Double Top Pattern: Your Complete Guide to Consistent Profits
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Trading Double Tops And Double Bottoms
H1 Backtest of ParallaxFX's BBStoch system
Disclaimer: None of this is financial advice. I have no idea what I'm doing. Please do your own research or you will certainly lose money. I'm not a statistician, data scientist, well-seasoned trader, or anything else that would qualify me to make statements such as the below with any weight behind them. Take them for the incoherent ramblings that they are. TL;DR at the bottom for those not interested in the details. This is a bit of a novel, sorry about that. It was mostly for getting my own thoughts organized, but if even one person reads the whole thing I will feel incredibly accomplished.
For those of you not familiar, please see the various threads on this trading system here. I can't take credit for this system, all glory goes to ParallaxFX! I wanted to see how effective this system was at H1 for a couple of reasons: 1) My current broker is TD Ameritrade - their Forex minimum is a mini lot, and I don't feel comfortable enough yet with the risk to trade mini lots on the higher timeframes(i.e. wider pip swings) that ParallaxFX's system uses, so I wanted to see if I could scale it down. 2) I'm fairly impatient, so I don't like to wait days and days with my capital tied up just to see if a trade is going to win or lose. This does mean it requires more active attention since you are checking for setups once an hour instead of once a day or every 4-6 hours, but the upside is that you trade more often this way so you end up winning or losing faster and moving onto the next trade. Spread does eat more of the trade this way, but I'll cover this in my data below - it ends up not being a problem. I looked at data from 6/11 to 7/3 on all pairs with a reasonable spread(pairs listed at bottom above the TL;DR). So this represents about 3-4 weeks' worth of trading. I used mark(mid) price charts. Spreadsheet link is below for anyone that's interested.
I'm pretty much using ParallaxFX's system textbook, but since there are a few options in his writeups, I'll include all the discretionary points here:
I'm using the stop entry version - so I wait for the price to trade beyond the confirmation candle(in the direction of my trade) before entering. I don't have any data to support this decision, but I've always preferred this method over retracement-limit entries. Maybe I just like the feeling of a higher winrate even though there can be greater R:R using a limit entry. Variety is the spice of life.
I put my stop loss right at the opposite edge of the confirmation candle. NOT at the edge of the 2-candle pattern that makes up the system. I'll get into this more below - not enough trades are saved to justify the wider stops. (Wider stop means less $ per pip won, assuming you still only risk 1%).
All my profit/loss statistics are based on a 1% risk per trade. Because 1 is real easy to multiply.
There are definitely some questionable trades in here, but I tried to make it as mechanical as possible for evaluation purposes. They do fit the definitions of the system, which is why I included them. You could probably improve the winrate by being more discretionary about your trades by looking at support/resistance or other techniques.
I didn't use MBB much for either entering trades, or as support/resistance indicators. Again, trying to be pretty mechanical here just for data collection purposes. Plus, we all make bad trading decisions now and then, so let's call it even.
As stated in the title, this is for H1 only. These results may very well not play out for other time frames - who knows, it may not even work on H1 starting this Monday. Forex is an unpredictable place.
I collected data to show efficacy of taking profit at three different levels: -61.8%, -100% and -161.8% fib levels described in the system using the passive trade management method(set it and forget it). I'll have more below about moving up stops and taking off portions of a position.
And now for the fun. Results!
Total Trades: 241
TP at -61.8%: 177 out of 241: 73.44%
TP at -100%: 156 out of 241: 64.73%
TP at -161.8%: 121 out of 241: 50.20%
Adjusted Proft % (takes spread into account):
TP at -61.8%: 5.22%
TP at -100%: 23.55%
TP at -161.8%: 29.14%
As you can see, a higher target ended up with higher profit despite a much lower winrate. This is partially just how things work out with profit targets in general, but there's an additional point to consider in our case: the spread. Since we are trading on a lower timeframe, there is less overall price movement and thus the spread takes up a much larger percentage of the trade than it would if you were trading H4, Daily or Weekly charts. You can see exactly how much it accounts for each trade in my spreadsheet if you're interested. TDA does not have the best spreads, so you could probably improve these results with another broker. EDIT: I grabbed typical spreads from other brokers, and turns out while TDA is pretty competitive on majors, their minors/crosses are awful! IG beats them by 20-40% and Oanda beats them 30-60%! Using IG spreads for calculations increased profits considerably (another 5% on top) and Oanda spreads increased profits massively (another 15%!). Definitely going to be considering another broker than TDA for this strategy. Plus that'll allow me to trade micro-lots, so I can be more granular(and thus accurate) with my position sizing and compounding.
A Note on Spread
As you can see in the data, there were scenarios where the spread was 80% of the overall size of the trade(the size of the confirmation candle that you draw your fibonacci retracements over), which would obviously cut heavily into your profits. Removing any trades where the spread is more than 50% of the trade width improved profits slightly without removing many trades, but this is almost certainly just coincidence on a small sample size. Going below 40% and even down to 30% starts to cut out a lot of trades for the less-common pairs, but doesn't actually change overall profits at all(~1% either way). However, digging all the way down to 25% starts to really make some movement. Profit at the -161.8% TP level jumps up to 37.94% if you filter out anything with a spread that is more than 25% of the trade width! And this even keeps the sample size fairly large at 187 total trades. You can get your profits all the way up to 48.43% at the -161.8% TP level if you filter all the way down to only trades where spread is less than 15% of the trade width, however your sample size gets much smaller at that point(108 trades) so I'm not sure I would trust that as being accurate in the long term. Overall based on this data, I'm going to only take trades where the spread is less than 25% of the trade width. This may bias my trades more towards the majors, which would mean a lot more correlated trades as well(more on correlation below), but I think it is a reasonable precaution regardless.
Time of Day
Time of day had an interesting effect on trades. In a totally predictable fashion, a vast majority of setups occurred during the London and New York sessions: 5am-12pm Eastern. However, there was one outlier where there were many setups on the 11PM bar - and the winrate was about the same as the big hours in the London session. No idea why this hour in particular - anyone have any insight? That's smack in the middle of the Tokyo/Sydney overlap, not at the open or close of either. On many of the hour slices I have a feeling I'm just dealing with small number statistics here since I didn't have a lot of data when breaking it down by individual hours. But here it is anyway - for all TP levels, these three things showed up(all in Eastern time):
7pm-4am: Fewer setups, but winrate high.
5am-6am: Lots of setups, but but winrate low.
12pm-3pm Medium number of setups, but winrate low.
I don't have any reason to think these timeframes would maintain this behavior over the long term. They're almost certainly meaningless. EDIT: When you de-dup highly correlated trades, the number of trades in these timeframes really drops, so from this data there is no reason to think these timeframes would be any different than any others in terms of winrate. That being said, these time frames work out for me pretty well because I typically sleep 12am-7am Eastern time. So I automatically avoid the 5am-6am timeframe, and I'm awake for the majority of this system's setups.
Moving stops up to breakeven
This section goes against everything I know and have ever heard about trade management. Please someone find something wrong with my data. I'd love for someone to check my formulas, but I realize that's a pretty insane time commitment to ask of a bunch of strangers. Anyways. What I found was that for these trades moving stops up...basically at all...actually reduced the overall profitability. One of the data points I collected while charting was where the price retraced back to after hitting a certain milestone. i.e. once the price hit the -61.8% profit level, how far back did it retrace before hitting the -100% profit level(if at all)? And same goes for the -100% profit level - how far back did it retrace before hitting the -161.8% profit level(if at all)? Well, some complex excel formulas later and here's what the results appear to be. Emphasis on appears because I honestly don't believe it. I must have done something wrong here, but I've gone over it a hundred times and I can't find anything out of place.
