Beginners Guide to Trading Moving Averages for the Crypto Market
September 21, 2018
Chart Patterns | Latest News | Technical Analysis
Using candlestick formations in order to determine price movement from one direction or another is great for what it does within a more confined timeframe. The problem is, the level of detail that you get from candlestick formations is so granular, that it may be hard to determine the overall trend across the daily highs and lows of a particular cryptocurrency.
This is where moving averages come into play and why they’re one of my all-time favorite trading signals for both ease-of-use and reliability.
Moving averages will really help you break down the momentum of a particular crypto coin. These averages are represented by a simple line which gives an indication as to where a coins price was and is most likely going to be, in an easy-to-see format.
Let’s start off with one of the most basic moving averages…
Simple Moving Average
This moving average, as the name implies, is a simple line that represents the closing price of a cryptocurrency, which is averaged out over a period of time.
In layman’s terms, you simply write down the closing prices for say the last 30 days, add them all up, and then divide that total by 30. This will give you the average of that particular number set.
The most common simple moving averages that you’ll read about are the 50, 100, and 200 day moving averages. Each of these three moving averages will show the momentum during their respective time period (50 days, 100 days, or 200 days).
The only weakness behind simple moving averages is its inherent simplicity, where the data points are assigned the same weight, which affects the outcome of each one equally. This means if you have a price that is severely out of range, compared to the other price points, this can skew the simple moving average line, which in turn can give you inaccurate results.
Let’s look at an example for context…
Say the first four days of price action was at $3, $4, $4, $5, and then a whopping $25. The simple moving average line would then be centered on the average of $8. As you can clearly see, this major movement in price tends to greatly disrupt the averages.
Don’t worry; I cover a strategy further down this guide utilizing the exponential moving averages alongside simple moving averages, that will help facilitate the correction of this issue.
For now, let’s discuss the 3 most common types of simple moving averages.
50 Day Moving Average
A 50 day moving average measures the short-term market confidence. This moving average is consistently used by swing traders, due to its accurate representation of the market during a 24 hour period.
When price action is above the 50 day moving average, this indicates that you’re in a short-term bull market. The opposite rings true for price action below the 50 day moving average. This would clearly indicate that you’re in a short-term bear market.
Also worth noting, when candlestick formations are moving between bullish and bearish sides of the 50 day moving average, this indicates a “ranging period” where the market is undecided where it wants to go. Trading during these ranging periods is much riskier than trading in a substantiated trend (bear or bull trend).
As you can imagine, trading alongside a trend is much more predictable than trading sideways where the market sentiment has yet to be determined.
What’s interesting about the 50 day moving average is that it’s sensitive enough to show large institutional buys or selloffs. These price movements are recorded more accurately on this shorter-term moving average.
100 Day Moving Average
This moving average is considered a medium-term momentum indicator. These are characterized by sharp changes or reversals in the market and tend to include large economic or political movements. You can expect the 100 day moving average to move opposite of the primary trend that follows the 50 day. Much like the 50 day moving average, prices above the 100 day moving average are more long term bullish and prices below this line are bearish.
200 Day Moving Average
As you might expect, the 200 day moving average is a crucial gauge for longer-term trends. This is what you would call the “big picture” or “birdseye view” on how a particular market is doing.
This moving average is not going to tell you where to place a buy or sell order on a day or swing trading basis, however it will let you know whether you need a hold on to a cryptocurrency for a while or if you should start thinking about exiting the market.
I typically use the 50/200 SMAs cross to get an overall feel for where the market is currently and the direction it will be headed when swing trading. I cover more on this strategy below under “The CCJ Moving Average Strategy”.
The Golden Cross
The Golden Cross is defined when the line of a short-term moving average crosses a longer-term line. This cross indicates that a bullish or bearish breakout is imminent. You can look at the cross as a warning of what’s to come (think red alert).
So for example, if you have a 50 day moving average cross over a 200 day moving average, this indicates that bearish sentiment is soon approaching. The same goes for bullish sentiment. If the 50 day moving average crosses under a 200 day moving average, this indicates that bullish sentiment will soon take over.
The reason I use the 200 MA as opposed to the 100 is due to the fact that there is a much larger separation between these 2 moving averages. The 50 and 100 MAs tend to overlap one another.
It’s important to note that bearish or bullish sentiment is soon approaching once these two lines move closer together. You don’t always have to wait for a cross, but it is preferred for confirmation.
Next let’s talk about one of the most utilized moving averages for both day and swing traders alike.
Exponential Moving Averages
This moving average, also known as EMA, is built upon a “linear weight” moving average. It includes an exponential multiplier which is calculated by a rather complex equation. No need to bore you with all the mathematical details. All you need to know is that it assigns more importance to recent price movements, thus allowing a trader to get a better idea of where price momentum is headed.
EMAs are much faster than simple moving averages (SMA) and will give you a rather quick indication as to when to enter or exit a trade. The advantage to this moving average is that it reacts much faster to price changes.
Swing traders typically use the 5, 10, 20, and 50 day exponential moving averages for their trades. The most popular being the 20 and 50 EMA crossovers which generate quick buy and sell signals. These are the moving averages that I tend to use for my daily trading as well as the 50 and 200 day SMAs.
The CCJ Moving Average Strategy
I’ve used a wide variety of moving averages during my long and arduous cryptocurrency trading career. The ones that I typically tend to rely on the most and have had the most success with are the…
20 and 50 EMA
50 and 200 SMA
I don’t recommend using these on time frames below five minutes. You can use one or both of these moving average pairs, however if I had to choose just one I would use the 50/200 SMA.
The 20/50 EMAs will show you where price movement is headed in the short-term. 50/200 SMA will show you where the price is headed on a mid-term basis, which is great to evaluate where overall sentiment is headed. It’s important to note that you can use the 50/200 SMA on the 15 minute timeframe and above. Anything below that can give you false signals.
Like always, a picture is worth 1000 words, so I’ll give you a few examples and setups of each.
Let’s Wrap This Up…
Moving averages is one of the more simple strategies you can start utilizing today within your current cryptocurrency trading regimen. Whether you’re day trading, swing trading, or investing, you can use these moving averages to get a clear indication as to where the market is currently at and the sentiment it’s moving towards.
Using these moving averages in combination with indicators, candlestick formations, and charting patterns can provide you with a remarkable trading strategy as well as clear-cut entry and exit signals which will have you winning the majority of your trades.
As always, leave a comment below and let us know if you have any questions.
The underlying theory behind the Elliott wave principle is based around how price moves, which typically is not in a straight line, but in a series of waves. A great analogy would be one that compares an ocean tide coming in as the water rises, and flowing out as the water recedes into the sand below.
Within any financial market (including cryptocurrency), every action creates an equal and opposite reaction. When price movement moves up, a contrary downward movement must follow.
Price action within any financial marketplace is often divided into trends and corrections (sideways movement). Upward or downward price action will showcase the direction of a trend, while corrections will always move against the trend. These repeating patterns have been shown to occur within all financial marketplaces since the dawn of time.
A man by the name of Ralph Nelson Elliott, first discovered these repeating patterns, known as impulsive and corrective waves. He noticed that these impulsive waves, which always coincide with the main trend, tend to respond in 5 waves.
Even on a smaller scale, each of these impulsive waves can be found and continue to repeat themselves inside the larger Elliott wave patterns. These “waves within waves” are labeled as “wave degrees” within the Elliott Wave Principle.
We’ll cover more about wave degrees below, but first a quick history lesson….
The History Behind the Elliot Wave Principle
Ralph Nelson Elliott developed the Elliott Wave Theory back in the late 1920s. Elliott proved that the stock market does not behave in a chaotic manner but more so in a repetitive cycle. He proposed that these market cycles were the result of investor reactions to outside influences and the predominant psychology of the masses.
His studies concluded that the upward and downward waves of these mass psychological signals continued to show up in the same repetitive patterns throughout time. His theory is also based on the Dow Theory that also states that stock prices move in waves.
Elliot also noticed that the market tends to behave in a “fractal” like nature. Fractals are mathematical structures that tend to repeat themselves infinitely, even on the smallest scale.
Enough of the history lesson. Let’s get to what you really want to know about…
How Exactly Do Elliot Waves Work?
Human social nature can be found within these repetitive patterns due to the predictive manner of human psychology in which the powers of greed, FOMO, and “weak hands” rule. You can call it another “self-fulfilling prophecy” all you want, however these patterns show up within all financial markets due to these reactive and basic human emotions.
As discussed above, Elliot waves come in 2 different phases: motive (the trend) and corrective phases. The motive phase forms 3 advancing waves of 1, 3, and 5. The counter waves (downward) are comprised of 2 and 4.
During the corrective phase, you’ll typically find 2 receding ways labeled A and C, with a counter wave (upward) labeled B.
This is best illustrated on the chart below…
The rules behind the motive waves are as follows:
Wave 2 never moves below the beginning of wave 1.
Wave 3 is never the shortest wave.
Wave 2 and 4 can sometimes alternate in form, for example, Wave 2 can show up as a zigzag wave while Wave 4 will be flat.
At least one of the waves (1, 3, or 5) will be much longer than the other two. Most of the time, the third wave is the longest of the three, but that is not always the case in crypto.
Rules for the corrective phase are as follows:
Wave B terminates at or below the start of Wave A
Wave C typically terminates below Wave A.
