Define Your Trading Goals and Objectives
Before you start throwing your money into the crypto market, it’s essential to have a clear idea of what you’re hoping to achieve. Do you want to make enough money to retire to a tropical island? Or are you just looking for a way to cover your monthly rent? Knowing your goals and objectives will help you make better decisions and avoid getting swept up in the hype. Check our article on “How to Grow A Small Trading Account“; you may find it helpful. It offers actionable tips and insights that can be applied (regardless of whether your financial goals are big or small) to maximize your earnings and minimize risks.
Conduct a Thorough Analysis of the Market
You know what they say: the early bird gets the worm, but the second mouse gets the cheese. In other words, don’t jump into the market blindly just because everyone else is doing it. Take some time to research the market and understand where things are headed. This will help you make more informed decisions and avoid costly mistakes. Browse our feature on “Crypto Portfolio Allocation” for valuable insights. This guide shows a roundup of different crypto investments and strategies for different investment purposes. Basically, after reading it you’ll be able to understand what it takes to achieve optimal portfolio balance to both increase your gains and mitigate risks.
Select A Trading Style That Suits You
There are many different trading styles, from the lightning-fast pace of day trading to the more relaxed approach of swing trading. Just like you wouldn’t wear stilettos to go hiking, it’s crucial to choose a trading style that suits your personality and goals. So, if you’re the type of person who gets bored easily, day trading might be a better fit for you. But if you’re more patient and prefer a more hands-off approach, swing trading might be the way to go. Read our article “Swing Trading vs. Scalping: Which Is Better?” to help you decide which trading style suits you better.
Test Your Strategy Using Historical Data
Testing your strategy using historical data will give you a better sense of how it performs in different market conditions and help you make adjustments as needed. A good example of that can be made from the research of Willy Woo, one of the best crypto traders ever: “The vast majority of alt-coins are Degenerators. Their price chart has a measurable half-life, like radioactive decay. Plotted on a log chart, it’s a straight line down. This one is Namecoin, a promising coin of its era; there are over 2000 examples like this.”
Namecoin Price Performance
So, while a coin might seem very promising, it is essential to backtest your strategy to see if it works so you’re not caught in the fake narratives of pump and dumps of the crypto market. In the best case, you see that your hypothesis is not working well and adjust. In this case, seeing that so many altcoins are actually not going to the moon but rather to 0, you might profit from shorting overhyped coins.
Remember to always test and adjust along the way, as past performance is no guarantee that the strategy will work in the future.Monitor and Review Your Trading Strategy RegularlyRegularly monitoring and reviewing your strategy will help you quickly catch any red flags and adjust as needed. Plus, staying on top of things is good practice – you don’t want to wake up one day and realize you’ve been wearing your shirt inside out for the past week.
Developing a Winning Trading Strategy Is a Continuous Process
If there’s one thing we’ve learned from the market, things can change on a dime – that is especially important in trading.“In trading, always remember that Hiroshima and Nagasaki were destroyed in a Day.”
That’s why developing a winning trading strategy is a continuous process that requires ongoing research, testing, and refinement. Think of it like a relationship – you can’t just set it and forget it. You must put in the time and effort to keep things running smoothly. But if you do it right, the payoff can be huge. In fact, research by Blackrock, the biggest Asset Manager on the planet, shows that not investing is risky. From lots of personal experience, we suggest not confusing trading and investing with gambling. Because if you approach it the right way, in a disciplined way, it can be a great source of income.
Strategy 1: Trading The Trend With Heikin Ashi Candles
You might already know what Heikin Ashi Candles are; however, if not, it is wise to use them for your momentum strategies. Heikin Ashi mostly helps you to identify and trade momentum trends. Unlike traditional candlestick charts, Heikin Ashi candles serve as sort of a “Moving-Average” of charts, making them better suited for swing trading, aka. Trend following strategies instead of quick trading decisions.