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Adjusted Proft % (takes spread into account): 5.36%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Adjusted Proft % (takes spread into account): -1.01% (yes, a net loss)
Now, you might think exactly what I did when looking at these numbers: oof, the spread killed us there right? Because even when you move your SL to 0%, you still end up paying the spread, so it's not truly "breakeven". And because we are trading on a lower timeframe, the spread can be pretty hefty right? Well even when I manually modified the data so that the spread wasn't subtracted(i.e. "Breakeven" was truly +/- 0), things don't look a whole lot better, and still way worse than the passive trade management method of leaving your stops in place and letting it run. And that isn't even a realistic scenario because to adjust out the spread you'd have to move your stoploss inside the candle edge by at least the spread amount, meaning it would almost certainly be triggered more often than in the data I collected(which was purely based on the fib levels and mark price). Regardless, here are the numbers for that scenario:
Moving SL up to 0% when the price hits -61.8%, TP at -100%
Winrate(breakeven doesn't count as a win): 46.4%
Adjusted Proft % (takes spread into account): 17.97%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%
Winrate(breakeven doesn't count as a win): 65.97%
Adjusted Proft % (takes spread into account): 11.60%
From a literal standpoint, what I see behind this behavior is that 44 of the 69 breakeven trades(65%!) ended up being profitable to -100% after retracing deeply(but not to the original SL level), which greatly helped offset the purely losing trades better than the partial profit taken at -61.8%. And 36 went all the way back to -161.8% after a deep retracement without hitting the original SL. Anyone have any insight into this? Is this a problem with just not enough data? It seems like enough trades that a pattern should emerge, but again I'm no expert. I also briefly looked at moving stops to other lower levels (78.6%, 61.8%, 50%, 38.2%, 23.6%), but that didn't improve things any. No hard data to share as I only took a quick look - and I still might have done something wrong overall. The data is there to infer other strategies if anyone would like to dig in deep(more explanation on the spreadsheet below). I didn't do other combinations because the formulas got pretty complicated and I had already answered all the questions I was looking to answer.
2-Candle vs Confirmation Candle Stops
Another interesting point is that the original system has the SL level(for stop entries) just at the outer edge of the 2-candle pattern that makes up the system. Out of pure laziness, I set up my stops just based on the confirmation candle. And as it turns out, that is much a much better way to go about it. Of the 60 purely losing trades, only 9 of them(15%) would go on to be winners with stops on the 2-candle formation. Certainly not enough to justify the extra loss and/or reduced profits you are exposing yourself to in every single other trade by setting a wider SL. Oddly, in every single scenario where the wider stop did save the trade, it ended up going all the way to the -161.8% profit level. Still, not nearly worth it.
As I've said many times now, I'm really not qualified to be doing an analysis like this. This section in particular. Looking at shared currency among the pairs traded, 74 of the trades are correlated. Quite a large group, but it makes sense considering the sort of moves we're looking for with this system. This means you are opening yourself up to more risk if you were to trade on every signal since you are technically trading with the same underlying sentiment on each different pair. For example, GBP/USD and AUD/USD moving together almost certainly means it's due to USD moving both pairs, rather than GBP and AUD both moving the same size and direction coincidentally at the same time. So if you were to trade both signals, you would very likely win or lose both trades - meaning you are actually risking double what you'd normally risk(unless you halve both positions which can be a good option, and is discussed in ParallaxFX's posts and in various other places that go over pair correlation. I won't go into detail about those strategies here). Interestingly though, 17 of those apparently correlated trades ended up with different wins/losses. Also, looking only at trades that were correlated, winrate is 83%/70%/55% (for the three TP levels). Does this give some indication that the same signal on multiple pairs means the signal is stronger? That there's some strong underlying sentiment driving it? Or is it just a matter of too small a sample size? The winrate isn't really much higher than the overall winrates, so that makes me doubt it is statistically significant. One more funny tidbit: EUCAD netted the lowest overall winrate: 30% to even the -61.8% TP level on 10 trades. Seems like that is just a coincidence and not enough data, but dang that's a sucky losing streak. EDIT: WOW I spent some time removing correlated trades manually and it changed the results quite a bit. Some thoughts on this below the results. These numbers also include the other "What I will trade" filters. I added a new worksheet to my data to show what I ended up picking.
Total Trades: 75
TP at -61.8%: 84.00%
TP at -100%: 73.33%
TP at -161.8%: 60.00%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 53.33%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 53.33% (yes, oddly the exact same winrate. but different trades/profits)
Adjusted Proft % (takes spread into account):
TP at -61.8%: 18.13%
TP at -100%: 26.20%
TP at -161.8%: 34.01%
Moving SL up to 0% when the price hits -61.8%, TP at -100%: 19.20%
Taking half position off at -61.8%, moving SL up to 0%, TP remaining half at -100%: 17.29%
To do this, I removed correlated trades - typically by choosing those whose spread had a lower % of the trade width since that's objective and something I can see ahead of time. Obviously I'd like to only keep the winning trades, but I won't know that during the trade. This did reduce the overall sample size down to a level that I wouldn't otherwise consider to be big enough, but since the results are generally consistent with the overall dataset, I'm not going to worry about it too much. I may also use more discretionary methods(support/resistance, quality of indecision/confirmation candles, news/sentiment for the pairs involved, etc) to filter out correlated trades in the future. But as I've said before I'm going for a pretty mechanical system. This brought the 3 TP levels and even the breakeven strategies much closer together in overall profit. It muted the profit from the high R:R strategies and boosted the profit from the low R:R strategies. This tells me pair correlation was skewing my data quite a bit, so I'm glad I dug in a little deeper. Fortunately my original conclusion to use the -161.8 TP level with static stops is still the winner by a good bit, so it doesn't end up changing my actions. There were a few times where MANY (6-8) correlated pairs all came up at the same time, so it'd be a crapshoot to an extent. And the data showed this - often then won/lost together, but sometimes they did not. As an arbitrary rule, the more correlations, the more trades I did end up taking(and thus risking). For example if there were 3-5 correlations, I might take the 2 "best" trades given my criteria above. 5+ setups and I might take the best 3 trades, even if the pairs are somewhat correlated. I have no true data to back this up, but to illustrate using one example: if AUD/JPY, AUD/USD, CAD/JPY, USD/CAD all set up at the same time (as they did, along with a few other pairs on 6/19/20 9:00 AM), can you really say that those are all the same underlying movement? There are correlations between the different correlations, and trying to filter for that seems rough. Although maybe this is a known thing, I'm still pretty green to Forex - someone please enlighten me if so! I might have to look into this more statistically, but it would be pretty complex to analyze quantitatively, so for now I'm going with my gut and just taking a few of the "best" trades out of the handful. Overall, I'm really glad I went further on this. The boosting of the B/E strategies makes me trust my calculations on those more since they aren't so far from the passive management like they were with the raw data, and that really had me wondering what I did wrong.
What I will trade
Putting all this together, I am going to attempt to trade the following(demo for a bit to make sure I have the hang of it, then for keeps):
"System Details" I described above.
TP at -161.8%
Static SL at opposite side of confirmation candle - I won't move stops up to breakeven.
Trade only 7am-11am and 4pm-11pm signals.
Nothing where spread is more than 25% of trade width.
Looking at the data for these rules, test results are:
Adjusted Proft % (takes spread into account): 47.43%
I'll be sure to let everyone know how it goes!
Other Technical Details
ATR is only slightly elevated in this date range from historical levels, so this should fairly closely represent reality even after the COVID volatility leaves the scalpers sad and alone.
The sample size is much too small for anything really meaningful when you slice by hour or pair. I wasn't particularly looking to test a specific pair here - just the system overall as if you were going to trade it on all pairs with a reasonable spread.
Here's the spreadsheet for anyone that'd like it. (EDIT: Updated some of the setups from the last few days that have fully played out now. I also noticed a few typos, but nothing major that would change the overall outcomes. Regardless, I am currently reviewing every trade to ensure they are accurate.UPDATE: Finally all done. Very few corrections, no change to results.) I have some explanatory notes below to help everyone else understand the spiraled labyrinth of a mind that put the spreadsheet together.
I'm on the East Coast in the US, so the timestamps are Eastern time.
Time stamp is from the confirmation candle, not the indecision candle. So 7am would mean the indecision candle was 6:00-6:59 and the confirmation candle is 7:00-7:59 and you'd put in your order at 8:00.
I found a couple AM/PM typos as I was reviewing the data, so let me know if a trade doesn't make sense and I'll correct it.
Insanely detailed spreadsheet notes
For you real nerds out there. Here's an explanation of what each column means:
Pair - duh
Date/Time - Eastern time, confirmation candle as stated above
Win to -61.8%? - whether the trade made it to the -61.8% TP level before it hit the original SL.
Win to -100%? - whether the trade made it to the -100% TP level before it hit the original SL.
Win to -161.8%? - whether the trade made it to the -161.8% TP level before it hit the original SL.
