Trading the News: Strategies for Steem/USDT

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Hope you all are doing well and good and enjoying the best days of your life. This is me @shahid2030 from Pakistan and you are here reading my post. You all are welcome here from the core of my heart.

Introduction to the topic

Source

This is my participation in a contest Trading the News: Strategies for Steem/USDT organized in SteemitCryptoAcademy by @crypto-academy .

Question 1: Understanding News-Based Trading

Explain the concept of trading the news and its significance in the cryptocurrency market. Highlight its advantages and risks with examples related to Steem/USDT.

Crypto is a highly volatile market, the prices are really sensitive to the external factors. News-based trading can save us from significant lost, as it’s the safest way of trading. News based trading can give us best market direction as it significantly impact market sentiment, asset prices, or trading volume.

We must know first whether the news is in favour of that crypto asset (e.g, Steem) or not. News like partnership with major companies or projects, technological advancements, or regulatory developments can drive the price high. These are the news that favours that particular asset. On the other hand, news like delisting from a major crypto exchange ( e.g binance), whale selling, or any scam activity are the news that badly effect that particular crypto asset.

Example

Postive news: Major update in Steem ( blockchain upgradation, listing on major crypto exchanges, or partnership with major finance companies) will attract more people towards it. It will increase it’s demand in the market which will parabolically increase it’s price.

Negative News
Negative news like, regulatory issues, delisting from major crypto exchanges, etc will badly effect Steem and a huge selling pressure will be seen. It will adversely effect the steem ecosystem.

Advantages of News-Based Trading

Quick Profits:
Major fundamental news drive the market sharply. Soon after a good news we see a huge spike in the price of the crypto currency, creating a golden opportunity for investors for rapid gains in no time.

Market Sentiment Insights:
By monitoring news traders can gauge the market sentiments and hold their position accordingly. For an instance; go long on good news and short their position on bad news. We can also analyse crypto project on the basis of news, fundamentally strong projects are the favourite of all the investors.

Momentum Opportunities:
News in the market also brings momentum in an assets. For example, a recent price gain (momentum) in Bitcoin was due to Tonald Trump’s victory, as people consider him a pro crypto person.

Risks of News-Based Trading

False or Misleading News:
False or Inaccurate news or rumors always lead to poor trading decisions. It can trap you badly if it goes against you. For example, if someone spread false rumours about SBD delisting from Up Bit, it’s most obvious that it will create panic in the market. Those who will not go to the depth of the news will be trapped badly (panic selling).

High Volatility:
News brings high volatility in the market. If traders fail to manage risk properly they may recieve a huge loss.

Delayed Reaction:
Their are automated trading bots in the market that reacts too much instantly to the news, often result in delayed redaction from the retailers which leave them at lost when they get enter. Sometimes FOMO also stuck retailers as they fear of missing profit opportunity, and they get entry at wrong point which result in potential loss.

Overreaction:
Sometimes the market overreact to the news. The news isn’t of that much importance, it cause a temporary spikes or dips, which could reverse once the hype subsides.

Example with Steem/USDT

positive Case
Takeover of Steem blockchain by Justin Sun back in March 2020. It brought controversy regarding steem project at that time, but many people thought steem future is bright, and in safe hands. It brought too much volume (liquidity) in Steem.

Negative Case:
SBD’s Regulatory news few days ago caused a huge dump in SBD price (from $3.2 to almost $1.4). Up Bit warned SBD. Warning to SBD means, a treat to the entire steem ecosystem.

Question 2: Analyzing the Impact of News Events

Choose a past event (e.g., a major exchange listing, regulatory update, or macroeconomic announcement) and analyze its impact on the Steem/USDT market. Discuss the price action and market sentiment surrounding the event.

We have too many incidence from the past where news greatly impacted the Steem/USDT market and it's performance. The major one, which greatly shocked the STEEM ecosystem was STEEM delisting back in September 2020. It greatly influenced market sentiment and it's price action.

Binance has made an announcement On September 11, 2020. It was about STEEM's delisting from the exchange. There were reasons behind this announcement. Binance cliamed that steem is no longer meeting the binance criteria and trading standards, such as network stability, bring liquidity and doing new developmental projects.

Impact on the Steem/USDT Market

Sharp decline in Steem price
Steem delisting was a bad news for the entire Steem’s ecosystem. Soon after the news the price declined sharply with in few hours. STEEM declined almost 20% soon after the news. The investors rushed to sell their steem asset. All these things resulted in an increased volatility. The price fluctuated significantly, which caused uncertainty among traders.

Reduce Volume
A raise in trading volume was seen soon after the announcement of delisting took place, users tried to sell off their holdings. Few days after delisting the volume dropped sharply due to reduced trading in Steem currency.

Sentiments in the market

Negative Sentiment
Traders were afraid trading in Steem coin. Their was extremely negative sentiments about it in the market. The steem credibility and reputation was at risk. The steem governance system was questioned by the the traders.

