Having a trading strategy is crucial for any investor who wants to achieve long-term success, trading NFTs is no exception. This article is a beginner guide to various NFT trading strategies and related tools, potentially improving your NFT trading return performance, regardless you are new to the market or relatively seasoned. Combining the following seven strategies with the NFT fundamental analysis mentioned in previous articles might help you to enhance your investment performance.
1. Sweep the floor
The floor price of a specific NFT collection is the lowest price for an NFT in the collection, sweeping the floor means buying NFTs from the specific NFT project or category at the floor price. A category could be the rarity or even any attribute subset. To find NFTs at the floor price, you could use Nansen, Rarity.tools, Icy.tools, CryptoSlam, HowRare.is (Solana), Solana Floor, NotFoundTerra, (Terra) and FlipsideCrypto.
While buying minted NFT at the floor price allows you to invest with less money and make a profit when the NFT becomes popular, it does not necessarily translate to a positive investment return as the price could drop below the previous floor price.
2. Buy the ceiling
Buying the ceiling is the exact opposite of sweeping the floor. Buying the ceiling requires investors to have a certain amount of resource/money, and go for the rarest and the most sought-after NFT (and also the most expensive ones in the collection/category). By sorting NFTs of a specified collection from highest to lowest based on price in places like Opensea, you could easily find your target.
The rationale behind buying the ceiling is waiting for the NFT project’s demand to go up and when that happens, these ceiling NFTs could skyrocket in terms of value due to their rarity. It is worth noting that this strategy bears high risks as there is the possibility of a decline in popularity for the NFT project. Consequently, buying the ceiling is not applicable for every NFT project as the price of some projects may never go up. Investors should combine other metrics or strategies with buying the ceiling to achieve better results.
3. Trading volume
Trading volume could be one of the metrics used along with “buy the ceiling” strategy. A standalone strategy based on trading volume is another possibility. Trading volume could be the indicator of whether the NFT project is popular or in demand. You could also use the change of trading volume as an indicator of a specified project’s popularity. Resources like Nansen, Icy.tools, NonFungible, and DappRadar could help you easily locate the next target. However, the trading volume could be subjected to wash trading, a kind of strategy where the trader is acting as both the buyer and seller in a transaction to bump up the asset price and trading volume.
4. Social sentiment
Using sentiment analysis could give investors an edge in catching the latest trend. Based on the market sentiment tools like Google Trends, investors have a better chance of finding the next potential hit in the NFT market. You could look out for breakout projects/keywords related to NFT, and monitor the interest in the NFT market over time in Google Trends.
Monitoring the traffic flow of an NFT project’s social media could be another way. Tools like TweetBinder allow you to view an account’s number of followers over time, eventually giving you a sense of the market sentiment towards the NFT project.
5. Look for underpriced NFTs
Looking for underpriced NFTs could be another way to trade NFTs and make profits. While underpriced assets could mean a lot of different under different criteria and metrics, here are some tools useful in finding your next underpriced target. NFT Deal Score by Flipside Crypto is one of them, showing what the percentile of an NFT’s listed price is among the collection. Nansen also provide analytics to track the historical price movement. Utilize these tools to look for better NFT deals.
One downside of the strategy is the intrinsic value of an NFT could be highly subjective and there might not be other copies of the desired asset for comparison. While using the NFT Deal Score does not require a comparison of “identical” NFTs, the differences in attributes and rarity of different NFTs in the same collection are not taken into consideration.
6. Cornering the market
Cornering the market refers to obtaining sufficient control of an asset. While it may be an impossible task for retail investors, you could look for NFTs that are being cornered by other investors. An NFT project that has been cornered has a reduced availability in the market, resulting in a higher possibility for the specified NFTs to skyrocket once the demand increase. Checking how many NFTs of a collection are owned by the development team, influencers, and funds could also help you locate cornered NFTs with even more potential.
7. Sell the news
News has often served as a catalyst in the financial market, and investors could trade NFTs accordingly. As the saying ‘buy the rumor, sell the news’ goes, NFT traders could make an investment when there is a rumor about a certain NFT collection and sell when there is a news announcement that affects the NFT’s value. Such a strategy could be risky, as investors who trade news in the NFT market are prone to falling into a FOMO trap or falling victim to false/inaccurate information. The use of fundamental analysis and doing your own due diligence helps reduce the risk of making a wrong NFT move.
While the strategies and tools mentioned above help improve your return, investors should be aware of scams or “rug pulls”. Looking into fundamental details of an NFT project, such as utility and the development team’s background, will provide more insight and security to your investment.
By Arthur Kwan and Ezreal Kung at Art of Trades
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