Retracement level between -61.8% and -100% - how deep the price retraced after hitting -61.8%, but before hitting -100%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -61.8% to -100%. Positive 100 means it hit the original SL.
Retracement level between -100% and -161.8% - how deep the price retraced after hitting -100%, but before hitting -161.8%. Be careful to look for the negative signs, it's easy to mix them up. Using the fib% levels defined in ParallaxFX's original thread. A plain hyphen "-" means it did not retrace, but rather went straight through -100% to -161.8%. Positive 100 means it hit the original SL.
Trade Width(Pips) - the size of the confirmation candle, and thus the "width" of your trade on which to determine position size, draw fib levels, etc.
Loser saved by 2 candle stop? - for all losing trades, whether or not the 2-candle stop loss would have saved the trade and how far it ended up getting if so. "No" means it didn't save it, N/A means it wasn't a losing trade so it's not relevant.
Spread(ThinkorSwim) - these are typical spreads for these pairs on ToS.
Spread % of Width - How big is the spread compared to the trade width? Not used in any calculations, but interesting nonetheless.
True Risk(Trade Width + Spread) - I set my SL at the opposite side of the confirmation candle knowing that I'm actually exposing myself to slightly more risk because of the spread(stop order = market order when submitted, so you pay the spread). So this tells you how many pips you are actually risking despite the Trade Width. I prefer this over setting the stop inside from the edge of the candle because some pairs have a wide spread that would mess with the system overall. But also many, many of these trades retraced very nearly to the edge of the confirmation candle, before ending up nicely profitable. If you keep your risk per trade at 1%, you're talking a true risk of, at most, 1.25% (in worst-case scenarios with the spread being 25% of the trade width as I am going with above).
Win or Loss in %(1% risk) including spread TP -61.8% - not going to go into huge detail, see the spreadsheet for calculations if you want. But, in a nutshell, if the trade was a win to 61.8%, it returns a positive # based on 61.8% of the trade width, minus the spread. Otherwise, it returns the True Risk as a negative. Both normalized to the 1% risk you started with.
Win or Loss in %(1% risk) including spread TP -100% - same as the last, but 100% of Trade Width.
Win or Loss in %(1% risk) including spread TP -161.8% - same as the last, but 161.8% of Trade Width.
Win or Loss in %(1% risk) including spread TP -100%, and move SL to breakeven at 61.8% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you moved SL to 0% fib level after price hit -61.8%. Then full TP at 100%.
Win or Loss in %(1% risk) including spread take off half of position at -61.8%, move SL to breakeven, TP 100% - uses the retracement level columns to calculate profit/loss the same as the last few columns, but assuming you took of half the position and moved SL to 0% fib level after price hit -61.8%. Then TP the remaining half at 100%.
Overall Growth(-161.8% TP, 1% Risk) - pretty straightforward. Assuming you risked 1% on each trade, what the overall growth level would be chronologically(spreadsheet is sorted by date).
Based on the reasonable rules I discovered in this backtest:
Date range: 6/11-7/3
Adjusted Proft % (takes spread into account): 47.43%
Demo Trading Results
Since this post, I started demo trading this system assuming a 5k capital base and risking ~1% per trade. I've added the details to my spreadsheet for anyone interested. The results are pretty similar to the backtest when you consider real-life conditions/timing are a bit different. I missed some trades due to life(work, out of the house, etc), so that brought my total # of trades and thus overall profit down, but the winrate is nearly identical. I also closed a few trades early due to various reasons(not liking the price action, seeing support/resistance emerge, etc). A quick note is that TD's paper trade system fills at the mid price for both stop and limit orders, so I had to subtract the spread from the raw trade values to get the true profit/loss amount for each trade. I'm heading out of town next week, then after that it'll be time to take this sucker live!
Date range: 7/9-7/30
Adjusted Proft % (takes spread into account): 20.73%
Starting Balance: $5,000
Ending Balance: $6,036.51
Live Trading Results
I started live-trading this system on 8/10, and almost immediately had a string of losses much longer than either my backtest or demo period. Murphy's law huh? Anyways, that has me spooked so I'm doing a longer backtest before I start risking more real money. It's going to take me a little while due to the volume of trades, but I'll likely make a new post once I feel comfortable with that and start live trading again.
Strat for 50 - 100% a Year - Common Points, Example of Setup 3 and First Weeks Results.
Part 1 Part 2 We're going to start this post with dealing with common heckles. Some people have heckled me already in this posting series. I know from having done things like this publicly a few times before there are catchphrase heckles to be dealt with, and we'll do this one and for all here. If I've linked you here, you've done a FMH (Frequently Made Heckle). If you're not a heckler, you can skip the line break for the strategy stuff, but this section may still be interesting for you. FMH 1 : Elliot wave does not work all the time. I know. The clock in my living-room does not work all the time. If it tells me it's 2am and I look out and it's broad day light, I use some discerning judgement based on my experience of looking out of a window, and I suspect it may be incorrect. If it tells me it's 8.30am and I look out and see little kids with school bags walking past the window, I suspect the clock may have a point. When I write all the rules and exceptions in my posts, I am not doing this to make the posts longer. These are rules and exceptions designed to describe situations when it probably is happening. Of course it does not "Always work". I am not say it does. Your assumption I have not thought through the same extraordinary simplistic, "But, what if ...." questions is either you under estimating me, over estimating you, or both. FMH 2 : Fibs levels do not work, studies show it is as good as random. Two points. Firstly, I've read some of these studies. These hypothetical things done by people who have never traded in the market and want to produce intellectual ideas about it. While reading through the method of the experiment it's apparent to me it won't work. I could save them some time if they call me and tell me their hypothesis; "Nope. You'll lose about 20% a year doing that. Good general idea. Okay starting point, but you get fucked here, here and here. Work on that". I will not value the opinion of someone paid to write papers on fibs over my experience being paid to trade them. I will not go out my way to try to get you to value my opinion. I've learned people will either test things I say and know the truth of them for their selves with me posting the amount of interesting evidence/results that I do, and others would not test it if I posted a million examples. Point two. Not perfect does not mean not practical. Fib levels do not react absolutely perfectly. I suspect the reason for this is so many people use them to put stops behind these days. In days gone by, they were probably more accurate, but as stop clusters became more predictable and concentrated this change. Game theory sort of stuff. Read more about my thoughts on this here. The thing is, for those who pay enough time and attention, there are patterns of when the fibs either do work very well, or "do not work" in the exact same way over and over again. If they do "not work" in the same way over and over, that's the same as working to me. I am looking for patterns to trade for profit. Not to compile a pretty chart of data points as to if price turned specifically on the 61.8 over a million samples. FMH 3 - "Everything you're saying is wrong", "You're an idiot", "I am non-specifically and non-constructively disagreeing" (Yeah, people drop that last one, verbatim, all the time) Pics, or it didn't happen. I am willing to "get up here" so to speak and succeed or fail in front of everyone. I'm posting what I do, and explaining all my rational. Results are being tracked. Time and continuity will display my outcomes. Is there a way you suggest you can provide stronger proof I am wrong that I am proposing to prove I am right? If you're just saying you think I am stupid, because you know the market so much better than me my standard reply is as follows; " If you'd like to propose, explain and track a strategy you think will outperform this we can both keep our records and that will best determine who's opinions have profitability. It seems something that would be good for the community. " Pics or it didn't happen. Only analysts and economists are paid for opinions. My job demands a far more practical approach. FMH 4 - "What REALLY happened with (insert news related thing) this and your guesses were just lucky". If I said it would happen yesterday, then set trades for it happening and profited from them today; it does not matter to me the reason you give me for it tomorrow. If you choose to view the market as being like this, you may. If it ever does start to become more relevant to me making profits or not, I will pay attention to other things. Right now, I do not follow them closely and that has never mattered. Either I am consistently lucky, physic or right. Pick the flavor for you. I will not engage in conversation on any of these points coming from a closed minded perspective. By which I mean you only commenting to tell me why you're right. If you feel someone has to add balance with these comments, go ahead. I encourage people to be scientific in their approach and having different viewpoints helps with this. Do your own experiments. I will answer honest questions, and will gladly engage people who disagree with me and do so from the perspective of personal study. Usually we can both learn and teach if both of us have firsthand knowledge. This is rare, but enjoyable. ================================================================================================== On to GBPUSD. As I said may be possible in the previous post, the trade for the bigger run up post Chicago was missed. This can happen. It's better to miss bad opportunities than squander good money on bad ones, and at the time I had the option of entering, there was no way to tell the difference between these - so I did nothing. Later in the day price continued to be consistent with the formations of a spike pattern. Here I engaged the market. GBPUSD 1 Minute My entering pattern was to first open two small trades with a 13 pip stop. This was an emergency stop, I always planned to tighten it up (it'd only hit in the event of an immediate capitulation). The risk here was about 0.15%. When the market moved a bit lower, I entered more positions and having more data felt better about where to place stops. All stops went to 6 pips or less (bigger position, same starting risk). As price reached the best level, I opened my largest trade. Stop went from 3 - 6 pips with big stops being 2 pips. Effective stop something like 3-4 pips. Targets hit for 10 - 12 pips, giving an effective pay off on risk just short of 1:3. I do not use aggressive position sizing in this part of the trade (usually it already carries made profits), so the net risk was low. Around 0.25%. Net gain in positions was 0.6%. GBPUSD 1 min From left to right the positions get bigger. Notice also the biggest position (low) takes profit a good bit before where I forecast the high (bulk close). This trade hitting should give assurance of breakeven on this trade, so the risk on capital is gone on this trade on a double top move, then profits accumulated in the breakout. Results for the day; https://preview.redd.it/96zq7cy1j9i31.png?width=821&format=png&auto=webp&s=d324348621a5c0931a90de207fe8aebb116f934d Current Gain = 0.65% Max risk exposure possible - 0.4% Max real equity drawdown - < 0.2% Due to not being entirely available for trading today this was a big under-performance of what the strategy could have achieved. It's been a decent example day to show the logistics of how the trades can form. To make 2 - 3% today with the same draw-down was possible.