In the cryptocurrency market, corrective waves typically claim more than 60% of the all-time high price (top of 5th wave). Some would argue that the norm is 75 to 80% and 100 to 120% retracements can be found if correlated with bad news.
Ok, enough about rules. Just remember that if you get confusing results from your chart, it’s most likely that you’ve miscalculated and dismissed some of the rules mentioned above. Don’t worry though; you’ll most likely miscount these waves the first several times you try.
In order to combat this miscounting issue, here’s a trick I use to help spot these waves.
Go to the top bar where you can change the candlestick display on TradingView and choose the Heikin Ashi candlestick. This type of candlestick helps you better view red or green candles that correspond with a particular trend.
The Heikin Ashi displays the average pace of prices, which is great at identifying trending periods. This is what Elliott waves are all about. It will greatly reduce the confusion on whether candlestick patterns are showing bearish or bullish patterns. Trust me, these help immensely.
Tip: I use the Heikin Ashi for all my trades and not just recognizing Elliot Waves. It can be used all by itself without any indicators or charting patterns in order to spot various trends. Pairing charting patterns like Elliott waves with the Heikin Ashi will arm you with an extremely accurate and powerful predictive toolset.
As you can see from the image above, it’s much easier to count waves using the Heikin Ashi candlesticks over standard candlesticks.
Wave Degrees : The Waves Within Waves
Each wave of the 5 Wave Elliott Principle consists of one wave of a larger timeframe. Each wave can consist of much larger market cycles that last decades.
The degrees of each wave pattern have different names as labeled below.
Intermediate: weeks to months
Primary: several months to a few years
Cycle: one to several years
Supercycle: multiple decades (40-70 years)
Grand Supercycle: multiple centuries
What are the Best Entries and Exits?
The very best entry point would ideally be at the start of the first wave, however these can be hard to spot as they come after a period of consolidation (these can sometimes last days or weeks) or after a sudden dip.
Most traders who trade this pattern start at the bottom of the second or fourth wave. These are much easier to spot. Whatever you do, do not ever buy near the top of the third or fifth wave.
The best exits would be at the end of the third corrective wave, however these can be hard to time as well due to the fact that these final waves can retrace to 100% of the initial 5 Wave Elliott pattern.
For a safer exit position, look for a consolidation that breaks outside of the final corrective wave trend line.
The Elliott Wave Principle is another highly useful chart pattern that many veteran traders use to recognize the beginning and end of a trend.
Never buy into the news or hype alone. These systems are used to fool people into buying the tops or bottoms of the market, which is a sure-fire way of getting REKT.
Do your own research before buying and selling into the market. Know what phase the market is currently in (motive or correction) and make an informed buying decision utilizing the Elliot Wave Principle.
For more “beginner friendly” trading tutorials, visit our trading section, located here.
As always, if you have any questions, please comment below.
Good luck and happy trading!
Let me ask you one question…
What kind of trader are you?
Are you the type of person to look for steady, more conservative profits, protecting yourself from big risks over time? Or are you the type who enjoys the high risk to high reward game?
You know…the type of person that’s ready to knock it out the park, retire early, and travel the world eating bizarre food while hiking in the rain forest.
There’s no shame in taking the easier more conservative route. Buy a few coins, hold, and collect your earnings several years on down the line. If that’s more your speed, this guide isn’t for you.
There’s one strategy that holds the potential to deliver the type of massive returns that most people only dream about…
Sure, swing trading can be great when everything goes your way. However it takes real grit and discipline to keep those profits and not go “all in” with one or two bad trades.
It takes A LOT of “discipline” to continue down this rocky path, when you’ve lost 3 straight trades in a row and are starting to question your new career path (or lack thereof).
I’m not saying this to scare you, I’m just letting you know the truth. You’re about to embark on a journey that will take you on an emotional rollercoaster.
Although swing trading can be a long and treacherous road, paved with a lot of “emotional discomfort”, with the right trading system, discipline, and emotional grit, the riches found on the other side of that wall are lined with streets of gold.
I’m going to be going over A LOT of material within this guide. I highly recommend you take copious notes (or bookmark this page) as a lot of this stuff is going to make more sense as you start getting your feet wet in the field.
I’m going to be giving you everything that I learned on my own swing trading journey, so you don’t make the same mistakes I did.
Many of these lessons I’ve learned the hard way. Many of them, you’ll learn the same way too, regardless of how much I emphasize them here.
Like most of us, we never truly learn our lesson until mistakes are made. So get ready and welcome “your mistakes”. You’ll soon become best friends with them.
So let’s get right to it, shall we?
Take siege over the crypto market and storm those golden palace walls in order to claim the riches that are rightfully yours!
Day Trading VS Swing Trading
Buy low, sell high. Easy enough right?
I thought so too when I first started swing trading, but it’s everything in between that really matters.
There are typically two types of trading , which can normally be split into day or swing trading. Day trading typically describes someone who sits in front of the computer all day and makes several trades during this timeframe. Typically this type of trader accumulates small percentage gains (1-3%) which end up compounding towards the end of the day.
I don’t know about you, but I don’t have time for all that.
It’s great on some days where it’s rainy outside and you have nothing else better to do, however doing it for a living is a whole nother reality that I don’t intend to live in.
Considering the volatility of crypto trading, I’ve personally found much more success swing trading, than day. Swing trading also allows you to live a life that’s not always behind the computer.
Typically, swing traders will make one trade every 1-3 days, but can sometimes last up to a week or more.
The beauty behind swing trading is that you can accumulate much larger profit (20%-50%) within a relatively short amount of time, without sitting and staring at charts all day. It’s also a lot less stressful and time consuming.
News Events and Technical Analysis
There 2 types of methods that traders formulate their strategies around… news events and chart analysis.
News events are when a trader believes that a price will go up or down according to government regulations, cryptocurrency bans, exchange hacks, etc. This also includes more inclusive news like cryptocurrency airdrops, contests, new exchange listings, technology upgrades, and more. These events can trigger a bullish or bearish move in price, however it’s not always the case.
On the other hand, technical analysis is the most commonly used tool for trading. It’s a swing trader’s best friend, and can be used at any time, regardless of news or events.
A typical trader will study the price movement of a currency and formulate a strategy based on chart patterns, indicators, as well as the current momentum. Once these indicators and patterns line up (known as convergence), a predictable price movement of over 75% can occur in some cases (like a head and shoulders pattern).
The probability of a trade going your way will exponentially increase when certain news events meet technical analysis. The BEST TRADES are made when these two methods converge.
Technical Analysis and Why It Works
Predictable chart patterns are found within all markets (stocks, forex, options, etc), but are extremely prevalent within the cryptocurrency trading market. Some may say it’s even more prevalent due to the fact that there are so many novice traders out there.
Now, most “non-traders” will simply call this luck or gambling, until their blue in the face. However, gambling primarily relies on chance. Seasoned traders primarily rely on decade’s worth of market evidence on group psychology.
Let me explain…
Technical analysis is nothing more than a visual representation of trader psychology on a massive scale.
I wish there was something magical about it, however it’s about as plain and straightforward as math. It’s essentially what happens when you mate human psychology with math over an extended time.
Sorry if I might have taken away some of the mysticism behind it for you, but its predictive nature has worked for decades and will continue to work for decades to come.
It all comes down to herd mentality…
Regardless of how much you want to believe that you’re an individual…. you’re not!
Individuals can make unexpected decisions once isolated, however when placed in a group setting, predictability becomes imminent. A group of individuals will inherently make predictable decisions (and even act the same way others do) within a “community”.
This is the nature of being human.
We are designed to be predictable creatures when placed within these group settings. There’s nothing wrong with that. It’s what has allowed us to survive for so long.
Just realize, that this predictability allows “smart traders” to capitalize on the primal nature of communities.
Now the only question I have for you is…will you be the predator or the prey?
Enough about that, let’s move forward with what you came here to learn, starting with the fundamentals.
The 9 Fundamental Pillars of Swing Trading
Now that you have a good idea of why technical analysis works, let’s start to go over the how.
Within this section I’ll be going over the fundamental pillars of swing trading. This will be the foundation that you build your crypto trading career on. Make sure you don’t just gloss over this section as its one of the most important.
1. Only invest in what you can afford to lose. This is the GOLDEN RULE to trading. I realize you probably heard this 100X by now, but the only reason why you’ve heard it so much is because it’s remarkably true. Not only for the fact it can leave you broke and depressed (that’s a good enough reason than any), but for the simple fact that it will make you emotionally unstable for trading.
Trading with fear is one of the worst emotions you can carry with you. This will cause you to make careless mistakes. Fear will cause you to lose your patience. Fear will inevitably ruin your trades… so don’t do it!
If you’re just starting out, trade with only a fraction of what you make per month. That way, if you lose it all, it’s no big deal. If you end up making all the right moves and come out ahead, carry that mindset over to accumulate more crypto with your winnings.
Remember, if you’re investing money that you can’t afford to lose, then you’re simply trading out of desperation. Just assume that what you invest in trading cryptocurrency is lost forever. Only with this mindset will you trade with a clear head.
PSA: never use money from your home equity, credit cards, or from some bookie you just met at your local bar.
2. Don’t get greedy. This is probably one of the toughest pillars to master. Once you stop trying to hit home runs all the time, and settle for a first or second base score, you’ll find yourself winning most of your trades.
