Crypto Pairs Trading: Why it's easier and more profitable than what you are doing now
Based on the loss porn and nihilistic posts most days on Reddit, Twitter and Medium, I would say most people are not making much money crypto trading. I think it’s time to consider an obscure but very consistent method. Pair trading beats buy and hold and reduces downside risk significantly.
Simply it’s holding two positions that hedge one another.
ex: KAVA Long/ XRP Short
Now before you panic about leverage and the risk of liquidation, understand that XRP would have to double while KAVA went down by 50% for you to be at risk of liquidation. Yes, it’s possible but there are ways to prevent this from blowing up your account.
Basket Pair Trading
Do not put more than 25% of your allocated capital in one pair so in the unlikely event that one pair gets badly off course, you are not at liquidation risk.
How to choose Pairs?
I happen to know that choosing coins around the same time with opposing momentum can be a great pair trade.
Recently my 4h screener gave me the following two signals within 8 hours of each other:
Long Kava/Short Hbar
I opened them in equal parts, 25% of my portfolio allocation with 50% of that going Long KAVA and 50% going Short HBAR
The result went modestly well:
from 3:05 BKK time to the current time 18:00 BKK time price oscillated between -3.5% and +8%. In that same time period mkts went up and down more than 20%! If you bought at the wrong time you could have been easily liquidated. But in a pairs trade the volatility usually works in your favor!
Btw, if you want to check out this 4hr scanner you can join the CoinRotator.App discord. Head to the site and click on the discord link. There will be a massive upgrade in the next few days which will report marketwide sectors in individual rooms so you can focus on your chosen sectors or glance which sector is strongest at the moment. Here is a preview of this amazing tool we built.
Volatility is your friend in pair trading
As mentioned while the overall market was in a total meltdown and then massive bounce, most directional traders got caught short and were either liquidated or are still down bad on their shorts. With this pair trade you are modestly in profit and likely to continue higher for the next few days.
Additional Benefits of Pair Trading
Capture longer slower trends than directional trading
Reduced liquidation risk by holding a pair (hedged)
Less noise in your trades. Pairs tend to trend when the underlying coins are choppy.
Clear invalidation levels.
Avoid FUD and FOMO — Since you are both long and short at all times, you can be sure you won’t have a bias long or short at the time. You can simply ignore twitter and the people shouting on this subreddit about what the future will bring!
Using a script like the Supertrend or even support and resistance, pairs tend to break through levels quickly and without hesitation so you know when the trend is over. I happen to have built a script that suggests when to enter and when to exit, it’s in super basic beta now but if you stop by the discord, we can add you to the waitlist. We are always refining it and adding more beta testers when capacity is available.
-Coin Screener to create optimal pairs like coinrotator.app
-Correlation scanner like this one cryptowat.ch/correlations
-A fresh mind about the markets
There are some additional nuances to pair trading I haven’t mentioned but this is more than enough to get you started. If you have any specific technical questions, feel free to reach out to me on the discord or on our twitter.com/coinrotatorapp
Good luck everyone and talk soon!