96 Elliott Wave and Zigzag (5-3-5) A single zigzag in a bull market is a simple three-wave declining pattern labeled A-B-C. The subwave sequence is 5-3-5, and the top of wave B is noticeably lower than the start of wave A, as illustrated in Figures 1-22 and 1-23. free forex signals In a bear market, a zigzag correction takes place in the opposite direction, as shown in Figures 1-24 and 1-25. For this reason, a zigzag in a bear market is often referred to as an inverted zigzag. https://www.freeforex-signals.com/ Occasionally zigzags will occur twice, or at most, three times in succession, particularly when the first zigzag falls short of a normal target. In these cases, each zigzag is separated by an intervening "three," producing what is called a double zigzag (see Figure 1-26) or triple zigzag. These formations are analogous to the extension of an impulse wave but are less common. The correction in the Dow Jones Industrial Average from July to October 1975 (see Figure 1-27) can be labeled as a double zigzag, as can the correction in the Standard and Poor’s 500 stock index from January 1977 to March 1978 (see Figure 1-28). Within impulses, second waves frequently sport zigzags, while fourth waves rarely do. forex trading signals R.N. Elliott’s original labeling of double and triple zigzags and double and triple threes (see later section) was a quick shorthand. He denoted the intervening movements as wave X, so that double corrections were labeled A-B-C-X-A-B-C. Unfortunately, this notation improperly indicated the degree of the actionary subwaves of each simple pattern. They were labeled as being only one degree less than the entire correction when in fact, they are two degrees smaller. We have eliminated this problem by introducing a useful notational device: labeling the successive actionary components of double and triple corrections as waves W, Y and Z, so that the entire pattern is counted "W-X-Y (-X-Z)." The letter W now denotes the first corrective pattern in a double or triple correction, Y the second, and Z the third of a triple. Each subwave thereof (A, B or C, as well as D or E of a triangle — see later section) is now properly seen as two degrees smaller than the entire correction. Each wave X is a reactionary wave and thus always a corrective wave, typically another zigzag. https://www.freeforex-signals.com/ 📷 https://i.redd.it/t9a8umh82lg41.gif Figure 1-24 Figure 1-25 Flat (3-3-5) free forex signals A flat correction differs from a zigzag in that the subwave sequence is 3-3-5, as shown in Figures 1-29 and 1-30. Since the first actionary wave, wave A, lacks sufficient downward force to unfold into a full five waves as it does in a zigzag, the B wave reaction, not surprisingly, seems to inherit this lack of countertrend pressure and terminates near the start of wave A. Wave C, in turn, generally terminates just slightly beyond the end of wave A rather than significantly beyond as in zigzags. 📷 https://i.redd.it/7dap3j592lg41.gif Figure 1-29 Figure 1-30 In a bear market, the pattern is the same but inverted, as shown in Figures 1-31 and 1-32. A flat correction usually retraces less of the preceding impulse wave than does a zigzag. It tends to occur when the larger trend is strong, so it virtually always precedes or follows an extension. The more powerful the underlying trend, the briefer the flat tends to be. Within an impulse, the fourth wave frequently sports a flat, while the second wave rarely does. forex trading signals What might be called a "double flat" does occur. However, Elliott categorized such a formation as a "double three," a term we discuss later in this chapter. forex signals The word "flat" is used as a catch-all name for any A-B-C correction that subdivides 3-3-5. In Elliott literature, however, three types of 3-3-5 corrections have been named by differences in their overall shape. In a regular flat correction, wave B terminates about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A, as we have shown in Figures 1-29 through 1-32. Far more common, however, is the variety we call an expanded flat, which contains a price extreme beyond that of the preceding impulse wave. Elliott called this variation an "irregular" flat, although the word is inappropriate as they are actually far more common than "regular" flats. free forex signals In expanded flats, wave B of the 3-3-5 pattern terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A, as shown for bull markets in Figures 1-33 and 1-34 and bear markets in Figures 1-35 and 1-36. The formation in the DJIA from August to November 1973 was an expanded flat correction in a bear market, or an "inverted expanded flat" (see Figure 1-37). forex trading signals In a rare variation on the 3-3-5 pattern, which we call a running flat, wave B terminates well beyond the beginning of wave A as in an expanded flat, but wave C fails to travel its full distance, falling short of the level at which wave A ended, as in Figures 1-38 through 1-41. Apparently in this case, the forces in the direction of the larger trend are so powerful that the pattern is skewed in that direction. The result is akin to the truncation of an impulse. It is always important, but particularly when concluding that a running flat has taken place, that the internal subdivisions adhere to Elliott’s rules. If the supposed B wave, for instance, breaks down into five waves rather than three, it is more likely the first wave up of the impulse of next higher degree. The power of adjacent impulse waves is important in recognizing running corrections, which tend to occur only in strong and fast markets. forex signals free We must issue a warning, however. There are hardly any examples of this type of correction in the price record. Never label a correction prematurely this way, or you’ll find yourself wrong nine times out of ten. A running triangle, in contrast, is much more common (see next section). free forex signalspresents special offer open trading account with one of the best forex brokers and GET FREE forex Signals via SMS, Email and WhatsApp SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in the Members Area START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/
GBPUSD and the Bear Trap Candles Around the 61.8% Fib
GBPUSD is now trading up near the 61.8% fib. Really close. It' formed some strong seeming sell off candles. At this point if you're watching this level it's easy to think "Hmm, might just jump in". Don't! Well, do if you want. I'm not here to tell you what to do ... but woe be you. Sometimes it can work out, but more often you end up getting stopped out or having to have a wide stop being the trade less attractive. For me, entering thinking it "just missed" is a tried and tested way to lose money over time, even if it occasionally makes money today (which is no good, we need both and have to act all days in line with the overall end). But this looks awesome. This is everything we'd want in the general formation of the pattern. These double top like patterns in the 1.2290 area. From this sort of area price is hard to trade (better not to). It can dance one way and the other and make deceptive moves. Here is where we plan. Pending orders can be set at and slightly above the 61.8% level for swing trades (targeting lows). Alternatively for day trading we can look for candle patterns to confirm entry. We have to be careful with pending orders on the first touch on day trading, the wicks will be a menace. They are hard to judge. Better to wait for closes and retests. Excuse the crudeness of this (time), but this is a mock up example. https://preview.redd.it/nv5rcmipx0j31.png?width=469&format=png&auto=webp&s=144849f7f93b9fb72f75586e667cdddc8eaa7ea3 The line is the 61.8. The spike is "fibs not working". We let it settle after that. We pay attention to candle closes. Closes matter. We look for them not breaking, only wicks. Then we get into the first retrace. We can use tight stops because we either have the high already or the trade plan is wrong. No if, buts or maybes. Makes decisions very easy. Some scenarios we may see in near future; 61.8 touch and sell off Sell off from this 61.8 near miss around 1.2291 (I favour this scenario) Stall and spike into entry area. Of these scenarios, 1 and 2 best fit with initial forecast for GBPUSD. I slightly lean towards two just because this looks a lot like a situation buyers can get squeezed and waiting sellers (like us) spoofed into their trades early. https://www.reddit.com/Forex/comments/cv1hf4/preparing_for_the_impulse_gbpusd_traps_to_expect/ I am going to take a small low risk position 1.2273. Stop 1.2293 and target 1.2222. Since this can be a sneaky area, I use smaller trades. If we see this move, we look for the spike out to begin from our target area on the sell (small amount after)
Hi. For quite some time I'm looking at cryptocurrency markets and I very want to join this gig as a trader, but I'm feeling my knowledge of TA, FA and markets is far from being sufficient to perform profitably so I'm looking for a bootcamp or course that can get me on board. I've tried several courses but stuck on some of their common issues:
Historical analysis only. There's a big difference in looking at head & shoulders / double top / bottom / any other market structure / signal that have formed and looking at emerging formations. Forecast bias, "perfect example" and all that.
