Momentum crypto trading


Many trading strategies employed in other asset classes can be modified for crypto. In this article, I will share some strategies and the ways how they can be used in digital assets.

One of the most popular strategies is momentum. What momentum means is buying recent winners and shorting recent losers. There is an extensive research covering almost all asset classes that momentum works. An idea as simple as going long assets performing well in the recent past, and going short those that performed poorly seems to work.


Moving average crossover

Moving average (MA) crossover can also be used as an entry setup for momentum strategies. When faster MA crosses slower MA from below (above), it indicates a buy (sell) signal. We can formulate a simple trading strategy based on MA crossover. We buy an asset when faster (or a shorter period) MA a slower (or a longer period) MA from below at the daily close price. And we get out of the position when the opposite happens, i.e., when the slower MA crosses the faster one from above at the daily close price.

To show how MA crossover strategy works, I chose ETH as an asset would like to trade, and 20 and 200 as faster (yellow) and slower (blue) MAs respectively. Below is the ETH/USDT chart where you can see that on 4/29/2020 the system gives a long signal. We buy ETH at the close of the day, $215.36.

If you would have bought then, you would hold your position 21 months. On 15th Jan 2022, we would get a sell signal. We sell ETH at the close of the day at $3,326.04. This is a massive 15.4X profit!

Note that this works not only with ETH, and 20 and 200 MAs. You can play with many coins, and different parameters for MAs without the loss of generality.


Breakout trading

Yet another way to play momentum and capture big trends is breakout trading. You go long when the price hits the high of the last X days, and go short when the price hits the low of the last X days. The higher the X is, the less likely a false breakout it is. To illustrate the idea, let’s look at the SOL/USDT chart.

The red lines show some of the days when the price hit the 20-day high thus giving us a signal to buy Solana on those days. It'd give you a signal to buy when it was worth 10-20 USDT before it peaked at 250 USDT!

How do you rate this article?



commodity trader interested in crypto & writing about it

Bringing US Treasurys onto the chain
Bringing US Treasurys onto the chain

How Ondo Finance makes investing in US Treasury bonds possible

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.