds. To mitigate these risks, consider using the dual investment feature on Tokenize Xchange. This lets you stake your cryptocurrency while waiting for your order, so you can earn rewards even if the trade doesn’t happen.

8. Automated crypto trading technique

Automated trading, aka algorithmic trading or bot trading, is using software to execute trading strategies. This is a technique that can apply any of the above strategies and tactics.

Automated software can analyze huge amounts of data from various sources: they can crawl news articles and social media feeds to gauge market sentiment, they can read hundreds of on-chain metrics, and follow every minor price movement. They can detect patterns and trends beyond human perception and initiate multiple trades per second, much faster than any human could do manually. Furthermore, their strategies and tactics can be strengthened with machine learning, easily backtesting with historical data.

However, automated crypto trading has its limitations. If the strategy is optimized extensively with historical data, it can be “overfit” and perform well in backtesting, but can’t deliver in the real market. Automated trading with bad strategies can result in losses all the same, just faster. Technical failures such as glitches, bugs, or edge cases, alongside unexpected market conditions, may lead to losses. Moreover, attackers could exploit the bot behaviors which, again, can lead to substantial losses.

Copy trading technique

Creating your trading bot can pose technical and strategizing challenges. Many traders instead choose to simply copy someone else’s trading positions. Many trading platforms are happy to facilitate this service. For a fee, you can easily find and copy high-performance traders.

Of course, there are several drawbacks to this approach. One significant concern is that by following a trader, you potentially trade after the optimal window, leading to a lower expected return. Moreover, the copying fee on top of the trading fee may wipe out your slight edge. Finally, someone doing well historically does not mean they will do well in the future. By following the best trader of the week/month, you might be copying a trader’s less successful periods after missing out on their lucky streak.