Like traditional derivatives instruments, leveraged tokens are a vehicle for gaining exposure to cryptoassets. As the name implies, leveraged tokens use leverage to maximize or minimize exposure, and their direction is determined by the direction of the market. Therefore, before we start trading leveraged tokens, we must keep in mind: leveraged tokens are a double-edged sword.
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1. Know your leveraged tokens
First, do your own research and understand the underlying crypto assets that make up leveraged tokens, and you will definitely benefit. Factors such as volatility can affect the performance of leveraged tokens. Therefore, you need to understand the historical performance of each leveraged token. Some cryptoassets have much higher volatility than others, and ignoring the impact of volatility may result in a loss of trading capital.
For example, Bitcoins historical volatility is 71. The historical volatility of EOS is only 41.
EOS price has been consolidating for the past two months. However, BTC has experienced parabolic growth, and its volatility is higher than that of EOS. If the same strategy is used to trade BTC and EOS, it will cause a serious loss of trading capital. Therefore, we should evaluate the volatility of the underlying assets separately to find crypto assets suitable for trading strategies.
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2. Use leveraged tokens for breakthrough trading
The breakout trading strategy is one of the highest yielding short-term trading strategies. As mentioned above, leveraged tokens perform well in the market. Therefore, we need to carefully select the most favorable time to enter the market. The ideal time is when the price breaks through a support or resistance level. Let’s find out how to trade breakouts with leveraged tokens.
The most common breakout trading strategy uses the Bollinger Bands indicator to measure the expansion of the price range. There are three Bollinger Bands, which vary around the Simple Moving Average (SMA), and the default value is 21. 85% of the time, the price will be in the following default ranges:
Lower line – between SMAs (minus two standard deviations)
Upper line – between SMA (plus two standard deviations)
In high volatility markets, the Bollinger Bands will widen. Conversely, in a market with low volatility, the Bollinger Bands will narrow. The Bollinger band breakout trading strategy is suitable for short-term market trading through leveraged tokens. When the price breaks through the upper line, it means that the buying pressure is dominant. On the contrary, when the price breaks through the lower line, it is the selling pressure.
For example, when the price of a leveraged token breaks through the upper line, it should be regarded as a valid upward breakthrough. Under such a situation, you can buy bullish tokens and take a ride on the bull market. In this way, when the price of the underlying encrypted asset rises, the benefits amplified by leverage can be obtained.
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3. Use leveraged tokens for market trading
There is a famous saying in the stock market: the trend is your friend. The market is a good opportunity for leveraged tokens to show their talents. Taking advantage of bearish coins for reverse or short trades works very well in a bear market. Conversely, bullish tokens outperform in bull markets. As we discussed earlier, traders should choose marketable and highly volatile leveraged tokens, as they are designed for short-term trading. To better spot the short-term market, the moving average (TEMA) indicator is a tool that most traders rely on.
As you may have guessed, the basic signal sent by the TEMA indicator is the same as other moving average indicators - a price breakout. When the price breaks through the above three moving averages, we get an entry or exit signal in the corresponding direction. The following chart shows the clear trend of ETHUP when the price breaks the TEMA indicator and rises from $20 to $22. A rise in TEMA indicates that momentum is gaining momentum. In such a situation, you should choose to use leveraged tokens to trade long, or increase your exposure.
Summarize
Summarize
Leveraged tokens are ideal tools in technical trading strategies that help traders catch short-term trends in the market. Leveraged tokens are for traders who are psychologically strong enough. Only traders who dare to face volatility can make high profits (or losses) in the short term. Combined with strategic systems such as breakthrough trading and market trading, you can obtain satisfactory returns in the trading of leveraged tokens. Still, we need to understand the underlying assets they track when we place trades in order to get a feel for daily changes in market direction. Traders of these tokens need to deploy sufficient risk control strategies and be prepared to close positions before the market closes every day.
