TL;DR
- Weekends frequently experience a sharp decline in cryptocurrency prices, leading to a frenzy of sell orders.
- Crypto markets drop on weekends because there’s less trade volume, the banks are closed, leveraged trades are liquidated, and whales are running the show.
- Despite the decline on weekends, crypto markets are expected to naturally correct over the work week.
- Traders can profit from weekend volatility through scalping, buying the dip, arbitrage, and range trading.
Table Of Contents
Historically, the Bitcoin market and other cryptocurrencies see large price fluctuations over the weekends and holidays. In addition, negative reports that occur on weekends tend to have a more significant effect on the market.
On the weekend of November 16–18, 2013, the price of Bitcoin dropped from $1,100 to $760 as news spread about China's crackdown on crypto exchanges. In December 2017, due to worries of regulation in South Korea, the price of Bitcoin dropped from $19,000 to $13,000 during the course of a weekend in December 2017.
Unlike traditional stock or forex trading, crypto trading never sleeps, the market is open 24/7, 365 days a year without rest. With a market that doesn’t sleep, this opens up a lot of opportunities to traders, but one question comes to mind which is “Is it safe to trade on weekends?”
Why Crypto Becomes Volatile on Weekends
First, let's take a look at why so many traders stay away from the markets on weekends. There are several factors fueling the instability of crypto prices, which you can leverage on.
Fewer Trades on weekends
There is a lower volume of trades during the weekend with individual orders tending to be large. This implies that the bigger investors, known as "whales," are buying and selling massive amounts over the weekend in order to profit from price fluctuations.
For example, Elon Musk can tweet about Dogecoin and send its price to the moon over the weekend. On the other hand, low trade volume during the weekdays makes it difficult to get the same results. When there are fewer trades over the weekend, what the whales do will have a big impact on how a cryptocurrency moves.
The Banks Are Closed
Cryptocurrency trading is not constrained by the traditional work week or traditional business hours. With financial institutes like Banks being closed on weekends, this means that investors who are looking to purchase or take advantage of low prices are not able to get funds into exchanges which leads to reduced trading activity.
You might even consider using a credit card to purchase cryptocurrencies, however, depending on jurisdiction some of us might not have this privilege, even if you have the privilege to purchase with a credit card, the transaction fees incurred is not a small amount and it ends up eating into your profit margin if any.
Hence, many would prefer to use bank transfers or wire transfers which have little to no fees. Like using the Cash-in function on Coins.ph, you can easily start purchasing popular cryptocurrencies once you have Pesos in your Coins app! If you haven’t got an account with Coins.ph, sign up for now! It’s free!
Liquidation of Leveraged Trades
We have heard of liquidations happening in billions of dollars and this is one factor that contributes to the volatility of the weekends. Leverage trading requires a "margin call," in which the asset price plummets below a certain threshold and the borrower is notified to return the loan.
Liquidated short on ETHUSD: Buy 170 + 100 @ 1568.15, 1573.55 🔥 ~ Multi kill
— REKT (@BXRekt) October 31, 2022
Exchanges may also liquidate a position if investors fail to repay their loans and because many financial institutions are closed on weekends, some traders may find it difficult to return the borrowed assets from their margin trades, without the ability to deposit fresh funds, this prompt exchanges to liquidate the trader’s holdings, further increasing the selling pressure.
To add on, automatic selling triggers can set off a "snowball effect" that will result in enormous liquidations on top of the already significant risks of margin trading. The more you sell, the more you'll have to sell in order to maintain balance in the system. As leveraged holdings are liquidated, the volume of sell orders compounds. As the price falls, it gets harder and harder to meet the margin call.
When is the best time to trade crypto?
Those who wish to execute big orders must determine periods of maximum liquidity (the availability of bidders) and trading volume. As an analogy, a vendor with a lot of fruit and vegetables to sell should choose a busy market with plenty of foot traffic instead of an obscure shop hidden away in an alley.
Spot traders (those who purchase and sell with prompt delivery of assets) aren't the only ones who have trouble determining the best times to transact; investors in DeFi face the same problem as well.
Since gas fees are subject to network congestion rather than the size of a trade, they can fluctuate widely from hour to hour. This is vital for newbies with modest portfolios because it can greatly affect their bottom line. For example, a trader using DeFi, who sells $100 worth of crypto during a peak trading period may need to spend $200 just in gas fees.
Is it safe to trade on weekends?
On the weekends, there are fewer "smart trades'', which means, strategic traders are taking a break. Coupled with the limitations in business hours, companies and expert traders have less control over their capital. As a result, trading bots and liquidity providers dominate the majority of the transactions.
In a nutshell, the market loses its appeal to some traders due to the volatility spike.
On the flip side, traders love it when crypto prices fluctuate because it creates more trading opportunities that can lead to big profits. Many people trade in DeFi, where they may experiment with coins that aren't listed on centralized exchanges. Also, the price surges over the weekend are expected to naturally correct over the work week.
Best Crypto Trading Strategies on Weekends
Weekend volatility is your friend. If you know how to tame it, you can earn leaps and bounds, the best part of this is that you can start by studying these strategies to profit from weekend volatility.
Scalping
You can take advantage of market instability by using a hefty volume of funds and repeatedly trading assets numerous times. Ideally, scalpers would get out before any fundamental triggers or significant indicators could alter the general opinion of the public towards a particular cryptocurrency.
To constantly win with this highly rapid trading method, you need to have a sizable amount of capital. Even if the return on investment (ROI) of each deal is extremely low, a scalper who stakes a significant quantity of crypto might end up with a significant amount of profit. Trading regularly, often entering 5 to 15 positions per minute, implies that even seemingly small earnings can mount up to significant sums over time.
Buying the Dip
Taking advantage of the temporary price decline with the confidence that a correction is due over the work week, will enable you to accumulate some blue-chip cryptocurrencies at great prices.
Range Trading
On many occasions, crypto prices remain within a predetermined range at a given timeframe. For example, during a 30-day period, the price of Bitcoin once fluctuates between $8,000 and $10,000. When you consider that Bitcoin's price may move by as much as 40% within 24 hours, you can play around that range per hour and use it to make some profits.
By observing the trends that the whales are behind, you can use this to your advantage. Watching out for volume indicators signaling over-selling or over-buying will give you some information about what the whales are doing.
Overbought crypto suggests that buying is about to stop and the market will soon experience a correction. When over-selling happens, the price will likely experience a strong bullish reversal. Candlestick patterns, Relative Strength Index (RSI), and stochastic indicators will reveal these signals more quickly.
Arbitrage Trading
The idea behind arbitrage is simple. You buy a cryptocurrency on Exchange A and sell the same cryptocurrency on Exchange B earning the spread. The "spread", or the price difference of the asset’s prices on each exchange, is the reason why it’s profitable. To start this trading strategy, you need to look at different exchanges with the same cryptocurrencies but with different prices.
With an increase in volatility during the weekends, it’s much easier to profit from an arbitrage strategy. A great example of this is when the price of Bitcoin in Korea was once 40% higher than in America. Traders enter a buy position from the American Exchange and instantly exit on the South Korea Exchange for a profit.
Is Weekend Trading for You?
Cryptocurrency trading occurs around the world and around the clock, and determining the best time to trade can be difficult.
Something that can help is figuring out which days your trades performed well is just as important as looking at trends. By taking notes and reviewing your past trades and patterns of behavior you might find some factors that might have affected your decision-making process. Constantly practice until you determine the parts of your strategy that are working and which are not.
At the end of the day, your success in crypto trading will ultimately depend on your overall strategy. Keep refining your methods. And, as always, exercise due diligence.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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