Crypto Trading

Trading on news

Cryptocurrency markets are highly irrational. If you have trading bots that can analyze big news you can make money even in bear markets.

Trading on news

It's an open secret that today it's hard to find an alpha on the market if you only trade based on exchange rates only. Alternative data sources can provide a significant edge to a trader. For a long-term investor it pays off to model a company's unit economics and estimate total addressable market in order to forecast long-term value of investment. For an active day trader, it makes sense to follow the news, what people are saying today and what announcements are coming up tomorrow. And in crypto world, sometimes all it takes for a market to turn from bull into bear is for China to sneeze.

Today, we'll look at last week's bitcoin price, how it reacted to the news, and how could a trader have capitalized on that.

bitcoin-price-chart

When the market goes into a decline, provided your long term assessment is that bitcoin is going to exponentially grow, it's wise to start measuring your portfolio not against USD, but against BTC (and in general, this makes more sense for active trading).

If you had a realtime data channel that parsed news about China, you'd be the first to react and move your BTC into fiat before the drop, and buy back later when the market corrects with a fast growth. A simple fast news reaction strategy would look like this:

Sep, 1st: Start with: 1 BTC, 0 USD
Sep, 2nd: Sell at $4900: 0 BTC, 4900 USD
Sep, 2nd: Buy at $4700: 1.042553 BTC, 0 USD
Sep, 4th: Sell at $4257: 0 BTC, 4438.148 USD
Sep, 4th: Buy at $4100: 1.082475 BTC, 0 USD
Sep, 9th: Sell at $4600: 0 BTC, 4979.385 USD
Sep, 9th: Buy at $4300: 1.157997 BTC, 0 USD

If you only made 6 trades this month, twice on September 2nd, twice on September 4th, and twice on September 9th, you would make 16% return on investment in a bear market. There's a reason why the wealthiest funds and investment banks purchase the fastest communications in order to be the first to know.

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