The midweek carnage really had a lot of traders scratching their heads as to what caused the moves. I’ve seen plenty of attempts at rationalizing beyond the staple “there were more sellers than buyers”. I’m not sure the catalyst is important, the fact is we headed lower at a rapid rate of knots, and billions were lost from the crypto market capitalization. Thursday saw some consolidation and Friday into the weekend saw a calm after the storm. BTC had one brief attempt to push higher but stopped abruptly at $5,650. So where from here? Some coins have rebounded well, XRP being the standout. Others continue to languish, BTC being the obvious one. My old boss always reckoned you needed a ‘good clear out’ of stale positions before a new trend can form. If he’s correct, maybe this needed to happen for BTC to attempt a push higher. For now, I feel there are probably still some longs who failed to liquidate due to the severity of the move, so expect rallies to $5,800 to see sellers.
While BTC/USD held the $5,800 level, I tended to focus on topside resistance levels. Now, we add $5,800 to that list! But what about the downside? Below I’m highlighting a couple key levels from before the parabolic move to $20,000. It’s actually tough to really pick anything significant, but $5,100 and $4,700 appear to offer some support. $3,000 sticks out as major support, but that will represent more than a 50% decline from last week’s high. Let’s hope that level remains a thing of the past!
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!
Warning: margin trading is not suitable for beginners. If you’re new to margin trading on Bitmex, make sure to initially read over our guide “The Idiots Guide to Margin Trading on Bitmex” first. The guide covered here is for more advanced Bitmex trading topics.
Bitmex has long been the “go to” platform for margin trading Bitcoin and other various altcoins. If you don’t already have an account, well you probably shouldn’t be reading this guide now should you? 😉 However, if you’re looking to run before you walk, you can proceed to read over this guide (like anyone’s going to stop you), but I recommend you at least sign up for an account before you do.
You can click here and get a 10% discount on your transaction fees for the first 6 months. There’s no cost to you and it really does benefit the both of us.
So let’s start off with a few advanced features that you may not be too familiar with on the Bitmex exchange.
Stop Limit, Stop Market, and Trailing Stop Loss
If you have any trading experience whatsoever, you should already know what a stop loss is so I’ll skip the formal introduction. If you’re not too familiar with stop losses, I highly recommend you check out this guide “Stop Losses VS Mental Stop Losses”.
Let’s take a look at the 3 stop losses that Bitmex provides for you and when you should use each one.
Stop Limit– when setting a stop limit on long trades, you always want to make sure that your “Stop Price” is lower than your “Limit Price”. Do the exact opposite for your short trades. This ensures that you exit your trade at the proper price point. By how much is up to you, but I do recommend a decent range between your stop price and your limit price. The closer these two numbers are to each other the less likely your order will get filled.
I personally recommend using a stop limit when you’re close to your computer. This way you can at least keep an eye on things, pay lower fees, and exit out of your trade in case your stop limit gets skipped over. If you’re not by your computer and still insist on using this feature, make sure to use a broad range between the limit and stop prices.
One of the key benefits to utilizing a stop loss limit is the fact that you’ll be paying minimal fees on your trades. Sometimes you can even receive a rebate on your funding fees depending on if you’re going long or short during an opposing bullish or bearish market. I’ll cover more about this below under “Fee Calculations and Funding Rates”
Stop Market– I don’t think it takes a genius to figure this one out. Stop market stop losses are the exact opposite of stop limits. Unlike the stop limit mentioned above, using this feature will ensure that you exit a trade and don’t suffer any more losses then you need to. This is a true “fail safe” stop loss as it will never get skipped or unfilled.
The main take away to utilizing the stop loss is the fact that it guarantees you an exit out of a trade. The downside to using the stop market is that you’ll pay more in fees. You may also exit a trade at a higher or lower price than the actual “stop price” you originally set if the market is moving at an extremely fast pace during this time.
This can be a great solution for those who have a lot of money on the line and need a guaranteed way out of a bad trade. I’m not one to tell you which one to use, as that’s more of a personal preference (it can be situational one as well).
Trailing Stop Loss– a trailing stop loss is an advanced trader’s best friend as it dynamically moves according to the current price movement.
A trailing stop loss will follow the current price action by a designated set price. This is best explained with a few examples.
You’re currently trading BTC at an entry of $7500 and set a “Trail Value” of $100. The market moves up to $7700 and then dips to $7600. You’d be stopped out at this point. You would have also made $100 profit as opposed to losing your funds if the dip kept moving past your entry point.
As you can see, this is a highly effective feature that Bitmex gives you which no other cryptocurrency exchange offers. This will allow you to keep your losses to a minimum. It’s also great for those more riskier traders who like to use higher leverage (above 20X).
The key takeaway to this type of stop loss is that it allows the Bitmex system to constantly babysit your trade by following the price point around like an angry cobra. The moment the price dips, the trailing stop loss quickly snaps it up and exits you out of the trade.
The downside to this is that you may be stopped out before a major rally in price. However this goes for any stop loss you may choose to use. The feature will also stop you out at the market price, so you’ll be paying a bit more on fees.
Now that we’ve covered all the stop loss features, let’s discuss the “Place Order” features you may not be familiar with.
A pretty simple and useful feature, the “Reduce Only” tickbox will allow you to close out your trade without opening up a new position on the opposite side of the market (I call this inverse trading). This is best explained with an example. <image>
Let’s say you start a long position for $1000 at entry price $7500 and set a sell limit to exit out of your trade at $7600 for $1000 (using the sell/short button). However, in your haste, you accidentally input an additional zero, thus opening a short for $9000 ($10,000 sell/short quantity – your long trade of $1000). This type of mistake could have dire consequences on your trading account funds.
When checking the “reduce only” feature, the Bitmex system will not allow you to execute the trade and will immediately cancel out the additional $9000 that would have put you in a short trade. The feature will still execute the trade but only utilize $1000 worth to exit you out of it.
This is an extremely useful feature that can get you out of trouble and should be checked unless you actually plan on opening an immediate “inverse trade” upon your exit (long to short or short to long). I cover more on this within the advanced Bitmex trading strategies below.
