Bearish signals flashed bright red as NANO went on a tweet-induced (but short-lived) rampage. How can traders take advantage of social media-driven crypto rallies?
When Elon Musk’s ‘Bitcoin is bad for the environment’ tweet caused a flash crash of BTC and the majority of altcoins’ prices earlier this week, a handful of digital assets headed in the opposite direction, making huge gains amid the sea of red.
Those were the tokens that market themselves as environmentally friendly capitalizing on investors’ immediate instinct that Tesla might be switching to some alternative, eco-friendly cryptocurrency soon.
NANO’s moment of unsustainability
Among the biggest winners of the day was NANO, a decentralized cryptocurrency that relies on a consensus algorithm similar to proof of stake and that emphasizes its status as a highly sustainable form of money. Boosted by the news of Musk’s quest for greener pastures, the coin almost doubled its price, soaring from $8.44 to $16.32 in a matter of just 12 hours.
But how sustainable was this run? Price action triggered by Musk’s escapades can be dramatic, but it is almost always short-lived. For traders who bought the news and rushed to open a position in NANO in the aftermath of Elon’s tweet, these were a long 12 hours. How high can NANO go? Is this the moon yet? When do I take profits? Is it going to drop soon?
The VORTECS™ Score, an algorithmic analytical tool exclusively available to the members of Cointelegraph Markets Pro, would not be able to answer any of these questions definitively. What it could do, however, is sift through years’ worth of historical data and identify whether the combination of market and social conditions around the coin resembled those that preceded sharp upward or downward price action in the past.
In NANO’s case this week, the VORTECS™ score line had been neutral ahead of the May 13 pump. Naturally, the fundamental market and social conditions did not look historically ripe for a rally that would soon be triggered by an ex-machina kind of event.
Then, in the middle of a tweet-induced price hike, VORTECS™ score began turning red, suggesting that the model sensed a bearish pattern of market activity (first red circle and box in the graph).
Despite a dip, there was a second spike in price (second red box) which coincided with an even more negative score from VORTECS™ (second red circle). As the yellow star indicates, this second spike was followed by a major drop in price.
The low score of 18 was registered when NANO’s price was still on the way to its second peak of $15.82, shortly before it reversed its course and fell to below $11. While history does not repeat, in this case, it rhymed.
Short positions 101
There are several ways in which crypto traders could put NANO’s recent rally to work. One is byquickly reacting to the news and opening a long position in hopes of taking profits before the trigger’s impact recedes. Another is shorting the asset when it is still flying high — in other words, betting that the coin’s price will drop.
Short positions are often opened using borrowed funds: In a classic scenario, an investor would borrow the asset whose price they expect to go down, immediately trade it at the current market price, then purchase again for cheaper, pocketing the difference. Today, many cryptocurrency exchanges offer derivative contracts that allow users to short crypto assets without actually touching them.
You can revisit this Cointelegraph guide into long and short positions to recap the essentials.
While the VORTECS™ score will not tell investors when to go long or short, it can provide a useful indication of historically bullish or bearish conditions for a particular coin — insights that can potentially be profitably incorporated into a trading strategy.
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Opinions are those of the author. Cointelegraph is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and charts are correct at the time of writing or as otherwise specified. Live-tested strategies are not recommendations. Consult your financial advisor before making financial decisions. Full terms and conditions.