**Investor’s Confidence reduction **
Trading in such a fundamentally unstable coin is Ofcourse a risky decision. This was the reason that this news caused feeling of fear amoung the traders. It resulted in lowering their confidence level. Traders migrated to alternative platforms like Hive.

Broader Implications

Maintaining Liquidity Challenges
After being removed from a major crypto exchange, like binance it was hard for steem to bring liquidity. No buying selling activity resulted in decreasing Steem's volume. No liquidity further dumped it’s price.

Found alternative Community
People found alternative, the steem community shifted toward Hive. It further weakened the Steem ecosystem.

Recovery Efforts
Efforts was made to rebuild the Steem ecosystem, but still delisting from Binance was a black mark on Steem project. It was a huge turning point in Steem’s market history.

Question 3: Designing a News-Based Trading Strategy

Propose a strategy for trading the news in the Steem/USDT market. Include:

• Criteria for selecting impactful news.
• Tools for monitoring and analyzing news events.
• Entry, exit, and risk management rules tailored to news-driven volatility.

Authentic news always have great impact on all the crypto assets. To make strategy based on news we first have to classify them that they are from authentic source or not. We can can judge impactful news, if they are following these criterias:

Relevant Sources
We should pick those news that are directly related to steem and it’s blockchain. The broader market analysis can also give much more information about steem. For an instance, Fundamentals about Bitcoin also effects other Alta coins ( including steem) too.

Categories of Impactful News
After knowing that the news is relevant to steem coin, we should categorise it to these following areas.

Project Updates: We should find out that whether the news is about major updates in Steem blockchain, or their is brought any modification in it’s governance, etc.

Adoption News: If steem has been adopted for real world use it will greatly effect it’s performance. Others things like partnership with other major projects or it’s integration is also an impactful news.

Macro Events: Global news like inflation, interest rates, crypto regulations in the world or certain other big news which effect the whole crypto market will effect steem too. So analysing Steem’s price we should keep eyes on macro events in this world too.

Time Sensitivity
Right news at right time have immediate effects on crypto assets. For an instance we analyse steem technically and we found that steem is bullish and then a good fundamentals related steem (development, partnership or upgradation) comes to the market, it will have strong effect on steem’s performance ( huge raise in it’s price).

Tools for Monitoring and Analyzing News Events

News Monitoring
We have so many platforms that helps us to filter out the authentic news in the market, e.g CoinGecko, CoinMarketcap, CryptoPanic, etc. Other social media platforms like Twitter ( current X), and Reddit can also be used to get authentic news. Follow official channels on twitter (X) especially of steem.

Sentiment Analysis
We have many natural language processing tools available with us. They can be used to measure market sentiments (positive or negative). These tools includes; Google natural language AI, Lexalytics and alternative free APIs. These tools show us how social activities effect the price of an asset.

Alerts and Automation
We have certain tools we can use for automation alerts, by giving them keywords like, steem partnership, upgradation, regulation, etc. This thing will help us in ensuring timely actions.

Entry, Exit, and Risk Management Rules

Entry Rules
The first and far most thing is to confirm the trend and volume. We should make entry if we see that news has shown if’s effects within one or two hours. The impactful news must show it’s effects in such time.

Example If we see a news where steem has done a partnership program with major e-commerce company, we should wait for it for a while (minimum 1 hour, maximum 2 hours). If we see 3% to 5% raise in price with 50% increase in volume above the 7 days average, we should go for long postion.

Another most important thing is to confirm the sentiments in the market after the news. Positive sentiments mean long your asset and negative sentiments mean selling your assets.

Exit Rules
Set your profit target based on proper risk to reward ratio and it’s histrionics behaviour. In crypto we have famous saying that histrionics repeat itself. 15% to 20% would be enough for short term trade.

However, their is another famous strategy for news base trading. You must should get exit after first 24 to 48 hours. The reason is the prices often retraces after the initial volatility, as traders take their profits and get exit at gain.

Risk Management

Use only 1% to 5% of your capital in a single trade and stoploss should be 2% below or above (short/long) the entry point. Take your profit at minimum 1:2 and maximum 1:5. You may go Upto 1:5 because such news based trades give too much profit, if the news are authentic.

Question 4: Managing Risks in News Trading

Discuss the risks associated with trading the news, such as slippage, overreaction, or misinformation. Suggest practical measures to mitigate these risks and improve decision-making during volatile periods.

Risks Associated with News Trading

It’s too much obvious that news creates great earning opportunities, but at the same time it also results in significant lost. The reasons behind it is:

Slippage
Slippage means; misplacing of your order. It happens when you try to book your order at one point and it get place at another point, due to high market volatility. For example You open a long trade on Steem on news base analysis, it’s price fluctuate between 0.25 and 0.27 in seconds. You want to open your order at 0.25, but as soon as you click buy, your order get place at 0.265 due to high volatility.

This can lead to a high lost ratio. The best thing to avoid it is to use Limit order instead of market order.