Holy grails. Some courses are just a long introduction to a single strategy or signal mix. I'm seeing the course as a fundamental broad preparation for action rather than a single tool introduction.
Inconsistent or poorly prepared materials. Thats when any questions are being answered with "go google" mantra. For googling I don't need any courses, I expect course to cover common questions and form solid ground rather than being just a limited set of recipes.
Generally low tools & process introduction. Crypto markets don't have terminal like stocks or forex markets have (MetaTrader, NinjaTrader, etc.) so seeing a live session with recommendations and explanations regarding particular exchanges would help a lot.
Ideally what I'm looking for is a big fundamental course like zero to pro covering TA, FA, other kinds of analysis of crypto markets with later instructor support on my trades when I'll start on my own (paper or real). Maybe I'm overcomplicating things, but "money don't grow on trees" so before I start doing something with my hard earned $$$ I really want to be sure I know what I'm doing and I've got someone able to tell me what I did wrong to avoid same mistakes later. All advises are welcome, especially those you've used to get into trading yourself. Thanks! P. S. I've seen a couple of similar questions around, but they didn't get much attention or had answers like copy-paste from google result page. I really would love to hear about your personal experience. How did you get in? What was your way? Did you graduate from some course and still in the markets?
Monday - Definitely a day ruled by the bulls. Referencing my last post, there was not a whole lot that my trade entries (chosen before market) allowed me to do. A bit past the upper side of my chosen entry zone you will see a double top, and on the M5, it makes a pretty clean M pattern. However, because it was so extended, I simply didn't want to jump in and "Guess the Top". Those with better analysis than I may have seen the turning point as the perfect short, as it lined up with a high made on Nov 7 at about 10:45 just perfectly. Personally, I think it is difficult to decipher demand from noise on the M15, but today was a learning experience, as I was surprised to see so many levels blown out of the water by London's early moves. Lessons learned. Anyhow, not much changed here in the larger time frames. Daily chart and H4 are creating a very nice volatility tunnel. A true tease, the guppy is not giving us much here. What really bothers me? On the daily chart, it looks as though the nearest upward spike peaked on Oct. 21. Look left and what do you see? Not a whole lot. Nothing in the way of major supply to stop the impulse we saw. Much like banks build their order book in the JPY session (depending on who you study), this appears to be the same thing only on a grander scale. Is the lack of supply/selling pressure enough to see this to 147.xxx in the coming month, or would the banks rather average down to better supply/price before making that same move...
POSITIONING OF POTENTIAL ENTRIES:
This pair is in a lot of noise, and as such, like yesterday, I am truly thrown off about whether to choose a long or short bias. Rather, I will simply determine two points at which I feel I have both allowed myself to allow the market to make its move as well as allowed for the over extension necessary for good R:R. To the short side, I like an entry of around 140.58. The red "1", "2", and "3" represent any unfilled orders in the near term. the 3rd level is the most opportune in my humble opinion. Beyond that, there is significant room to run, so I will be looking for good signs of reversal before making my entry. To the long side, I am more cloudy. At the very least, the US/AUD low provides some simply stop hunt opportunities, but this is not as far out as I'd prefer. the M15 Proximal demand zone shows a fairly text book rally-base-rally. However, being on the M15, I am not putting much behind it other than a zone to watch should the long stop hunt move get blown by. The 3rd level of demand listed with the Blue "3", provides a location with unfilled stops that stand the most to lose given the last trading day. https://preview.redd.it/2bwwnzutj6y31.png?width=1915&format=png&auto=webp&s=dd16179dd0516b773abc6b099f572e03d8b4c2c8 All that said, I will wait and see which direction the market surges in London open (if at all), and then prep myself for the fade. Having looked through u/thefrozen_one trades, I am going to be looking for the following to assist my entry:
Sharp rejection at my chosen entries - I am still learning how to place these, so I will also be looking left for structure to provide confluence to my analysis in the moment.
M/W patterns on the M15 or M5
Tweezers/long wicks - again, looking for confluence here and not blindly trading wicks.
I appreciate those who entertain my rambling. At this stage, I am not anywhere near predicting the next move. However, this has been my first opportunity to consistently keep myself honest in analyzing and tracking a forex pair, free of indicator madness. I am excited to see my rather dry and ambiguous observances mature into confident bias with which I attack daily trades. Green pips to all!
I was going through old emails today and came across this one I sent out to family on January 4, 2018. It was a reflection on the 2017 crypto bull market and where I saw it heading, as well as some general advice on crypto, investment, and being safe about how you handle yourself in cryptoland. I feel that we are on the cusp of a new bull market right now, so I thought that I would put this out for at least a few people to see *before* the next bull run, not after. While the details have changed, I don't see a thing in this email that I fundamentally wouldn't say again, although I'd also probably insist that people get a Yubikey and use that for all 2FA where it is supported. Happy reading, and sorry for some of the formatting weirdness -- I cleaned it up pretty well from the original email formatting, but I love lists and indents and Reddit has limitations... :-/ Also, don't laught at my token picks from January 2018! It was a long time ago and (luckliy) I took my own advice about moving a bunch into USD shortly after I sent this. I didn't hit the top, and I came back in too early in the summer of 2018, but I got lucky in many respects. ----------------------------------------------------------------------- Jan-4, 2018 Hey all! I woke up this morning to ETH at a solid $1000 and decided to put some thoughts together on what I think crypto has done and what I think it will do. *******, if you could share this to your kids I’d appreciate it -- I don’t have e-mail addresses, and it’s a bit unwieldy for FB Messenger… Hopefully they’ll at least find it thought-provoking. If not, they can use it as further evidence that I’m a nutjob. 😉 Some history before I head into the future. I first mined some BTC in 2011 or 2012 (Can’t remember exactly, but it was around the Christmas holidays when I started because I had time off from work to get it set up and running.) I kept it up through the start of summer in 2012, but stopped because it made my PC run hot and as it was no longer winter, ********** didn’t appreciate the sound of the fans blowing that hot air into the room any more. I’ve always said that the first BTC I mined was at $1, but looking back at it now, that’s not true – It was around $2. Here’s a link to BTC price history. In the summer of 2013 I got a new PC and moved my programs and files over before scrapping the old one. I hadn’t touched my BTC mining folder for a year then, and I didn’t even think about salvaging those wallet files. They are now gone forever, including the 9-10BTC that were in them. While I can intellectually justify the loss, it was sloppy and underlines a key thing about cryptocurrency that I believe will limit its widespread adoption by the general public until it is addressed and solved: In cryptoland, you are your own bank, and if you lose your password or account number, there is no person or organization that can help you reset it so that you can get access back. Your money is gone forever. On April 12, 2014 I bought my first BTC through Coinbase. BTC had spiked to $1000 and been in the news, at least in Japan. This made me remember my old wallet and freak out for a couple of months trying to find it and reclaim the coins. I then FOMO’d (Fear Of Missing Out”) and bought $100 worth of BTC. I was actually very lucky in my timing and bought at around $430. Even so, except for a brief 50% swing up almost immediately afterwards that made me check prices 5 times a day, BTC fell below my purchase price by the end of September and I didn’t get back to even until the end of 2015. In May 2015 I bought my first ETH at around $1. I sent some guy on bitcointalk ~$100 worth of BTC and he sent me 100 ETH – all on trust because the amounts were small and this was a small group of people. BTC was down in the $250 range at that point, so I had lost 30-40% of my initial investment. This was of the $100 invested, so not that much in real terms, but huge in percentages. It also meant that I had to buy another $100 of BTC on Coinbase to send to this guy. A few months after I purchased my ETH, BTC had doubled and ETH had gone down to $0.50, halving the value of my ETH holdings. I was even on the first BTC purchase finally, but was now down 50% on the ETH I had bought. The good news was that this made me start to look at things more seriously. Where I had skimmed white papers and gotten a superficial understanding of the technology before FOMO’ing, I started to act as an investor, not a speculator. Let me define how I see those two different types of activity:
Investors buy because the price is less than the value they see in the investment. Speculators buy because they think that someone will pay more in the future than they are paying now.