Greed was the primary issue I had when I first started trading and will most likely be a difficult one for you to overcome too. Once I stopped swinging for the fences and focused on taking profit while it was on the table, is when my trading success started to take flight.
There is one strategy that I typically use on all my trades, which really helped me out with this greedy mentality called “scaling”. Basically it’s where you take partial profits from your trade till you reach your target goal. I’ll cover more on the scaling strategy under the technical analysis portion of this guide below.
Just remember, no one ever lost money taking profit.
3. Don’t FOMO. This is another principle that has frequently lost many novice and intermediate traders a lot of money. Trading into FOMO is a combination of being too greedy and investing blindly.
The reality of the situation is, if a coin pumps quickly, it will more often times than not, dump just as quick. It’s only a matter of time before a pump and dump claims you as its next victim. Don’t be that guy.
Like jumping onto a train going full speed ahead doesn’t sound like something that most people would be eager to try, treat FOMO in the same manner. I’m sure most of us can agree that we can wait for the next stop.
4. Learn from your mistakes. This may seem like common sense however you’ll inevitably make the same trading mistakes multiple times, before you learn from them.
Don’t beat yourself up too much when this happens. It will happen a lot when you first start swing trading. Just learn from them and do your best to ensure that they never happen again.
Writing down your mistakes on a notepad and posting them somewhere close to you will definitely help you not make them again.
At the same time, remember not to let the losses discourage you. The reality is, they’re making you a much better trader…that is if you choose to learn from them.
5. Accept your losses and move on. Similar to the pillar above, however it deserves its own topic. Crypto swing trading will not always go according to “your” plan. It’s how you deal with those losses that matters. Try to realize early in your trading career that an integral part of swing trading is taking your licks and moving forward.
You have to be willing to accept your losses when they happen. Accepting your losses is as much a part of trading as winning is. Even the most elite traders in the world deal with losses. It’s impossible to make accurate predictions 100% of the time.
Never chase your losses either. Chasing losses is where a trader experiences more loss by trying to make it up and taking on high risk trades. This is another reason why the majority of traders fail.
Accept your losses, take it as a learning experience, reflect on your mistakes, and start a new trade (preferably the next day or after a break) with a fresh pair of eyes.
6. Volatility is your friend. It doesn’t matter if the price of an asset moves up or down. What really matters is that it’s moving. In order to capitalize on those 30-60% swings, you need to pick coins that showcase a lot of volatility.
The beautiful thing about crypto trading is its inherent volatility. What some may deem a negative trait of cryptocurrency should be more so considered a strength. Massive swings are a great benefit to swing traders who know what they’re doing.
One of the initial steps to swing trading is to look for coins with high volatility for the day and analyze the charts for promising entry and exit positions.
Here are two amazing resources I use to view what crypto coins have the most volatility on any given day.
. Almost all altcoins are paired closely to Bitcoin. If the price of Bitcoin pumps drastically, altcoins price will almost always drop.
This is the results of people trying to exit altcoins in order to ride the Bitcoin profits. On the other hand, if Bitcoin prices dump, altcoin prices will also follow suit and dump.
The sweet spot for trading altcoins is during the consolidation phases of Bitcoin or when it steadily increases in price over time. As long as Bitcoin is still “the king of crypto”, drastic movements will always equal drastic altcoin results.
8. Keep a trading journal. This provides any serious trader a way to help them evaluate themselves objectively. The primary objective to a journal is to monitor both the performance of your trading system as well as the ability to execute it on a consistent basis.
More often times than not, traders who consistently lose trades are typically not based on their poor trading systems but the inability for the trader to follow the rules properly.
Trading journals are only as good as what’s written in them. If you fail to accurately track your trades, it becomes very hard to judge your trading performance over time.
Be thorough and honest. Don’t shortchange yourself and fail to list entries because it’ll make you feel better. Reflect on your entries every month and I guarantee you’ll learn a lot about yourself and your trading psychology.
9. Practice makes perfect. Before depositing funds into your trading account, practice on a chart or a demo account first. TradingView offers paper trading where you can trade with fake money in order to harness your technical analysis skills.
Once you’ve got a good grasp on how the markets works and a fundamental understanding of technical analysis, indicators, and chart patterns, you’re ready to take the next step with real money.
Start off with low trading amounts in order to get used to the psychological factors that come with trading with money. Take your accumulated profit and keep reinvesting into your trading capital.
If you end up losing all your money, chock that up as a paid education. At this stage, it’s all about improving your skills and knowledge before investing large amounts of capital.
These are my trusted 9 fundamental pillars of swing trading. I highly recommend you do your best at following these tactics to the very best of your ability. If you need to, print them out and keep them close by.
Next, we’ll move onto the finer technical details of swing trading like layering, stop losses, take profits, and everything else in between.
The Finer Details of Crypto Swing Trading
Crypto traders have many tools and strategies at their disposal. Within this section I’ll be going over the most noteworthy. Utilizing these tools, will teach you things like….
Keeping you out of danger from losing all your capital in one trade.
Teaching you where to place your stop losses
Getting the best buy and sell orders prices
How to recognize reversal trend signals
I will not be covering…
Technical analysis, charting patterns, candlestick formations, or indicators within this section. I’ve constructed thorough guides for each of these aspects of trading on our trading page located here.
Here is a quick reference to some of the guides located on CryptoCoinJunky. I highly recommend you read up on all the aspects of trading you’re not familiar with before going at it with your own money.
There’s nothing more gratifying than the feeling you get buying at the very rock bottom of a dip as the price rallies upward, later cashing out at the very top of a peak.
Sure you may get lucky on a trade or two, but this is more of an anomaly than the norm. That’s not to say however, that you can’t get close.
There’s only one method I’ve found where you can come close an overwhelming majority of the time. The strategy is called “scaling”.
Scaling is the process where you divide the capital you intend to trade with into segments. Each segment is divided into 2-4 price levels.
Let’s say you’re trading with a total of $400 on Bitcoin. Instead of placing a lump sum of $400 all at one time, you’re going to divide it up into sections in order to obtain the best possible buy-in price.
Example: Bitcoin is dipping and close to a bottom of a major support along with it showing oversold on the RSI and Stochastic indicators. You place a buy order like so…
– $100 at price level $8,110
– $100 at price level $7972
– $100 at price level $7875
– $100 at price level $7819
This scaling strategy would average you out out to around $7944 after spending your full $400 buy order. As you can see, this is much more efficient at getting you a better price than placing it all on one bid at $8,110 as Bitcoin continues to decrease.
Now it’s entirely up to you on how far you want to spread these scaling intervals out. You can choose to spread them out at every 0.50%, 1%, or even 2%, etc. This is simply a matter of personal preference and also depends heavily on the type of coin you’re trading. Low market cap coins increase/decrease percentages in price more easily over the higher market cap coins.
Now were not out in the clear just yet…
Your next step would be to set a stop loss to avoid having a large majority of your trading capital wiped out. This will also avoid you scaling into a losing trade.
It’s up to you to determine where to place your stop loss, however I’ll cover stop loss placement strategies below.
Another alternative to the scaling strategy would be…
– $100 at price level $8094.50
– $125 at price level $7972.43
– $175 at price level $7875.04
As you can see from this example, we’re increasing the buy order amount the lower price action goes. This allows you to accumulate more on each level of the dip so that you take away more profit when bulls are back in favor. Make sure you set a stop loss after your last buy order, under a major support and/or a previously large candle wick dip.
Stop Losses – Your Crypto Swing Trading Safety Net
A stop loss is basically a price level you automatically exit your trade at. It’s really not that difficult to understand, however there are many strategies revolved around the placement of your stop loss.
Now there are two types of strategies behind stop loss placement. There really is no right or wrong regarding these placements. It all depends on how conservative or risky of a trader you are.
Let’s first take a look at the conservative approach.
Stop loss placement with this strategy consists of a tight stop loss, generally around 1-5% below your buy order. It’s also important to place these at an adequate distance below a major support.
Let’s examine both the pros and cons of this placement strategy.
Pros – Keeps your losses to a minimum ensuring you don’t lose much on any particular trade.
Cons – You can be “stopped out” by whales (large scale investors) before a major rally. This is why it’s very important to place your stop loss at a good distance below a major support.
It’s also a best practice to place them below a previously long candle wick that has already broke through the support.
The second stop loss placement strategy is for more risky traders. These placements are typically 10%+ below your buy order. Much like the strategy mentioned above, it also comes with its own pro and con.
Pro – keeps you from being “stopped out” by whales before a major rally. This gives you a lot of wiggle room in order to avoid those evil “quick wicks”.
Con – if a dip turns out to be more than just a quick dip, then you’ll end up taking on a major loss, which can sometimes be mentally hard to come back from.
As you can see, there is no right or wrong stop loss placement strategy. The smarter strategy is to choose a stop loss according to the history of the coin you’re currently trading. Some coins are a lot more volatile than others.
Some coins have a long history of dumping before they pump. Some coins are fairly stagnant before a rally. Take note of these types of patterns and realize that there is no “one size fits all” stop loss strategy.
I do not recommend placing a trade without a stop loss, unless you’re willing to wait a few days, weeks or even months in order to break even on the trade.
I’ve tried this strategy on more occasions then I’m willing to admit and have got stuck holding bags for a very long time (some of which have never recovered). So please take that into consideration.
