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.
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.
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.
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.
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.
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.
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.
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
