Ethereum is one of the most profitable assets in all of 2020, beating even Bitcoin by more than double in ROI. As an investment, its performed extremely well. However, the second-ranked cryptocurrency by market cap is still a speculative asset and therefore wildly volatile price swings are commonplace.
Because of the large percentage rallies of a thousand percent or more, followed by 90% drawdowns, make trading Ethereum much more lucrative than investing alone. Trading, however, is difficult and comes with even more risk than trading alone unless you know what you are doing.
This guide will help get you on your way and teach you how to trade Ethereum at a very basic level, and introduce you to more advanced concepts and Ethereum trading strategies that are effective on both ETH/BTC and ETH/USD trading pairs.
How Does Ethereum Work? A Brief Look At Smart-Contract Super Computer Blockchain
Cryptocurrencies like Bitcoin were initially designed to replace fiat currencies like the dollar, due to their scarce design and the incredible return for those that were earliest to invest have instead made them a long-term hold, or a store of value. But their speculative nature makes them susceptible to volatile price flucatiions.
After Bitcoin came several other coins that were developed to have unique attributes or solve certain issues with the original cryptocurrency. Some instead used the blockchain-based concepts that were born with Bitcoin to create entirely new use cases, such as smart contracts.
Unlike Bitcoin, which people primarily trade or hold, people actually use Ethereum to pay for transaction in DeFi applications or use it as fees for automated market maker swapping on platforms like Uniswap.
Ethereum’s smart contracts allow developers to create new experiences, applications, or agreements with each smart contract that behave a certain way. The ERC-20 smart contract standard is what most other altcoins were built on and how both the ICO boom and DeFi bandwagon have been supported.
Because Ethereum has these additional use cases and is central to what could ultimately become the blockchain future that all other tokens are built on, it could even beat Bitcoin long-term in ROI much like it has done in 2020 so far.
Until long-term Etherem price predictions or Bitcoin price predictions are reached, and volatility stablizes due to adoption, these assets will remain a better choice to trade than invest, if the greatest return is the goal. But like regular investing, it is wise to never invest more than you can afford to lose comfortably.
Recently, Ethereum price movements have been in an uptrend, supported by decentralized finance, othersiwe known as DeFi for short. DeFi applications aim to replace traditional financial services such as lending and borrowing, and has introduced new catch phrases such as yield farming crypto and swapping. Ethereum is locked in these applications and lent out for other tokens in return for an APY. And Ether (ETH) is also used for gas fees to send these tokens to and from wallets.
None of this is possible on Bitcoin. In fact, some developers have started “wrapping” Bitcoin in Ethereum as an ERC-20 token within a smart contract. This makes Bitcoin more versatile and allows it to be used for trading on decentralized exchange or DeFi applications.
HODL or Trade ETH? Which Is Better Solution For Crypto Investors?
Hodling cryptocurrencies can be stressful and a crazy ride that some simply cannot stand to bear after a while. When it gets too scary or difficult, investors give in and capitulate and panic sell their Ethereum or Bitcoin. Trading Ethereum involves an order to buy and sell Ethereum timed to take advantage of the positive and negative price fluctuations that take place between each peak and trough in the crypto market.
Ethereum traders make money by first performing extensive market analysis, then opening long or short positions on a CFD trading platform, such as PrimeXBT. There is potential for much more financial opportunity when ETH trading, but also comes with that a lot more risk than investing alone. But as the saying goes, no risk, no reward.
The Different Ways To Trade Ethereum And What’s Best For You
If you are considering Ethereum markets for the first time, there are two ways primarily to trade Ethereum. Spot trading involves owning the underlying ETH token, purchased from an exchange for fiat currencies or other cryptocurrencies, and storing them in a wallet of some sort. The only way to profit from spot trading, is if markets decide to play nice and go up. At that point, if a trader expects the asset’s price to go down, they must sell the asset.
Derivatives trading, such as CFDs, allow long and short positions to profit from whichever direction markets turn, and ways to amplify return with leverage, and more. It also lets brokers create much more exotic trading pairs due to it being a contract. Think of CFDs as the Ethereum of trading derivatives, the even smarter contracts open up a world of opportunity for traders.
Steps To Trading Ethereum: Getting Started With A ETH Trading Platform
To get started, be sure to select a trading platform that is reputable, offers CFDs, and a large variety of trading instruments all under one roof. For example, PrimeXBT is a trusted, award-winning Bitcoin-based margin trading platform, offering CFDs on stock indices, commodities, forex, and cryptocurrencies like Bitcoin and Ethereum.
