Directional Trading

Trading Strategies with Directional

The executium trading system provides directional trading with options.

Trading System Speed

Directional trading is a particular strategy that simply puts into consideration the direction the investor thinks or assumes the particular market is heading (this could be either a positive direction or negative). Their determination of the future of the market is what will heavily influence their decision to trade.

To delve deeper, the success of the directional trading strategy is heavily based on the accuracy of the predicted market movements, however, the largest risk is that the individual can guess wrong. Therefore, one must be keen to know the details of the token, for example: when the respective issuer will make a presentation, You will need to be correct about the direction of the token, time period, and what price it will be. Lastly, It would help to be aware of the cryptocurrencies volatility, or market volatility as well.

Directional Trading Example

To help gain a deeper understanding of Directional trading, a short case study shall be discussed, in order to assist in attaining a better and more practical understanding of how it works. Suppose you are bullish of buying BTCUSD, which is currently sold at $10,000, and after three months pass, the price is expected to go up to $15,000, you then would purchase 1 BTC at $10,000, capping your fail-safe or stop-loss limit around $8,000 and this would be in the predicted and unfortunate event these cryptocurrencies begin to shift in direction, which begins to decrease in value (would be done to minimize the loss that would occur for investor).

Thus if the cryptocurrency caps at the predicted target, it will then be sold at the target price which is $15,000, leading to a gross profit before commissions of $5,000 (which is the profit of $5,000*1 BTCUSD bought then sold).

On the other hand, if the BTCUSD price falls below $8,000 and your stop-loss limit is triggered and executed successfully, your overall losses would be limited to $2,000.

For the more experienced investor, you might expect BTCUSD (trading at $10,000) to move in a sideways direction over the course of three months, with the upside target being 12,000, and the downside is $9,000, or alternatively for BTCUSD to experience a significant move in the short term. For these more advanced trading strategies, the options market may be considered.

Overall, options always provide much more flexible methods to strategize, as well as structure directional trading processes as opposed to conventional trades which are easier to understand (long/short trades).

Directional Trading Example

Overall, options always provide much more favorable and flexible methods to strategize, as well as structure directional trading processes as opposed to other trades. (long/short trades).

This is why the options strategy is used by some investors, it can offer a great advantage if structured and used well. For investors who want to keep things straightforward, the conventional long/short strategy is preferred.

What type of strategies can be used?

In this section we will concentrate our conversation on fully paid trading, margin trading, futures, buying calls, buying puts, covered calls and protective puts.

Buying Calls

Also known as long calls, this type of strategy is used by traders who are bullish: they are confident enough that the price of the token, option and its underlying assets are about to increase. This means that they want to utilize the leverage state of the market or token and want to take advantage of the rise in price. Traders who make long calls usually make a profit on the options bought if the option expires in the money i.e. the strike price of the option is below the current market price of the underlying asset. The advantage of this type of strategy is that potential profits are unlimited as long as the price of the underlying assets keeps on increasing before the expiration of the option.

Buying Puts

This is more or less the opposite market view version of long calls, as it is when traders are bearish about certain cryptocurrencies in the market and want a short selling strategy to enable the leverage the falling prices. Traders who speculate that the price of the underlying asset of an option is going to decrease, will short sell in order to make profits.

Fully Paid Trading

Sometimes know as Cash trading, this is the most commonly used method to buy and sell on almost all the exchanges. Since there is no leverage involved, most exchanges do not restrict how much you can trade or how large your positions can be. The downside to this type of trading is that you can only spend as much as you have in your account so while there is no risk of margin calls, your profit opportunity is also limited. Additionally in quiet markets your assets can be non-performing for some time. Most exchanges permit the withdrawal of the cryptocurrencies they offer markets in and this is a big plus if you wish to hold your assets off-exchange.

Margin Trading

This is similar to Fully Paid Trading but with the advantage that the investor can buy long and often sell short beyond their position balance, including cryptocurrencies and tokens they may have no positions in previously, provided the value of the assets held will support a certain amount of price volatility. The disadvantages are that the investor cannot generally withdraw their margined assets so the value of assets needs to remain on-exchange and the investor may be subject to margin calls in the event of a sharp move in the market. This kind of trading is more suitable for investors who keep track of their holdings and prices on a more frequent basis.

