How can you make as much money as is possible trading cryptocurrencies? The answer lies in the strategy of the trader. In this article I go over a true and tried trading strategy using indicators to help maximize profits and minimize exposure while trading. Being able to implement this strategy successfully can put you one big step above most other traders in the market. Good luck!
Trading cryptocurrencies has become a fad as of late. At this point in the game, hedge funds, fi nancial and educational institutions, and laymen alike are looking for their piece of the pie. They’ve heard the rags to riches tales and feel that if they can play even a small part in the crypto asset boom, they too can make gains that are unheard of in any other market.
Unfortunately most people coming into the space have little in the way of strategy when it comes investing or trading assets. The general route that I see most experienced investors taking is investing in an array of cryptocurrencies of varying market caps and letting them run while ignoring the high volatility.
While that may be a strong strategy for investing, it does not unlock the true potential for the massive gains that are made possible by trading day to day or week to week.
Ironically, the trick to making as much money as is possible trading in the space has less to do with which currencies you buy and more to do with when you buy them and when you sell them.
Reinvesting profi ts and benefi tting from extremely fast compounding is what allows decent gains to turn into legendary returns. Being able to trade efficiently in a number of currencies at a time is the key to maximizing potential gains while minimizing exposure.
While there are many components to a sound trading strategy, it is timing that separates the good traders from the great traders.
The goal of a trader is to fi nd a trade that offers the best risk/reward setup with the highest chance of success that will play out in the smallest period of time possible. Finding these golden opportunity trades will unlock massive returns for your portfolio, and being able to consistently and successfully execute those trades will, hypothetically, allow you to beat every other trader in the market.
It may seem like a daunting task to find these trades, and managing to time the entry and exit correctly are very diffi cult, but luckily there are indicators to help us with that.
Indicators are mathematical models created using the price action as input. Indicators can help you determine whether a coin’s trend is bullish or bearish, how to time an entry, and how to exit at the top.
The main indicators I use to accomplish these tasks are Moving Averages, Stochastic RSI, and Relative Strength Index(RSI). These are a few of the most popular indicators in use by professional traders. There are many many more, but I prefer to only use simple indicators as anything more in depth might cloud my judgement.
MOVING AVERAGES – IS THE TREND BULLISH?
The first indicator to look at when approaching a new coin is moving averages. Moving averages can help you determine whether the trend is bullish, bearish, or neutral, even while the price action is very volatile. When searching for the trend, the idea is to look at the long term movement, so naturally the 1 day and 4 hour time frames will generate the best results in most cases.
Taking positions in coins that have well defined bullish trends greatly minimizes the risk and maximizes the likelihood of success.
Moving averages are generally calculated using the average closing price of previous candles. A good strategy is to use three overlapping moving averages from the past 50, 100, and 200 candles. Generally, when these cross over, it indicates a shift in the trend from bullish to bearish or bearish to bullish.
The strength of the trend is determined by the slope and steadiness of the longer moving averages and the consistency in the distance of the 50 and 100 to the 200. As the longer moving averages grow steeper, the strength of the trend is increasing, and while they are growing shallower, the strength of the trend is lessening. Additionally, if the 50 and 100 diverge from the 200, the price is more likely to experience a strong pullback that would lead the 50 and 100 back to the 200 again.
STOCHASTIC RSI – WHERE SHOULD I BUY?
The Next indicator to look at is the Stochastic RSI (Stoch RSI for short). After a bullish trend has been identifi ed, this indicator will reveal the momentum of swings in the price on long and short timeframes.
The Stoch RSI is an oscillator calculated using the fluctuation of the Relative Strength Index Indicator. A strong approach to using the Stoch RSI is to wait for the Stochastic RSI to bottom and begin turning bullish again on multiple time frames, especially the daily and hourly time frames, in order to secure the best possible entry. When the Stoch RSI is below 20% on the 1 day and starts to move up again while in a bullish trend it is generally a good time to buy.
RELATIVE STRENGTH INDEX (RSI) – WHERE SHOULD I SELL?
The final indicator I actively use in trading is the Relative Strength Index (RSI for short).
This indicator helps reveal the best possible time to close a trade. The RSI uses the velocity and magnitude of price action to determine the momentum of the trend. When the RSI starts to spike above the 70% level on the 1 day, 4 hour, 1 hour, and 15 minute time frames and the price is going vertical, it is almost certainly a good time to sell. Often times these events will be accompanied by large volume spikes.
The high volume allows traders and investors with large holdings in the coin to exit at high prices by letting others buy into their limit orders.
Immediately afterwards this can result in large drops in price as those that got caught with bags at the top begin to realize their mistake and start capitulating. Using this technique to sell the top can help get you out at a price worth bragging about.
For the most part, I personally stick to these three indicators when trading. They are enough to make massive profi ts and reveal the simplest and strongest setups.
By learning and mastering these, you can avoid getting lost in the endless list of indicators. The hardest part of this strategy for me is being patient.
It works like a charm if you can manage to wait until just the right time to get in, and you are able to force yourself to exit when the time comes. My recommendation is to do fundamental research on as many coins as possible, fi nd the projects and teams you like, and then wait for these setups on those coins. I wish you the best, and happy trading!