This feature should be used at all times. When checking this box, only limit orders will be allowed to execute your trades, thus saving you a ton on fees. Look at this feature as a safety precaution from accidentally creating a market order (being a taker, and not a maker).
Using Cross Margin
Leaving the leverage margin bar to the far left will allow you to utilize the Cross margin feature. Unlike isolated margin, where you have to manually input the amount of leverage you would like to use for your trade, cross margin uses your entire Bitmex balance as collateral.
This also saves you the time of inputting a leverage amount and calculating a quantity that corresponds to this leverage. These are two key aspects to isolated margin trading that you’ll have to take into consideration. Simply adjusting the leverage slider will not change the amount of contracts that you’re actually trading. It will only raise or lower the limit that you’re allowed to trade with. This is better explained with an example.
Let’s say you have $500 in your Bitmex account, and you want to trade with $5000 worth of BTC contracts. With isolated margin, you would have to move the leverage slider to 10X and then input the quantity to $5000 (this figure would be a little lower due to trading fees).
With cross margin, all you would need to do is input the $5000 into the quantity box and Bitmex will calculate it as 10X leverage off of your $500 account balance.
Most of the time, you want to use cross margin for your trades. Make sure that you never go over 10X leverage (20X is pushing it). For beginners, I highly recommend you keeping it to 2-5X.
However, there are occasions where you want to use isolated margin. Let’s say you like to put in a few day trades but only want to risk $100 of your account balance at 10X leverage for a total of $1000. Seeing that you have $500 in your Bitmex account, you would merely move the slider to 2X. This way if you get liquidated, you only lose $100 off your total account balance.
Personally speaking, I don’t trust myself to only use a set amount within my account balance, so I only fund my Bitmex accounts with an amount I’m willing to lose when using cross margin trading. This is because cross margin won’t get you liquidated as easily as isolated margin, as long as you’re not too crazy with that leverage. This is also the leverage type that most professional traders use for that exact reason.
Tip: I recommend opening 2-3 Bitmex accounts, since all of them are anonymous (no KYC needed) and fairly easy to start up. Fund each account with $500 to $1000. This way, if you’re having a bad day and there’s a massive swing against you (like 8-15% in the opposite direction of your trade), your entire t uprading capital doesn’t get annihilated.
Unrealized and Realized PNL
Unrealized PNL is related to the Mark Price. The Mark Price is what determines your risk management of your position on Bitmex. This means that when you get liquidated due to the price going against you, it’s due to the fact that Mark Price has crossed the liquidation price threshold. This will prevent you from getting liquidated from a sudden price swing on Bitmex’s local platform as the Mark Price is comprised of several other exchange values.
Bitmex has a reasonably complex way of calculating the Mark Price which can be found here. It uses a combination of Bitcoin to USD Spot Index (which is 50% Bitstamp and 50% GDAX) as well as the depth of the order book.
Realized PNL is simply what your current profit and loss is according to Bitmex. You’ll receive this figure by hovering your mouse over the Mark Price. This is the real price that showcases your real profit and loss.
Fee Calculations and Funding Rates
Bitmex calculates these much differently than any other cryptocurrency exchange. When looking at the Contract Details box, if the fee is displayed in red, long positions will have to pay the fee. This means that there are more long positions than short at that moment.
On the other side, if the fee is displayed in green then Long positions receive the fee. When you hover your mouse over the “funding rate” you’ll see a predicted rate for the next eight hour period.
This rate is in regards to the funding rate and does not take into account the maker or taker fees for placing the trade. If you exit your trade within this eight hour period, you will not have to pay the funding fee.
Tip: keep an eye out when this fee is about to go into effect. Many traders will exit the market (thus shorting) around 30 minutes or so before the fee hits their account. This would be a great opportunity to buy in and take advantage of a long trade as soon as the fee period ends. When time properly, this can be easy money.
Bitmex Advanced Trading Strategies
1. Scaling In and Out of Your Position – no matter if you’re going long or short with your trade, scaling in and out of position is highly recommended and utilized by most advanced traders.
In order to get the very best possible position for your entry and exit positions, you need to layer them (aka scaling in and out). Let’s say you’re trading with $1000 and want to take a long position at $7500 on Bitcoin. The current position is at $7800.
Instead of watching the chart all day and trying to time that five minute window in order to get the closest price to that $7500, you would simply set 3-4 entries on the way down.
This would look something like: $250 at $7700, $250 at $7600, $250 at $7500 and $250 at $7400 in case you catch a long wick down. Now, all the entry points may not get filled as the price may only reach $7600, however you’ll be at an advantageous entry point with capital in the trade.
The opposite goes for your exit positions. Let’s say your ideal exit position is at $8000. You currently have $1000 in the trade at an entry position of $7500. You can scale out of your position by setting exit points at $7700 exiting with $500, $7850 with $300 and then $800 with $200. Again, this will allow you to both enter and exit the market at the most advantageous price points as well as accumulating the most profit along the way.
Note:this is not only a margin trading strategy, but a typical advanced trading strategy that you can use for any cryptocurrency exchange.
2. Use stop losses when trading top and bottom ranges – this essentially means that if your trading at a top or bottom of a particular price range, you want to ensure that you have a stop loss in place in case your strategy is not fulfilled.
To put this into perspective…
Let’s say you spot an inverse head and shoulders, however it’s located near the top of a 3 day price range. You want to set a stop loss at a key level to where you don’t get stopped out before a major rally, however still within range to exit you out of the trade if the market turns against you.
Using the stop loss will allow you to take advantage of the charting patterns while still giving you a safety net in case the strategy doesn’t end up going the way you had planned.
The same goes for entering a trade with a short when you’re at the bottom of a 3 to 7 day average. Make sure you place a stop loss above your short, but at a price level that you know won’t get prematurely stopped out before a major dip ensues.
This is best illustrated with a chart…
3. When to Use Market & Limit Orders– for an overwhelming majority of your trades, you’re going to want to use limit orders with the “post only” feature checked. However, there are occasions where you’re going to want to use market orders.
For example, utilizing “stock market” stop losses are highly recommended when using one of the strategies above, but especially when you’re not close to your computer or watching the market.
For everything else, stick to limit orders and keep those fees to a minimum.