Next, let’s cover a the most important part of your trade, take profit targets…
Taking Profit While It’s Still on the Table
Many novice traders place too much emphasis on their entry points and not enough on their exits. It’s not your entries that’ll make you profit, but your exits that determine your success.
Setting a proper “take profit target” is one of the most important aspects of trading, so don’t take this section lightly.
As you might’ve guessed by now, take profit targets are where you claim your riches. There are many ways to determine where to set your profit targets according to technical indicators, chart patterns, or candlestick formations.
I’m going to show you the two easiest ways to set your profit targets for maximum profit potential.
#1 Using Resistance
Setting a take profit target under a prior resistance is a great strategy for beginners. Make sure to not get too greedy and place your target 1-2% below a major resistance.
To ensure your target is reached, make sure that the price is at an odd number and not exactly at a major price level as well as even number.
Example: set it to $8,191 and not at $8,200
#2 Scaling Out of Your Trade
Much like the scaling strategy I mentioned above, it’s also good to take some profit all the way to up to your final take profit target.
This will ensure that you always walk away from a winning trade with some form of profit. Your final take profit target may not always be reached, so it’s good to take a little profit while the bulls are in session.
Here’s a good example:
Your buy order for BTC is at $7318 and your take profit target is set at $7,464., just under a major resistance. Alternatively, you could set your targets to take 50% at $7464 and 50% at $7542 where a few previous wicks have touched. This would give you a chance to take profit while holding out for previously recorded peaks.
This is another way to relieve some of the stress that comes with trading. The feeling you get with taking profits along the way will ensure a better mindset for future trades.
#3 No Stop Loss Strategy
Warning: Not to be used by novice traders.
I couldn’t end this stop loss section without at least mentioning the “no stop loss strategy”. Take note that I DO NOT recommend this strategy for beginners, however there are times where having no stop loss can benefit you in a trade.
If you end up trading on an extremely volatile and erratic chart, utilizing no stop loss can end up benefiting you in the long run as you can more easily recover losses on an upswing. Again, this should only be considered during a steady bull market. This will make it much easier to recover from losses if the coin temporarily dips on you.
Also worth noting…
Never trade without a stop loss during a major uptrend or near an all-time high for any particular coin.
Pro – you’ll never get stopped out by a whale right before a rally and can end up taking advantage of those massive rallies after a quick, but major dip. Nothing is more irritating than taking a loss due to a triggered stop loss as you watch a massive rally leave without you.
Con – a sudden dip can leave you with a huge loss if the coin never recovers. Either that or you end up waiting it out for several weeks or months until it reaches your buy order price, which eats up a lot of time.
Tip: If things go south quickly and a dramatic dip has occurred near a strong support, always exit out of the trade during the next upswing, close to your initial buy order. This is not the time to be greedy. Take what you can get on the following rally. Recovering your loss is your upmost priority at this point.
You’ll typically have only one (two at the most) chances to recover from a dramatic dip past your initial buy order. Take the first rebound you get off the dip in order to recover your loss.
This could mean the difference between taking on a 30% loss or 5. Remember it’s always better to be safe than sorry.
Vital Signals: Divergence and Confluence
Divergence is one of the most powerful signals you can use in order to spot the reversal of a trend. This is something that you’ll want to look for early in on your crypto trading journey.
Although the name may sound a bit intimidating, the signal is far from it. Divergence is merely the comparison of the trending price action to the trend found within the RSI indicator. When you see price action moving up and the RSI indicator is trending down, chances are high you have an impending trend reversal.
The more time frames you can locate divergence, the stronger the signal. For example, if you find divergence on the 30, 60, and 240 minute time frames, you know that a reversal is on its way.
Confluence is another very powerful signal you want to look out for. It’s the exact opposite of divergence. This signal occurs when there are several technical indicators that line up and give you the same trading signals towards one direction of a trend. The more confluence you have, the greater probability that this trend will prevail.
Confluence can include a combination of indicators and chart patterns.
For example, if price levels reach the very top of the bollinger bands, while forming a double top charting pattern, while also being overbought within multiple time frames on the RSI and Stochastic indicators. This would be a sign of confluence in which price will most likely drop. The confluence would signal a good time for a trader to either exit their long position or enter with a short position (making profit on the way down).
You Did it! What to Do Next
Great job on making it through to this long and intensive guide!
The rules and strategies I covered above are by no means the end-all be-all lessons you’ll learn for swing trading crypto, however they are a great starting point. When it comes to trading, things are easier said than done. Do yourself a favor and follow this guide to the best of your ability. Just remember that nothing will ever truly replace personal experience.
You might be feeling a bit overwhelmed by now. That’s completely normal as I’ve threw a lot at you. Let me give you a good starting point from here.
Open up TradingView and start analyzing and plotting various charts.
If you’re not familiar with standard charting patterns, candlestick formations, and indicators, visit the trading page located here.
Once you’re comfortable analyzing charts, move over to paper trading on the TradingView platform. Keep track of your wins, losses, and profits within your trading log.
Once you’ve completed many trades (20-50) with a record of at least 50% wins, start yourself off with a small amount of trading capital ($100-$500). Remember these are funds that you don’t intend to ever get back.
Practice, practice, practice. Learn from your mistakes. Move forward and don’t ever give up.
If you’re truly passionate about living an independent lifestyle, free of the 9-5 hustle, then don’t stop till you get there!
“The best preparation for tomorrow is doing your best today” -Jackson Brown
Good luck my friend and enjoy the journey!
Leave a comment below if you have any questions and I’ll be sure to get back at you shortly!
On the most fundamental level, traders use visualization as a crucial element to technical analysis. Patterns showcase the unique ability of our brains to locate patterns and build models by comparing price charts to separate historical price movements.
These price formations tend to correspond to similar historical price movements, due to the fact that crowds tend to react to similar situations in similar ways.
View a chart as a “log” of crowd behavior, in order to better understand why price history can help us gauge the current state of the market. Price history not only allows us to spot the current mood of participants, but most importantly, the balance between buyers and sellers.
On the other hand, your mind can play tricks on you as well. Traders tend to see patterns that aren’t necessarily there and confirm these subconsciously. Psychologists call this “confirmation bias”. It is the most notorious enemy of traders and investors alike.
While visualization is an important and necessary tool for traders, especially experienced ones, never treat a chart or pattern as the end-all be-all. They aren’t magical tools, however in experienced hands, they can boost your returns and help you find great trading opportunities, while protecting your investment.
Support and resistance levels can be seen as the most basic (sometimes most reliable) chart patterns. As a general rule, simplicity is extremely helpful when formulating your trading strategy. Over complicating your charts with a plethora of charting tools and indicators will only lead to confusion. You can certainly find some confirmation on complicated charts; however it typically won’t give you any more direction than simple ones.
The patterns we’ll discuss below aren’t necessarily the Holy Grail of chart patterns. They are simply the best tools we can use to trade the cryptocurrency markets with at a surprising degree of accuracy.
For example, many traders like the head and shoulders pattern as it has an accuracy of over 80% when it’s fully complete. Not too many other patterns can match that.
Within this guide, I’ll go over 4 of the best and most widely used chart patterns in cryptocurrency trading. Follow the instructions and practice on a live chart. Teach yourself how to spot these patterns and trade them appropriately.
Head & Shoulders Pattern
Let’s start off with the classic head and shoulders chart pattern which most people have heard of and know what it resembles.
This pattern generally signals a reversal in the market and means that there is a failed attempt of the trend to move any higher. An uptrend can be easily defined as a series of higher highs and higher lows. In the case of the head and shoulders pattern, the last trend (right shoulder) fails to make a higher high and higher low. Soon thereafter, a new downtrend is initiated.
Turn the pattern upside down, and we have an inverse head and shoulders pattern. This signals a shift from a downtrend to an uptrend.
The head and shoulders pattern is considered to be the most reliable patterning trade. It can often be easier to spot on a chart and can help you filter through all the clutter.
Bull Flag (or Pennant) Pattern
This is what is known as a continuation pattern. It’s considered one of the most reliable bullish patterns in trading. Also referred to as a pennant or wedge, the bull flag is often formed when the price enters a consolidation phase following a strong uptrend.
The consolidation phase shows that the market is gathering momentum for the next rally up. It’s a very natural part of a trend where those who were at the beginning of the trend are starting to take some of their profits. On the other hand, new traders are entering the market and taking positions for the next run-up in price.
Cup & Handle Pattern
This pattern is a bullish one that’s very well known in the stock market and also appears in in the crypto market just as often.
As you can see from the image below, the pattern forms a cup like shape before a dip on the right corner of the cup, leading to another significant rise in price. In order to confirm the pattern, you would want to look out for a significant increase in trading volume near the end of the handle. A buy order should be entered when the price breaks above the right corner of the cup.
The logic behind this trading pattern is that the cup represents the bottom of the market and the handle creates a higher low which by definition means that an uptrend will begin.
This pattern is very similar to the bull flag, where price appears to be stuck between a support and resistance. The more touches there are between the support and resistance the more reliable the pattern is considered to be.
The rectangle pattern is a trend continuation pattern and is often a waiting game for traders as it’s difficult to tell exactly when the price is going to break out. Depending on the direction of the preceding trend, the rectangle can be either bullish or bearish.
This pattern can be traded into ways. One method would be by placing an order at the lower end of the rectangle and placing a stop loss right under. The second method would be placing a buy order just above the upper end of the rectangle in hopes of catching the breakout.
