top of page

Hybrid Trading Strategies And Their Application On The Cryptocurrency Market

Currently, there are more than 1900 cryptocurrencies. Apart from all the established ones that you can track on Coinmarketcap, numerous new token sales are popping up each and every day. This steady growth has resulted in a market that is very attractive for various types of investors. When it comes to users, statistics reveal that in Q2, 2018, the number of blockchain wallets has exceeded 25 million.

Whether to be used as a payment tool or an investible asset, cryptocurrencies provide an alternative to the status quo which is rewarded with serious interest from investors. With the birth of cryptocurrencies, traders got a hand on a new, exotic asset class that provides significant profit opportunities. In order for one to take advantage of the huge potential within the cryptocurrency market and to minimize the associated risks, the key part is to find or build a well-tailored strategy, associated with his personal investment goals.

Choosing the right cryptocurrency investment strategy

There are, basically, two ways to gain profits from cryptocurrency investments – a passive and an active one. The most popular example of a passive cryptocurrency investment methodology is the HODL-ing strategy, where investors buy some coins and hold them for the long-term or until fulfilling certain investment goals.

But there are investors who prefer to trade cryptocurrencies actively so that they can take control of price swings, react to relevant news and market events and capture profits. This type of traders prefers the Rebalancing strategy. In the previous blog, we analyzed the superiority of the Rebalancing strategy over the HODL-ing one in terms of returns. Yet, some market participants go further by trying to optimize the Rebalancing strategy in a way that allows them to gain even bigger returns.

The key to achieving this is to create a hybrid trading methodology - a combination of Rebalancing and another, more aggressive strategy.

Advanced cryptocurrency trading strategies

The Rebalancing strategy is capable of delivering significant profits. Yet, there is a way to optimize it even further by combining it with other types of strategies. Such practice is becoming a very popular component of traders’ philosophy. Here are the 5 trading strategies that you can combine with Rebalancing to increase the performance of your cryptocurrency portfolio:

1. Pairs Trading The pairs trading strategy is used to describe a trade between two instruments in which you can buy/sell a specific cryptocurrency in exchange for another one. It is very similar to the FX Pairs trading strategy with the main difference that here, you should use fiat money to buy the base cryptocurrency which you will, later on, be able to trade against the other one in the pair. The strategy relies on price movements of the instruments included in the pair.

For example – the coin pair that you would like to trade consists of ETH and BTC. If the price of the ETH goes up with 10% and the one of BTC remains the same, you can then buy 10% more BTC with the exact same amount of ETH.

Unfortunately, this is a way too perfect example that not every trader is lucky enough to experience. Pairs trading also has its risks.

Let’s say that you have just bought ETH with BTC. Minutes later, the price of ETH goes up 2%, while the one of BTC also goes up but with 10%. Such scenario means that you have missed on a profit of 8% that you could have netted, if using cash, for example.

Combining Pairs trading with Rebalancing is a great way to optimize your trading strategy. By being able to rebalance your portfolio in a certain period, you will capture the profits from the price swings and use them for similar or alternative investments.

2. Arbitrage The Arbitrage trading strategy is the epitome of the leading concept in the investing world – "buy low and sell high". This strategy relies on finding discrepancies in the pricing of certain financial instruments. There are various types of arbitrage opportunities, but those present on the cryptocurrency markets are based on the fact that some coins are traded at different prices on different exchanges.

This allows traders to purchase cryptocurrencies from an exchange where the given coin is traded at a lower price and sell them on another, where it is traded at a higher price. Applying this strategy is possible because of the existing market imperfections. By being able to trade simultaneously on two exchanges, the trader can easily pocket the price difference between the two cryptocurrencies. Some market participants focus on repeating (or even automating) this strategy, as it provides them with the opportunity for, basically, limitless returns, as long as there are price inefficiencies.

When it comes to the cryptocurrency market, it is worth noting the fact that the gaps in instruments’ prices on various exchanges are significantly bigger when compared with stocks or ETFs, for example.

3. Scalping Scalping is a trading strategy that is applied mostly by speculative traders. It relies on small returns, gained by the execution of a large number of traders. Or in other words – the more frequent you trade, the more price fluctuations you will be able to exploit, thus netting profits. Scalping is often mistaken with Arbitrage due to the idea to buy low, sell high and then repeat. In fact, they are very different.

While Arbitrage takes advantage of price discrepancies on different markets, Scalping’s idea is to be constantly involved in the process of buying different instruments and selling them when their price goes up. Scalping has gained popularity among cryptocurrency traders due to how it well it fits the characteristics of the market. As scalpers rely on exploiting price movements with a high frequency, the increased volatility, typical for the cryptocurrency markets, serves as the perfect prerequisite for such type of trading strategy to be successful.

Scalpers usually focus on trading liquid cryptocurrencies as they should be able to sell as soon as they sense that even a slighter dip in the price of the instrument is possible. Otherwise, they facing the risk of significant losses, as one losing trade can erase all their profits for the day.

Although it sounds simple, the scalping strategy requires a very careful management. Scalpers usually execute a massive number of trades on a daily basis. For each one of them, they are required to pay a trading fee. Because of the smaller amounts of returns per a single trade, which are the essence of the Scalping strategy, the trader should be very cautious and efficient in his trades. Otherwise, the combination of trading fees and some losing trades can wipe out all returns.

