Ripple Trading Strategy – How to Trade and Backtest Insights

Cryptocurrency trading has become quite popular in recent times, and old cryptos like Ripple are getting enough attention. However, given the high volatility in the market, you need to approach the market with the right trading strategy. What is your Ripple trading strategy?

Traders employ various technical analysis indicators such as Bollinger bands, Ichimoku, moving averages, and others, as part of their Ripple trading strategies. These indicators are intended to help traders determine whether a trend is about to reverse or whether there is still enough momentum to keep asset prices rising.

In this post, we look at the Ripple trading strategy and end the article with a backtest.

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What is Ripple?

Launched in 2012, Ripple is a blockchain-based digital payment network and protocol created by Ripple Labs Inc., a US-based technology company. It operates as a currency exchange and remittance network built upon a distributed open-source protocol that utilizes a permission-based mechanism.

The network’s native cryptocurrency is known as XRP. Ripple is the name of the company and the network, while XRP is the cryptocurrency token. The purpose of XRP is to serve as an intermediate exchange mechanism between two currencies or networks. In other words, it is a sort of temporary settlement layer denomination.

Ripple’s payment settlement asset exchange and remittance system works like the SWIFT system for international money and security transfers, which is used by banks and financial middlemen dealing across currencies. Because the network can verify that the transaction was completed successfully so quickly, it serves as a trustworthy intermediary between the two parties involved in the transaction.

As with other cryptocurrencies, XRP is traded as a security on various crypto exchanges. Traders use different strategies to buy and sell the token to profit from price movements.

What is Ripple trading strategy?

Ripple trading strategy refers to a trader’s method to buy and sell Ripple for profits. As a security, traders speculate on the price movement of Ripple using different approaches. Generally, you can either buy and hold for a long time (HODL) or make use of short-term trading strategies.

Short-term trading usually involves the use of different technical analysis indicators, such as Bollinger Bands, Ichimoku, moving averages, RSI, and so on, to identify trends, measure momentum, and spot potential trend reversals.

Despite being an extremely volatile and speculative asset, XRP seems to responds exceptionally well to technical analysis, which traders use for short-term Ripple trading strategy.

How do you trade with Ripple?

Trading Ripple entails placing orders to buy and sell Ripple on an exchange or crypto market platform offering CFD trading on cryptocurrencies. XRP, like some other crypto tokens, is subject to high levels of volatility, making it an attractive investment opportunity for short-term trading. The price of Ripple swinging up and down, creates opportunities for a short-term trader to make quick profits. Having said that, to trade Ripple, here are some steps to follow:

1. Determine how and where you want to trade it: You can trade the Ripple token on a crypto exchange or via your crypto wallet, and you can also trade the CFD on XRP with a CFD broker such as Alpari, IC Markets, and Pepperstone. If you want to buy and hold Ripple for a long time, you may have to get a hardware wallet and buy from within the wallet or buy from a centralized exchange and transfer to it. But if you simply want to speculate on the price of the token (both long and short) without owning it, you can trade XRP futures on a centralized exchange like Binance or trade XRP CFD with a CFD broker of choice.
2. Open an account with the platform: Once you have chosen the platform to trade, create an account with the platform. Each platform has its account opening requirements and verification processes.
3. Fund your account and start trading: You can fund your account with fiat currency, a stablecoin, or another crypto. It all depends on the methods allowed on the platform you want to trade with. Once your account is funded, you can now buy and sell XRP.

Can you day trade Ripple?

Yes, you can day-trade the Ripple token. In fact, there has been a surge in the number of people day-trading XRP in recent years. XRP is an excellent asset for day traders due to its high volatility level. It provides many opportunities for both long and short positions if you trade XRP futures or CFD.

Since you have to buy and sell XRP on the same day, you would have to look for trading opportunities on intraday timeframes, such as the hourly, 30-minute, and 15-minute timeframes. To stand a chance of making profits, you would have to rely on technical analysis, price action, and social media news and sentiments.

Can you swing trade Ripple?

Yes, you can swing-trade XRP if you have the right strategy, but it’s not easy. Swing trading involves holding a position for a few days to a few weeks. Swing traders typically trade on the daily timeframe, as they try to capture the price swings on that timeframe. At the end of the article we prove a specific backtested strategy.

To be successful in swing trading, you must have a solid understanding of charts and be able to perform technical analysis using price action patterns and indicators. The aim is to forecast the direction of the next price swing, when it will start, and how far it can go. XRP’s price can be affected by several fundamental factors, such as it Ripple’s court case, the number of institutions that use the Ripple payments system, and the overall state of the crypto market.

Examples

Here are two examples:

1. Selling the rallies: In a bear market, as it’s the case in 2022, one popular crypto strategy is to sell the rallies. Oscillators, like the RSI or stochastic, are used to look for overbought conditions when the market can be shorted. You can see the chart below. The areas circled coincide with periods when the market was overbought based on the stochastic indicator. Shorting at that point would have yielded good profits.