By analyzing the chart example below using Heikin-Ashi candles, we can identify two clear trends: a downtrend and an uptrend. The colour of the Heikin-Ashi candles remains consistent over a given period, providing an indication of potential trend reversals when the colour changes. Additionally, changes in the size of the candles and shadows offer further insight into possible market movements. So, overall, they might be a great addition to your arsenal when trading momentum strategies.
To effectively use Heikin Ashi candles for swing trading, it is important to follow certain rules to identify trends. The following rules should be kept in mind:
A trend begins with a big real body candle, typically after a period of consolidation or sideways trading with doji candles.
For an uptrend, the candles should not have lower shadows. Conversely, for a downtrend, the candles should not have upper shadows.
The trend loses momentum or ends when the candles become smaller, and shadows appear from both sides.
Heikin Ashi candles and swing trading
On the Heikin-Ashi chart, you can clearly apply all the trading rules discussed earlier. The downtrend is confirmed with a big red candle without an upper shadow, followed by multiple similar candles. This is always the point when you should get into the trade. Then, it’s time to monitor the candles closely. Finally, we exit the trade once the candles become smaller and shadows appear on both sides. However, you cannot apply the same rules on the chart with normal candles as it is filled with green candles in between.
The same rules apply to the other two downtrends shown on the chart above. By trading simply by looking at the Heikin-Ashi candles, you could have made three easy and profitable trades. The first short would have given you around 13%, the second short around 23%, and the last one a whopping 34%. You could have made an even bigger profit on such an easy strategy with leverage.
Strategy 2: Spotting Reversals And Shorting The Cryptocurrency Market
This more sophisticated strategy utilizes multiple indicators to make more informed decisions. Specifically, we combine Bollinger Bands, the Relative Strength Index (RSI), and the Fear and Greed Index.
Bollinger Bands help you understand whether a coin is overbought or oversold.
RSI provides an additional layer of data, allowing you to confirm the signals you’re getting from the Bollinger Bands.
Candlestick Patterns provide visual insights into market trends and trader sentiment. They complement other tools like Bollinger Bands and RSI, helping you make more nuanced trading decisions. It’s like the perfect addition to gauge entry and exit points into the charts.
Fear and Greed Index helps you gauge market sentiment, letting you know if traders are too fearful or too greedy.
This trading strategy applies to almost any cryptocurrency and relies heavily on the Bollinger Bands indicator. However, timing the market can be challenging, and false signals can occur, so we must use additional indicators such as the RSI and the Crypto Fear and Greed Index and look for Candlestick Patterns to confirm our hypothesis.
Suppose we consider the example of Bitcoin’s bull run in November 2021. The RSI was overbought at above 70, suggesting a top may have been reached. However, this is only one indicator, and other signs of an overheated market must be considered.
We also looked at the Crypto Fear and Greed Index, which showed a value of 75, only 9 points away from its all-time high. This high value indicates that the market sentiment was extremely positive, and traders were likely too bullish. These indicators suggested that the bulls were losing steam, and it might be time to start looking for the right candlestick patterns.In cases where the market has gained over 100% in the prior months, like Bitcoin or other cryptocurrencies, using Bollinger Bands can be a helpful strategy. When the candles got out of the upper side Bollinger Bands, it can best confirm a clear entry position for a short.Finally, we might start looking for entry points if all indicators show a potential trade. A great way of spotting entry points is to look for candlestick patterns forming. Professional traders often use candlestick patterns to enter and exit trades according to specific candlesticks on the charts. If you are interested in all the different possibilities, you should read our comprehensive guide on Candlestick Patterns, to know all the formations and details. So, for now, we hope to spot a bearish candlestick pattern that might pinpoint a great entry point for a short position.
In this case, we identify an Evening Star Pattern forming. We wait for the third candle to confirm before entering the position and going short Bitcoin. In this case, we would have been able to correctly identify the top of the bull market using this indicator, giving you almost 80% profit on your trade-in the longer run.
Trading Rules:
RSI overbought 70+
Fear & Greed Index High 60+
Identify Reversal Candlestick Pattern (Here: Evening Doji Star)
Wait for the third candle to confirm
Go Short.
I hope this is helpful thanks for reading ❤️❤️❤️🩹.
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