The problem with this last option is that a price spike can happen quickly and then subsequently dip back down through the rectangle pattern. This is called a “fake out” and occurs quite frequently. As with anything you do in trading, taking the slightly more conservative approach should serve you better in the long run.
Now head on over to TradingView, and practice spotting all four of these popular trading patterns. Once you think you’ve got a handle on things, open a demo account or paper trade (fake money) on TradingView.
The last step will be to start trading with a very small amount of cryptocurrency within an exchange. See how well you can stick to these charting patterns, with money on the line. That’s a whole lesson in itself, that no trading guide will ever be able to teach you.
You might have heard that some professional traders don’t use stop losses. This might be all well and true; however you must also realize that they also have multiple years of experience under their belt. They’ve dealt with these stressful situations more times than you can probably count.
On the other hand, seems like everywhere you look, you see a ton of advice from other “so-called traders” telling you that you should never trade without a stop loss. With all the conflicting advice, which one do you choose?
As you can imagine, there’s pros and cons to each. Depending on your trading style (if you have one yet) and experience, this will vary from person to person.
Personally, I tend to lean more towards using stop losses than not. I’ve found myself losing a lot more money from not implementing these handy “safety nets”. Believe me; I’ve had my fair share of trades without them and none have turned out well.
With that said, this doesn’t mean that you shouldn’t explore your own trading style and see which one works best for you.
Cryptocurrency Stop Losses
For those of you that are brand new to trading, stop losses are orders that a trader places at a specific price which automatically executes a buy or sell at a certain price point.
If you’re “long on a trade”, you would utilize a sell stop loss at a level below your buy-in price. This is what majority use along their trades. If you’re shorting a trade (margin trading) then you would set your stop loss as a sell order above your buy-in price.
One of the main purposes of setting a stop loss is to allow yourself to remove all emotions from your trading decision. It also serves a secondary purpose of not having to worry about watching over your position like a hungry jackal. Setting a stop loss will allow you to actually enjoy your life and walk away from the charts without your trade completely tanking.
In order to make a thorough decision on whether to use a stop loss or not, you should consider the advantages and disadvantages behind each one. If you decide against using a stop loss, I highly recommend you test this strategy on a demo account or with a very small amount of currency.
What are the Advantages of Using a Stop Loss?
In many cases, traders don’t want to close a trade because they somehow think that the market will eventually reverse in their favor . The problem with this train of thought is, markets don’t typically move towards an individual traders favor, no matter how powerful you think your Jedi mind tricks are.
On the other hand, stop losses allow you to just “set it and forget it”. This gives you the freedom to walk away from your charts, have a life, work on other business matters, enjoy a hobby, exercise…. you get the point. In not utilizing stop losses, you’re essentially staring at charts all day. Setting alerts for key price points will still have you glued to your smartphone.
An apparent benefit to using a stop loss is the fact that it eliminates “trading discipline” which you might have not cultivated yet. No matter how mentally tough you think you are, it takes the willpower and mental fortitude of a triathlete. It’s tough to cut a loss once your trade has gone completely sour.
Keep in mind; you need to be confident in your trading strategy in order to stick to your original plan. Setting a stop loss and take profit will help you stick to your original game plan as intended.
Overview of Stop Losses:
Grants you freedom from watching charts all day or staying glued to your smartphone.
Strips you of the mind games that you’ll be putting yourself through with mental stop losses.
Much more practical to use for traders who have less than a few years of experience trading.
Using Mental Stop Losses
A mental stop loss is referred to as a stop loss you “remember” to set before opening your trade. This is unlike a ” standard stop loss” which is manually set on a cryptocurrency exchange. A mental stop loss only abides by the rules you put into action “if” your trade moves below your buy in price. It’s only as flexible as your mind allows it to be.
A mental stop loss will test your trading discipline. Trust me, when those dips get deeper, that panic button starts to look more and more enticing.
However mentally strong you think you are, it’s nothing compared to the feeling you’ll get once that dip accumulates more sizable losses.
PRO TIP: I’ve typically found, once a major dip has occurred, a quick rebound in price action will follow. The real question is, will this rally lead you back to those tasty profits, break-even point, or merely soften the blow with a smaller one?
My advice is, take a look at the charts history and see what happened with previous dips. Which of the three options mentioned above, did the previous dips most often follow?
Set a trailing stop loss underneath each previous candle. I’ll typically move my stop loss in this manner, as to avoid a sharp reversal.
Analyzing Your Charts & Order Books
Cryptocurrency trading is an extremely volatile market. It’s been known to trigger stop losses on more than a few occasions. A short-term fluctuation could easily trigger a premature stop loss. This is why I highly recommend you set stop losses on a “per chart basis”.
Each chart comes with its own story. There will be a wide range of fluctuations that you need to analyze for each one.
Some charts tend to fluctuate 2 to 3%, others will fluctuate 10 to 15%. Always take a look at your charts history to view previous candlestick fluctuations, in order to decide on what range to work with.
Does it often dip 10% and rally for more prominent gains? Does it consolidate for several hours before an increase in price action? You can easily answer these questions for yourself by looking at your current charts history.
Analyzing the Order Book for Guidance
Another item you want to check before setting a stop loss is the order book. Order books show a list of orders from any given exchange which records the interest of buyers and sellers in the market at any particular time.
By analyzing buy and sell walls, you can get a good indication as to where to place your stop loss. Make sure to place your stop loss at least a few percentages behind a high buy wall, when trading on a long position.
This strategy paired with historical chart data, will allow you to formulate a more sustainable stop loss location.
Implement these variables into your stop loss strategy and you’ll lower your chance of triggering a premature stop loss.
There are going to be occasions where stop losses are triggered, no matter how strategic you are. Just remember, there’s no such thing as a perfect strategy. All you can hope to accomplish with any trading strategy, is to minimize your losses and maximize your potential gains. However, you’ll win a lot more of your trades than not, if you stick to this very simple, yet effective strategy.
Overview of Mental Stop Losses
Great way to eliminate triggering premature stop losses before a major rally.
If a charts history and order book are not followed, manual stop losses will potentially lose more trades than not.
If you decide to utilize mental stop losses, practice with a demo account or smaller amounts of currency.
Each chart has a different story to tell. Some may fluctuate wildly while others maintain a more consistent and stable support. Although mental stop losses have their time and place, I highly advise anyone who has less than a few years of consistent trading experience to stay far away from them.
Look at it like this…
Your time is much more valuable than the capital you trade with. If a dip continues deep into a bear market, you’ll have only two choices. Take a greater loss than you had originally intended or get left holding bags until the coin reverses and potentially reaches your buy zone again.
Waiting for your coin to recover can cost you a lot of time. Meanwhile, holding onto those bags will cost you a lot of time which you could be using on winning trades. This could be prevented if you had a standard stop loss in place.
Don’t trade your time for money. Get in, get out, and move onto another trade.
Good luck and happy trading!
Reversal patterns are the closest thing you get to a crystal ball when it comes to predicting trend reversals within the volatile world of crypto trading. Once you start timing these patterns consistently, you’ll gain an uncanny advantage over your trades. A well timed trade off a reversal pattern can make the difference between making 5% on a trade or 50%.
It doesn’t matter if you’re trading Bitcoin, various altcoins, or any other asset. Reversal patterns are an extremely important part of any traders skill set.
This guide will be covering 6 of the most widely used reversal chart patterns. Learn to recognize these bad boys for a well-placed trade that will leave you “head and shoulders” (pun intended) ahead of the pack.
Common Reversal Trade Patterns We’ll Be Discussing
Head and Shoulders
Inverse Head and Shoulders
Head and Shoulders Reversal Pattern
One of the more popular reversal chart patterns is the bearish formation known as head and shoulders. As you might’ve guessed, the pattern resembles a raised head with two matching shoulders on each side.
The bottom of the left shoulder should always be drawn across to the bottom of the right shoulder. The neckline serves as an area of support which the price will eventually drop below.
When the price drops below the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed lower off the right shoulder towards a bearish breakout.
Head and Shoulders Overview
Trend – Bearish
Signal confirmation – when the price drops below the neckline on the right shoulder.
Pattern target – tends to break out below the bottom of the right shoulder.
Percentage pattern hits target – 62%
Inverse Head and Shoulders Reversal Pattern
The inverse head and shoulders is a common bullish formation which, as you might’ve guessed by now, predicts the reversal of a downtrend. As the name implies, it resembles an upside down head and shoulders.
The top of the left shoulder should always be drawn across to the top of the right shoulder. The neckline serves as an area of support which the price will eventually rally above.
Once the price drops above the neckline of the right shoulder, the pattern is considered complete. After completion of the pattern, price will most likely proceed below (moving upward) the right shoulder towards a bullish breakout.
Inverse Head and Shoulder Overview
Trend – Bullish
Signal confirmation – when the price drops above the neckline on the right shoulder.
Pattern target – tends to break out below the bottom of the right shoulder (moving upward).
Percentage pattern hits target – 75%
Double Bottom Reversal Pattern
The double bottom is a bullish formation that is frequently found at the end of a bear market. It predicts the reversal of a current downtrend and commonly resembles the “W” shape. The shape is formed by two consecutive dips that have roughly around the same lows that are separated by a peak.
The patterns neckline, which is drawn above the middle peak, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price rises above this neckline, indicating a bullish rally.
Double Bottom Overview
Trend – Bullish
Signal confirmation – when the price rallies above the peak between the two dips.
