Analysis of Different Trading Strategy Applicability to Cryptocurrency Market

Abstract

Since cryptocurrency trading and regulatory mechanisms are not yet mature, and there are few studies on the applicability of various trading strategies, it is necessary to conduct research on cryptocurrency market trading strategies to promote its healthy development. To this end, using the commonly used historical price data of Bitcoin, Ethereum, and Litecoin, the strategies of pairs trading, momentum trading, and grid trading are applied to analyze their trading characteristics, explore their applicability, and put forward relevant suggestions. The research results show that each trading strategy has its applicable market environment, and the trading strategy should be reasonably selected according to the market situation. Pairs trading uses cryptocurrency pairs with strong correlations to select a reasonable trading range according to their residual swings trend. Its trading volatility and yield are low but relatively stable. Momentum trading is suitable for highly volatile cryptocurrencies. The Moving Average Convergence and Divergence (MACD) and the Relative Strength Index (RSI) can be comprehensively applied to effectively reduce the number of momentum transactions and improve the accuracy of price swings trend prediction. Grid trading can achieve stable and considerable returns in a market with long-term strong volatility, but transactions are more frequent. The number and size of grids should be dynamically adjusted according to the value and volatility of cryptocurrencies and combined with market changes.