Futures

The textbook definition is a contract to buy or sell an asset at a predetermined price at a specified date in the future. Since the capital requirement on futures is often much lower than for margin positions, futures tend to experience more speculators seeking higher leverage for their directional positions. Since futures usually have a fixing point at a specific date (in the future, no less!), arbitrage traders tend to keep the futures prices somewhat in line with the asset underlying said futures. Futures are often used for speculation or as a quick way to initiate a cryptocurrency position. Commissions tend to be lower than Fully Paid or Margin trades. Very frequent monitoring is suggested for investors who intend to hold large futures positions.

Covered Calls

Traders that prefer this position are the ones who speculate no change in price. This position is also preferred by individuals who are willing to exchange upside potential profits for some protection from a decrease in value of the option (downside protection).

If a trader buys some amount of tokens and later decides to sell call options on them, the trader is agreeing to potentially sell the underlying asset at the strike price thus collecting the premium which in turn lowers the net purchase price of the asset. All this means that the trader’s potential is capped since they may be required to sell at the option strike.

Protective Puts

Protective puts generally offer downside protection to the owners of the underlying assets so that if the trader is bullish about his own tokens on the long run, he can seek short term decrease in prices by purchasing protective puts. This means that if the price of the underlying asset remains unchanged or is characterised by a small change, the loss will be limited to the premium. In cases where there is a significant drop in the price of the underlying asset, the token’s major losses will be hedged at the option strike.

Directional trading strategies are key to traders who want some value for their money with advantages such as downside protection as mentioned above and returns that are leveraged by the same options.

The disadvantages of such strategies is the upfront premium paid and if one wants to engage in the trading business, they should consider registering on trading platforms so as to get the gist of how the market works and affects the different financial instruments.

Types of directional trading

Our directional trading system allows the user to partake in bullish and bearish trading across multiple exchanges instantly.

Directional trading in cryptocurrencies requires a relatively large move to allow the investor to make a meaningful profit when overall investor volumes are low. Directional trading has a great relationship with Futures, Options and Margin trading since a number of approaches can be used to maximize on a move higher or lower in various crypto assets. As the core requirement of directional trading needs the trader to have a strong opinion about the market or cryptocurrency’s near-term direction, the investor should also have a risk mitigation approach in place to safeguard trading capital if the prices shift in the opposite direction.

Bearish Trading

This type of directional trading is used when the options trader anticipates the price of the underlying cryptocurrency to shift downwards. It is important to examine how low the price of the cryptocurrencies can move and in which decline will occur for you to choose the optimum trading strategy.

Very Bearish - this being the most bearish view of directional trading, the use of leveraged futures, margin shorts and purchase of short dated put options is most suitable.

Moderately Bearish - in this case, it is rare for cryptocurrency prices to make steep downward shifts. The traders who use this bearish strategy usually place a target price for the anticipated decline and use some futures or margin short or bear spreads . While maximum profit is realized for these approaches, they often cost less to utilize.

Mildly Bearish - - in this strategy, the trader usually only uses some futures or margin shorts and makes money as long as the price of the cryptocurrency does not move up significantly. If option prices are favorable then these can be used too. This often gives a small upside protection.

Bullish Trading

This trading strategy is the best for traders when they anticipate the underlying cryptocurrencies price to move up. The most straightforward and obvious way to make a profit from an upward price movement is to buy futures or margin longs or buy call options. But buying calls options is not usually the best approach to make a profit for a moderate rising price and executing such a trade is unprofitable when the underlying asset remains static. Also however note that the simple purchase of futures or margin long provides no protection when the underlying asset price moves downwards.

It is important to consider which of these strategies is optimal and invested correctly, there is a possibility of gaining some remarkable benefits. While directional trading is a fairly straightforward investment strategy, directional trading incorporates buying cryptocurrencies an individual expects will have an upward movement in price. The success of directional trading includes the capability to accurately foresee the movement of the market and the biggest risk is the possibility that the trader may make an error. Many long-term investors employ directional trading. However, as an investor, you should choose the type of directional trading that best suits your investment needs.

Directional Trading

Directional trading system

Trading System Speed

Directional Trading Example

Directional Trading Example

Directional Strategies

Buying Calls

Buying Puts

Fully Paid Trading

Margin Trading

Futures

Covered Calls

Protective Puts

Bearish Trading

Bullish Trading