- Early Exchange Listing News
Many exchanges can list a crypto token without prior warnings or announcements. Exchanges can add a lot more liquidity to the market, which creates price surges. Catching this trade is most often based on reacting faster than the majority of the market. Keep in mind that there are many others out there trying to react to the same news.
Observing the history of major listings, coins may suddenly surge in price. However, following this surge, prices tend to fall as the market self corrects. Prior holders may sell in reaction to this price surge. The key to executing a profitable trade after an exchange listing is to have an initial buy order that gets filled before the crowd tries to cash in on the rapid price gains.
2. Arbitrage Trading
The concept behind arbitrage trading is simple: Find a price difference between 2 exchanges, then make as many “round-trips” as possible. You want to buy coins on the cheaper exchange then sell them on the more expensive exchange. Using the proceeds to buy more units of the coin on the cheaper exchange thus completes the cycle of the round-trip.
Arbitrage trading is legal and generally encouraged since it delivers liquidity to markets. Additionally, arbitrage is encouraged because increases the efficiency of markets.
Arbitrage traders have their own unique considerations when it comes to making continuously profitable trades. Firstly, the size of the price difference determines the possible margin one stands to make off the trade. Secondly, the time that the price difference is available is largely dependent on other participants not discovering the trade first and depressing the price. It’s important to consider how long it takes to move specific assets from one exchange to another. Currencies that have a faster transaction time can make more round trips than a currency with a slower transaction time.
3. Relative pricing from BTC on a sideways moving coin
The price of Bitcoin is a good overall health indicator for the market. Keeping benchmarks on a coin’s relative price compared to Bitcoin is a good way to spot anomalies in price. When used in combination with a charting tools like RSI, a coin’s recent performance versus its historical pricing against Bitcoin can be a good indicator of whether the asset is being over-bought or over-sold.
For instance, the prior example of a coin announcing a significant exchange listing can cause the coin to get overbought by crowds of retail investors trying to catch the short term gains; however, this price would exceed its normal relative pricing to BTC. BTC is the dry powder that most crypto assets trades against. When the retail market is experiencing gains in BTC, the market will commonly see diversification of capital into various altcoin projects. BTC may be the rising tide that floats all crypto ships in today’s market.
Without significant announcements or technological progress, an exchange announcement may be just that: short-term hype. This may be apparent in the RSI, as fundamentally there would be an unjustified increase in relative price to BTC.
4. Reacting quickly to partnership announcements
There’s also a reward to reacting the fastest to news. Automated traders likely have the advantage of being able to synthesize information and execute trades seconds after important news is released. There’s quite a bit of game theory involved as one is aiming to react faster than the crowd, and one must be able to recognize the signals indicating whether the announcement has been “priced-in”.
The variables in this trade can be: quality of the news outlet releasing the partnership announcement, number of outlets reporting the news, and time of day the release was made. This all boils down to the number of people that will react to a particular event by opening a trade. It’s important to make an informed decision on how priced in the announcement is, however a good heuristic is to execute the buy order within one minute of the partnership announcement.
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