Shiba Inu Trading Strategy (backtest)
Last Updated on November 12, 2022
If Bitcoin is the first thing that comes to your mind when you hear the term cryptocurrency, it is not your fault. Bitcoin has gained that popularity for more than a decade of its existence. However, Bitcoin is not the only coin in the digital currency market. There are others, such as Shiba Inu. Want to know about Shiba Inu trading strategy?
Shiba is a meme coin that rose to prominence in mid-2021 when Tesla CEO Elon Musk’s Shiba Inu tweet went viral. Dubbed “dogecoin killer”, the token was envisioned as an alternative to DogeCoin (the most popular meme coin at that time). Shiba Inu trading strategy refers to the methods you can use to profitably buy and sell the crypto asset.
In this post, we take a look at the Shiba Inu coin and how to trade it. At the end of the article, we make a backtest.
What is Shiba Inu?
Shiba Inu is an Ethereum-based meme token using Shiba Inu (a Japanese hunting dog breed) as its emblem. Shiba Inu was popularly regarded as a “dogecoin killer” because it was envisioned as an alternative to DogeCoin (the most popular meme coin at that time).
Developed by an unknown organization or individual under the identity of Ryoshi in August 2021, the token was created as a satire or inside joke rather than as a genuine project with a real-world application. Being an ERC-20 token, Shiba Inu does not have a blockchain of its own; instead, it runs on the Ethereum (ETH) blockchain.
The token was created with a total supply of one quadrillion, designed to allow users to hold a large number of tokens and generate high returns on Shiba trading if the price rallies — even if it remains under a penny. When the token was launched, 50% of the total one quadrillion supply was locked to the Uniswap (UNI) decentralized exchange, and the remaining 50% was sent to Ethereum (ETH) creator Vitalik Buterin, who donated more than 50 trillion SHIB tokens to the India Covid-Crypto Relief Fund and burned over 410.24 trillion SHIB tokens.
Following Buterin’s action, the development team announced that in response to a request from the community, they were introducing coin burning to the Shiba Inu protocol. Crypto developers use coin burns to destroy cryptocurrency coins and remove them from circulation so as to support prices by decreasing supply and slowing down the rate of inflation. As of April 2022, there have been 549 trillion tokens in circulation with a total market capitalization of $13.4 billion.
What is Shiba Inu trading strategy?
Shiba Inu trading strategy refers to the methods you can use to profitably buy and sell the Shiba Inu token. When you’re contemplating how to trade Shiba Inu, your goal is to speculate on the token’s price movements. Your strategy can either be a long-term buy HODL or short-term trading.
With short-term trading, you’ll be placing numerous trades within short intervals whenever you find an opportunity in the market. The crypto market is generally characterized by high volatility, and it is even higher in meme coins like Shiba Inu. Despite being a newcomer to the market, Shiba has witnessed a significant increase in value in 2021, outperforming Bitcoin in the near term. Take a look at the chart below:
The above chart shows Shiba Inu and Bitcoin (light blue line). Shiba gained more than 500% during the same period Bitcoin gained only about 60%.
Shiba Inu had a price increase of more than 900% in October 2021, giving it a market value of over $41 billion (Oct. 29, 2021) and ranking it among the top 10 cryptocurrencies. In about 14 months from its launch, the token gained an amazing 14,670,488% return at its peak price of $0.00007482 (on October 29, 2021). This meant that every $1 invested in August 2020 would have resulted in a $146,705 return on October 29, 2021. However, the token has been hit with the general bear market in the crypto market (and even the entire financial market). It has lost over 88% of its all-time high value.
But the point is that the extreme volatility in the asset could provide opportunities for short-term trading if you have the strategies to take advantage of it. One common strategy is swing trading, where a trader can attempt to profit from the token’s price swings that often last a few days to a few weeks.
Swing traders can use oscillators, like the RSI to look for overbought and oversold conditions — go short at the former and long at the latter. Since the market is in a downtrend, it may be better to short the overbought situations than buy into the oversold situations.
However, if you intend to use the HODL strategy, which is basically the same as the buy-and-hold strategy in stocks, you can use dollar-cost averaging to buy as the price drops. Alternatively, you can wait for the crypto market to get into a new boom before you buy again. But note that no one actually knows when the bull market would return — a seemingly unimportant rally might turn out to be a new bull run. Those who make money in the crypto market are those who buy when every other person is afraid.
Where can you trade Shiba Inu?
You trade cryptos on an exchange. There are many platforms where you can trade Shiba Inu, but they can be categorized into decentralized and centralized crypto exchanges.
Central exchanges are the most popular platforms for trading cryptos, given that they have more liquidity, and thus, offer lower spreads. There are many of them around, such as:
To trade Shiba Inu with any of these platforms, you need to open an account with the exchange. This involves submitting some basic information, such as your name, phone number, and email address, and then creating a password and verifying your email. You may be requested to provide proof of your identity, such as your identity card, driver’s license, or social security number, as well as proof of address — utility bill or bank statements that is less than 3 months old.
