How to Take Advantage of the New Crypto Market Volatility

The cryptomarket dynamics have certainly shifted in the last 12-months and never more so than in the last 6-weeks, with cryptomarket trading volumes seeing sizeable declines, with the lack of regulatory or sovereign crypto action leaving the majors flat, particularly since October.
Market Volatility

Volatility has fallen by such an extent that the more mature global equity markets, including the U.S equity markets, are now more volatile and therefore considered to be a riskier trade.

While the lack of direction has left the crypto majors flat by historical standards, their volatilities continue to be well above those seen across fiat currencies, though not significantly above, which does provide an opportunity to incorporate more tried and tested trading strategies and a safer environment to trade.

Advantages of a Lower Volatility Trading Environment

While the heightened volatility across the broader market through late last year and much of this year drew the attention of more seasoned day traders, leading to an increase in daily volumes, the lack of cryptomarket maturity left traders and investors exposed to a number of trading pitfalls. The current environment has alleviated a number of these, though risks do remain and could impact the market at any given time, with governments and regulators not being required to provide forward guidance.

One can only imagine how the world of FX would be if central banks simply moved rates without a schedule and any forward guidance that has essentially become a hand holding exercise. No such luck in the crypto world, where governments and regulators have little-vested interest in abiding by deadlines, as has been the case through the 2nd half of this year, where both the G20 and the SEC have pushed back on key decisions that have ultimately resulted in the tight ranges across the crypto majors.

For those looking for 2,000% returns in a matter of weeks, there aren’t going to be too many advantages to the current trading environment, but for those that are looking to trade intraday on fundamentals, now may just be the time.

Trading on Fibonacci’s, the day’s major support and resistance levels and moving averages, amongst others, coupled with the use of leverage and stop loss options certainly makes trading a far less stressful environment, with the chances of one of the crypto majors sliding by more than 20% in a given minute significantly reduced. This also means that there is greater control on buy and sell orders than before, with the amount of slippage significantly reduced, allowing traders to place market rather than limit orders.

The bad news is that the slide in volumes also means that, for some of the major cryptocurrencies at least, liquidity has also fallen off the cliff, leading to a lengthening in execution times.

Trading with Cryptocurrency CFDs provides investors and day traders with access to the cryptomarket, but with margin trading and the option to go both long and short and with the technical analysis and appropriate trading strategies, the lack of wild swings provides a somewhat different, but not unfamiliar way of generating spreads.

There are still pockets of news that drive the broader market and individual cryptocurrencies, including news of upcoming hard forks and even planned inclusion or removal of cryptocurrencies from the more recognized exchanges, both of which can lead to material price action.

Moving away from the technical, one final and significant advantage is a greater emphasis on the individual product offerings and successes of a particularly blockchain. While we are yet to be in a world akin to the global equity markets that consider macro and impact on corporate earnings, there have been some recent moves suggesting a greater awareness of product offering and adoption.

A low cryptomarket volatility environment supports a greater emphasis on individuality, with price action determined by crypto specific events that may not impact the market as a whole and less by regulatory chatter, though until the regulatory landscape has been rolled out, the chatter will continue to be a major factor.

Final Thoughts

When considering the fact that one of the biggest pitfalls in cryptocurrency trading is the significant volatility, which has limited the effectiveness of developing trading strategies, the time is certainly ripe to begin incorporating the very strategies that may have had limited success just a matter of weeks ago.

Added to that is a likely cryptocurrency price convergence for the more frequently traded cryptocurrencies across the more liquid exchanges that account for the lion’s share of daily trading volumes.

While the positives are evident from a trading environment perspective, pitfalls do remain, however, with price manipulation, ICO pump and dumps and cyber theft all capable of impacting a particular cryptocurrency and, more often than not, the broader market, making it all the more important to protect the downside, irrespective of the trading environment.

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