Here we can also take a look at Day Trading as it is quite similar to Scalping. The only difference is the lower frequency, thus smaller number of trades that are executed per day. Day Trading’s main idea is to start each day with a few open positions and to close all of them at the end of the trading session. That way, traders are taking advantage of intraday price movements, while at the same time are minimizing the risk of their investments being influenced by events, taking place overnight (in another time zone, for example).

The key to is to create a hybrid trading methodology - a combination of Rebalancing and another, more aggressive strategy.

4. Range Trading with Relative Strength Index (RSI)

This is another popular cryptocurrency trading strategy that relies entirely on the individual’s ability to time the market. In order for the strategy to be successful, the trader should be able to recognize oversold and overbought areas in the market. That way, he can easily spot the momentum that is worth entering a trade.

To be able to successfully spot overbought and oversold market areas, traders rely on technical indicators like the Relative Strength Index (RSI). This momentum oscillator tracks the speed and change in price movements and helps traders better find out what is the current state of the market. Or in other words – whether there is too much selling or buying interest for a given cryptocurrency to be able to form a trend. It is usually in the form of a scale (from 0 to 100) with limits at certain levels – for example 30 and 70. When the price of the instrument falls below 30, it is oversold. When it goes beyond 70, it is overbought. These areas usually serve as a sign of a reversal trend and helps traders decide when to buy and when to sell.

5. Swing Trading and trading with technical indicators

As its name suggests, Swing Trading is a strategy that relies on taking advantage of the market’s volatility. The methodology is focused on exploiting price oscillations within a given trend – no matter whether the movements are upward or downward. Swing traders do not always capture the moment to enter/exit a trade when the market hits its highest/lowest point as it requires a small reverse movement for them to realize that a new trend is forming.

Unlike the Arbitrage strategy, Swing Trading requires more experience as timing the market is often a very hard task. Swing traders usually buy some alternative type of coin and convert it to fiat money or a base cryptocurrency like BTC or ETH. They do this just to be able to capture profits before buying another alternative coin.

Swing Trading usually takes place in a longer time frame as a trade can remain open up to a couple of weeks, depending on the trend. In order for Swing traders to be able to identify a trend, buy when the market is taking on a bullish trend and sell just before a bearish one forms, they usually rely on some complex technical indicators, such as:

Moving Average

This is one of the most popular technical indicators. It helps traders to differentiate noise from real price data in periods of frequent price fluctuations. The MA takes all ups and downs in the market and averages them to extract the noise from the real trend. It is visualized in the form of a line and can be applied for various periods with the 50- and 200-day MA the most popular ones. Sometimes, for gaining more accurate and complete picture of market movements, traders combine short- and long-term MAs. When the short-term MA crosses above the longer one, for example, it is a sign of an upward movement and vice-versa.

Bollinger Bands

Bollinger bands are used to indicate changes in volatility. They serve as boundaries, usually set at two standard deviations from the moving average. When they come close to each other, it is a sign that the volatility is decreasing and vice-versa. For more accurate results, they are usually used in combination with other indicators.

On-Balance Volume (OBV)

This technical indicator considers trading volume and its implications on a given asset’s price. It is considered as a confirmation of price movements. The main idea behind OBV is that changes in volume are often a sign of upcoming changes in prices. For example – when the indicator and the price of the given coin move in the opposite direction, a trend reversal is likely to happen in the short-term. On the other hand – if OBV is moving in the same direction as the instrument’s price, it basically confirms the trend.

Hybrid cryptocurrency trading strategies on the basis of Rebalancing

There are two types of cryptocurrency investors – the first see potential in the industry and want to take advantage of it in the long-term, while the others are speculative traders who prefer to act aggressively and net their returns on the moment. While they are very different in the way they operate on the financial markets, they also have one thing in common – both types of investors apply the Rebalancing strategy.

The Rebalancing strategy is a great way for cryptocurrency enthusiasts to increase their portfolio performance by automating the whole trading process. This saves time, reduces the trading costs and ensures an efficient investing process with little-to-non human intervention. While using it separately guarantees very high returns, as proved in this article, many traders want to maximize the overall effect of Rebalancing by combining it with other strategies.

The result is a hybrid cryptocurrency trading methodology that relies on aggressiveness and efficiency to take advantage of market swings, while at the same time, nets the returns by rebalancing the portfolio. Trading strategies like Scalping, Day Trading and Range Trading, for example, rely on capturing small returns with high frequency or the ability to predict market movements and take advantage of them. The main risk associated with such methodologies is that a sudden market drop can wipe out all profits in a blink of an eye. That is why traders seek ways not only to net their returns but to make them multiply passively, while they continue trading.

Rebalancing is one of the most popular solutions for that, as it allows investors to relocate profits to their portfolio and take advantage of price fluctuations. When the value of one of the coins in the portfolio goes up, the gains are equally redistributed to the rest of the assets. This automation allows the investor to continue applying his active trading strategy, thus increasing the efficiency and productivity of the whole process.

The ability to distribute trading profits directly to the portfolio, where they will be allocated according to the pre-defined levels, and continuously rebalanced, allows investors to significantly optimize their portfolio performance, while at the same time minimize the market risk.


A well-performing hybrid cryptocurrency trading strategy requires a strong basis. And Rebalancing has proved to be just that. Proven in time and popular among all types of investors, this trading methodology is an efficient tool in both cases – individually and in a combination with other strategies. No matter whether you are a more conservative or aggressive type of trader, Rebalancing is a great way to build a steady and successful philosophy. When combined with other strategies, it can turn into the universal solution to achieving your short- and long-term investment goals.

132 views0 comments


bottom of page