Trading Strategies on Leveraged Tokens

Leveraged tokens are a great tool in many aspects. If you don’t want to worry about liquidation on your positions, these tokens can be one of your choices. They have great performances during strong trending periods because of the daily automatic rebalancing and compounding effect. Another advantage of leveraged tokens is that as ERC20 tokens, they can be stored offline in your cold wallet, giving you full control over your assets.

In this article, we will share the methods while investing leveraged tokens, in the hope that you will be able to understand better how they function both from a technical perspective, and as a potential addition to your portfolio.


Know Your Leveraged Token Before Investing

Firstly, do your own research and understand the underlying cryptocurrency asset that makes up the leveraged token. Factors like volatility of the market and the correlated spot token can impact the performance of leveraged tokens. Also, you should be aware of how each leveraged token performs historically. Some crypto assets are extremely volatile compared to others, and ignoring the volatility effects can deplete your trading capital.

Understanding volatility is not only important in picking the right tokens for your strategy, but it is also a critical factor that can help manage the risks. Leveraged tokens are susceptible to volatility decay, which causes your investment to erode in value during volatile and range-bound markets.

Trading Breakouts with Leveraged Tokens

One of the most efficient ways to capture short-term trends is through breakout strategies. Usually, we want to carefully time our entries when market conditions are in favor. This ideal market movement occurs when prices break out from a range.

A common breakout strategy uses the Bollinger Bands indicator to measure expansion in price volatility. In a volatile market, Bollinger bands widen. Conversely, in a less volatile market, the bands narrow. A Bollinger band breakout strategy can be used to trade short-term trends in leveraged tokens. As prices cross above the upper Bollinger band, it signals that prices are supported with strong buying pressure.

For instance, when the price of a leveraged token climbs above the upper band, it should be considered as a valid up-side breakout. In this case, you could buy a bull token to ride on the bullish momentum. This allows you to generate leveraged gains when the underlying crypto asset goes up.

Market trend Trading with Leveraged Tokens

Trending markets are great for leveraged tokens. In a bearish market, bear tokens that aim for inverse or short performance are likely to excel. In contrast, the bull tokens should be large gainers in a bull market.

In order to identify short-term trends better, the Triple Exponential Moving Average (TEMA) indicator is a tool most traders count on. The basic signal of the TEMA indicator is the same as with any other moving average – the price crossover. When the price crosses above all three exponential moving averages, we get an entry or exit signal in the respective direction.

A rising TEMA indicates that a trend is gaining strength. In such situations, you should look for opportunities to go long on the leveraged token or increase your exposure.

You can combine the TEMA indicator with volume indicators such as On-Balance-Volume (OBV). When both TEMA and OBV indicators are rising, it tells you that price momentum is very strong. When both indicators are in confluence, you get a high-probability trade.

Leveraged tokens are ideal for traders who solely depend on technical trading strategies to capture the markets short-term movements. By combining the strategies about using breakouts and trend trading systems, you can trade leveraged tokens with more confidence.