Investors trade on information (The white paper was really well-written, had a clear technical advantage over other alternatives, and addresses a need that I can understand and value.) Speculators trade on sentiment. (Buy the rumor! Sell the news!)
Investors usually look at the investment and themselves and can describe why they purchase in those terms (ABC-Coin provides (service) that isn’t addressed yet and matches (requirements) for an investment.) Speculators usually describe why they bought something in terms of how other people think (I think that other people think that the price will rise, so I want to get ahead of that.)
Investors don’t necessarily check the price every day. The can, and very often I do, but it isn’t required because fundamentals don’t often change on a dime. Speculators need to be glued to a price feed, because sentiment very often changes on a dime.
Investors like ideas, people, business plans, and market opportunities. Good ones are like Spock. Speculators like trends. They are tribal.
Investors have a longer time horizon than speculators. In cryptoland, the notion of a “longer” time horizon is still laughably small (months) compared to traditional markets, but it certainly isn’t weeks or days or hours, which is whre speculators often live.
So what has been my experience as an investor? After sitting out the rest of 2015 because I needed to understand the market better, I bought into ETH quite heavily, with my initial big purchases being in March-April of 2016. Those purchases were in the $11-$14 range. ETH, of course, dropped immediately to under $10, then came back and bounced around my purchase range for a while until December of 2016, when I purchased a lot more at around $8. I also purchased my first ICO in August of 2016, HEAT. I bought 25ETH worth. Those tokens are now worth about half of their ICO price, so about 12.5ETH or $12500 instead of the $25000 they would be worth if I had just kept ETH. There are some other things with HEAT that mean I’ve done quite a bit better than those numbers would suggest, but the fact is that the single best thing I could have done is to hold ETH and not spend the effort/time/cost of working with HEAT. That holds true for about every top-25 token on the market when compared to ETH. It certainly holds true for the many, many tokens I tried to trade in Q1-Q2 of 2017. In almost every single case I would have done better and slept better had I just held ETH instead of trying to be smarter than Mr. Market. But, I made money on all of them except one because the crypto market went up more in USD terms than any individual coin went down in ETH or BTC terms. This underlines something that I read somewhere and that I take to heart: A rising market makes everyone seem like a genius. A monkey throwing darts at a list of the top 100 cryptocurrencies last year would have doubled his money. Here’s a chart from September that shows 2017 year-to-date returns for the top 10 cryptocurrencies, and all of them went up a *lot* more between then and December. A monkey throwing darts at this list there would have quintupled his money. When evaluating performance, then, you have to beat the monkey, and preferably you should try to beat a Wall Street monkey. I couldn’t, so I stopped trying around July 2017. My benchmark was the BLX, a DAA (Digital Asset Array – think fund like a Fidelity fund) created by ICONOMI. I wasn’t even close to beating the BLX returns, so I did several things.
I went from holding about 25 different tokens to holding 10 now. More on that in a bit.
I used those funds to buy ETH and BLX. ETH has done crazy-good since then and BLX has beaten BTC handily, although it hasn’t done as well as ETH.
I used some of those funds to set up an arbitrage operation.
The arbitrage operation is why I kept the 11 tokens that I have now. All but a couple are used in an ETH/token pair for arbitrage, and each one of them except for one special case is part of BLX. Why did I do that? I did that because ICONOMI did a better job of picking long-term holds than I did, and in arbitrage the only speculative thing you must do is pick the pairs to trade. My pairs are (No particular order):
I also hold PLU, PLBT, and ART. These two are multi-year holds for me. I have not purchased BTC once since my initial $200, except for a few cases where BTC was the only way to go to/from an altcoin that didn’t trade against ETH yet. Right now I hold about the same 0.3BTC that I held after my first $100 purchase, so I don’t really count it. Looking forward to this year, I am positioning myself as follows:
ETH will still be my core holding. It is the “deepest in the stack” crypto investment that I have. “Deep in the stack” is a programming term that gets at the idea that most software is built on other software. If you just think about your notebook, you have your OS, and programs run on that. But even inside the OS there is a stack. The bottom of your stack is the kernel, and on top of that are the drivers, protocols, and other layers that allow the programs to talk to the OS, the hard drive, the screen, the mouse, your printer, etc. You can change your mouse or printer easily. Changing things deeper in the stack becomes harder and harder. ETH is deep in the crypto stack, so is very hard to dislodge – Around 60 of the top 100 cryptocurrencies by market cap run on top of Ethereum, so getting rid of Ethereum is something that would take a long time to do.
DNT, QTUM, ZRX, and OMG are all, to varying degrees, “deep in the stack” tokens that, once established, will be very hard to dislodge.
That said, I am peeling away some of my holdings into USD right now, because big changes are afoot and they are going to cause market disruptions. I’m going to come right out and admit that this is speculative, but I’m also going to back it up with some non-speculative facts.
The SEC has been sending out hundreds of subpoenas to cryptocurrency organizations over the past 3-4 months. These subpoenas are simply asking for information and nobody has been charged with any crimes or misdoings, but it is clear that the SEC is getting together information so that they can begin to regulate cryptoland. When that happens, other countries will follow, and that means:
Some tokens will be deemed outright scams and people will be prosecuted.
Some tokens will be deemed securities and will be regulated.
Some tokens will not be deemed scams or securities and will continue as they have.
Looking at this, it is clear to me that the tokens that escape prosecution and regulation should do better, but the short-term impact will be brutal and ugly. It would not surprise me at all to see a 50% drop in overall market cap within Q1-Q2, with Q1 being more likely.
Cryptoland has always been a bit nuts, but it is more nuts now than I have ever seen it. Back in 2011-2014 it was a freaks-n-geeks show where people were all about the technology and I would sit around for a 3-day weekend installing a *nix VM on my Windows machine so that I could compile the most recent source and run a CUDA SHA-256 routine rather than thrash my CPU. If that doesn’t make sense to you, you wouldn’t have even thought about being involved.
Now, people see Bitcoin advertisements in their Facebook feed and think “I gotta get on the BTC train!” before going to Coinbase and buying some with a credit card. They don’t know anything about crypto, and they are getting eaten alive – It is no coincidence that BTC peaked after the Thanksgiving holidays when people sat around the table and Janice got Uncle Mike and Cousin Bob all excited as she talked about going to Cancun for Christmas because of her crypto winnings. Huge amounts of fiat got transferred from newbies to BTC whales during this period, and once the whales were done, BTC had dropped from $20,000 to $12,000. It’s now back at $15,000, but for people who bought at a higher level, this sucks. As a result many have moved from BTC to ETH, with the single biggest money flow in crypto in December being the BTC à ETH flow. As a result, it’s no coincidence that ETH is at all-time highs now. The thing is, though, that even most people that moved from BTC to ETH really have no idea what they are doing. They are acting on buzzwords and emotion. They are speculators and are going to get crushed.
The stock market is quite high right now, but people are starting to worry that it is too high and that we are going to enter into a period of inflation again. This has caused gold to go up a lot the last quarter and is likely also responsible a bit for the rise in cryptos. If this view is correct, then cryptos stay stronger than if that pressure wasn’t there. If wrong, then cryptos will swing down as money exits cryptoland for more traditional markets.
