Can Crypto Pair Trading Be The Answer To Making A Profit During A Bear Market?

What makes crypto trading “risky” is also the reason that there is the opportunity for high earning possibilities. As well as high risk trading options, crypto-investments offer lower risk trading options too.

Is it possible to make money in crypto-investments with a lower risk? Also, is it possible to make money in a bear market? Let us dive deeper into crypto pair trading to find the answers.

Crypto asset trading pairs

A crypto asset trading pair is a pair of two crypto assets that can be traded for each other on an exchange. Two commonly used trading pairs are Bitcoin/Litecoin (BTC/LTC) and Ether/Bitcoin Cash (ETH/BCH).

How does pair trading work?

Pairing works based on a correlation between two or more assets. It is a market-neutral trading strategy that enables traders to bet on one asset against the other. Traders remain unaffected by the overall market movements.

Pair trading works by betting that 2 or more securities will diverge or converge in price.

For example: The trader bets that a $50 stock and a $55 stock will either have a larger or smaller spread ($5 in this case) when the trade is closed for the market day. Divergence traders will prefer to experience the increase, while convergence traders will prefer decrease.

In other words, if the crypto asset they went long for, outperforms the crypto assets that they went short for, then they will create profit.

Another example on BTC would be when a trader believes that Bitcoin will continue losing value against ETH, they could enter into a BTC long, and ETH short position. If BTC drops more in value than ETH by the time both positions are closed, the trader will create a profit.

Why use pair trading strategy?

The reason why the traders, hedge funds and market players invest in pair trading is that it is not affected by the overall market conditions.

Even though we suddenly wake up to a bear market one day, these types of trades can still make money, as these 2 paired assets will outperform one another.

Whatever the market conditions are, if the purchased asset outperforms the asset sold, the trader will be making money when the trade is closed.

Pair trading is not affected by the possible market volatility, which is every crypto investor’s nightmare.

This is the reason why pair trading is a safer investment trade than the rest of the other possibilities, especially during the bear market conditions we have been experiencing recently.

How to make money with pair trading when the market is in beauty sleep

Pair trading entry barriers are low and all one needs is a crypto exchange account which offers a range of tradable assets which you can bet on.

Before choosing the two assets you want to trade, it is good to have a little bit of an opinion and to research them by reading their charts, overall market positions and movements. It is important to choose two correlated and comparable assets.

These can be DeFi token pairs or layer 1 tokens, for example.

The next step is to buy the asset you believe will outperform the other one. We call it “to go long” on the asset you believe which will outperform the other. If you go long on an asset, you believe that it will lose less value, which means it will be sold less.

Not to forget the fees here

When building your trading strategy, make sure to consider trading fees, withdrawal fees, blockchain fees, and borrowing fees on your short position. These fees might affect your trade profitability. Even if you choose the right one and outperformed the other asset, your profit may decrease.

Source: cryptonews.com