Pattern target – tends to break out above the peak towards bullish rally.
Percentage pattern hits target – 65%
Double Top Reversal Pattern
The double top is a bearish formation that is frequently found at the end of a bullish market. It predicts the reversal of a current uptrend and commonly resembles the “M” shape. The shape is formed by two consecutive peaks that have roughly around the same highs which are separated by a dip.
The patterns neckline, which is drawn below the middle dip, acts as an area of resistance which must be broken through. The reversal pattern is complete once the price falls below this neckline, indicating a bearish trend.
Double Top Overview
Trend – Bearish
Signal confirmation – when the price dips below the valley between the two peaks.
Pattern target – tends to break out below the bottom of the right peak to breakout towards a bearish movement.
Percentage pattern hits target – 74%
Rounding Top Reversal Pattern
This bearish reversal pattern predicts the reversal of an uptrend and is sometimes referred to as an Inverse Saucer. This pattern is more easily found under the long term reversal patterns which typically last weeks or even months.
Rounding Top Overview
Trend – Bearish
Signal confirmation – price exceeds below the right bottom of the saucer.
Percentage pattern hits target – 27%
Rounding Bottom Reversal Pattern
This bullish reversal pattern predicts the reversal of a downtrend and is sometimes referred to as a Saucer Bottom. It’s also easily identified by its “U” shape. This pattern is typically found under the long term reversal patterns which last weeks or even months.
Rounding Bottom Overview
Trend – Bullish
Signal confirmation – price exceeds above the right top of the saucer.
Percentage pattern hits target – 60%
Practice Almost Makes Perfect
These reversal chart patterns are not too hard to recognize once you actually remember to look for them. Look over a few of your favorite cryptocurrencies here, and see if you can spot a few reversal patterns I’ve mentioned here within this guide.
These powerful cues will help you forecast dramatic shifts within the supply and demand of any cryptocurrency. Reversal patterns are a very important tool to add to your cryptocurrency trading skillset, so learn them, love them, and use them.
A major part of technical analysis is determining whether to buy in or sell out of a formidable crypto trade. Kenny Rogers always use to say, “know when to hold em, know when to fold em, know when to walk away, and know when to run”.
If you’re under 25, you probably have no clue what the hell I’m talking about, so just disregard my 80’s reference or go ask your dad.
These crucial chart patterns help traders forecast future price movements. It doesn’t matter which coin you’re trading, these bad boys show up all over the charts.
Continuation chart patterns DO NOT predict the future (wouldn’t that be nice). However, they do help with locating the “probability of movement” within a particular trend. I promise these powerful buy and sell signals will help you make much more accurate investment decisions. Scouts honor!
Study the chart patterns I outline for you below. If all else fails, we can always fall back on the Dolorean and predict our way to crypto riches.
Continuation Chart Patterns – Which Way Does it Go?
As stated above, continuation chart patterns will tell you whether price movement is going to continue moving up or down within a prevailing trend.
For example, if price movement of a downtrend trend shows signs of a continuation pattern, what do you do? If you guessed, “buy in” then keep reading. The correct answer would be…wait until a reversal pattern emerges. Alternatively you can just move onto another trade.
So let’s start things out with 6 of the more popular continuation chart patterns. Study each as if there will be a test at the end of this guide.
Rectangle Continuation Patterns
This continuation pattern depicts sideways price movement between 2 horizontal trend lines (support and resistance) along a strong uptrend, which generally results in an overall uptrend continuation.
In order to be defined as a true bullish rectangle, price movement should touch each trend line at least two times on both support and resistance. Upon doing so, the price action should break the top trend line of resistance. Investors want to purchase the cryptocurrency when the price action closes (candlestick close) above the upper trendline.
Confirmation to buy – when price closes above the upper trendline.
Pattern confirmation – two touches on both support and resistance.
Percentage of time pattern reaches target – 80%.
This continuation pattern depicts sideways price movement between 2 horizontal trend lines (support and resistance) along a strong downtrend, which generally results in an overall downtrend continuation.
In order to be defined as a true bearish rectangle, price movement should touch each trend line at least two times on both support and resistance. Upon doing so, the price action should break the bottom trend line of resistance. Investors may want to short the cryptocurrency (refer to margin trading) or sell the coin at this position for a loss.
Confirmation to sell – when price closes below the upper trendline.
Pattern confirmation – two touches on both support and resistance.
Percentage of time pattern reaches target – 50%.
Triangle Continuation Patterns
This bullish continuation pattern is depicted by a right triangle which is created by two trend lines. The bottom trend line is drawn horizontally upward, where support prevents the price action from breaking through.
The top trend line is represented by a horizontal level which prevents the price from breaking through this resistance. Once this resistance line is broken, upward price momentum is expected to continue.
This pattern showcases that the demand for the crypto coin is increasing over time.
Confirmation to buy – when price closes above the upper trendline.
Pattern confirmation – two touches on both support and upward horizontal resistance line.
Percentage of time pattern reaches target – 75%.
The bullish continuation pattern is depicted by a right triangle which is created by two trend lines. The bottom trend line is drawn at a horizontal level where support prevents price action from breaking through.
The top trend line is represented by a downward horizontal line which prevents the price from breaking through this resistance. Once this resistance line is broken, downward price momentum is expected to continue. It is recommended to sell here.
This pattern showcases that the demand for the crypto coin is weakening over time.
Confirmation to sell – when price closes below the lower trendline.
Pattern confirmation – two touches on both horizontal support and downward resistance line.
Percentage of time pattern reaches target – 54%.
Flag Continuation Patterns
This continuation pattern resembles a flag at the top of a pole. The bullish flag is a short-term continuation pattern which tells you that a temporary market consolidation is occurring before a continuation of an uptrend.
Within the pattern, the flagpole is represented by the sudden vertical spike in price as the flag portion is represented by a temporary downward consolidation against the uptrend.
Typical bullish flags are angled downward from the predominate trend, however on occasion it can be angled upwards. The continuation pattern is complete once price action breaks above the upper resistance trendline.
A typical price target is measured by adding the length of the flagpole to the price associated with the bottom of the flag.
Confirmation to buy – when price closes above the upper trendline.
Pattern confirmation – at least two touch points on both downward support and downward resistance line.
Percentage of time pattern reaches target – 64%.
This continuation pattern resembles an upside down flag. The bearish flag is a short-term continuation pattern which tells you that a temporary upward market consolidation is occurring before a continuation of a downtrend.
Again, the flagpole is represented by a sudden vertical dip in price as the flag portion is represented by a temporary upward consolidation against the downtrend.
Standard bearish flags are angled upward or sideways from the dominant downward trend, however on occasion it can be angled downward. The continuation pattern is complete once price action breaks below the lower trendline of support.
A typical price target is measured by subtracting the length of the flagpole to the price associated with the top of the flag.
Confirmation to sell – when price closes above the upper trendline.
Pattern confirmation – at least two touch points on both downward support and downward resistance line.
Percentage of time pattern reaches target – 64%.
Good Job Kid!
You did it kiddo! You studied your ass off right? You ready for the big leagues now? Don’t get to far ahead of yourself…..there’s more.
This is where the rubber meets the road. Apply these patterns to your favorite trading chart before claming your fame. Head on over to our Tradingview charts and get started on a few while it’s still fresh on your mind.
Once you’re comfortable with recognizing these patterns, throw a few dollars at your favorite exchange (whatever you can manage – start slow). See if you can win a few rounds within your own crypto trading challenge.
Remember young grasshoppa, practice doesn’t necessitate real world experience, but it sure as hell helps!
If you enjoyed this guide, leave a comment below. I’d love to hear from you and the experiences you’ve had along your crypto trading journey.
No matter what anyone’s ever told you, producing a steady income trading takes time, experience, dedication, and a lot of emotional grit. However unlike traditional markets, you can make money much faster trading cryptocurrency (and lose it just as fast) due to the markets volatile nature and low barrier of entry.
There are two vital aspects to become a successful crypto trader. Obtaining a solid understanding of technical analysis and managing your own emotions. I would go so far to say that the emotional aspect of trading is a bit more difficult, however we’ll dive more into that aspect of trading in another guide.
Let’s talk technical analysis and some of the most basic crypto trading indicators you’ll need to learn, in order to get a grasp on what you’re doing.
What is Technical Analysis?
Technical analysis (AKA – TA) is a representation of price and trading volume over time, using an easy to read graphic representation of candlesticks. These candlesticks form patterns over time which traders commonly referred to as chart patterns. These patterns represent mass psychology over a group of traders during a set period of time.
The only other option you have to make sense of all these varying numbers would be for you to calculate volume and price on a linear scale over time. Take that number and multiply it by pie over distance. Easy right?
For the 99% of us that aren’t math geniuses, charts and technical patterns are what we have to revert to in order to make sense of it all. Without it, our brain would clench up faster than doing multiple trigonometry problems on 8 cans of red bull.
Ok, you get the point, moving on….
There are two types of research methods that you want to be familiar with before attempting to make any trade; technical and fundamental analysis.
Fundamental analysis is focused on aspects of of a cryptocurrency like the development team, utility of the coin, white paper current investors, etc . The latest news, and rumors surrounding your potential coin can also be factored into fundamental analysis. All these play a major part on the value of any cryptocurrency.