I am spending most of my time and money on the arbitrage effort. The nice thing about arbitrage is that it works as the markets go up, and it works as the markets go down. When markets are too volatile, however, arbitrage can get very messy and dangerous, with each trade generating a loss instead of a profit, so I am working right now to tune the algorithms to take into account rate-of-change and add in some circuit breaker triggers. Once this is done I will expand those operations.
I am getting much more serious about systems security.
I have a Nano Ledger and recommend that anyone with >$1000 of crypto have one. The Trezor is also supposed to be good, but I haven’t used it.
I will set up a dedicated *nix notebook that is used for nothing except my crypto work. All it takes is one keylogger to get on your PC/Mac and your crypto is gone. What is on your Nano Ledger will be OK, but they will sweep out your exchange account or Coinbase account faster than you can type. A standard Linux installation with Chrome and nothing else is as about as secure as you can get in the civilian world.
If you don’t use LastPass or a similar password manager yet, you need to do that. Your password to LastPass should be at least 16 characters long and should not have a recognizable English word in it. If you think that “Iluvu4evah” is a secure password, you’re wrong.
Hackers know that “4”=”for” and “u”=”you”. Writing a script to substitute those in is trivial if they want to write the script, but it’s much easier for them to download one of the many, many programs out there that already do this.
If your password contains any string of numbers from anything that can be associated with you at any time in your life, it is insecure. Take those numbers out of the character count because they are an insignificant barrier to cracking your account.
The good news is that you probably won’t be targeted, but if you ever mention online that you are doing anything significant in crypto, that chance increased enormously.
*Never* talk with *anyone* about how much you have in crypto. You’ll notice that I haven’t here. There is no reason to tell even a family member how much you have unless you are sharing a tax form. Sure, you may trust them, but all it takes if for someone to overhead someone else mention at a party that a relative got into crypto a long time ago and made a bunch of money. That person can also then be subjected to the $10 hack and force you to send all your crypto to them.
Your password to LastPass (Or equivalent.) should look something like this -> 6k0jQMoziX&D#4W8
Yes, it’s a headache. Imagine your headache, though, were you to open your account one day and find all of your money gone.
Looking at my notes, I have two other things that I wanted to work into this email that I didn’t get to, so here they are:
Just like with free apps and other software, if you are getting something of value and you didn’t pay anything for it, you need to ask why this is. With apps, the phrase is “If you didn’t pay for the product, you are the product”, and this works for things such as pump groups, tips, and even technical analysis. Here’s how I see it.
Technical analysis (TA) is something that has been argued about for longer than I’ve been alive, but I think that it falls into the same boat. In short, TA argues that there are patterns in trading that can be read and acted upon to signal when one must buy or sell. It has been used forever in the stock and foreign exchange markets, and people use it in crypto as well. Let’s break down these assumptions a bit.
i. First, if crypto were like the stock or forex markets we’d all be happy with 5-7% gains per year rather than easily seeing that in a day. For TA to work the same way in crypto as it does in stocks and foreign exchange, the signals would have to be *much* stronger and faster-reacting than they work in the traditional market, but people use them in exactly the same way. ii. Another area where crypto is very different than the stock and forex markets centers around market efficiency theory. This theory says that markets are efficient and that the price reflects all the available information at any given time. This is why gold in New York is similar in price to gold in London or Shanghai, and why arbitrage margins are easily <0.1% in those markets compared to cryptoland where I can easily get 10x that. Crypto simply has too much speculation and not enough professional traders in it yet to operate as an efficient market. That fundamentally changes the way that the market behaves and should make any TA patterns from traditional markets irrelevant in crypto. iii. There are services, both free and paid that claim to put out signals based on TA for when one should buy and sell. If you think for even a second that they are not front-running (Placing orders ahead of yours to profit.) you and the other people using the service, you’re naïve. iv. Likewise, if you don’t think that there are people that have but together computerized systems to get ahead of people doing manual TA, you’re naïve. The guys that I have programming my arbitrage bots have offered to build me a TA bot and set up a service to sell signals once our position is taken. I said no, but I am sure that they will do it themselves or sell that to someone else. Basically they look at TA as a tip machine where when a certain pattern is seen, people act on that “tip”. They use software to see that “tip” faster and take a position on it so that when slower participants come in they either have to sell lower or buy higher than the TA bot did. Remember, if you are getting a tip for free, you’re the product. In TA I see a system when people are all acting on free preset “tips” and getting played by the more sophisticated market participants. Again, you have to beat that Wall Street monkey.
If you still don’t agree that TA is bogus, think about it this way: If TA was real, Wall Street would have figured it out decades ago and we would have TA funds that would be beating the market. We don’t.
If you still don’t agree that TA is bogus and that its real and well, proven, then you must think that all smart traders use them. Now follow that logic forward and think about what would happen if every smart trader pushing big money followed TA. The signals would only last for a split second and would then be overwhelmed by people acting on them, making them impossible to leverage. This is essentially what the efficient market theory postulates for all information, including TA.
OK, the one last item. Read this weekly newsletter – You can sign up at the bottom. It is free, so they’re selling something, right? 😉 From what I can tell, though, Evan is a straight-up guy who posts links and almost zero editorial comments. Happy 2018.
Trading Double Top and Double Bottom Double top and Double Bottom are price action pattern formations identified to predict the behavior of the market. As the name suggests, Double Top is when the price action forms two peaks almost equal to each other, and the Double Bottom is when the price action dips to form two consecutive bottoms with only a peak separating the two. Of all the chart pattern formations, Double Top and Double Bottom could pass as one of the easiest-to-identify.
Double Top Identification
Double Top is formed when the market follows the uptrend and then pulls back. The pullback must have created a peak to its left in order to form a trough. The price then again rallies to form the second peak almost equal to the first, then drops again lower than the trough. The second peak, unable to break through the limit set by the first, marks the resistance and reduction in buying, thereby calling out a potential reversal. Trading Double Top
The right place to draw the neckline is at the lowest point of the pullback. The price rises from the trough to form the second peak and drops back again to the neckline completing the formation of Double Top and the opportunity.
The right time to enter the trade is by the completion of the pattern formation. When the shaky line from the second peak downs to the neckline signifying the uptrend reversal, it plunges deep breaking through the neckline. Shorting is the obvious option for profit since the prices are dropping.
The safest exit with considerable profit is calculated from the neckline with the same value as the height of the peaks.
In case, worse comes to worst and you misinterpret the chart for a double top, Stop Loss is the measure to keep your loss to the minimum. It is better to limit the loss to the latest peak created within the pattern.
Double Bottom Identification
On contrary to the double top, the double bottom is identified by a dip, followed by a rise, which is again followed by a dip. In the downtrend, the price forms a trough by pulling back to the upside. The price drops again to a point above the first trough unable to drop lower signifying the reducing sellers, thereby marking the downtrend reversal. The price then rallies all the way up until it falls short of buyers or reaches a balancing point. Trading Double Bottom
Here, Neckline is the plane drawn to connect both troughs through the edge of the middle peak.
Similar to the double top, it is best to enter the trade by the completion of the double bottom. When the price rallies towards the neckline, it goes all the way up breaking through the neckline. So going long at the neckline makes the most of the opportunity.
The position in the uptrend, marked from the neckline with the same value as the height of the troughs, is safe to close the trade.
Stop Loss for the Double Bottom is set at the recent trough formed inside the pattern to limit the loss which is inevitable.Double Top and Double Bottom are trend reversal patterns, which even the traders who disregard the chart patterns look forward to. These are simple trading patterns and doesn’t require much expertise to be able to identify, but the only shortcoming is that the reward: risk ratio is not too tempting. The ratio can be made favorable by setting stop loss in a much closer position. It is advised to take the trade only when the potential for profit is sound.Start forex trading with the use of demo account before you investing the real capital. That way you can get a feel for the process of trading and decide if trading forex is for you also we provide the best trading platform for beginners. When you're consistently making good trades on the demo account, then you can go live with a real forex account. Limit your losses.
