How to Trade Ethereum: Trading Strategies for ETHUSD & ETHBTC Pairs

Last Updated July 23rd 2021
17 Min Read

Although Ethereum is far behind Bitcoin in terms of price and market cap, it packs several functions that make it more superior. Unlike Bitcoin, Ethereum is more than just a cryptocurrency. It is not just a platform where other developers can create their own decentralized applications using its core technology but also a payment gateway. 

This has enabled ETH to attract a lot of attention and interest from investors since it was launched back in 2015. It is now the world’s second-largest cryptocurrency and is expected to be the most widely adopted as it makes it easy to integrate its technology into various financial sectors. 

For people looking to benefit from Ethereum’s technology and the volatility behind its native cryptocurrency, Ether, the question is usually whether to invest in the long-term or trade. Both investing and trading have their pros and cons and whatever you choose depends on your goals and financial situation. 

If you are looking to make quick profits by taking advantage of Ether’s volatility in the short-term, we are going to show you how to trade Ethereum in this guide. 

Before that, let’s briefly go behind the scenes and look at what Ethereum is, how it works, and why it is different from the other cryptocurrencies. 

Contents:

What is Ethereum and How Does it Work?

Should I Trade or HODL Ethereum?

2 Popular Ways to Trade Ethereum

Steps to Trading Ether Derivatives with the ETHUSD Pair 

How to Trade Ethereum for Bitcoin (ETHBTC Pair)

Factors Affecting Ether’s Price Movement 

4 Most Effective Ethereum Trading Strategies

Conclusion: Tips for Maximizing ROI 

 

What is Ethereum and How Does it Work?

Launched in 2015, Ethereum uses a vastly different technology compared to the other cryptocurrencies. While other cryptos like Litecoin simply mimicked Bitcoin’s code, Ethereum looked for a way to combine a digital financial software and a digital coin to introduce new functions that were overlooked by Bitcoin. 

This led to the introduction of smart contracts and Decentralized applications, which is a way for other developers to create their own applications on the Ethereum platform. So, while Ethereum uses the same Blockchain technology that was established by Bitcoin, it has improved it to accommodate these additional functions. 

Contrary to popular beliefs, Ethereum is not a cryptocurrency per se. It is more of a platform or a network. The cryptocurrency that powers the Ethereum network is known as Ether, and that is what we will be learning how to trade in this guide; not Ethereum itself. 

So, how does Ethereum work?

Ethereum’s native cryptocurrency uses the same blockchain technology as the other coins. This is a digital ledger where all transactions made using Ether are recorded. The digital ledger can be accessed by anyone who wants to look at the various transactions. 

Ethereum’s blockchain technology is powered by a mining process where miners verify transactions by solving complex algorithms, just like Bitcoin. These miners are rewarded with a set number of Ether tokens every time they verify a cluster of transactions, also known as blocks. 

Ethereum sets itself apart from the other applications by adopting smart contracts and DeFi applications. Its application as a payment gateway also makes it much more relevant and potentially more valuable than Bitcoin in terms of ROI.

So, why do you need to trade Ethereum? Why don’t you simply invest for the long-term and rip from the current price uptrend? Let’s answer that below. 

Should I Trade or HODL Ethereum? Which Option is More Profitable? 

The dilemma of whether to trade or invest for the long-term is very common in the crypto market. It’s even more confusing for an asset like Ethereum, whose price seems to be on a promising uptrend. While buying and holding would be the perfect option in this case, it does not work for everyone. 

If you have a lot of cash to put away for a long time, investing in the long-term is good for you. This is also a good option if you don’t have time for daily trading or are just much more confident in Ethereum’s future. 

Otherwise, given the volatility shrouding cryptocurrencies, holding might not be a good idea if you don’t have a lot of cash to lose. When prices drop steeply to a point where they will take years to recover, you might be forced to sell your Ethereum at a loss. 

For instance, in January 2018, the price of Ether spiked to around $1,219 then dropped to as low as $83 by December. After that, it took a whole three years before the price went that high again towards the end of January 2021. That is pretty long to wait if you don’t have extra cash on the side. 

So, for people who bought Ether when the price spiked in 2018, they either had to Hodl for three years or sell at a loss in between. However, those who chose to trade, especially in Ether’s CFD, made a lot of profits from the crash. 

You see, with long-term investment, you can only make a profit when the price goes higher than the buying price. However, with CFD trading, you can profit either way by simply predicting price movement even if you don’t own any Ether. 

Read Also: What are the Benefits of Ethereum Trading?