4. Using Inverse Trades– the beauty behind margin trading on Bitmex is that you can immediately cash out of a long with an immediate inverse short trade.
For example: let’s say the current 3 day price range for Bitcoin is between $6200 and $6800. You’re currently exiting a long trade with $1000 at $6800 from an entry of $6600. Instead of exiting the trade with a short of $1000, you can input $2000 into the quantity box and immediately start a short trade upon exiting your long.
I only recommend doing this when you’re at the bottom or top of a 3 to 5 day price range. The chances of your trade reaching a peak and reversing is much more likely than creating a new ATH (all-time high). This is best outlined with an illustration below.
5. Playing Both Long and Short Trades Simultaneously– A strategy that some of the more advanced traders use on certain occasions is to set both a short and long limit. This can be used in times where you’re unsure which direction the market is about to break out to. It’s also good to use for trading patterns like a symmetrical triangle.
In these cases, you’ll need to have 2 Bitmex accounts available. On one account, you’ll set up a long entry point above the potential breakout. On the other account, you’ll set up a short entry point below the potential breakout. This way you’re setting yourself up to take advantage of the breakout in either direction.
Another similar scenario you could use this strategy is…
If the price movement reaches a high from a 3 day moving period (like the $6800 price point covered in the example above). You can place an inverse trade to short at this peak as well as set a limit order to go long on the trade in case of a major breakout. Again, you’re covered on both sides of the spectrum.
Great Job! We’re Done Here…
I hope you enjoyed my advanced Bitmex trading guide. Using just a few of the strategies I covered above will allow you to create an incredible income for yourself in a much shorter time frame than it would typically take trading on any other cryptocurrency exchange. This is due to the fact that you’ll not only be able to multiply your trading capital with leverage, but also have access to both long and short trades as well.
Remember, initially trade with small amounts until you get acclimated to the platform. Print this guide out and keep it close by for when you need it.
Warning: margin trading is not suited for beginners. You should have at least several months of trading experience before attempting to margin trade. Note that using the information below is done at your own risk. This is not financial advice blah blah blah….
Ok, now that we got that out of the way…
Let’s get you started making some of that Bitmex “short trade with 100X leverage” money you’ve heard so many people talking about (btw, never do that…and if you do, you’re an idiot).
Whether you love em or hate em, Bitmex has the potential to take you from zero to hero faster than any other trading method out there. This is potentially the biggest draw to the Bitmex trading platform.
If you have a solid understanding of technical analysis, a trading strategy with a proven track record, and lots of trading experience under your belt, Bitmex may be your “go to” cryptocurrency exchange for some of that quick crypto cashflow.
However, if you’ve only traded for a few weeks and don’t have a solid understanding and proven game-winning trading strategy, Bitmex will wreck you faster than Mike Tyson on acid.
This is for heavyweights only. If you haven’t been through a few battles yet, don’t step inside the ring.
How to Get Started Trading on Bitmex
I highly recommend you open up your Bitmex trading account by using the link here in order to register. You receive a 10% discount on all your transaction fees for the first six months at no additional cost to you. Now do it!
For US Residents…
If you’re a US resident, you need to make sure that you’re either using a UK VPN or private proxy when signing up. I recommend you use BuyProxies.org and purchase their lowest tier package which is $10 per month.
Once you’ve completed your registration, you no longer need the proxies (or VPN if you decide to go that route). You can sign in with your standard US IP (no proxy or VPN) from there on out.
Ok, now that we got that out of the way, let’s get you started with the fundamentals…
Bitmex Margin Trading In Plain English
I’ll start off by defining a few terms that you’ll need to be familiar with in your early stages ….
Margin trading – this is the method of conducting a purchase using cash that is provided to you (the trader) as a loan. In reality, you’re not really “borrowing funds” from any centralized entity, you’re merely swapping out “contracts” with others utilizing the platform.
If you’re shorting, you’re swapping out with someone going long. If you’re going long, you’re swapping out with someone that is shorting.
That’s the gist behind it all. For the sake of this guide, I’ll loosely use the term borrowing.
Leverage – the amount of funds that you decide to borrow. The higher the leverage, the more funds you borrow, and the more risk you take at getting liquidated.
Example: $1000 with 5X leverage = $5000 your trading with. Your liquidation price is given to you before and during your transaction, so you should never be surprised at where it’s at.
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Liquidation price – this is the price at which your account balance (or amounts of funds you’re using) is completely wiped out.
Example: $100 with 25% leverage at BTC entry price of $7500 = $6002 liquidation price.
Don’t worry about calculating all this stuff by yourself. Bitmex was nice enough to provide you with a calculator. You’ll never be left in the dark when it comes to your profit, loss, or liquidation price.
Long position – betting that price movement will increase.
Short position – betting that price movement will decrease.
Limit order – (aka market maker) set a price and have it filled once the market reaches your set price. 9 times out of 10, you should be using this for all your trades to prevent paying high fees.
Market order – (making you the market taker) this is where you’ll immediately exit your trade. For having this convenience, you pay 3X the fee (%0.0075 as opposed to %0.0025).
Take Profit – like the name implies, this is where you start taking profits as the price value increases. The opposite applies for shorts. You want to start taking profit below your entry price.
Stop Loss Limit – this is to prevent you from completely losing all your capital from a sudden drop (for longs) or sudden spike (for shorts) in price action. Once a stop loss trigger has been reached your trade initiates your stop loss limit price. Once this limit price has been reached, you’re exited out of the trade. This will ensure that your loss is minimized.
Stop Loss Market – the same as stop loss limit, however your trade will be “immediately exited” at the market price. I highly recommend using this over the stop limit when you’re not close to your computer (or on any occasion for that matter).
When price drops, it drops fast. There’s a good chance that your stop limit price will not activate and you’ll be left holding the bags (debt). Using the stop loss market, ensures you that during a strong dip, you keep your losses to a minimum. You’re guaranteed an exit out of the trade, which again, is not always likely with stop loss limits.
Trailing Stop – think of this as a “moving stop loss” that follows the current price by a set value.
Example: $1000 at BTC entry price of $6500 with a trailing stop loss of $250 would mean that if the price action decreases to $6250, you would be stopped out (exit the trade).
