Various currency pairs have different behavior during trading and investment at cryptocurrency market.
Lot of matters depends on trading strategy. Which trading pairs are suitable best of all for novice and what you should remember about when selecting this or that strategy? Most novices quickly learn the simplest trading strategy titled as scalping. In case of limit orders usage we set bid (e.g. for BTC) a little bit higher than recent best price such order will be done faster than others (if not bitten by the adversary). After successful purchase the trader should do his best to sell BTC at the price which is a little bit lower the recent best price.
In order to enable this strategy to be efficient it is necessary to know the trading pairs, which are suitable for it. First of all it goes about the pairs with high spread, which is two times higher commission fee and has moderate movement.
For the successful trading with the help of this strategy the spread should be higher doubled commission at least for tenth shares of percent. In order to check the which spread in our example will make let’s say 0,8%, it is enough to define the amount of appropriate share from the price lesser than other (4010*(0,8/100) = $32,08). Very few people wishing to buy BTC at market price would like to use pairs with high spread.
The appropriate network for scalping is possible in case of the situation which is rather rare, when bid best price for the crypto in one trading pair turns out to be more profitable the price of the same crypto in another trading pair. Let’s review everything at specific example.
You can buy 1ETH at the market price of $293, then sell it at the market price for 0,0854 BTC, and next exchange BTC into USD at the rate of $3465 per 1BTC. In such case you can get $294,139, which is 0,38% higher than the initial sum. Such strategy is called stock exchange arbitrage. It has three important moments:
- The waiting of favourable situation might take a lot of time;
- The amount of assets at a good price might be limited;
The price might stop being so good before the moment of trade completion and you are risking to bear losses.
Having accustomed to the market specific traits the novices can shift to trade with volatility i.e. the transactions based on the moments of bets). Generally speaking such strategy is described the way: “Buy BTC at cheap price and sell at much greater one”. One can do the same about any crypto you like.
The main problem of this strategy is the exact selection of the moment for asset purchasing and exiting (the closer to local peak the better). Such strategy requires trading pairs with high volatility.
The speed of getting skills of working with this strategy does not depend on the amount of transactions so it is better to limit with minimum deposits on each trading pair until the novice does not get enough experience ( the amount of experience can be understood based on positive trading dynamics within a month). It is also worth paying attention that during the investing into cryptocurrencies the purchase with the usage of unpopular trading pairs can’t be very profitable due to increased rate and small trading amount.
When in doubt about your ability, choose a pair with the lowest trade volumes and trading dynamics that suits you best, and start learning a little (including your own mistakes) using small amounts until you feel more confident. You can choose two or three of these pairs.
Things to remember
Finally, it should be noted that the volatility of altcoin pairs (for example, DASH / BTC) is usually significantly higher than the volatility of pairs consisting of bitcoin and fiat currency. This is why trading with bitcoin-based pairs is associated with less risk – but also less income. It is also worth remembering that the optimal trading style for these dissimilar pairs can vary considerably.
If the cryptocurrency rate grows for several days and weeks (as e.g. price of BTC in April and May 2017), a trader can always remain in the black, even if the moment to enter the market was not chosen very well in case if he has a little patience.
But such an easy profit is very tricky: when a boom ends with a recession and a prolonged fall in the exchange rate, it turns out that newcomers, who has already considered themselves to be practically gurus, cannot adapt to the new conditions. So, their losses significantly overlap income (this effect is most pronounced with altcoin pairs e.g. ETH / BTC).
Therefore, it is best to arrange a test period of several months, during which periods of crisis will be followed by periods of boom. You can start investing more significant funds in case if you manage coping with crisis/boom period.