2 Popular Ways to Trade Ethereum: Which is the Best Option for You?

Just like with the stock market, there are two popular ways in which you can trade Ethereum. These are: 

  • Spot trading 
  • Derivatives trading

Spot Trading: Profit From Rising Price 

This is the most basic type of trading. It is like investing but for the short-term. With spot trading, you will need to buy a certain amount of ETH tokens then store them in your wallet. To profit from this trading, the ETH price will have to grow higher than the purchasing price. 

If you suspect that the price is about to start falling again, you will need to sell your tokens for a profit then buy again when the price hits its lowest point. We recommend this trading method if you are just starting out and need to learn some basic trading concepts. 

Although it is simple and easy to execute, it has two drawbacks that veteran traders find off-putting:

  • You need to own some ETH tokens in order to trade
  • You can only profit from price uptrends 

If you find these drawbacks limiting, we recommend derivatives trading. 

Derivatives Trading: Profit from Both Falling and Rising Prices

Unlike spot trading, derivatives trading like CFDs allows you to profit from both price uptrends and downtrends. You do this by placing a short and long position to predict price movement for a given time.

You won’t need to own any ETH tokens to trade with CFDs since you are only predicting price actions. The other advantage of derivatives trading is that you can use leverage to amplify your profits and make much more than you would with spot trading. 

However, this kind of trading is riskier, and we only recommend it for veteran traders and those who are willing to take risks for bigger profits. Ethereum’s smart contracts make it much more convenient to trade compared to other cryptocurrencies like XRP or Bitcoin. 

In this guide, we will focus on how to trade Ethereum CFDs. Spot trading is minimalist and straightforward; you shouldn’t have any trouble wrapping your head around it. 

Steps to Trading Ether Derivatives with the ETHUSD Pair 

We are going to take you through a simple step-by-step process you can follow to trade Ethereum. If you still think this is a bit risky or too complicated for you, you can start with spot trading then upgrade slowly as you learn the perks of the game. 

Here are the steps:

Step 1: Open an Account 

To get started, you will need an account from which you can trade. Keep in mind that you don’t need to open an exchange account since you won’t be buying or selling any Ether. Instead, you should look for a platform that allows CFD trading. 

The trading platform you choose should be reputable and provide a wide variety of tools to enable you to trade efficiently. 

Step 2. Develop a Trading Plan

Derivatives trading is very risky and complicated, so you don’t want to jump in blindly. After creating an account, ensure that you also develop a plan to guide you through the trading process. This way, you should be able to conveniently manage your time and know when to open and close positions. 

A good trading plan should answer the following questions: 

  • What do you want to achieve on a daily, weekly, and monthly basis? 
  • Which markets are you going to trade?
  • How much are you willing to put on each trade? 

By answering these questions, you should be able to determine your risk-reward ratio and decide whether Ethereum trading is a good fit for your portfolio. While developing your plan, you can also study various trading strategies that you can use to up your game and enjoy more rewards. 

We will be looking at some of these strategies in the last section, so make sure to keep reading, and we’ll show you which strategy is the best for your unique trading styles.

Step 3. Do your Research

One important thing to capture in your trading plan above is the research aspect. Before you open your first position, you need to be up to date with the latest developments in the Ethereum market. 

Even with a good plan, you can still wobble to a loss if you don’t understand the market well. Check out what industry experts are saying, study past price patterns, and keep tabs on the current trends. You should also do some technical analysis to try and predict the next price action. 

This will help understand how to play around with your positions and walk home with a profit at the end of the day. 

Step 4. Place Your First Trade

After opening a brokerage account, developing a trading plan, and spending some time researching, you are now ready to open your first position. To do this;

  • Find Ether on your specific trading platform, then open the deal ticket. 
  • Select the amount you want to trade with, also known as the trade size.
  •  Set your stop position so that the trade is closed when it goes against your prediction to a certain point. 
  • To open a long position, click on “Buy” 
  • To open a short position, click on “ Sell” 
  • To close your position, that is, to end the trade, simply reverse your original trade. For instance, if you started by buying, you should close by selling, and if you started by selling, you should close by buying. 

Some trading platforms will give you access to additional tools such as leverage and increased liquidity. Leveraged trade can help you multiply the amount of profit you can get with a regular trade. 

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How to Trade Ethereum for Bitcoin (ETHBTC Pair)

There is a minor difference when trading the ETHUSD and the ETHBTC pair. For the ETHBTC pair, you will need to deposit Bitcoin instead of fiat money into your trading account. Most platforms will allow you to do this, so you shouldn’t have any trouble. 

If you don’t already have Bitcoin in your wallet, you will need to first buy it before you can stake your first position. After getting your BTC ready, follow these steps to start trading: 

  • Open an account with a trading platform that allows trading the ETHBTC pair. Some may not allow trading cryptocurrencies with each other. 
  • If you haven’t already done so, buy Bitcoin from an exchange and transfer it to your wallet. 
  • You can then use your Bitcoins to either buy and sell Ethereum or trade ETH derivatives by making a short or long position. 