What Are Ethereum’s Trading Hours? All About The Always On Crypto Market
Part of what makes Ethereum a challenging asset to invest in, is due to Ethereum markets always being on, 24/7, 365. Crypto doesn’t even take holidays off like the stock market does.
Because its always on, hodling can be stressful, and causes many investors to lose sleep. Trading isn’t exactly easy, but as you’ll learn below, there are ways to trade Ethereum profitably, and as a trader you can day trade and close positions out before you head to bed at night.
What Moves Ethereum’s Price? DeFi, Gas Fees, And Much More
Ethereum’s price movements are determined by normal supply and demand dynamics, as well is its use within DeFi applications. For example, Uniswap recently debuted its UNI token, giving users up to 400 tokens for free. But to claim the tokens, DeFi users had to first buy Ethereum to use the Ether (ETH) as gas fees to access the UNI.
Ethereum’s price is also tied closely to Bitcoin, and other cryptocurrencies. Cryptocurrencies like Ethereum are highly speculative. Although Ethereum’s supply isn’t as limited as Bitcoin’s the limited supply does have an impact on valuations rising.
Ethereum Trading Strategies
There are many different profitable Ethereum trading strategies, so it is worth experimenting with each to discover which is most suitable for your trading style. In time, most traders develop their own style and combine strategies to become even more effective and increase ROI and strike rate.
Bollinger Bands Ethereum Trading Strategy
The Bollinger Bands can be an effective trading strategy for Ethereum using nothing but a pass through of the middle-line. The Bollinger Bands consist of a moving average and two standard deviations that measure volatility through expanding and contracting, also called “squeezing.”
However, passing through the middle-BB can also work as a successful short or long signal, as pictured below.
Ichimoku Ethereum Trading Strategies
The Ichimoku indicator has a lot going on in just one screen, which can be confusing and intimidating for new traders. However, it is highly visual which can make signals rather clear.
For example, below each retest of the cloud as support or resistance holding, led to large moves in the opposite direction of the successfully held retest. This strategy can be used to build long or short positions on any timeframe.
Relative Strength Index Ethereum Trading Strategy
The RSI is a widely used trading indicator, that signals when assets are overbought or oversold. Reaching a high point on the indicator is supposed to help time reverals and highlight peaks, but in the highly volatile crypto market, double tops and bottoms often form alongside a hidden bearish or bullish divergences.
These signals tell traders when to go long or go short Ethereum. In the example below, a recent high was predicted by a lower high in the RSI, while price set a higher high. The “divergence” between the indicator and price action signals something is going on behind the scenes, and a rug pull or reversal is near.
MACD Sequential Indicator Ethereum Trading Strategy
The MACD is yet another commonly used trading indicator, used for timing market momentum. It is considered a lagging indicator, but still can be used effectively on all timeframes to trade Ethereum and other crypto.
In the below example, simply shorting or longing a bullish or bearish crossover of the MACD moving averages, would have been highly profitable.
Top Tip For Maximizing Return On Ethereum Trading: Leverage
When it comes to Ethereum trading, the strategy that is most effective for maximizing returns, is applying leverage. Margin trading platforms like PrimeXBT let traders access leverage and use it to take positions much larger than what their capital would otherwise allow for.
For example, a 10% gain in ETHUSD, would result in a 1000% return at 100x leverage. Leverage is available across different assets at varying levels. Check with your broker before using leverage and be extremely careful as it also increases risk as much as it increases profitability.
FAQ: Frequently Asked Questions About Ethereum Trading and ETH Trading Pairs
Ethereum trades as both an ETHUSD and ETHBTC trading pair, as well as against many other fiat currencies and altcoins. Here are some of the most commonly asked questions about Ethereum trading and ETH trading pairs.
What Is Ethereum?
Ethereum is an altcoin cryptocurrency and blockchain designed to support smart contracts and decentralized applications.
Should I Invest In Ethereum?
Ethereum can make a great investment given its potential, but hodling crypto assets can be stressful and trading can be far more proftitable given the asset’s notorious volatility.
How To Make Money With Ethereum?
There are now so many ways to make money with Ethereum, either by investing, trading, or by using ETH in DeFi applciatons such as lending.
What Is Ethereum’s Ticker Symbol?
Ethereum trades under the ETH ticker symbol, against other cryptocurrencies like Bitcoin, and fiat currencies like USD, EUR, and more.
Where Can I Trade Ethereum?
Ethereum can be traded at several different trading platforms, cryptocurrency exchanges, and DEX swapping platforms.