Sideways market - how to profit on market uncertainty and stagnation?
Basics of the technical analysis and how to spot emerging market trend formations to maximize your results on market swings.
Table of Contents
In this article, we would like to give you a better understanding of the automated trading strategies and how to maximize your results on market swings.
To spot emerging market trend formations, you need to apply some technical analysis. The complexity of technical analysis is exaggerated and in reality, only requires you to understand the price action. Let’s go straight to the example below, BNB/ETH, to see how to accumulate profits on confirmed uptrend formations.
As you can see on the chart, BNB/ETH has accumulated an additional profit of 7.01% in a quote cryptocurrency, ETH, and 12,58%, which indicated the investment value change from the market movement. All of the green circles represent executed BUY limit orders, while red circles are SELL orders.
Visualization of both order types allows you to monitor the GRID bot activity. The frequency of trades execution is quite insane and wouldn’t be possible in manual trading unless you are sitting in front of the computer 24/7 and have incredible speed in placing all orders. Simply, manual high-frequency trading is indeed barely possible for human execution because of how fast the price is changing, and you also need to take into account the trading fee, right?
What is the approach of getting such impressive results
First of all, identify critical technical price levels to use as support and resistance.
What we can clearly see on the chart above is that historically an established support level has proven to be a short-term and long-term trend reversal point. It doesn’t mean that each time the price is moving towards a crucial support/resistance level, the trend reverses. No, other technical and fundamental factors should be taken into a thorough consideration before entering a trade.
When we zoom in the chart, here is what we can see:
A false breakout attempt occurred. A relatively high selling volume was absorbed by an even larger buying pressure (when the majority of traders are attempting to buy a specific security or instrument, buying pressure increases). You can see this in the chart below. Some can even identify the bullish reversal candlestick pattern. As mentioned above, a fundamental should also be applied when possible. In this case, starting from 2019, BNB coin is a fundamentally stronger cryptocurrency in comparison with ETH.
Nowadays, a competitive advantage of BNB is simply better optimized. So when on the 12th of March BTC market crash happened, the vast majority of cryptocurrencies followed Bitcoin. However, in trading pairs such as BNB/ETH, BNB prevails as some cryptocurrency traders consider BNB to be a buying option on a falling market. Experienced cryptocurrency traders are more into changing ETH to BNB.
So in this whole scenario after a fake breakout attempt was confirmed, executing a GRID bot to benefit from the following upward momentum was a clever decision. Not only did traders take advantage of the reversal, but they also accumulated additional profit of 7.01% due to the high-frequency trading mechanism of the GRID bot. This was a great example of how you can maximize your return.
Let’s consider now the sideways trend as an example and see how you can benefit from the market swings within a defined price range, formed by support and resistance levels.
This is a WRX/BNB cryptocurrency pair and, as you can see, GRID bot has perfectly managed to accumulate a 10.32% return in quote currency, BNB. Moreover, a 9.01% investment change adds in. Note, that all order executions emerged within a pre-defined range. A sideways trend is when GRID bot can easily utilize the strategy of buying low and selling high.
How to determine a sideways market
Needless to say, as in the case of an upwards trend, both technical and fundamental analysis must be applied. In the chart below a step-by-step guide is provided:
First of all, identify both strong support and resistance levels. In other words, upper and lower price levels that define the trading range. To emphasize, these levels are not always perfectly aligned. False breakout attempts can occur, liquidating you from the market if the stop-loss is set. In the case of a WRX/BNB, starting from the 7th of March the price was staying 80% of the time within the range between 0.008489 BNB and 0.010853 BNB. This is a 28.05% trading range!
Taking into account that WRX/BNB has been listed on Binance exchange recently, it is not a surprise to see how bulls and bears are still fighting for the fair price, which is exactly the logic of a sideways trend formation.
To sum up, there are various methods of how to determine reversal, sideways and trend continuation formations. With practice comes experience. Bitsgap will keep providing you with more trade cases to help you to understand automated trading advantages.