Now, the essence of derivatives trading is to predict price action. To this, you will not only need to study past and current price trends but also understand what moves Ether’s prices. Let’s look at that below. 

Factors Affecting Ether’s Price Movement 

While Ethereum is free from economic and political manipulations, there are several fundamental factors that inform its price action. These include the availability of Ether, market manipulation, adoption, media coverage, and government regulations. 

Let’s briefly go through each of these factors below: 

Availability of Ether 

Some of the major cryptocurrencies are limited in supply. For instance, there are only 21 million Bitcoin and 100 billion XRP in circulation. However, Ethereum doesn’t put a limit on the supply of Ether. This means, like fiat currencies, Ether tokens will keep being added as others are lost. 

This causes its availability to fluctuate and consequently affecting price movement. Ideally, the more Ether in circulation, the lower the price and vice versa.

Lack of Regulations 

The cryptocurrency market is not regulated by governments or any central bank. It is decentralized, which means it can be easily manipulated by its users. For instance, people can buy or sell large amounts of Ethereum without any restrictions.

When people buy Ethereum tokens on a large scale, they cause the price to rise, and when they sell, the price will fall. 

Mainstream Adoption 

Mainstream adoption affects ETH’s price in a positive way. For example, when more people start using Ethereum and its technology is adopted by different institutions, there will be a higher demand for it.  This will move the prices up, to allow for even distribution among the new influx of users. 

Wider adoption will also stabilize the market and make Ethereum less volatile. This will, in turn, attract more investors, especially since this stability will make Ether a good store of value. 

Government Regulation

Currently, most governments do not regulate the cryptocurrency market enabling users to manipulate price movements. However, if the government does regulate the use of Ether, its prices might stabilize and tone down some of its volatility. 

Government regulation could also negatively affect prices as investors start losing interest in cryptocurrencies. For instance, there is a very low investment inflow in China and South Korea, where cryptocurrencies are regulated. 

Media Coverage

The kind of press surrounding the cryptocurrency market can hugely affect Ether prices. For instance, negative press can impact public perception of Ether, causing potential investors to take a pause. 

This kind of press is common when security lapses and hacks happen. Existing investors might decide to sell their tokens, causing the price to fall. 

Good press can also attract more investors looking to buy Ether. This will cause the price to rise as demand increases. 

Competition from Other Cryptocurrencies 

Since the launch of Bitcoin, there are now thousands of cryptocurrencies in the market. While most fizzle out as quickly as they started, others gain traction and start competing with Ethereum. This competition may cause Ether prices to fall as investors start considering alternatives. 

Read More: Bitcoin VS Ethereum

4 Most Effective Ethereum Trading Strategies

Like we mentioned above, you need both a plan and a strategy to be successful as an Ethereum trader.

There are several tested and proven Ethereum trading strategies you can use to improve your odds. We will be briefly discussing them below so you can choose one that works best with your unique trading style. 

You can also combine several strategies for the best results. 

Bollinger Bands Trading Strategy:

This strategy utilizes a moving average and two standard deviations to determine volatility based on how the bands expand and contract. When the lines cross each other or pass through the middle Bollinger Band, they give a signal of whether you should long or short. 

Ichimoku Trading Strategy:

This strategy provides a snapshot of different signals you can use to start and close a position. While it is powerful given that it provides several signals on one screen, it is a bit too complicated if you are just starting out. So, if you find it confusing, you can consider the other strategies. 

Relative Strength Index Trading Strategy:

This is a popular trading strategy that can indicate whether ETH is being oversold or overbought. With this signal, you can easily determine whether you should go long or go short based on how high or low the price is. 

MACD Sequential Indicator:

This strategy is commonly used by traders to time market momentum. While some consider it a weak indicator, you can still utilize it on all timeframes to trade ETH. 

Conclusion: Tips for Maximizing ROI 

With a combination of the strategies discussed in this guide, a good plan, and plenty of research, trading Ethereum can be very profitable. To maximize your ROI, you can trade CFDs instead of buying and selling. 

Derivatives trading exposes you to a variety of tools you can use to boost your profits. One of those is what is known as leverage. This is where you use borrowed cash (or Bitcoin for the ETHBTC pair) to increase your trading position beyond what you would have traded with cash balance alone. 

If you are using a margin trading platform, you can use leverage to take larger positions and significantly boost your ROI. However, Leverage is a double-edged sword since it can amplify losses just as much as profits. You should, therefore, use it with a lot of caution

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