A parabolic cryptocurrency is one whose price rises or declines sharply within a short period. For example, a coin that is trading at $120, can suddenly fall to $108 followed by $92, and then $86 within a short period. When this happens, it can be said to have made a parabolic move.
In this article, we will look at parabolic crypto meaning, what causes them, and how to possibly trade them if the opportunity presents itself.
Parabolic Crypto Meaning
In most cases, cryptocurrencies tend to move by a percentage that is upwards of 10%. This is normal given the volatile nature of cryptocurrencies and market forces of supply and demand. However, in certain periods, a crypto can make a significant move where it suddenly jumps or falls due to catalysts.
These parabolic moves are usually more frequent in small-cap and newly listed cryptocurrencies. The same situation is common in other financial assets like stocks, commodities, and traditional currencies.
A good example of this is what happened during the Wall Street Bets situation in early 2021. At the time, social media users managed to push the stock price of companies like AMC Entertainment and GameStop up by more than 300% within a matter of days. Similarly, parabolic moves were seen in the cryptocurrency market as some meme coins like Shiba Inu and Dogecoin more than doubled within a few days.
Causes Of Parabolic Moves
There are several key causes of parabolic moves in crypto that every crypto trader or investor has to take note of, and they differ from each other. That's why it's important to also understand the environment of the cryptocurrency you intend to get involved with, lest you end up getting taken by surprise.
Social Media
First, as we saw during the Wall Street Bets situation, social media has an important role in moving stocks and cryptocurrencies alike. Most recently, leading memecoin Dogecoin enjoyed a sharp climb in price following reports that Twitter officials agreed to sell the social media company to Tesla’s CEO Elon Musk.
At the time, Dogecoin had rallied slightly above 25% to trade at $0.1588. The cumulative trading volume also soared to $5.3 billion in 24 hours and was at par with ETHereum.
Fed Decisions
Second, a crypto could have a major pump or jump after a policy change by the Federal Reserve. For example, the Federal Reserve raised its interest rates by 0.75 basis points on June 15, which was widely anticipated and comes amid a market that has entered bear territory and inflation at a 41-year high.
The hike affected the crypto market which was already in “crypto winter” mode, causing the Bitcoin and ETHereum to drop 30% and 38.7% respectively within the next 7 days after the announcement was made.
Major News
Third, a news announcement by a project can lead to a major parabolic move. The recent news about Andre Cronje, and his fellow blockchain developer Anton Nell, exiting the decentralized finance industry affected most of the crypto projects they are associated with.
One of them is the Fantom Foundation, for which Andre served as a technical advisor. Immediately after the news came out, the Fantom price dropped by 25% that day.
How To Trade Parabolic Crypto?
Trading parabolic cryptocurrencies can be highly profitable but also presents huge risks to the trader. One thing is common: you will most likely miss the first parabolic move because they happen so fast.
However, going forward, you can still make money as there are usually two outcomes that happen when a parabolic move occurs. First, the coin can consolidate and form a bullish flag or a pennant and then continue with the upward trend. Second, it could retreat and go back to where it was before.
If you spot a bullish consolidation move, you can go long and hope that it will keep rising. If you spot the opposite pattern or none at all, you can short it and hope that it will drop. Still, every trader should be careful when it comes to shorting parabolic coins because short squeezes are common. You should always reduce your risk by sizing your position well and by having a stop loss on all your trades.
Closing Thoughts
Trading parabolic cryptocurrencies can yield huge profits but doing the wrong thing or getting caught by surprise due to price catalysts can lead to significant losses. In this article, we have looked at parabolic crypto meaning, some of the causes, and what are the ways in which traders can capitalize on parabolic movements.
Let us know what you think about parabolic movements in cryptocurrencies as compared to the stock market, and your strategy in approaching these phenomena.