You’ll find our live charts page to be an all-in-one resource to for all your fundamental analysis needs. We cover cryptocurrency whitepapers, official crypto websites, social media accounts, blockchain info, and more. We everything you need to know, in order to make a well informed buying decision.
Before we go covering the details of technical analysis, remember that price movements on a given chart are rarely ever random. They often follow a trend, both long or short term, depending on the timeframe you are looking at.
The term trends, within the trading community, are not some new pair of $100 stone washed Justin Bieber jeans you decided to purchase because your girlfriend thought they were cute. These trends refer to the mass psychology of a group, in order to obtain increased price movement, through the analysis momentum in a particular direction.
The “group of people” (or herd) were analyzing, always follow certain patterns and react to certain price levels. These can be predictable to those who know what to look for. This…my friend, is what technical analysis is all about.
In order to be a one of the great crypto traders of our time, you’re going to need to recognize certain trends as well as chart and candlestick patterns. Also worth noting, trading indicators (RSI, MACD, Stochastics) are a great way to verify your TA strategies.
One of the more simple indicators to identify in your early stages of your trading career are support and resistance lines. Trading patterns are always made up of of these two fundamental levels.
Support is when you have more than two candlesticks that touch a particular price level towards the bottom of a trend. These tend to touch and bounce off support, thus moving up towards the top of the price level. These are known as resistance levels. A single bounce off support and resistance is known as a cycle. The more candlesticks that touch your support and resistance, the stronger they are. Let’s take a look at a strong support and resistance.
As stated above, you need at least 2 touches of a candlestick, within a cycle, in order to claim any sort of support or resistance. I typically look for at least 3, in order to be more confident about a certain level.
Ok, now that we’ve covered support and resistance levels let’s move onto trend lines.
Trend Lines – Riding Along the Highs and Lows of Trading
The only major difference between support and resistance lines are the fact that trend lines tend to be drawn in a diagonal direction. Support and resistance are drawn with straight horizontal lines.
When it comes to trading, a picture is definitely worth 1000 words. In order to better conceptualize trend lines, let’s have a closer look at both rising and falling trends.
Much like the support and resistance lines, you want to make sure you have “at least” 2 or more touches off a candlestick in order to consider it a trend. The more the merrier.
Trend lines can also move sideways, which we typically label as a “consolidations”. You also have short, intermediate, and long term trend lines depending on the timeframe of the chart you’re looking at.
Time to step your game up a little and start getting acquainted with more technical aspects of trading like moving averages.
Moving Averages – What Are They and Why You Should Care?
Moving averages are generally used to simplify trend recognition. These moving averages are based on the average price of a coin over a designated period of time.
You can calculate moving averages to show the average of any group of candles, but most traders calculate these averages over a period of 10, 20, 50, 100, and 200 timeframes (minutes, hours, days). The one I personally use the most is the 50 Day Simple Moving Average (SMA).
There are also two types of moving averages you can use, exponential or simple moving averages, depending on how broad or narrow you want your insight to be. I recommend using both. Let me explain…
There are certain strategies for each, however to be more specific, exponential moving averages give higher weighting values to recent prices, whereas simple moving averages assign equal weighting to all values.
To put it in layman’s terms, SMA will give you a broader overview of where a trend is at and EMA is best used to make quick judgment calls on more recent price action and trend reversals.
I like to use a 50 day moving average on all my charts. These allow me to quickly tell whether a trend is currently in a bear or bull market within the timeframe I am viewing.
Anything below the 50 day moving average tells me that the trend is currently in a short or long term bear market. If the candlesticks are above the 50 day moving average, you’re in a bear market trend. Knowing which trend you’re in (both long and short term) will allow you to better formulate a strategy moving forward.
The Simple EMA Strategy
Exponential moving averages (EMA) will help you decide if a trend is about to reverse within a short term timeframe. Many traders use different EMAs, however the one that I found to be the most useful are the 13 and 34 day moving averages.
Here is the basic strategy behind EMA …
Set one EMA to 13 and choose a color (red for this example)
Set another EMA to 34 and choose a color (blue for this example)
When the 13 EMA crosses above the 34 EMA (red over blue) you should look into buying at that cross, as the trend is entering a bullish state (moving up).
When the 34 EMA crosses above the 13 EMA (blue above red) you should be selling as the trend is entering a bearish state (moving down).
As you can see, as soon as any of the lines cross, a substantial shift within the trend can be seen. This combined with a few other indicators to help substantiate your trading strategy, will help you form a profit maximizing trade.
Next, let’s talk about a very important indicator that all traders use… volume.
Trading Volume – The Tasty Filling Between 2 Price Levels
Trading volume plays a crucial role in identifying whether a trend is weak or strong. Strong trends with high trading volume will always be accompanied by long candlesticks. The same goes for weak trends. These will be accompanied by short candlesticks.
Let’s break this down and structure it appropriately…
– If you have several long candlesticks along the volume indicator, this indicates a strong trend. If most of these are green, that would indicate a strong bullish trend. The opposite goes for red candlesticks indicating a strong bearish trend.
Pretty simple right? Exactly! This ain’t brain surgery folks. Volume indicators are really simple to understand.
Technical & Fundamental Analysis Unite Two Eternal Research Strategies
Don’t be lured into the always present debate between fundamental and technical analysis. Many novice traders tend to choose sides between these two research powerhouses. They believe one is ultimately better than the other.
This couldn’t be any further from the truth. You should be asking yourself….why choose one method over the other, when you can choose both right?
Using technical analysis (TA) as well as fundamental analysis (fundamentals) will equip you with the prophetic knowledge you need to culminate a precise trading strategy that you can actually feel good about.
Technical analysis will give you a practical way to measure past price movements and their corresponding trading volume. This is vital knowledge you’ll need when considering a trade.
Fundamental Analysis will empower you with significant insight regarding the current cryptocurrency conditions. Everything from current news, rumors, and future developments will play a crucial role in your decision when using fundamental analysis.
Combine these two powerful research techniques into one highly effective trading strategy.
Utilize fundamental analysis to dictate which coin is worth investing in, while tightening up your strategy when you’re ready to trade, by finding a good entry point with technical analysis.
Start Off Trading On the Right Foot
In order to get started, we’re obviously going to need to get familiar with a trading chart to plot out some beautiful technical analysis strategies right? You can start by utilizing our free chart here, however there will come a time when you need more than what this free solution has to offer (like alerts, more indicators, etc).
This is why I highly recommend TradingView for all your trading and chart plotting needs. TradingView offers a lot more than just charts. They include a massive selection of experienced traders you can follow and learn from. Take a look over expert trade setups on a number of coins and learn from real life application.
It is the quintessential social media platform for all traders, both novice and experts alike. They also have a very comprehensive traders reference guide that you can study if you ever want to expand your knowledge on the field. Reading up on trading ideas about various indicators, chart patterns, candlestick patterns, and then viewing them on live trades really helps.
I highly recommend starting with the Pro plan to start. If you need more indicators and alerts on down the line, go for the Pro+.
Let’s wrap this up…
This guide has presented you with the basic concepts behind technical analysis. I highly recommend you practice using the indicators and patterns I covered above. Once you’ve got a good handle on them, move on to more advanced charting patterns. I’ll go over these within another guide.
Now get out there and start charting!
Go on….you can do it! Don’t just let your dreams be dreams!
There are a lot of theoretical trading strategies out there from novice traders (watch out who you follow on YouTube). There are also just as many experienced traders who really know what they’re doing and share a wealth of helpful trading strategies with the general public.
Coming from a trading background in forex, I will preface this guide by stating that a majority of it is based on fundamental technical analysis, excellent money management skills, and most importantly…..experience!
How well you train your mind to deal with certain aspects of trading will be just as important as the strategies you implement below.
For starters, I want to go over some of my own personal and time-tested cryptocurrency trading strategies. These are just some of the techniques I found, through my own trial and error, helped me generate steady profits, day trading the volatile cryptocurrency market.
What Exactly is Day Trading?
The entire goal of day trading is to produce quick and steady profits over the course of a few hours (or day if you’re swing trading)? Day trading can be a quick way to make money if you know what you’re doing. It can also be equally as quick losing it, if you don’t know what you’re doing.
The term day trading was derived from traditional stocks where quick”in and out” hourly trading during the day was always present. The market opens at 9:30 a.m. EST and ends at 4 p.m. EST. On the other hand, cryptocurrency exchanges never close, so trades can resume 24/7. Due to this fact, cryptocurrency trading can be very lucrative no matter what your particular schedule is.
Now remember, if you decide to enter the day trading arena, you can’t exactly hold a coin over the long term. Any trade over a 24 hour period of time would be considered swing trading. We’ll cover that in another guide. For now, let’s go over some of the day trading strategies that have helped bring in steady profits….day in and day out.
When first embarking on your day trading journey, it’s best to eliminate any sort of wild swings or fluctuations within the marketplace. This is why I highly recommend you start out trading USDT to bitcoin or other altcoin pairs so that you’re not dealing with fluctuations on both sides of a currency when trading pairs. USDT is a stable baseline commodity that will not fluctuate while you’re trading against an altcoin.
Assuming the cryptocurrency exchange you’re using has USDT (all the major exchanges do), your goal for the day should be to produce 1% to 2% from several different altcoins, which show a history of stability over the last 2-3 days, in order to produce a minimum of 7-12% profit within a 12 hour period of time. This comes out to well over 50% profit, over the course of a week.
