Does the Cryptocurrency Market Exhibit Feedback Trading?
Feedback trading can occur in a couple of ways, but the most straightforward way to describe the term is simply this: The act of trading based on what others do. See site here to execute profitable trades despite having no prior experience with bitcoin trading. It can take the form of two investors comparing their portfolios to see how they match up or using data feeds to give insight into what others are doing.
Data aggregators such as Coin market cap provide plenty of examples of this feedback trading pattern used. These data feeds allow traders and investors to get an idea about where cryptocurrency prices are trending based on the past price information and market behavior. Unfortunately, as more people use these data streams for analysis, those patterns become self-perpetuating and more likely to repeat themselves in the future.
Factors Impacting Feedback Trading:
Cryptocurrency price feeds are one of the most popular ways to leverage feedback trading. These aggregate data streams come from various sources that compile and publish the latest prices across various exchanges. Price feeds break down which exchanges report which prices and positive and negative deviations.
These data sources provide insight into how traders feel about specific markets they track. The info can include broad perspectives on what’s happening with an industry or community and individual accounts with their thoughts on a particular coin or token. – News – A lot of the news activity in the cryptocurrency world has been focused on the enormous rise of Bitcoin, Ethereum, and other altcoins. However, other news sources track specific coins in a lot of detail with one caveat: they all come with a hefty dose of rumor and speculation.
Technical analysis involves analyzing market patterns based on past price history and market expectations that are then compared to actual market behavior. While there are many technical indicators used to make these comparisons, many traders still prefer looking at charts that highlight significant price action trends rather than trying to understand what’s happening under the hood.
What is Positive Feedback?
The self-perpetuating nature of feedback trading can be positive or negative depending on an individual investor’s goals. If a specific investment pattern has proven profitable in the past, other investors will likely make the same choices as their peers for the overall pattern to continue.
For example, as more investors begin to trade in a particular market, each individual’s trading activity creates more conditions for future traders to make the same choices. When that particular cycle is complete, the pattern can move on and start the next self-perpetuating loop.
However, this isn’t always true. Sometimes these patterns result in misjudgments – even if they’re made with good intentions – and cause losses for those who follow them. The following are examples of positive feedback trading patterns based on the cryptocurrency markets for 2016.
Binance is one of the largest cryptocurrency exchanges in the world and one that has received a lot of attention from media outlets and investors because of its rapid growth. It started as a simple exchange that offered to buy and sell orders for popular coins such as Bitcoin, Ethereum, and Litecoin. It has since expanded to a full-scale trading platform that offers over 100 different coins.
As it grew, Binance became home to some enormous market makers who didn’t hold positions but provided liquidity to those with enough BTC or other available currency to make bids or offers. Binance’s popularity has been such that it became home to over 100 million dollars in daily trading volume.
While there’s no doubt that Binance has been a prominent actor in the crypto markets, many people don’t realize how much action can be traced back to the platform by tracing positive feedback patterns.
Herding Behavior in Feedback Trading:
In the most basic terms, a herd is a large group of individuals who follow each other’s actions. It has been a longstanding driver of investment behavior, as people often feel that following the crowd is the best strategy. But, in reality, it can also lead to some seriously bad decisions when there are no checks on that behavior.
Herding behavior can directly correlate to the overall success of an industry or sector, primarily when the options available for investment are relatively limited. However, when those limits begin to fall away, this herd mentality tends to break down.
Does Feedback Trading Exhibit in the Cryptocurrency Market?
Yes, it does; while it might not always be apparent, many of the market movements in cryptocurrency can be traced by the user back to feedback trading. Unfortunately, the most prominent examples are incredibly short-sighted. They may not even have any lasting adverse effects on the industry – if you discount, for example, the initial run-up and fall of Ethereum Classic.
One of the most significant issues with feedback trading is that it will always encourage herd behavior that encourages shortcuts for success rather than sticking to an individual’s ideals or moral compass based on their own beliefs. When these shortcuts start being adopted with abandon, it’s only a matter of time before they start falling apart at major exchanges or across entire industries.