However, if your price increases to $7000 and then drops $250, it would be stopped out at $6750. This is a great feature to use when you’re trade is already in profit. Trailing stops will ensure that you take advantage of quick spikes in price if you’re not by your computer.
Bitmex not only allows you to trade with borrowed money, but enables you to make a profit on both an uptrend or downtrend. No longer will you be confined to bull markets once your familiar with this trading platform. Hell, you might actually look forward to bear markets. You can make just as much during these periods of margin trading than you can within bull markets, if you play your cards right.
Now let’s look at the various ways to leverage your trades on Bitmex…
Leverage Trading on Bitmex
The cryptocurrency exchange allows you to create anonymous accounts without giving your real name or information. In order to start trading on Bitmex, all you really need to do it is deposit Bitcoin into your account. No other currency is accepted as a deposit, so don’t send you’re Ethereum, Litecoin, Ripple, or any other altcoin for that matter. Deposits are fairly quick, but this is highly dependent upon how busy Bitcoin miners are. I typically receive my deposited funds within 15 to 30 minutes.
Be aware that Bitmex doesn’t actually trade in Bitcoin, it trades in contracts. Contracts are an agreement to buy or sell an asset (in this instance cryptocurrency) without actually owning the actual currency. Once you withdrawal your funds, your contract for those funds are awarded to you and therefore “real Bitcoin” is sent to your destination address.
Bitmex offers two types of contracts…
Created specifically by the Bitmex team, this type of contract is also known as a “perpetual swap”. This is the type of contract you’ll be primarily trading when you’re first starting out, especially when you’re day or swing trading on a shorter timeframe (like 4 hour and below).
These contracts don’t have a specific date at which they will expire, so they are great for short term trading. They have a variable interest rate where cash flow is added or subtracted from your current equity. For more detailed information, click here.
As the name suggests, these contracts are continuously renewed. Perpetual contracts are also known supposed to be less volatile; however you wouldn’t think that’s the case when looking over their charts.
For having the ability to use these contracts, you’ll pay a fee every 8 hours of 0.0015% for longs and you’ll actually get a rebate of 0.0015% for shorts. Ethereum fees are much higher at 0.1562% for longs, but you receive a much larger rebate at 0.1562% every 8 hours.
For more detailed explanation of fees, click here.
This is basically an agreement between a buyer and seller to exchange a currency at a defined date in the future for an agreed upon price. Futures contracts tend to have a fixed interest rate which makes them great for longer term trading, like swing trading (using the 4 hour charts) or shorter term investing.
The great thing about these contracts is that they have a fixed interest rate which doesn’t fluctuate over time.
Now that you have a basic concept of margin trading terms, let’s move on to the next step and cover short trades.
How to Short Cryptocurrency on Bitmex
Bitmex offers quite a few cryptocurrencies to short as of the release of this guide. The altcoins they include within their platform change constantly. At the present moment you can short these altcoins with the corresponding leverage.
Ethereum (ETH) up to 50X leverage
Litecoin (LTC) up to 33.3X leverage
Ripple (XRP) up to 20X leverage
Cardano (ADA) up to 20X leverage
Bitcoin Cash (BCH) up to 20X leverage
EOS (EOS) up to 20X leverage
Tron (TRX) up to 20X leverage
Bitcoin (BTC) is the only crypto that you can leverage up to 100X leverage, which I would not recommend. When you’re leveraging past 50X, you’re essentially gambling. With that being said, if you have spare change laying around and are feeling lucky, go ahead and roll the dice. Just know, the odds aren’t in your favor. With $100 at 100X leverage, you can make $1000 in less than a few minutes (or lose it). You obviously don’t want to do this with rent money!
Back to short trading…
Shorting works in the same way as a long position except you’re placing trades on the decrease in value of a particular currency. This would’ve been the ideal way of taking advantage of the extended bear market this year (2018 and still continuing).
As an example, if you kept $2000 in a longer term short with Bitcoin on January 6th where the price of BTC was ~$17,000, till today,, without touching it, you would have $3280 (64% gain + a rebate on your fees) during this period. Remember, that doesn’t account for all the times you might have cashed out of the short due to intermittent bullish trends, which would have potentially left you with 2-5X your profit…easy. A few of my friends made over 700% during this period, shorting BTC and made 3X as much shorting altcoins.
So just remember the wise old saying…. “The trend is your friend till the end”.
As a general rule of thumb, if Bitcoin moves up, then altcoins move down. If Bitcoin moves down, altcoins move down. If Bitcoin consolidates (moves sideways) then altcoins move up. If you can follow the simple rule, you’ll have no problem knowing when to short or go a long with margin trading altcoins.
Tip:TradingView will show you the altcoins that are moving with or against Bitcoin under the comparisons feature.
You can use this highly useful feature in order to view which altcoins are about to drop or rally before it happens. Bitcoin typically leads the way as far the trend so, for example, if you see Bitcoin starting to quickly drop and know which altcoin(s) move in the opposite direction, you can set up a long trade for those altcoins before it happens.
However, make sure to always keep a tight stop loss in case the altcoin decides to move in the same direction as Bitcoin.
How Much to Leverage: A Warning to All Newcomers
One of the more significant facets to margin trading with Bitmex is that you can leverage your trades with as much capital as you want. With that said, I highly recommend you keep the leverage to around 3X-10X to start. Anything above this and you’re risking liquidation. One false, call with a bit too much leverage, and your account can be wiped out in no time. If you’re trading with 20X and over on a longer term trade, you’re just looking for trouble.
If you do decide to leverage more than 20X, make sure you do it with a small amount. Experienced traders who scalp trade with 20X-40x are typically watching the charts like a hawk for any dramatic movements. If or when the trade moves against the trader, with strong full-bodied candles, stop losses are typically put in place. Never try this unless you have at least several months of Bitmex trading experience.
No matter what, remember to…
Always plan your trades out ahead of time and never trade in a rush. Typically, when you try to “catch a falling knife” or “catch a moving rocket”, things don’t end up going very well for you. The more adrenaline coursing through your body, the more idiotic your decisions become.
