Algorithmic trading strategies in crypto Algorithmic trading has become a go-to for many traders as
Algorithmic trading strategies in crypto
Algorithmic trading has become a go-to for many traders as it lets you automate trades based on specific rules — no emotions, no hesitation, just pure logic. These strategies can scan markets 24/7, react instantly to price movements, and handle large volumes way faster than a human ever could.
Some common algo trading strategies include:
Now, within the world of algorithmic trading, there’s a special group called execution algorithms. These aren’t about predicting where the market is going — they’re about how to get in or out of a position without moving the market too much. They’re especially useful for handling large orders discreetly.
A key subset of these is passive order execution strategies. These aim to minimize slippage and get you as close as possible to a fair average price. The two big names here are:
- Time-weighted average price (TWAP): splits your order into equal parts over time, ignoring volume. It’s great for low-liquidity situations or when you want to stay under the radar.
- Volume-weighted average price (VWAP): adjusts your trade size based on market volume, placing bigger trades when activity is higher.
Both help you avoid tipping off the market and are essential tools in the crypto trader’s toolkit.
What is time-weighted average price (TWAP)?
TWAP, or time-weighted average price, is one of the simplest and most widely used execution strategies in algorithmic crypto trading.
At its core, TWAP helps traders break down a large order into smaller trades, executed evenly over a set period of time — regardless of market volume. The goal? To get an average price that reflects time, not market activity, and to avoid causing sudden price moves.
This strategy is especially useful in two scenarios: when you’re trying to quietly execute a large trade without alerting the market and when you’re trading in low-liquidity environments where even moderate orders can move prices. By pacing your trades, TWAP helps reduce slippage and keeps your activity under the radar.
Its biggest strength is its simplicity — it’s easy to implement and understand. But that simplicity also comes with a tradeoff: TWAP doesn’t account for trading volume. So, during high-volatility periods or sudden market shifts, it might miss key signals and give you an execution price that doesn’t reflect the true state of the market.
In short, TWAP is a great option when you need to trade steadily over time, especially in quieter markets. But if volume and volatility are major concerns, it might not always give you the best result.
Did you know? You can easily add TWAP (time-weighted average price) to your trading setup on platforms like TradingView by simply opening your chart, clicking “Indicators” and searching for “TWAP.”
How to calculate TWAP
To calculate TWAP, you take the price of the asset at regular time intervals, add them all up, and divide by the number of times you checked the price.
Here is the formula to calculate TWAP:
In layman’s terms, the formula looks like this:
TWAP = (Price₁ Price₂ … Priceₙ) / n
Let’s walk through an example.
Say you check the price of Bitcoin (BTC) every 10 minutes and get the following:
90,000 → 90,100 → 89,900 → 90,050
Now add them together:
90,000 90,100 89,900 90,050 = 360,050
Then divide by the number of intervals (4):
TWAP = 360,050 ÷ 4 = 90,012.5
What is volume-weighted average price (VWAP)
VWAP stands for volume-weighted average price, and it’s a go-to metric for traders who want a more realistic sense of an asset’s average price throughout the day.
Unlike TWAP, which just averages prices over time, VWAP factors in how much volume was traded at each price. That means prices with more trading activity carry more weight in the final average — making it a better reflection of where the market actually values the asset.
Traders often use VWAP as a benchmark. If you buy below VWAP, you’re likely getting a better-than-average deal compared to the rest of the market. It’s also handy for spotting trends — if the current price is above VWAP, the market’s probably bullish; if it’s below, that could be a bearish signal.
VWAP has its advantages: It gives a more accurate picture of market value and can help identify when an asset might be overbought or oversold. But it’s not perfect. It’s more complex to calculate and can get thrown off by a few unusually large trades, which might skew the average.
All in all, VWAP is a powerful tool for traders who want deeper insight into market dynamics, but like any indicator, it works best when used alongside other signals.
Did you know?…
cointelegraph.com