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Effects of market correlation on trade strategies on the cryptocurrency market
The quick growth and volatility of the cryptocurrency market has increased interest in trade strategies that can effectively use these fluctuations. One of the main factors that influence trading decisions is the market correlation that indicates the degree of two or more active mutual movements.
What is market correlation?
The market correlation measures the relationship between different assets in the portfolio. Correlations are often divided into four primary forms in the cryptocurrency area: absolute, relative, Bid assumium and information. The degree of absolute correlation in which the two actively move with or against each other. Relative correlations indicate how much one values move relative to another.
Market correlation types of cryptocurrency trade
1
Absolute correlation
: If two cryptocurrencies have an absolute correlation of 0.7, which means that they tend to move in tandem.
- Relative correlation : Between 0.4 and 0.6, which indicates that one is actively closer or further removed from the other.
3
BID list played : Between offer and requires a price for a certain cryptocurrency of less than 0.1.
- Influence of information : If correlations of market news or events are affected.
Why market correlation plays a role in cryptocurrency trading
Trade strategies that take into account the correlating market correlation can significantly increase their efficiency:
* Trend identification : By monitoring the relationship between different cryptocurrencies, retailers can identify potential trends and options for buying or selling.
* Avoid false signals : With precise correlations, retailers can eliminate false signals and make more informed decisions.
* Increase in profit potential : Good correlations can improve the profit and enable dealers to benefit from price movements.
Cryptocurrency trade strategies based on the market correlation
Several strategies are market correlation:
1
Average vice versa : Use of historical data to identify possible revolutions and predict future price movements.
- Vector autorgession (CAN) : Modeling relationship between several cryptocurrencies to predict future prices.
3
The short-term trend after : Identification of short-term trends in cryptocurrency prices to make purchase or sales decisions.
Market correlation management challenges
While the inclusion of market correlation in trade strategies can be an advantage, this also creates challenges:
* Data quality and accuracy : Make sure that the data is reliably and updated, can be an important challenge.
* Complexity modeling : Improved statistical models and algorithms are required for precise correlation.
In summary, the effects of market correlation on trade strategies on the cryptocurrency market can be exaggerated. Understanding how the correlation of different assets works, and by using these results in trading decisions, retailers can increase their chances of success and maximize profits.