The Difference Between Isolated and Cross Leverage
You have two types of leverages with Bitmex, Isolated and Cross. You can switch between one or the other by simply adjusting the leverage slider on the “Your Position” box located on the left hand side of your trading panel. Use Cross leverage by moving the slider all the way to the left (obviously where it says “Cross”). Use isolated leverage for the remaining numbers (2x,3x,5x,10x,etc)
Now bear in mind….Isolated leverage does not automatically multiply your position. No one on YouTube seems to be explaining this properly. Once you move the leverage slider, this merely adjusts how much margin you can use. You still need to manually change the quantity yourself.
For example: if your account contains $1000 and you move the leverage slider to 3X, then you’re capable of trading with $3000. You need to manually input $3000 into the quantity box.
Regarding cross margin…
You no longer need to worry about moving the leverage slider. Cross will simply use all the funds available in your Bitmex account for the margin. Just think of it as an automated way of Bitmex calculating the margin for you.
Now, read this sentence carefully… your profit is determined by the quantity and not the leverage itself. Leverage has nothing to do with profit. The amount of profit that you make is dictated by the size of your position. The leverage simply sets a limit on how much you can borrow for the quantity of your position.
Here are a few examples of Cross margin…
Your account contains $1000 and you want to use 3X leverage. All you need to do is input $3000 into the quantity box and your account is automatically at 3X leverage. If you wanted to 10X your leverage, you would simply input $10,000 into the quantity box.
By using cross margin, you’re eliminating one step from the process of manually inputting the leverage (moving the slider). The only thing you need to worry about is inputting the amount into the quantity box. However, if you don’t want to utilize your entire Bitmex balance, isolated margin may be the right choice for you.
I personally recommend using cross margin and only deposit a limited amount of funds into my account so I’m not tempted to lose it all in one trade.
Beginner Bitmex Quick Tips & Trading Strategies
Trading on Bitmex can be extremely fun or depressing depending on what strategy you decide to use. Here are a few tips I picked up along the way to help maximize my gains and lower the chances of losing a trade.
Be the Market Maker, Not the Taker – don’t waste so much money on fees. If you’re using “Market” with most of your trades, you’re getting killed here.
If you’re not familiar with the terms market maker and market taker, simply put… a market maker creates limit orders within the order book (thus waiting for his trade to execute). A market taker uses the “Market” button when buying or selling into a position (thus executes a trade immediately at market price).
Always use limit orders (you’re the market maker) for your trades. The fees are 1/3 the price of a taker fee (market taker). Also make sure to click on the “post only” tick box so you’ll only be able to use limit orders.
Many times, depending on the market, you’ll receive a rebate on your fees. While the fees seem small at first glance (0.0075% taker fee), this adds up to a lot when considering that this fee includes your leveraged amount and not the actual funds in your account. For example, if you’re on cross margin at 100X, then you would be paying 7.5% on the total amount.
The only time I recommend using market is during stop losses. Use the stop market feature when setting your stop losses. The market moves so fast that most of the time, if you set a stop limit, it won’t get filled. You’ll be left holding the bags or worse, getting liquidated.
Use Cross Leverage – I covered this above, but it’s worth repeating. Most of the professional traders use this leverage type because it helps guard against those crazy Bitmex fluctuations where you might have the right call, however you get liquidated right before that major pump.
For example: If you have 1 BTC and you open a position worth .1 BTC, on normal 100x leverage, your liquidation would be ~$60 away from your entry price. With Cross, you have .9 BTC as margin, meaning your liquidation would be about $600 away from your entry.
You’re risking your entire account balance with this margin type, however it’s well worth it considering all the major fluctuations (most notably Bitcoin). I recommend using a stop loss or better yet, only funding your Bitmex account with amounts that your willing to lose ($200 – $1000).
Pay Attention to Contract Details: Funding Rate – you notice of the bottom left-hand corner Bitmex, there is a contract details box. Inside that box is your “funding rate”. This plays a massive part with the trading landscape. This fee will get to be extremely high if everyone is longing and very few are shorting.
If this fee is positive and you have a long open, you’ll pay for that fee every eight hours on a perpetual swap. If you have a short opening that situation, you would receive that fee.
Beyond the fee aspect to this, there’s a pump and dump associated with it as well. Roughly around 30 minutes before the funding time, everyone will be closing their longs in order to avoid the fee. Once the funding has completed, the price will skyrocket. Position your trades around this time and you can make a quick daily profit.
Be Patient with Entry. Setup Limit Orders – never ever try to catch you can. By the time your order is filled, too late and you’re likely to get stuck with a horrible entry.
Set up various limit orders at key positions before a rally (or short) begins. The best way of doing this is scaling in and out of the position. I cover more on this within my swing trading guide located here.
In short, if you want to take a position at $7500 with $1000, then you want to scale in your orders at $7200 with $250, $7300 with $250, $7400 with $250, and $7500 with $250. This is the easiest and most effective way of gaining a good entry and exit positions up. Even outside of larger pumps, jumping into a massive rally is almost always a bad idea.
If you miss an entry, just be patient as another one is around the corner. It’s a lot better to miss an entry than lose money.
Stop Losses or Scaling In/Out – use one of these 2 strategies for protecting your capital. Here is my recommendation.
a) If you plan on using higher leverage (20X+ riskier approach) then use tight stop losses. This will prevent you from losing all your Bitfinex funds in one bad trade.
b) If you plan on using lower leverage (20X and below – less risky) then you can afford to scale out of a bad trade. I would highly advise initially testing this strategy with smaller amounts until you get a feel for it. Scaling out of a trade takes experience, but one where, if you master it, will allow you to walk away from most trades without a loss.
Neither one of these strategies is right or wrong. It’s a matter of personal preference and which one suites certain situations over others. If you’re more of a risk taker, you may prefer scaling. If you like to keep things conservative, then stop losses may be your “bread and butter”. Each one has their pros and cons.
Let’s Wrap This Up..
Bitmex allows traders to make money on bull and bear markets. This is why I highly experienced traders love it so much. The exchange has gained a ton of popularity this year due to its enormous volumes and rich array of features
This is a great exchange when you don’t want to risk too much of your own money trading, however would like to utilize the trading leverage (thus more capital) for higher profits.