Overreaction
Sometimes people may overreact to news events, which results in sharp price increase. Those who get profit at the peak sell their assets and this is the reason we see a quick bounce back.

Misinformation
False news, rumours or misinterpreted data can greatly damage traders. Don’t ever act on any unreliable information. Always do proper research and verify it’s source whether it’s authentic or not.

Emotional Trading
Relaying on news events and trading on the basis of it can damage trader’s own strategy. They might get deviated by feeling of fear or greed. Don’t do emotional trading no matter what’s the market situation is.

Practical Measures to Mitigate Risks

We can manage risk while trading on news base analysis or trading in a volatile market, by adopting these following methods:

Use Limit Orders
Limit order help us to reduce the risk of slippage. Pick your trade at limit order instead of market order. The reason is their could be a high volatility, and you may miss a perfect entry place.

Wait for Confirmation
Confirm the news from authentic sources, like Bloomberg, Reuters, or specialized platforms that filter credible updates. Don’t take an immediate entry. Let the market reacts to the news and then you can make your perfect entry.

Have a Predefined Plan
You should have a perfect plan with right entry, exit, and stop-loss level, even before that news event. You can use an automated stop-loss orders and take-profit levels. It will help you to overcome emotional decision.

Trade Small Positions
Trading on news events bring high volatility and high volatility means high risk is involved. Always try to use 1% to 5% of your portfolio in such trade.

Monitor Market Sentiment
We have many tools available that can show us market sentiments and volatility. VIX (Volatility Index) is the best tool to gauge volatility of an asset ( suppose Steem).

Avoid Overtrading
Take exit when you get your desired profit. Don’t take entry again if you see the price pumping again, you may stuck here badly. Incase of lost accept little lost and don’t try to recover it in a volatile market, else you may come up with huge loss.

Question 5: Leveraging Technology for News Trading

Explore how tools like sentiment analysis algorithms, trading bots, or real-time news aggregators can enhance the effectiveness of news-based trading strategies. Provide examples of tools or platforms relevant to the cryptocurrency market.

Leveraging Technology for News Trading

News based trading must need to analyse the whole market news and then use those news for gaining profits in the financial markets (Crypto, Forex, Stock, etc). The leveraging technology use bundles of data and information from the market and use them for making effective decision. To enhance our trading strategy we use tools like; sentiment analysis algorithms, trading bots, and real time news aggregators.

Sentiment Analysis Algorithms

We can get the depth of the emotional tone of news articles, journals, social media posts or other textual data by using sentiment analysis. It use natural language processing (NLP) and machine learning.In crypto market, the market is most often driven by sentiments. These tools can give us identification of market bullish or bearish movement.

Example Tools:
** The TIE:** It is specifically made for cryptocurrency analysis. This tool can analyse millions of tweets at a time and give us a perfect signal and market direction basis on it.

LunarCrush: A well known social media sentiments tracker. This helps the traders finding social media sentiments. Using it’s data it easy for a trader to find market trend.

Trading Bots

Trading boots work on automated system program. You have to give in command or direction and it work on it. We can use trading boots data with sentiment analysis tools too. The main purpose of using trading boots is to miss perfect opportunities.

Example Tools:
3Commas: This is used for automated trading strategies and it also has an integration with some major crypto exchange (Binance, Coinbase, Gate.io, etc)

Cryptohopper: This is a bot that supports both technical and fundamental analysis, in a combination with news sentiment.

Real-Time News Aggregators

Real-time news aggregators is known for it’s fast, relevant and speedy news gathering. It gathers and deliver latest information from the latest sources, and helps traders keep up to date. It can also filter out real and authentic and speedy news.

Example Tools:
CryptoPanic: This is a news aggregator made for providing best sentiment analysis and possible market alerts. It has been used by many crypto traders.

NewsNow: It monitors all the news that are related to crypto currencies and aggregates headlines from various sources, helping the crypto traders.

Benefits of Using These Tools

Speed: News based trades need to be executed on time. It needs an immediate response. Such tools help execute trades within milliseconds.

Accuracy: Sentiment analysis get to the depth of emotional tone of investors and give is an accurate and perfect data.

Efficiency: Bots and aggregators safe our time and efforts. They give us efficient actionable market insights, make it easy for traders to find market next move.

Example Use Case

In 2021 Elon musk’s tweet about doge coin. Those who used sentiment analysis tools and bots (LunarCrush) grabbed the opportunity before than manual traders. Bots were able to catch the sudden price surge and identify the positive sentiment spike, which gave sufficient gain to early traders.

These tools and bots help traders to stay ahead in such a volatile and fast paced market. It make it easy for them to get early and right entry on real time data.

This is all about my blog for today, hope you guys have enjoyed reading it. See you soon with a new amazing and interesting topic, till take care.

I would like to invite: @goodybest, @ripon0630, @beemengine, @svm038, @tommyl33, @alejos7ven, @janemorane, @rme, @pathanapsana, @stef1, to participate in this Contest

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Thanks for being here

Regard shahid2030