Three best ways to be profitable in a volatile market

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Bitcoin recent bullishness brings about huge volatility in the entire cryptoasset market. While experienced traders are rejoicing at the intraday volatility of 5–30% price movements, enabling them to make substantial gains in the shortest possible time. For the lesser experienced traders, the increased volatility can create more challenges than opportunities.

Bitcoin Options

Bitcoin derivatives have been a growing market since the world’s most popular coin went mainstream in 2017. Today, both institutional and retail investors can buy and sell options contracts on bitcoin and other digital currencies to hedge their risk positions and make leveraged trades.

During times of crypto market volatility, bitcoin traders can use options in two ways:

to hedge large risk positions

to bet on volatility.

For example, a trader who has leveraged long on a basket of cryptoassets could buy put their options on bitcoin with a six-month expiry date and a strike price of USD 10,000. This would effectively hedge the losses of the trade should the market collapse and bitcoin drop below USD 10,000.

If the market continues to rally, though, this same trader would instead benefit from the increase in the market value of their positions — and the now-worthless put option would simply expire.

That would mean the trader only loses the premium they paid for the options position — rather than taking a much heavier hit.

Conversely, an experienced options trader could use options on bitcoin to actually bet on market volatility.

For example, a trader could use so-called strangle tactics if they believe that market volatility is likely to increase.

A strangle is an options strategy that involves buying a call option and a put option on the same underlying asset with two different strike prices. This strategy can prove effective when you expect the market to move aggressively — but are unsure about the direction.

In the case of betting on increased volatility in the crypto markets, a trader could, for example, put on a strangle using bitcoin call and put options with strike prices at USD 10,000 and USD 13,000, for example.

If the market does make an aggressive movement, one of their options will be “in-the-money.” And, as such, the trader will generate a profit on that leg, so long as the value is higher than the cost of the other option

Arbitrage Trading.

Crypto markets experience extreme bull or bear periods, and being caught on the wrong side of the trade can be really frustrating and detrimental to your capital. Being able to navigate markets without having concerns about its bullish or bearish states is without a doubt that the best scenario of which every trader would love to be in.

However, such scenarios are only achievable when arbitrage capabilities are available. While it is rare in well-developed traditional markets. The crypto market, however, is relatively new. The relative infancy of crypto markets would mean that many inefficiencies are present. Such inefficiencies provide many arbitrage opportunities as compared to traditional financial markets.

Profits from arbitrage opportunities are risk-free, which makes arbitraging highly attractive. However, not only are arbitrage opportunities difficult to spot, they often only exist for very short periods of time. Thus, conducting manual trades on arbitrage opportunities is an impossible task for traders and it is often that the use of technology is required.

Technological advancements have led to the creation of arbitrage bots that automate your trades for you, allowing you to make profits through arbitrage opportunities. However, choosing the right arbitrage bot can be a very tricky process as you would be subjected to complete reliance on the bot to automate your trading, and while choosing the right bot can generate you healthy profits, a wrong one can destroy your capital.

Trading Bots

For traders who want to jump on the opportunities that increased market volatility provides, but aren’t sure if they have the capabilities to be profitable, crypto trading bots could be an attractive option.

A crypto trading bot is a piece of software that lets traders automatically execute trading strategies without the need for human interaction on the part of the trader.

Simply put, a trader sets the bot up so that it performs specific actions based on predetermined data points, essentially automating your trading strategy.

Market-making trading bots, for example, are particularly popular in crypto asset markets. Another type of software, named the mean-revision bot, is also becoming a popular choice among many professional crypto traders.

During times of high volatility, you could deploy a bot to engage in a technique known as Scalping. Scalping is a strategy that derives from forex trading. But in the crypto world, scalping refers to when traders make a high number of trades based on technical indicators to generate small trading profits on winning trades throughout the day. Although they might not be for everyone, trading bots can prove ideal for those attempting to execute such crypto scalping-type strategies. And they can really come to their fore at times like right now — periods of high market volatility.

All in all, the increased market volatility while may bring about the huge risk to many, there are definitely ways you can still make a profit in.

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