Personally speaking, I like to fail fast. Time is too precious of a commodity to waste away trading $100 at a time for possible $5-$10 profits.
If you’re looking for reliable, secure exchange, look no further than Bitmex. It offers large leverage positions as well as a ton of functionality that other cryptocurrency exchanges don’t offer.
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!
Whether you’re looking to save up for retirement or just want to try your hand at compounding your income instead of it collecting digital dust in your bank account, then investing in cryptocurrency could be a great investment alternative for you.
Many people understand the fundamental idea of investing in crypto, but can the same methods translate over to trading? As you might’ve guessed, the two require very different ways of thinking and investing.
As far as the investing part is concerned, it all boils down to the fundamentals, like the technology and development team behind the project. Solid marketing and partnerships also play a major role when deciding to invest in a newer cryptocurrency or ICO. Other than that, HODLing seems to work well for most and can benefit you in the long run if you stay strong during the inevitable dips.
However if you’re looking to make money right now, you need a more short-term trading strategy…
This means you’ll be looking for more volatile, high liquidity cryptocurrency. The potentially lucrative nature of this digital asset, is a lot more volatile than traditional stocks or forex, which opens you up to a world of potentially high profit margins and risk.
That’s why cryptocurrency trading can get a bit complex and the reason why so many crypto traders need a wide variety of tools to help them navigate this newfound territory.
I’ve listed a variety of high end resources and tools that can help you improve your cryptocurrency trading success. Bookmark this page as you’ll most likely need to reference it throughout your crypto trading journey.
Welcome to the World of Cryptocurrency Trading Tools
There are a ton of tools out there used for a variety of purposes. You can use them in combination with each other, whether you’re investing or trading. Strategy is a huge part of cryptocurrency trading and so are the tools that you have in your arsenal.
Arming yourself with the right intel is everything when it comes to choosing the right cryptocurrency to trade or invest in. News sources will supply you with the most accurate and up-to-date information within the crypto sphere. Technical analysis will help you formulate a solid trading strategy off of the latest news.
If you end up choosing the right asset, at the right time, and formulate a congruent trading strategy, you’re halfway through the battle. So it’s very important to take your time and utilize these tools, to the best of your ability, in order to put all the odds in your favor.
Let’s start this list off with the most obvious choice…
You can’t start a “crypto trading tool list” without mentioning this coveted resource. If you’ve spent more than five minutes within cryptocurrency ecosystem, I realize you’ve probably used this tool on many occasions by now.
This useful tool is your headquarters for all things cryptocurrency. It contains all the information you’ll ever need, on any cryptocurrency and exchange released to the public. Everything from graphs, official coin websites, social media information, market cap, exchanges that trade a particular coin you’re looking for, etc.
I’m sure you’re already very familiar with this tool by now, so let’s move on to the other goodies…
This technical analysis trading portal contains anything and everything you ever wanted to know about the technical side of cryptocurrency like chart patterns, candlestick formations, as well as the most comprehensive list of charting tools and indicators you can find anywhere on the net.
This massive powerhouse of a site also contains a social media style platform where traders can share and discuss their charts and trading strategies. I can’t even begin to tell you how valuable this is.
Learning to trade from real trading experts and viewing how they set up their real life trading strategies is a powerful learning tool to add to your educational cryptocurrency trading arsenal.
TradingView is accessible from anywhere in the world and they even allow you to utilize their charts, drawing tools, and indicators for free. If you spend any amount of time on various cryptocurrency trading sites, you’ll notice that most of them, including reputable crypto exchanges, use TradingView charts.
If there’s one place that you want to learn more about technical analysis via plotting your own charts as well as learning from a network of professionals, TradingView is the place to be.
I could write an entire book on how valuable TradingView is, but I don’t think either one of us has the time for that.
DISCLAIMER: Coinigy is another widely used trading platform that many crypto traders use. I started out on this platform but find it to be extremely buggy and takes up a lot of your computer resources if you leave the chart up for too long. Their customer support isn’t that great either.
I highly recommend TradingView over Coinigy for serious traders. I’ll most likely write up a detailed comparison in the near future.
Moving down the list…
Ditch those bloated Google spreadsheets and let CoinTracking do all the heavy lifting for you. Keeping track of your cryptocurrency trading activity is a rather daunting task this tool quickly eliminates for you.
The service imports your trades from 24 of the most popular cryptocurrency exchanges. Importation can be done via CSV files or API. Once all your trades have been imported, you can start analyzing your ROI and stay up-to-date with your profit loss ratios and resulting taxes.
This is the ultimate cryptocurrency tracking tool. I highly recommend it if you plan on trading more than a few times per month. Read more about the tool here.
Cryptocurrency News Sites
I suppose this isn’t so much of a tool “per se” but a place you want to frequent when you want to keep a pulse on the latest happenings within the crypto ecosystem. Look at it like your daily newspaper for stocks, which is absolutely essential if you want to keep up with your expanding investment portfolio or current trades.
These news portals never post misleading information and are always the first to bring you the latest updates on the crypto world. There are many other sources like CryptoCoinJunky (shameless plug), where we filter through some the more important news releases of the day as well as provide you with trading guides, altcoin reviews, exchange reviews, and other useful information that will help you along your trading journey.
Sign up for our newsletter on the sidebar above (or below related news on mobile) and receive a free Crypto Coin Junky Handbook that contains 147 pages on everything you ever wanted to know about trading, investing, and other various aspects of the game.
<End of shameless plugin>
Moving onto more pressing matters….
Run by those crypto geniuses over at CoinTelegraph, Coin360 is a platform that takes the most recent cryptocurrency values and displays them in an extremely useful visualization. Rate changes are displayed by use of color markers. Green represents a rise in price and red represents a falling price. This really helps bring clarity to a market that is so convoluted. Prices can be displayed in both BTC or US dollars.
Users can also make changes to the chart by only selecting coins that they would like to see. You can also switch views between “market capitalization” and “trading volume” according to various time frames.
This platform is easy to understand and allows for users to identify various cryptocurrencies and their market capitalizations without having to sift through tons of complex charts and data.
