For the past few weeks, the crypto space has been primarily governed by fear, uncertainty, doubt and a lot of misinformation. Panic, sell-offs, and negativity are in no shortage. The goal of this article is to help beginner traders navigate this downtrending market and perhaps provide some perspective as to what is currently taking place.
First off, before we dive into the suggested trading strategies, let us take a look at why the crypto space is doing so bad at the moment. Here is the weekly Bittrex USDT-BTC chart:
As you can see in the chart above, prior to 2017-12-18, bitcoin was in an upward trend for over 47 weeks straight. Granted we did have some minor corrections at the end of June and September of 2017. However, even during these minor corrections, the market never pushed downwards in a significant way. Not even once. This made a lot of people question bitcoin’s longevity. Some went as far as classifying it as a bubble – and rightly so (more about that in a future article).
Basic market dynamics tells us that markets oscillate for a variety of reasons. Oscillation is the primary method by which markets try to approximate the proper value/price of a given asset at a specific point in time, and it is rather clear at this point that cryptos have had their value inflated too much too fast. In other words, the hype was pushing the price in a direction that is not in line with the value produced by the technology itself. Very few applications of substance have been built on top of the blockchain that would justify these extremely high price points. This eventually lead to the start of a corrective downtrend in mid-December of last year – and it is in this downtrend that we find ourselves today.
One strategy that a lot of beginner traders tend to heavily underestimate is compounding growth. To explain this concept, let us first start by taking a look at this table:
|Earning % Per day||Number of days to double your investment|
For more info about how to calculate the compounding rate, see this wiki article.
What the table above shows is that if you manage to grow your holdings by say 3% every day, it would take you approximately 24 days to double your investment. At 7% per day, it would take you 10 days to double it. Even in the current market, a diligent trader that invests a lot of time and effort into his trading habits can easily achieve a 3-5% daily growth. This would simply mean that said trader can outperform the overall market price decline by increasing his total holdings. Additionally, once the market finds its true bottom and turns around, the growing stack will yield even bigger returns when you decide to sell and exit the market.
But how can I make such returns when everything is spiraling downwards you ask? Well, here are a few strategies that will help you do just that:
1. Trade actively on shorter time intervals (scalping)
Markets oscillate between uptrends and downtrends on all timeframes for a variety of reasons that will be explained in a future article. We can use these oscillations to help carry us into reaching our daily % goal. As an example, let’s take a look at the same Bittrex USDT-BTC chart using the 5-min interval instead of the weekly one:
What the chart above shows is plenty of entry and exit opportunities that you can take part of as a trader to help reach the % goal you set for yourself. Let us assume that you are a new trader starting with a mild target, say 3% daily returns. Well, the opportunity that presented itself at 16:15 is exactly what you are looking for. A single 3% trade that would have you reach your target for the day. 23 more of these and you will have doubled up. Alternatively, you could participate in 3 of these oscillations for 1% each and reach your target for the day. Patience is key here.
When scalping, one of the most common mistake traders make is that they tend to over trade and in the process risk losing everything they have earned. Instead of doing that, wait for what looks like a clear uptrend and use the oscillating indicators such as MACD and RSI in combination with observing the volume of the trading asset to help guide you. Each trading session should not last more than a few minutes. If you get in and manage to score 3-4 green bars, take your profits and wait for the next opportunity to present itself or move on to a different asset while the current one oscillates back down to present you with a new opportunity.
2. Pay attention to consolidation breaks
Let’s zoom in on the same 5-min chart and examine the break at 16:15
Circled above are 3 green candles showing a pattern that is known as inside bars. Inside bars is an easily identifiable pattern that indicates market consolidation before making a move. The first green bar is the largest, it is known as the parent bar. The second one is smaller and is known as the child bar. What makes these two bars into a parent/child pair is the fact that the child bar fits in its entirety inside the parent bar. The child has a lower high than the parent as well as a higher low. When this pattern presents itself, you will generally see the trading volume of the asset drop as the market is in a state of uncertainty. After these two inside bars, we get a third bar whos high is not lower than the previous candle’s high, indicating that the price will start ascending. This is the signal we are looking for.
Once we see an indication of upward momentum, we keep observing the chart for a little longer to see that it actually is following the pattern, and in the example above, it becomes clear that we have a bull break as the bar following those three is a large green one. In addition to the inside bars pattern above, we can also use indicators such as the MACD to confirm that the market pressure is heading in an upward direction. Once all these signals align, chances are that you have a decent opportunity in front of you. Upon confirmation, enter into said position and aim for a few % gains, rinse and repeat; before you know it you will hit your daily growth target.
3. Medium size altcoins are your playground
While what has been discussed so far is applicable to all traded assets, higher cap markets such as BTC and ETH generally require a lot more resources to move for obvious reasons. Meanwhile, very low cap markets can be moved too easily and can turn against you in a heartbeat as you may not even be able to find a buyer to sell your gains into. For that reason, medium size altcoins tend to make for the best playground for new traders.
Any coin that is above 500M cap is a gold mine. Coins like DGD, LSK, OMG, NEO, Zcash, etc. There are endless opportunities in these markets.
4. Protect your gains
This is not a strategy but rather some advice from someone who has been burned many times over the years. Protect your gains at all cost. If your goal is to grow your money, growing it at 1% safely is much better than growing it at -5% (duh!). Always take profits and don’t dwell on what could have been. Focus instead on learning from your mistakes while earning money. Stick to your targets and compound over time. Tenacity, patience, and persistence are what makes for a solid trader, not the flashy single lucky trade gains.
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