Did you ever perform high-frequency trading? If you want to perform high-frequency trading for the first time, the basic principle is to select two coins that have a strong relationship in returns. What we are going to do is perform arbitrage trading when the prices of the two coins deviate from normal ranges.
Simply, use one of the crypto aggregator platforms to traverse all the coin pairs and find two coins, such as Coin A and Coin B, which have similar correlations.
Usually, both coins rise and fall together, and sometimes their difference in returns is relatively large. For example, if coin A rises aggressively but coin B does not move, you will take the short position for coin A and the long position for coin B.
Results matrix
- If coin A falls and coin B rises, you can make a profit in both directions.
- Coin A rises again and coin B also takes the same path, resulting in no profit.
- Coin A falls and coin B also falls, again no profit, no loss.
- Coin A rises and Coin B results in losses on both sides.
What is the strategy?
- The required correlation between two coins is negative and positive (1,-1).
- Your job is to learn about what is the difference of spread.
- Your trading strategy is to use the price difference between two coins.
Finally, this high-frequency trading strategy looks very simple, but you can use it with several coins. If you get 0.7:-1 ratio. It is enough to make a decent profit. You can improve your strategy by changing time periods like days, hours, and minutes. Thanks for reading this tutorial.
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