This is an incredible tool if your into investing in ICO’s and are looking for a type of CoinMarketCap style site that specializes in Initial Coin Offerings. Here you’ll find basic information on any particular ICO that’s currently available or soon to be released to the public and accepting investors like you.
There’s also a very handy tool that calculates the potential profit (or loss) of your ICO, which will come in handy when you’re looking to keep track of how much you currently earned on your investment.
Ledger Nano Wallet
The ideal security device for your precious cryptocurrency coins and the Cadillac of hardware wallets. It’s robust security features are unrivaled. It connects to your computer via a USB and embeds a secure OLED display to confirm each transaction with a single press of its side buttons.
There are many different reasons to use this wallet over others like…
Hardware wallets are always the most secure form of storing your cryptocurrency
They’re immune to viruses
They look cool (not really a benefit, but could be in the right situation)
The first time you view this site you might think you’ve been transported back to the 1990s era of the internet, however don’t let the retro appearance fool you, as it’s one of the top trading platforms to buy and sell digital assets, with all market comparisons located in one spot.
This site is owned by the cryptocurrency exchange, Kraken, and is a comprehensive charting and trading platform that offers technical charting for a large variety of crypto exchanges. Despite handling real-time data from over 22 different exchanges, the platform also provides accurate currency statistics (no lag) which will allow you to execute instant trades from their intuitive trading panel.
Many popular cryptocurrency platforms support Cryptowat.ch like Coinbase, Poloniex, CES.IO, Bitfinex, Huobi, and many others. Click here for a list.
One of the most beloved tools from the crypto trading community. This Android/iOS app works as a position and investment tracker. It allows you to pin various cryptocurrencies on your customized dashboard and view them on a simplified graph. This allows users to keep track of orders, set alarms for particular price notifications and most importantly, allows you to input your trade data. This is the type of tool you need to have in order to track how much you’ve earned from a particular trade.
This is a must-have tool for those of you who are meticulous about keeping track of all the various cryptocurrencies circulating in your portfolio. The only issue I have with it is that it doesn’t connect via API to any market or exchange, so your trading data is not entered into the app automatically. So for now, you have to manually input your trading data.
All in all, it’s worth having as it’s free. If you’re trading or investing with over a dozen or so cryptocurrencies, keeping track of your profit ratio can prove to be a difficult task without it.
Another great alternative to Blockfolio is Delta . I’ve been hearing a lot of people singing its praises lately.
This site is a great “evidence based”, community driven, crypto news verification portal that accumulates 6 months of history on many various news reports, altcoin releases, and just about anything going on within the crypto ecosystem.
This is THE perfect tool to differentiate between authentic news and rumors on your favorite cryptocurrency. Once you’ve gathered the authentic up information, only then can you formulate your trading strategy.
You can expect an accuracy rate of well over 90% due to the fact that it’s community evidence driven. This is a great place to visit in order to substantiate the difference between rumors and the news.
The perfect site to check up and analyze your favorite cryptocurrency, ICO, arbitrage, or potential investment opportunities.
This research platform gives you a ton of insights from various angles like…
Charts & Detailed Analysis
News and a lot more
One of my favorite features is the “general average investment stats”. It gives you a great overall picture of volatility and returns of a particular coin over the course of a 7 to 30 day period.
They’ve also recently added an ICO analysis chart, pump and dump updates, arbitrage opportunities, and a host of other categories.
OnChainFX is an invaluable tool that will allow you to filter through a wide array of crypto metrics. Although it’s still in its beta stage, the extensive range of metrics that you can use to compare cryptocurrencies to is nothing short of amazing.
It will also allow investors to make cryptocurrency comparisons in order to make a better investment decision due to the high number of metrics you can measure with.
Some of the features provided by OnChainFX are…
The total coin supply issued in a percentage format
ROI and historical pricing data shown over many years so that investors can can the of the assets over time.
Compare movements of 2 or more crypto assets by placing them side-by-side
Cryptocurrency future worth which provides a coins value at year 2050. This allows investors to view the impact of inflation on various cryptocurrency’s and shows the estimated supply of the asset that would be available on January 1 of 2050.
The number of days that have passed since a particular cryptocurrencies ATH.
3Commas is the most comprehensive cryptocurrency trading bot out today. It’s helped 100s of traders experience consistent, record-breaking gains as the platform allows its traders to utilize automated trading bots as well as copied the exact trading strategies of successful traders that have recorded and display their portfolios to the public.
Traders are also able to utilize their smart trading feature which will allow you to customize your own trading strategies as well as set up stop loss and take profit commands.
This is a great tool to help both novice and advanced traders minimize their risk while limiting the exposure to heavy losses and at the same time maximizing gains.
Check out their long list of features located here (like the trailing stop loss).If you decide to use this “pay as you go” service, make sure to click here to take advantage of a 10% discount using my discounted referral link.
Ok…. So this site isn’t really that essential, however it is a good place to check if you find yourself getting a bit overly enthusiastic about a particular altcoin that looks too good to be true.
This site is an accumulation of numerous shitcoins which lists the ones that you’ll end up losing your hard earned money on. Deadcoins operates in the way Wikipedia does, where people find a report coins with absolutely no growth potential and report them as a way to prevent other users from falling into their trap.
Wrapping things up…
I highly recommend you bookmark a few these tools in order to better help you decide where to put your money when investing in any future crypto project.
These tools don’t necessarily mean that you’re going to make a guaranteed profit, however it does allow you to make a very informed buying decision, which is half the battle. Placing probability in your favor is the name of the game when it comes to any solid trading strategy.
Let me hear from you in the comments below regarding your thoughts are on the tools outlined above. If you have any other useful tools that you think should be added to the list, let me know. Up
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.
When you think of popular cryptocurrency trading tools, the Fibonacci retracement level tool is right there at the top of the list. Helping traders reveal key levels to place buy and sell orders is a very simple way to explain the purpose of this highly effective tool and doesn’t entirely do it justice.
For those traders who properly know how to utilize its formidable ability to spot these crucial levels of support and resistance, it can and will make you into another trading success story.
For now, let’s give you a little back story as to why institutional traders have been using this tool for decades…
A Quick History Lesson on Fibonacci
Leonardo Bonacci, nicknamed Fibonacci, was a Italian mathematician born into a humble family of traders back in 1170. Amongst being a brilliant mathematician, Leonardo was an avid traveler.