Many exchanges will not allow you to transact unless your identity has been validated, but some may allow other transactions except withdrawal until after verifying your documents. Whichever way, once you are verified, you can trade Shiba Inu on the platform: you can buy the token and leave it on the platform, withdraw to your personal wallet (which can be a software or hardware wallet), and also sell it on the platform.
Another place to trade Shiba Inu is on a decentralized exchange (DEX), which is a peer-to-peer marketplace where transactions occur directly between crypto traders. With a DEX, you buy or sell your crypto directly from within your crypto wallet (in the case of Shiba Inu, your Ethereum wallet, such as MetaMask or Coinbase Wallet).
Decentralized exchanges enable you to transact without any other kind of intermediary, and you do not need to put your personal details even when registering for your crypto wallet. Another thing is that their trading fees are low. Some of the most popular DEXs include Uniswap, PancakeSwap, dydx1, and Sushiswap.
DEXs work from inside your crypto wallet, which can be a software wallet or a hardware wallet like Ledger. A software wallet is accessible online via a web browser or a mobile app and is free to use. On the other hand, a hardware wallet stores its key in a hardware tool, but it is not free; you have to buy it. However, it offers more security.
You can also trade CFDs on Shiba Inu with CFD brokers that offer the crypto contract. Many CFD brokers offer Shiba Inu CFD these days. Examples include Alpari, eToro, IC Markets, Pepperstone, and AvaTrade. You can open an account with any of them and trade Shiba Inu CFD, which allows you to speculate on the price of the token without owning it.
How do you trade Shiba Inu?
To trade Shiba Inu, here are the steps to take:
- Determine how and where to trade it: We have shown the common places to trade the Shiba Inu token. If you want to buy and hold for a long time, you may have to get a hardware wallet and buy from a DEX within it 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 Shiba Inu futures on a centralized exchange like Binance or trade the CFD with a CFD broker of choice.
- Open an account with the platform: Create an account with whatever platform you have chosen to trade with. Each platform has its account opening requirements.
- Fund your account and start trading: Depending on the platform, you can fund your account with fiat currency, a stablecoin, or another crypto. Once your account is funded, you can now buy and sell Shiba Inu.
Examples of Shiba Inu trading strategy
Here are a few Shiba Inu trading strategies. They are for learning purposes, not backtested strategies.
Shiba Inu scalping strategy
For this strategy, we are going to be using the moving average crossover to enter and exit our trades on the 1-minute timeframe. The rules are given below:
- Buy when the 20-period MA has crossed over the 50-period MA.
- Sell when the 20-period MA has crossed below the 50-period MA.
- Exit when the MA gives a signal contrary to the initial trade direction.
Shiba Inu day trading strategy
The moving average crossover also works great on the higher timeframe for Shiba Inu. However, we will be making use of the RSI to enter and exit our trade. Below are the rules:
- Buy only when RSI is crossing above the 50 mark from below.
- Sell only when the RSI is crossing below the 50 mark from above.
- Don’t trade when the market is choppy.
- Exit when the indicator is reading in the opposite direction of the trade.
Shiba Inu swing trading strategy
For the swing strategy, we will be using a support and resistance line in addition to the RSI to open and close our trades. Below are the rules to follow:
- For a buy trade, the price must be at support and RSI should be in oversold territory. A buy signal is given when the RSI reading pulls out of the oversold territory and is above 30. Buy on the next candle open.
- For a sell trade, the price must be at resistance and RSI should be in overbought territory. A sell signal is given when the RSI reading pulls out of the overbought territory and is below 70. Buy on the next candle open.
- Exit when the RSI reading reaches the middle line or the opposite extreme point.
What are the rules of Shiba Inu trading strategy?
To trade Shiba Inu effectively, you must have a well-developed trading plan and the discipline to follow through with it. Pick a strategy and stick with it. Also, you need to understand that this crypto asset is more volatile than Bitcoin.
The following are some set of rules to follow when trading Shiba Inu.
- Pay attention to popular social media platforms by following individuals known to influence the market.
- Only trade when the market condition is in line with your entry rules.
- Don’t risk too much on one trade.
- Know when to stop — don’t overtrade or get into revenge trading.
Investing in the cryptocurrency market is a high-risk endeavor that should be done with caution. Because the market is unregulated, there is an increased danger of market manipulation and other unlawful trading practices.
Even though the market has the potential for making huge profits, given its enormous volatility, you must have a well-defined strategy and plan to succeed. The high volatility may not be suitable for some traders, so be sure it’s something you can handle. To get the most out of this crypto asset, backtest your strategy to verify it can perform well before investing, and make sure you invest only what you can afford to lose to prevent emotional ties to your trades and investments.
Shiba Inu trading strategy backtest
A Shiba Inu strategy backtest with strict trading rules and settings will come shortly.