- Narrative trading is based on news and events.
- Narrative trading has three stages.
Trading has been within the financial markets for quite some time now and it only expanded with the broadening financial sectors. Among various trading practices, Narrative Trading also holds a position. The trading practice is based on news and events around the company or the overall industry.
News and events create sentiments about the entities across the traders and the efficacies visible on the price in contingency. The outcome depends upon the instance being favorable or unfavorable. Market sentiment for the tradable entities in the wake of news makes traders consider it as a factor.
For instance, the investment, merger, or acquisition makes an impact on the investors’ trading decisions. This may further lead to fluctuations in the stock prices of that company. The investors trade according to the market sentiments to book profits. This is how narrative trading works. Narrative trading is not limited to the news related to the company. it also includes any news in the market that has significant importance and may affect the working of the company. Such news can also influence the share price.
The Three Stages of Narrative Trading
Before Price Movement – To trade before the movement of the price, traders need to be very active. At least they should be able to get news just a few moments after the incident. After this, they will have to predict the price movement and trade according to it. Trading at this point involves high risks. Hence, increases the chances to yield high returns.
When the price movements start – The time when the price movement starts early movers start investing in it. At this point, due to the investment by the early investors, you will know the trend. The risk is significantly less and hence the profit too.
When everyone finds the trend – At this point, every investor in the market is aware of the news. The price has already reacted according to the news. Therefore at this stage, investing gives the lowest return as the price action has already occurred.
Top 3 crypto Narratives to watch out for in 2023
- Decentralized exchanges: The collapse of FTX resulted in many investors losing faith in centralized finance. This event became a great success for decentralized finance. It can be verified by the fact that DeFi exchanges were a 93% increase month-over-month after the FTX implosion. And here we assume that more crypto enthusiasts will consider Decentralized finance in 2023.
- Layer 2s: Layer 2 systems, such as rollups, are specially designed to make slow blockchains faster. Large blockchains such as Ethereum are very expensive as well as slow. Rollups are designed to tackle this problem.
Rollups are of two types –
Zero-Knowledge: These rollups are secure and faster. They are designed to process thousands of transactions in a batch by posting minimal summaries to the Mainnet. Some of the ZK rollups that you should consider are Linea, zkSync, and Starkware.
Optimistic Rollups: These rollups are designed to execute transactions outside of the Ethereum blockchain. They post this transaction data into the Mainnet as call data.
- Artificial Intelligence Coins
AI has become the biggest highlight of the year 2023 With the growing popularity of AI, another thing that is growing with it is AI Coins. Many crypto projects are AI-driven, such as a Decentralized AI marketplace and AI-based trading algorithms. The visible growth in AI coins is the consequence of growing AI influence over the market. And it is expected to grow more. Hence there is a high chance of an increase in the prices of AI coins.