Three best ethereum crypto trading strategies

Trading
September 17, 2019

In the world of trading, traders use all kinds of different strategies, tools, and tactics to make money. These strategies range from scalping and using 1-min charts to trade, swing and day trading and all the way to long-term investments into crypto assets. Given the high volatility of Ethereum, in this blog post we present three profitable trading strategies to trade the world’s second largest crypto coin by market capitalisation. 


1) Moving average trading

The moving average (MA) represents one of the most popular technical indicators used by traders. In essence, this indicator calculates the average price of an asset over a specified period, with the most popular periods being 50, 100 and 200 for mid to long-term Ethereum traders and 20 and 50 for traders that prefer trading with a short-term outlook. With that being said, this indicator can be applied across all time frames. 

We see a 4H chart showing ETH/USD in the price chart below. This strategy is based on the assumption that an important MA, 200 period in this case, will make the price action rebound off of it at least once per cycle. With that being said, on the left side of the chart we see an uptrend as the price had created a series of higher lows, which is followed by the ascending 200 MA. 


Trading Moving Average Strategy for ETH/USD
Trading Moving Average Strategy for ETH/USD


In this case, the 200 MA acts as a support. As a matter of fact, the price rebounds off the MA two times before succumbing to pressure during the third attempt. So, based on prior ETH trends, we assume that the 200 MA will act, at least once, as a resistance in the future. The right side of the chart shows the price touching the 200 MA and rotating back lower. A stop-loss order should be placed above the MA while the take profit depends on our trading approach and risk management. 

2) Range trading

It is estimated that the price action spends around 80% of time trading in a range. Essentially, range traders believe that the price action can often hold within a steady and predictable range for a given period of time. As the first step, traders define the borders of the range i.e. support and resistance levels for Ethereum on the market. 


Range Trading Strategy
Range Trading Strategy 


The ETH price chart above shows a rectangle that had kept the price within it. Excluding the failed breakout (highlighted in the purple rectangle) the price action had stayed within a range for five consecutive weeks. As the first two swings, up and down, define the resistance and support, there were three additional trading opportunities within this range, as pointed out  in the chart with the arrows. Again, stop-loss orders should be placed outside the range while take profit depends on the risk management strategy and trading approach of a trader. 

3) RSI trading

Relative Strength Index (RSI) is a popular momentum indicator that measures the current price strength compared to previous prices. As an oscillator, the indicator drifts between two extremes - the overbought and oversold trading conditions. The standard setting of RSI signals “oversold” whenever the reading (the orange line in the price chart below) dips below 30, while the Ethereum market is overbought if the reading is higher than 70. 

In this particular case, we use values of 80 and 20 due to a higher reliability. This setting is also used by traders who are more focused on identifying short-term trading setups. The default settings for RSI is 14 periods. Hence, the reading above 80 signals the instrument is overbought and a reversal may take place soon while the reading below 20 hints that the trend may reverse upwards soon. 

RSI Trading Strategy
RSI Trading Strategy 


The Ethereum price chart below shows three different trading opportunities, generated by the RSI. Whenever the market dipped below 20, we recorded a quick reversal upwards as the market rushes towards a more balanced environment. Traders can wait until the readings go above 80, or below 20, and initiate a short-term trade to capitalise on the upcoming change of direction.

As it is the case with other indicators, RSI is not 100% efficient when it’s used alone. In addition, RSI doesn’t offer clear stop loss or take profit references. For example, if the reading is 18, we may hurry to counter the trend, however, the market can get more oversold as the RSI heads towards 10, for instance. That’s why it is best when momentum indicators are combined with other indicators - MAs, Fibonacci, trend lines, etc. - to produce highly reliable, clearly defined and profitable signals. 

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