Trading cryptocurrencies. I have been trading cryptocurrencies for over 10 years and have experienced three bull and bear markets. The time when I really made big money in the crypto space was during the bull market! Just catching one wave is enough. Last month, I enjoyed playing with one of my small accounts, catching a meme coin that rose 160% in one day, earning over 6 million from 100,000, just by seizing one opportunity!
There is a very simple and foolish method that can help you avoid losses. This trick is common sense, and as long as you have self-control, all cryptocurrency traders can do it. Regardless of what type of investor you are, whether you are day trading or buying dips, or whether you are following trend breaks, if you are in the crypto space, you must respect these eight pieces of common sense. By sticking to them long-term, you will find that your account no longer incurs losses but starts to profit.
The following content is summarized based on my practical experience and thoughts. I hope everyone can read it carefully and that it provides some help to confused trading friends.
First, the more losses you incur in trading, the more cautious you should be in adding positions. Many people feel anxious after being trapped in the market and continuously add to their positions to average down their holding costs, hoping for a recovery. This actually goes against common sense. The process of falling is not something that can be reversed in one or two days. Averaging down is merely self-comforting; the more anxious you are, the easier it is to make mistakes, leading to regret. Why would you dare to average down at this position?
Discipline in operation must be strictly enforced. Many traders will make detailed plans before the market opens, such as waiting for the market to drop to a certain point before acting, or deciding at what price to enter a particular coin. However, during trading, they often find it easy to be stimulated and tempted. If you cannot execute your own plan properly, then you are not playing in the crypto space but in a casino. Most operations at that moment are likely to be wrong.
Third, do not trade frequently in the market. Many traders who suffer heavy losses are those who engage in ultra-short trades. Conversely, those who treat trading as entertainment and do not possess superb skills, simply waiting, will not incur significant losses.
Fourth, avoid continuously increasing your positions in the market. In the crypto space, throwing in money recklessly is a common sight. However, this is a very real portrayal. Before you have the ability to make money, do not keep adding to your account, especially if it affects your living standards. Losses indicate that your trading system has flaws, and at this point, you should not fill the hole by adding to your positions. Instead, you should reflect and calmly explore a viable method before increasing your efforts.
Fifth, missing out on opportunities does not lead to losses, but chasing after rising prices often results in cutting losses. There is a common phenomenon in the crypto space where the stocks you are interested in rise significantly without your participation. And when you want to buy at a high price, it crashes as soon as you buy. The reason is that the company's operations have not changed, and it is advisable to choose a median price as a reference. Stay away from high positions when in low positions.
Sixth, when trading cryptocurrencies, one should go with the trend. There are three trends: uptrend, downtrend, and sideways consolidation trend. Undoubtedly, during a downtrend, participating with a light position or even being flat in an uptrend will significantly increase the chances of success.
Seventh, never touch assets that are continuously declining without a stop. Trying to catch a falling knife is like catching a flying knife with bare hands, putting yourself in a dangerous position. Wait for a significant bullish candlestick to appear as a signal of a stop in the decline, and then you can slowly buy in. This is the right-side buying method; blindly trying to catch a bottom will only lead to deeper entrapment.
Eighth, never trade based on research reports or rumors. Many retail investors love to act on rumors, which is a big mistake. Using common sense, why would others quietly make a fortune without letting you know? If a piece of news reaches a retail investor like you, it is because the major players want you to know and want you to take the bait. In this situation, being trapped is common.
4. Discover patterns through volume: Skilled traders have pattern recognition skills and can identify repeatable volume patterns. Understanding these common volume patterns can provide useful insights into market sentiment and future price trends.
High volume: This pattern occurs when prolonged price fluctuations lead to high volume, resulting in a trend reversal. It usually appears at the end of a long-term uptrend or downtrend and may indicate market weakness.
Oscillating volume: The oscillating volume pattern is characterized by a significant drop in volume, triggering early traders to exit before a price reversal. This often traps weak traders who succumb to market pressures.
Volume during pullbacks/declines: This pattern occurs when the volume decreases during a counter-trend pullback within a larger trend. It indicates a market consolidation before the trend continues.
Volume breakout: When the price reaches a new high or low and the volume suddenly surges, a volume breakout pattern occurs. This confirms people's firm belief in the occurrence of the breakout and indicates that the market is in an acceptance state above or below key obstacles.
Decreasing volume in trends: If volume decreases during an uptrend, it may indicate waning interest and a potential trend reversal. Conversely, during a downtrend, a decrease in volume may indicate a bottoming process, and the trend may reverse upwards.
5. Using volume indicators in your trading plan to understand volume and its impact is one thing, but effectively applying it to your personal trading strategy is another. Here are a few suggestions that can help you integrate volume analysis into your overall trading strategy: Compare the number of options on up days versus down days: When prices rise, trading volume is greater than when prices fall. This indicates that buying pressure exceeds selling pressure, which is bullish. Pay attention to volume when re-testing support and resistance levels: When prices re-test support or resistance levels, it is usually important to pay attention to volume. If there is a significant increase in volume during these re-tests, these price levels are likely to hold and stabilize. Look for volume divergences: Typically, volume and price should move in the same direction. If they do not, it may indicate a problem.
For example, if the price rises but volume decreases, it may indicate that the price trend is about to change.
Choose volume indicators that suit your trading time frame: The importance of volume data depends on how long you plan to trade. If you are a swing trader holding positions for days or weeks, then daily volume data will be more useful. In contrast, day traders may find hourly or even minute-by-minute volume data more useful.
Beware of one-time volume spikes: If volume suddenly rises without reason, it can be misleading. Therefore, it is very important to look for confirmation signals from other indicators or later trading sessions.
Use the increase in volume to discover institutional activities: Large investors or 'whale' investors can have a significant impact on the market. A sudden increase in volume on high time-frame charts may indicate that institutional traders are buying or selling a particular token.
Remember that any single indicator, including volume, is not a 'magic bullet' that guarantees successful trading. Analyzing volume is just one of many strategies available, and it should be combined with other standards, indicators, and analytical tools. As the saying goes, 'volume precedes price'. Applying volume analysis to your trading plan can provide deeper insights into market dynamics, help you make more informed trading decisions, and potentially gain an edge in the market.
6. Disadvantages of volume analysis strategies
Although volume analysis strategies are a powerful tool in a trader's toolkit, one must be clear about their drawbacks. Using this strategy, you may encounter the following difficulties: Market manipulation: In some cases, market participants, especially those holding large amounts of capital, can manipulate volume levels to create false signals and mislead other traders.
Lagging signals: Sometimes, changes in volume may lag behind price changes, meaning that a significant increase or decrease in volume may not immediately result in a corresponding large price fluctuation.
False peaks: Volume analysis can occasionally produce false peaks. In such cases, a sudden surge in volume does not lead to significant price fluctuations.
Price distortion in low volatility: In assets with low liquidity or 'price float', changes in volume may be distorted, making it difficult to accurately interpret the data.
To mitigate these challenges, a prudent approach is to combine volume analysis with other indicators and technical analysis tools. The combination of multiple signals can enhance the reliability of trading strategies and reduce the likelihood of falling into misleading signals.
7. Conclusion
Volume provides traders with a way to understand market activity intensity and the psychological dynamics of traders. Once you understand what volume is and how it affects price movements, you can apply it to your trading strategy for a deeper understanding of market sentiment.
Utilize volume indicators such as OBV, VWAP, VROC, and Chaikin money flow, and understand common volume patterns, to significantly enhance your trading acumen. Integrating these tools into your trading plan can provide a more detailed understanding of market dynamics and allow for more accurate price predictions.
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