2. Bollinger Band strategy: In this strategy, the idea is to go long when the price closes below the lower Bollinger Band and then rises to close above it. The opposite can be used to go short. See the chart below and note the circled parts.

Pros and cons of the strategy

The pros of the Ripple trading strategy include:

1. XRP is reasonably priced: In contrast to other cryptocurrencies with similar market caps, which cost a lot more money, XRP is a token with a low denomination. At the current exchange rate, the cost of completing a transaction on the Ripple network is just 0.00001 XRP, which is a fraction of a penny.
2. The Ripple network has a real-world use case: Ripple created XRP with the specific goal of using blockchain technology and digital currency to solve a problem that existed in the real world. It fixes problems that have been plaguing big financial institutions — how to speed up the flow of capital. Having a real-world use case and evidence of success, as Ripple currently does, means that there is a lot of potential and room for the coin to grow in its role, which will also bring its market along with it.
3. High market capitalization: When looking for alternative coins to invest in, most people look at the market capitalization first. This is because the market cap indicates how significant the coin’s impact is within the industry, as well as liquidity. Ripple has consistently ranked among the top three cryptocurrencies in market capitalization.
4. Versatile Exchange network: The Ripple network can handle more than just XRP-based transactions, and it is compatible with other fiat currencies and cryptocurrencies.

Despite the many merits of trading Ripple, there are some demerits as well, such as these:

1. Ripple retains control of the XRP token: Having Ripple in control of the crypto token benefits investors in terms of confidence, but it also brings up the age-old issue of centralized failings. Chris Larsen, the chairman of Ripple, owns roughly one-third of all XRP in circulation. Brad Garlinghouse, the CEO of Ripple, and other senior board members own a significant amount. Many cryptocurrency purists think that the coin is centralized, which goes against one of the most important ideas behind cryptocurrency.
2. Battle of legacy: Ripple is working to solve a problem that already has a widely accepted solution — the SWIFT system. While Ripple offers a cheaper method for sending money across international borders, it faces serious competition from SWIFT. Ripple needs to get past a long-standing problem before it can replace SWIFT as the most popular way to move money and become the new standard.
3. The SEC action against XRP: Ripple is currently involved in a legal battle with the Securities and Exchange Commission of the United States. The SEC believes that when Ripple issued XRP, the company sold unregistered securities to US investors. So, it served Ripple with a lawsuit in December 2020, saying that since Ripple can decide when to release XRP, the company should have registered it as a security. The court case is still ongoing.
4. Uncertain tokenomics: The mechanism of XRP’s total supply, mining, and distribution is controversial. Even though most of the Ripple supply that is not in circulation is held in escrow, large amounts may be released at unfavorable times, which could affect the value of XRP. 

Ripple trading strategy backtest

We only have data for a few years, so our backtest is based on a short history and a history that might not be very relevant in the future. As crypto gets more mainstream, we assume the behavior will change. Until now, trend following has worked well, but we expect this to change.

We did a lot of testing for Ripple, but very little of what has worked on other cryptos seems to have worked in Ripple. Much of the results seem pretty random to us.

Let’s now look at a specific trading strategy we used earlier for Bitcoin. We use the following trading rules:

1. Buy at the close if the close breaks above the 10-day exponential moving average.
2. Sell at the close if the close breaks below the 10-day exponential moving average.

We did an optimization strategy; the best results are when we use a moving average of 30 days or less. Higher than that, and the strategy makes a loss!

Let’s look at the equity curve of the backtest:

As you can see, the strategy’s performance is pretty erratic and far from something we would like to trade. It makes money in bull periods but mostly shows a flat performance. The annual return is 42%, and the average gain per trade is 2.59%. This is, of course, good, but it all happened over a couple of years.

Are you interested in other crypto strategies? Please check out our landing page for crypto trading strategies, where we have published several strategies for many assets.

Ripple trading strategy – conclusion

Among all the cryptos we have backtested, Ripple has shown the worst results. That could be due to us and not the crypto, but history is still short for Ripple, and we would not have much faith in any backtested result.

FAQ:

How do you trade Ripple?

Trading Ripple involves placing orders to buy and sell on a crypto exchange or CFD trading platform. Traders can use technical analysis indicators to identify trends, measure momentum, and spot potential trend reversals. Steps include choosing a trading platform, opening an account, funding the account, and executing buy/sell orders.

Can you swing trade Ripple?

Yes, you can swing-trade XRP by holding positions for a few days to weeks. Successful swing trading requires a solid understanding of charts, technical analysis using price action patterns and indicators, and consideration of fundamental factors affecting XRP’s price.

Is there a backtested Ripple trading strategy?

Yes, a backtested strategy involves buying at the close when it breaks above the 10-day exponential moving average and selling at the close when it breaks below. However, results show erratic performance, indicating the need for caution and skepticism regarding backtested results.