Ethereum, which was created in 2014, is a blockchain platform on which developers create and deploy decentralized applications. It is powered by Ether (ETH), which is the cryptocurrency that serves as the network's native token.
Why Trade ETH?
As a result of its exponential growth over the years, ETH is one of the most popularly traded virtual currencies. Due to the nascent state of blockchain technology and the cryptocurrency industry, token prices are always fluctuating. While price volatility might raise doubts on the token's future performance, it creates the ideal conditions for trading ETH.
How Does Trading ETH Work?
Trading Ether basically involves taking advantage of price movements in both directions to make a profit. This means that no matter what the market conditions are, it is possible to make gains. A successful trader therefore needs to be updated on market conditions at all times so as to time their moves accordingly.
Strategies for Trading ETH
Depending on cryptocurrency market conditions, there are different approaches that can be successful for trading ETH.
1. Shorting and Longing
Short selling, also referred to as shorting, usually applies when the market sentiment is negative and prices are plummeting (bearish markets). At such times, traders sell their holdings at a high price and buy later at lower prices, netting the difference.
On the other hand, when the cryptocurrency market is going through positive price action (bullish markets), longing is one of the most popular strategies. In this case, a trader buys in hopes that price will keep increasing, allowing him to sell at a higher price in future.
For both approaches, some digital asset exchange platforms offer an opportunity to magnify gains through margin trading. Basically, this means borrowing from the platform so as to buy more than your holdings would allow. However, this has the potential pitfall of magnifying losses when a trade does not go as expected.
This trading strategy applies in all market conditions. Arbitraging means looking for opportunities to make a profit from price differences on different exchange platforms. In some cases, exchanges in certain countries charge a premium on the average ETH price such as low supply and high demand. Buying from a cheaper exchange and selling on the higher priced exchange would yield an easy profit.
However, to make the most of this strategy, it would be best to trade when markets are not highly volatile. This is because prices could change during the process of moving coins from one exchange to the next, nullifying profits.
3. Technical Analysis
More experienced ETH traders use technical indicators to keep track of market trends and look for opportunities to make a profit. One of such indicators is known as the Relative Strength Index (RSI). The RSI bases its measurement of market price movements on a comparison of past and current price performance.
Another one is the Moving Average Convergence/Divergence (MACD) Indicator. Based on two exponential moving averages, this indicator measures the momentum of ETH to determine market sentiment.
No matter the sentiment surrounding the cryptocurrency market, trading ETH could present a worthwhile opportunity to make a profit. Choose a suitable strategy based on prevailing trends to make the most of this opportunity.