Through his travels he discovered a Hindu-Arabic numerical system and quickly figured out its advantages over the current European system at that time. This led him to become one of the most influential people to lead the adoption of the Hindu Arabic numerical system by the Western world.
Leonardo published a book called “Liber Abaci”, known as “The Book of Calculation”, which he published in the year 1202. The book included detailed examples on how to practically use these highly innovative calculations in every day uses like bookkeeping, weight and measurement conversions, human interest calculations, among many other things. The book was so well loved and received that we can feel the effects of its influence, even in today’s world.
Leonardo’s system completely overtook the previously used Roman numerical system and improved business calculation capabilities which led to an exponential growth of accounting and banking in the heart of Europe.
How Were Fibonacci Levels Discovered?
An interesting proposal within his book was based on an observation of a particular problem involving the growth of rabbits in ideal conditions. The solution to this problem was later found within a mathematical sequence of numbers which we now know as Fibonacci numbers.
Furthermore, this was not the first time these sequences of numbers were recorded. Historians had discovered documents by Indian mathematicians that were found at least 600 years before Leonardo discovered them himself.
The ratio of numbers, which we know as the Golden Ratio, was discovered by Phidias (Greek Architect) between the years of 500 BC and 432 BC and can be found in nature as well as human creations like architecture and trading systems, which we use to this day.
OK, enough of the history lesson…
Why Are Fibonacci Levels Such a Big Deal in Trading?
While the math will most likely go over most people’s heads, it’s important to note that the Fibonacci sequence is found in the geometry of nature. You can find the sequence in things like animal skin, DNA structure, spirals within a seashell, and the list goes on.
This number sequence produces a ratio of 61.8%, which mathematicians will commonly refer to as the “Golden Mean”, which is a Greek term that is defined as a common ground between two extremes. However, we refer to it as the “Golden Ratio”, which can be found in many aspects of nature.
This golden ratio is often found within human responses as well. When asked to choose between two value neutral options, study after study has shown that the ratio is typically split between 62% and 38%, not 50-50. The 62% is labeled as the “Golden Ratio” which is found within our financial markets as well.
Most financial markets will reveal this Golden Ratio on both time and price periods in which a retracement of 61.8% is typically found after a 100% advancement.
So to sum it all up…
Fibonacci retracement levels refer to these simple areas of support and resistance that are typically found in human behavior, over decade’s worth of financial studies.
What Exactly Do These Levels Mean?
The Fibonacci levels that are used within institutional trading are 23.6%, 38.2%, 50%, 61.8%, and 100%. However, the Fibonacci levels more commonly used in cryptocurrency trading is 38.2%, 50%, 61.8%, and 100%.
The 50% level is not a Fibonacci level per say, but stems from Dow Theory’s assertion that averages often retrace half of their prior movement. Nonetheless, these are levels that you’ll find the most support and resistance around.
But, why are these levels important?
They’re psychological barriers that tend to repeatedly show up within the financial markets, time and time again. They are called inflection points where traders tend to anticipate a bounce or break off a resistance or support.
Another interesting aspect to Fibonacci levels are, the fact that the more people that use them, the more accurate they become. This tends to fall under the “self-fulfilling prophecy” paradigm.
The most important Fibonacci level, as you might’ve guessed, is the 0.618, Golden Mean level. This is a critical level where sellers tend to give up bargain-hunting and a potential mass buying frenzy will ensue.
These are great places to either buy upon a breakout or pull back to after an uptrend. Careful traders won’t make a move until the price is 5 to 10% above this Fibonacci level in order to confirm their speculation. This is a safe move since Fibonacci levels are not always precise.
How Do I Use This “Almost” Magical Tool?
The Fibonacci retracement levels are made up of horizontal lines which are used to highlight areas of expected support and resistance within crucial Fibonacci ratios. In order to create these levels, you’ll need to draw a trend line between the lowest and highest price of a particular trading cycle.
It’s up to a trader’s discretion to use wicks or candles when measuring the lowest and highest points. Whichever one you decide to stick with, make sure you stay consistent between charts.
This is a very popular tool among technical traders as it identifies places where they can strategically place price targets and stop losses. You’ll find more times than not that the market tends to either struggle near these Fib resistance levels or breakthrough and utilize the old resistance level as a new support .
Call it magic, or simply just some form of a self-fulfilling prophecy, but for some unknown reason, markets tend to move significantly towards these support and resistance levels.
One important thing you should note…
Fibonacci levels are not completely accurate. Use your common sense along with other indicators and trading patterns in order to solidify a game-winning trading strategy. Just because you buy at the 0.236 level doesn’t mean that the price is going to go up with 100% certainty. However, if you take these levels into consideration, you’ll have a much higher probability of winning trades.
Can Fibonacci Retracement Levels Be Used With Other Trading Tools?
Absolutely! In fact, it’s highly recommended that you utilize other trading tools and indicators alongside the Fibonacci retracement tool. If you find that other tools and indicators tend to overlap with the results of the Fibonacci retracement levels, this generally means that there is a fortified support and resistance to be expected.
This helps you better solidify your trading strategy.
What’s a Good Beginners Strategy to Use with Fibonacci Levels?
Fibonacci levels are very efficient at predicting a bounce off a big red candle, upon completion of a quick rally. These quick trades can generate a 20-40% profit if timed properly. This takes into consideration that once a rally has been quickly dumped, it will typically bounce back at a Fibonacci level near or around 0.618 or 0.786, before continuing to reach new lows.
Many traders, including myself, will use the Fibonacci retracement levels to decide where to buy into the next trading cycle. Remember that these levels are merely points of interest. Prices will not always reach one level or another but more often times than not, stay around the same ballpark area.
It’s also worth noting, that high volume markets are more likely to show retracement levels than low volume. Larger volume cryptocurrencies like Bitcoin, Ethereum, Litecoin, in any other cryptocurrency in the top 10 are more likely to show retracement levels than minor tokens.
Start practicing with the Fibonacci retracement tool today. Learn how to utilize it properly in order to maximize your trading success.
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.
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