Alternatively, if you can only find one altcoin that has been consolidating over the last 2-3 days, then go with that. What we’re trying to avoid are massive fluctuations in price. Utilizing this simple yet effective strategy can double the profit of your initial investment in just under two weeks.
I recommend this to novice traders because it’s safest trading strategy you can implement from day 1. A profit of 1-2% per chart is much more easy to obtain than say, 5-15% on a more volatile coin. Trading these massive swings in price can work, but for beginners, I recommend you walk before you run.
If you’d like to aim for a higher percentage of profit, that’s not a problem either, but realize you should be ready to face any consequences that result from being a bit too greedy. Remember, greed is what inevitably drains your profits, not the lack of knowledge on chart or candlestick patterns. Generally speaking, if you stick to around 1-2% increments, you’ll avoid any significant losses that may occur from your natural instincts of wanting more.
The Fundamentals of Day Trading Crypto
Always make sure to define a goal before entering a trade. Your main objective is to get in and out of the trade as quickly as possible. Greed is a human flaw that can have you suffering heavy losses within minutes as the cryptocurrency market incurs many heavy swings.
Never buy a coin based on FOMO (fear of missing out). You made a good trade, but the moment you sold, the coin rallies again for a much more sizable profit. Before you enter the market again, remember that succumbing to FOMO is one of the fastest ways to lose money. Just don’t do it.
Never buy a coin under pressure, as long as there is profit to take. Remember, if you’re walking away with profit, your winning. Don’t look back. Fight the urge to speculate on the “what ifs”. Just know, you’ll rarely buy in at the bottom and sell at the peak of each swing.
Be careful with exchange fees. Multiple trades accumulate large fees, so place 1 buy order and a 1 sell order if possible to minimize fees. If you post a buy or sell order and somebody accepts that price, the deal is made. You pay a fee for the trade to happen. In this situation you are the “maker” because you set the price.
If you accept somebody else’s price (that is already listed in the order books) then you’ll end up paying a higher fee on some exchanges. In this situation you are the “taker”. It’s always advisable to be a maker and not a taker on the exchanges that charge different fees for each. Make sure to check “the structures” pertaining to the exchange you’re trading.
For example; Bittrex charges the same fee regardless if you’re a maker or taker. HitBTC charges a 0.10% fee for takers and no fee for makers.
Consider using a trading bot. This tip is for the risk takers that want to work smarter not harder. You don’t necessarily want to stare at charts all day do you? The trick behind using a bot is to not entirely leave it to trade for you on “complete autopilot”. It does require some supervision.A trading bot’s job is to to buy and sell cryptocurrency as you see fit, under the current trading situation. This as opposed to trading on every overbought/oversold RSI signal. Believe me when I tell you, this is a quick way of losing your cryptocurrency.
You want to set the trading bot to buy and sell your chosen coin at 1-2% intervals, according to the strategy I outlined for you above. Make sure the coin you’re trading is stable over a 24 hour timeframe (longer if possible)
From that point, you want to assign the trading bot to do the heavy lifting of buying and selling between the 1-2% intervals as opposed to you manually doing it within the exchange.
Alternatively, you can work this strategy on an overall bullish trend (look at daily chart), but make sure you set a stop loss on these trades.
You can tweak the trading bot, as per your preference, through following indicators like Stochastics or RSI on the 5- 30 minute timeframe. I’ll most likely write another article (or video) in the future with regard to bot trading. For now, use the strategy above to steady profits.
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Buy the breakout of a resistance. A common strategy is to monitor a strong resistance and purchase the breakout. Resistance is a level at which the price of a coin cannot break past without it dropping back down to a lower level called support. Once a breatkout occurs, you should consider buying upon close of the candlestick or bounce off resistance (which is now your new support).
It’s smart to set trading alerts in order to be notified of these breakouts. We offer a free trading notification service here. I highly recommend you take advantage of this service or others like it, when utilizing this strategy.
Use limit orders and stop losses. Make sure you create a stop loss order after your initial buy in on any trade. This is the price you set to exit the trade if your coin drops below a certain point. If the price does in fact fall lower than your stop loss, the exchange automatically sells at your set price, to minimize your loss.
On the other side of the spectrum, set a sell limit order to cash out of a trade when the coin reaches your goal (1-2%). Setting both a limit order and stop loss will allow you to step away from the trade without watching the chart like a hungry vulture. It’ll also eliminate any emotional attachment from your end, thus creating mistakes out of bad habits.
These are just a few fundamental day trading strategies you can use in order to create a stable income for yourself day trading without putting too much risk on your shoulders. If you follow these strategies and don’t stray too far away from the fundamentals, you’ll most likely enjoy many days of rewarding success.
Good luck and happy trading!
Since the dawn of cryptocurrency, we’ve seen a major increase in its value. The value and utility over paper currency is much better suited for our way of life in this new digital era. It’s possible that it may one day take over the future of currency; however that’s a bit over speculative for now. With so many benefits to offer, many who never thought about trading in their life are now tempted with these digital nuggets of gold.
Even if the concept of cryptocurrency seems foreign, trading is fairly simple when you get a handle on it. However, in order for it to be useful, you need to understand fundamental concepts of the market.
Much like institutional stock trading, it’s important to understand signals at the beginning of your trading journey. Understanding signals can be the difference between winning or losing your ass on a trade. One of the most important “signals” ‘you can begin to study is the candlestick.
What Are Candlestick Patterns?
Candlestick patterns have been in use for decades and have become very popular in terms of plotting the price action of a security or stock. Typically, a candlestick chart has a series of bars, called candles, which have different colors and heights. The colors and sizes depend on the price action of the security being studied at that point in time. It usually contains both opening and closing prices.
The bars of the candle depends on the unit of time, be it a minute, day or even a week. This, however, does not affect the candle’s color. If a bar is visible, it means that the closing price is higher or lower than the opening price of the currency. These are generally referred to as the “body” of the candle.
A red candlestick is used when the opening price is higher than the closing price, thus showing a downward pull, whereas a green color is used to show that the price rose from the starting period to the end.
Even though the candlestick chart will allow a person determine what rate the cryptocurrency is headed towards, technical analysis is also needed so that a better decision on movement can be made.
Popular Candlestick Trading Patterns
Let’s take a look at a few popular candlestick patterns that can often be found on any particular chart. There are two categories of candlestick patterns: continuations and reversals. A continuation pattern can predict the extension of the price action currently prevailing, whereas reversal patterns predict the change in price direction.
Take a look over the following nine bullish candlestick patterns. Look out for these when focusing in on strong reversal signals.
Being a bullish reversal pattern, the hammer can be seen as a signal that the currency has almost reached the bottom of a downtrend. This typically means that the bears have been exhausted.
The hanging man is the exact opposite of the hammer. Here, the signal is showing the cryptocurrency is nearing the top of an uptrend. If you see a hanging man, when the price is going up, do not buy. The prices will most likely be dip soon so it’s best to take your profits now.
Three “white” soldiers is a bullish candlestick pattern which predicts the reversal of a downtrend. As you can see from the image below, the pattern consists of three consecutive long body candlesticks. These candlesticks open within the previous candles body in close above the previous candles high.
Bullish Engulfing Pattern
The bullish engulfing pattern typically occurs when a large green a candlestick fully and goals the smaller red candlestick from the period before it. The opposite is true for the bearish engulfing pattern.
This pattern typically indicates a potential reversal of traders sentiment.
The evening star will typically indicate where an investor should look into exiting a trade. This candlestick pattern is based on three candlesticks. The first one is a long bearish candle. The second is a small bullish candle indicating indecision. The third is a large bullish candle substantiating the reversal.
This pattern is formed with two consecutive candlesticks. The first candlestick is red in the second candlestick is green which indicates a potential reversal. Take note that the green candlestick must be more than halfway above the bottom of the first red candlestick.
Is a type of reversal pattern that indicates a falling price. It looks exactly the same as an Inverted Hammer (below) however found at the end of an uptrend. The candles made up of a small lower body with a long upper wick. The wick should be two times the size of the lower body.
This is one bullish reversal pattern and indicates the support level. The signal shows that bulls are attempting to raise the prices upward, this is also why you will see long shadows (also referred to as wicks). They aren’t strong enough to push the prices up at the moment, however when you see this signal, you need to stop selling your currency because there is a very high chance of an upcoming rally.
When you see a doji, you need to be cautious since the pattern means that the market is not very sure about future movement and is waiting for an external sign. This typically means a reversal is impending. The signals are not as strong as can be seen from the signals discussed above. If you spot one, don’t attempt to buy or sell since the uneasy market can mean you might end up losing the trade.
It’s better to use a variety of technical analysis and candlestick patterns in order to determine a clear plan of attack for future movement. Both upward and downward movements are more prominent when evaluating them over a long period of time, depending on if your day or swing trading.
When evaluating candlestick patterns, try to wait until the next candlestick forms before analyzing the previous one. Some candlesticks patterns are based on speculation. Any recent news event can turn the whole pattern upside down. Try trading on days when there aren’t any profound news events. This will allow the candlestick patterns to be properly represented within the market and won’t change drastically.
I highly recommend checking out our charts here and practice predicting certain candlestick patterns as they form. While you’re at it, print this candlestick cheat sheetuntil you achieve a solid understanding on how to spot candlestick patterns. Regardless of how long you’ve been trading, the cheat sheet should always be readily available.
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