There are various techniques, strategies, and rules about earning profits so that we can understand and make the most out of cryptocurrency trading as part of our investment.
Cryptocurrencies have been part of the market for many years now and it spurs a new niche in the investment scene thanks to the high-profitable value they offer. The main question for this one, how effective cryptocurrencies and technical trading are in our current market? Let’s find out.
Many financial advisors conducted studies about cryptocurrency markets and the technical trading behind the process. What does the study show?
Cryptocurrency experts collected data of the most common currencies available in the market from January 1st pg 2016 up until December 31st of 2016. The study followed through the movements of eleven of the most common cryptocurrencies out there in the market and they were:
Stellar Lumen (XLM)
The result of the study was interesting. With the buy-and-hold style of investment, the currencies above gathered around an average of 36.87% returns annually based on the parameters of the study. However, we have to take note that trading with cryptocurrency is a whole new cattle of fish compared to our typical equity markets. Also, we need to consider these trading these kinds of currencies are available anytime of the day and without downtime.
The process of tallying down the data was monitored using the Variable Moving Average oscillator. This method is the simplest and the most common technical trading rule available in the market. With these, trading signals were available for both short and long periods.
The business strategy behind the study revolves around (1, 20), (1, 50), (1, 100), (1, 150) and (1, 200) strategies. These meant that cryptocurrencies were held during the 20-day moving price average. Others followed the 50-day, 100-day, and so forth.
In the (1, 20) approach, almost half on that list, provided around 5% payoffs while VMA strategy produced gathered around 45.63% average return in investments per annum on all the cryptocurrencies on the list. That was a lot higher compared to 36.87% coming from the buy-and-hold average. The study also revealed that the longer the time horizon is, the less profitable it becomes.
Another study was conducted with almost the same outline as before. However, the second study was conducted with cryptocurrencies that offer privacy functions. This means that the end-user of these cryptocurrencies has the option to use the currencies anonymously or at the very least, provides another layer of privacy. These were the following cryptocurrencies used in the second study.
The second study revealed using the Variable Moving Average that Dash was the only currency that had privacy functions that performed well. The return of investments with Dash shows that it has around 14.6% to 18.25% return rates per annum. This figure was in excess of the simple buy-and-hold trading strategy. It also gave us an insight that the average returns from the ten currencies that offer privacy options didn’t provide positive average portfolio returns.
As a conclusion, it looks like there’s a clear difference in how cryptocurrencies perform in the market. Judging from the results of the study, technical trading with non-privacy cryptocurrencies are more efficient when strategies are applied in the process. It also provides a higher profitability rate and best suited in short investment horizons. On the other side of the coin, privacy cryptocurrencies perform a lot better when talking about the efficient market, and technical trading is not giving enough payoff.