Strategies for trading cryptocurrency during a correction, explained
What do market corrections mean for crypto traders? And how can trading bots be used to an investor’s advantage?
How to apply automated trading in times of correction?
Investors looking to leverage automated trading must first select a platform, determine their strategy and begin implementation.
With the rising of automated trading platforms, users now have a greater selection than ever before, each of which is designed to simplify the process for new and experienced investors alike.
TradeSanta is a cryptocurrency trading bot used across the cryptocurrency industry, allowing users to take advantage of automated trading strategies. The trades are executed per market movements based on pre-programmed instructions with access to DCA and grid strategies, in addition to more advanced features, including stop loss and trailing stop.
With this combination, investors can manage risks in the event of both market reversals and corrections. More recently, TradeSanta released a Trailing Take Profit feature so investors can also take advantage of uptrend periods following a dip.
That said, a trading bot is nothing more than a piece of software that executes trades based on how an investor sets them up. Therefore, with a proven strategy and a careful eye on the market, substantial profits with automated trading can be possible in any market condition, with platforms like TradeSanta making it simple for users to set up.
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What approach and strategies should investors consider leveraging as a part of an automated solution?
Automated trading strategies, including the reversion strategy with a dollar-cost averaging (DCA) bot, can help users take advantage of a market correction.
Since the price is expected to return to normal, one common tactic is the use of a reversion strategy, based on the idea that rates will return to a mean value after a certain point in time. In practice, this strategy identifies the upper and lower price limit; then, the algorithm runs to execute orders when the price surpasses the normal range.
The strategy is particularly beneficial as prices hit new highs or lows so traders can gain profits from trends in the market. When employing a cryptocurrency trading bot with this strategy, investors must be careful that prices may not reverse as quickly as expected.
As a part of a long-term strategy, a dollar-cost averaging method is often recommended. With this strategy, a bot may place a single buy order and continue to purchase additional orders if the price decreases. That way, holders can take advantage of lower asset prices without worrying about timing the market “perfectly.” Again, assuming that the market will correct itself over a period, the asset will be sold based on a parameter preset by the investor. Taken together, these are only two of the strategies that investors may choose to leverage in the event of a correction.
What are some of the considerations investors must make when using automated crypto trading during a correction?
Cryptocurrency trading bots take the emotions out of trading but are not completely hands-off either and, therefore, must be accompanied with a carefully thought out strategy.
In a correction, it is not uncommon for emotions to run high. Although these events are expected, investors may be quick to act on their fear and execute a trade that is not in their best interests. For these reasons, a cryptocurrency trading bot becomes beneficial since trades are executed based on logic, eliminating emotions from the equation.
However, to successfully implement a crypto trading bot, investors must first seek out the most profitable one for them. Although making the selection is in the investor’s hands, that’s not where the decision-making stops.
Trading bots are built to follow a set of rules and are therefore not always perfect in the face of an unpredictable market. As a result, a carefully-crafted strategy is necessary for an automated trading bot. Programming errors can also impact crypto bots. Therefore, investors must exercise extra caution when determining the bot’s actions or setting the rules for their own from scratch.
Investors must bear in mind that being successful with an automated bot requires clear goals, patience and trust in the process and is not a solution for overnight success.
What is a market correction, and how should traders respond to it?
A correction refers to a rapid price decrease, which traders can use to their advantage with the assistance of cryptocurrency trading bots.
Although the definition for a correction differs, it is most often used to describe a rapid decrease in an asset’s price, usually at least 10% and up to 20%. If an asset falls more than that, the price dip is classified as a market crash.
Corrections are often the result of a minor event, such as low trading volumes or other technical factors. They, therefore, occur fairly regularly, lasting a few days, weeks and, in some cases, months. The term correction is then used since the price will often return to its expected value. However, the alternative may also be true. A correction may lead to a larger decline, a bear market.
As most know, the cryptocurrency market is defined by its volatility, making it normal for prices to move up and down fairly regularly.
Looking at the 2021 year alone, the cryptocurrency market was subject to four market corrections and another market event.
For this reason, analysts will also recommend market corrections as a great opportunity for investors to buy assets “on sale.”
The main concern here is that it can be hard to determine when a correction might occur. For this reason, crypto trading bots can play a crucial role in helping traders determine when to buy and sell using signals and indicators and also just not to miss that moment while being away from the screen.
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