Hey all, I know I said I'd be back for last week but I realized that I'd just be forcing myself to post premature ideas that are lower in 'quality' - especially since my ideas are usually long-term, so that didn't really sit well with me. Recap from last week 1) USDCAD: Oh boy, if I could hear the 'X' sound from America's Got Talent on cue, I would need it right about now. Though the USD has been under-performing lately, the CAD took that sentiment and dialed it up to 10 resulting in a pair that has broken through the daily local maximum and looking towards 1.40. Shit happens right? Graph 2) EURCAD: Unlike it's older brother that is still respecting the structure (EURUSD), the strength of the EUR following the first round of the French elections combined with CAD's weakness has resulted in a massive jump that has all but invalidated the ABCD pattern. However, if you managed to take the aggressive entry I posted on the idea, you would have gotten all 600 pips on the C-D leg completion which is a beautiful result for a 9 day trade. Graph New Setups 1) GBPUSD: What we can see here is a very clear channel that the pair has been trading in since the Brexit vote almost one year ago. From this, we can use fibonacci retracements to outline very clear and distinct levels that the price is using to bounce off of. As of today, the price seems to be entering a rather important decision point where it may attempt to break through the 0.618 level - indicating a rather significant bullish run for the pair. The alternative is that it may attempt to test the 0.5 level which is the border between the two adjacent channels, and from here it can either bounce upwards to test the 0.618 level again or it can break through it downwards indicating that the pair will likely stay in this lower channel. The GBP has been rallying as of late but the USD has also been gaining some traction. I would predict that although the USD has shown signs of life, it may be a short lived run compared to the GBP. So with regards to this structure, I would say that the price is headed back down to the 0.5 level to test it before rallying up and over the 0.618 level. The RSI indicates that the pair is very oversold so it seems to support this prediction of a brief bearish trend followed by an OVERALL bullish trend . I stress that word because we can always expect some consolidation and brief reversals off the major S&R levels outlined here. Assuming the price breaks through the 0.618 level, we'll be analyzing the upper channel and using its fibonacci retracements (marked in blue) to determine the possible targets. Upper play Entry: 1.29656 TP: 1.30953, 1.32023, 1.33320 SL: 1.29042 -- Lower Play Entry: 1.28618 TP: 1.27613 SL: 1.28910 Graph 2) EURCHF: I've never traded this pair, but I drew out the formation of the falling wedge quite a while ago and knew that the Euro's recent massive surge must have broken through it. This is a very interesting situation as it means that the price is trying to rally back to its recent maximum at 1.19 - and possibly even beyond that. The ones that have been following my ideas in the past will have noticed that I avoid trading the news so it wasn't a realistic idea to assume that the price would have broken through the way it did (we'd be gambling if we tried to trade the elections). However now that it has, I can see it hitting these 3 strong daily S&R levels with a bit of consolidation in between. The reason why this entry is a little higher than usual is because we can see a clear area of consolidation (marked by the blue rectangle ) where the price may experience a similar fate. If that area is cleared, then we can reasonably expect the aforementioned targets to be hit with ease. Setup Entry: 1.09031 SL: 1.08015 TP: 1.09749, 1.11050, 1.12054 Graph I really do appreciate all the kind words and support from a lot of people on the sub and I'm going to try and do these posts as much as I can, but sometimes I'm just waiting for pairs to show their hand so I can make a reasonable prediction. I feel like I've been on point more often than not, and forcing the ideas when they're not ready will almost certainly result in a dip in quality. That said, there are a lot of my older long-term ideas that are currently panning out (due to their nature) and unless you're going through my posts, some of you won't even get to see them so here are some of the older posts: 20th - 24th March 27th - 31st March 2nd - 7th April 17th-21st April 24th - 28th April I wish it was, but this isn't the gospel so please take the necessary precautions when trading Have a good week and good luck!
Hey all, I'm back for another week so let's dive right into it! Recap from last week 1) GBPUSD: The prediction regarding this pair's consolidation area seems to have been spot-on as we can see the price has moved and adhered to the area between 1.286 and 1.297 quite religiously. There was a brief fake-out that may have netted you a few pips (if you had a good trailing stop), but overall the price has opted to go for the "lower play" and has proceeded to hit the outlined target perfectly for just over 100 pips. I expect the price to rebound back to the consolidation area to retest the "upper play". Graph 2) EURCHF: The expected breakout has continued quite well, going as far as hitting the first target. As expected, there was a brief pullback to the entry price level but I expect it to continue its climb to Targets 2 and 3 over the next few months. Graph New Setups 1) EURJPY: What we have here are signs of a potential rising wedge formation on EURJPY due to the higher highs and higher lows being formed since the 18th of May. Fibonacci levels applied on a larger timescale seem to show the price working well between the 0.5 and 0.618 levels - an idea supported by the recent rejection of a new high on the 16th and on the 24th. If the pair adheres to the rising wedge formation, we can assume that it will hit at least 3 different targets: Target 1 is a relatively new S&R level that seems to have formed at the beginning of May, Target 2 is a strong S&R level that stretches back a few months and happens to coincide with the 0.382 fib level of the yellow retracement lines, and finally Target 3 which is the area between the 0.236 fib level and the price where the rising wedge originated from. In a longer-term view, we can see a double-top forming following a price rejection at 125.82. In keeping with how I usually approach double-top formations, there are two targets: A conservative target that is placed at the neckline and an aggressive target that is equidistant from the neckline. Despite all this analysis, the consensus on the Euro remains bullish . However, now that the French elections are behind us we can position ourselves quite nicely if the Euro ends up cooling off and losing momentum. In the event that it stays bullish and breaks through the 125.82, we have a simpler play worth about 65 pips which should tide us over until things clear up. Rising Wedge Play (Medium Term) Entry:124.965 (Price has already been hit but it is still worth a look) TP: 124.554, 123.813, 123.355 SL:125.643 Double Top Play (Long Term) Entry:124.965 TP: 123.074, 120.704 SL:125.643 Graph 2) USDCHF: I've given this pair another look since my last analysis on USDCHF 0.14% very recently hit its final target. Following that last target, we can now see that the price has been consolidating in the area between the 0.382 and 0.236 levels on the blue fibonacci retracements. From here, the price can push up through the 0.382 level to test the upper level of the channel again. The three targets outlined here are all based on important S&R levels that often coincide quite well with the fibonacci retracements on the larger time intervals. Conversely, the price may opt to break through the 0.236 level with a goal of testing the lower wall of the descending channel . Again, we can 'safely' assume that it will hit three targets that are also derived from a combination of S&R levels and fib levels. What is interesting about this particular idea is that an "upper play" means that there is a strong potential for the formation of a potential wedge (marked by the red triangle). This would mean that the price already hit the wall of the wedge back on the 22nd of May and that the descending channel would be giving way to a falling wedge - which has implications on the long-term plans for this pair. Upper Play Entry: 0.97827 TP: 0.98142, 0.98534, 0.99039 (area) SL: 0.97549 ; Lower Play Entry: 0.96905 TP: 0.96791(area), 0.96286, 0.95503 SL: 0.97145 Graph I truly hope you guys enjoy the read! Getting a lot of feedback goes a long way in helping me improve the quality and frequency of the posts! Previous Weeks: 20th - 24th March 27th - 31st March 2nd - 7th April 17th-21st April 24th - 28th April 8th May - 12th May I wish it was, but this isn't the gospel so please take the necessary precautions when trading Have a good week and good luck!
The intelligent investors guide to cryptocurrency: Part 3b - Pricing and liquidity
*Introductions: I'm joskye. A cryptocurrency investor and holder. * ...
Hi again. This is the third part in our ongoing series on how to trade better and determine intelligent investments in cryptocurrency for the future.
In part 1 I talked about the importance of selling enough to make back your principle investment i.e. if you buy something at $300 and it rises to $600 in value, sell $300 to eliminate all future risk of personal loss e.g. if that asset falls to $150 in value after (which can happen easily since suchvolatility is very common in cryptocurrency). In cryptocurrency trading/investments a 100% return of investment should always prompt you to consider selling 1/2 your stack.
In part 2 I talked about the psychology behind fear of missing out; i.e. the dangers of buying during a sudden rise in an asset's price and how to make the most of such rallies whilst minimising the risks involved in joining them.
In part 3a I discussed The importance of a value proposition and the absolute need for any cryptocurrency you invest in to already generate or have the potential to generate revenue in a manner completely independent of it's speculative value as dictated by daily market prices.
Part 3b continues where I left off with a discussion about price metrics specifically, what determines the price and the importance of liquidity: ...
The day traders:
As I mentioned in my previous article, as of writing almost every cryptocurrency is determined purely by speculative value.
Thus the absolute price of a given cryptocurrency is determined solely by the day traders and specifically the last price it was agreed that currency would be sold at with confirmation of that price by a buyer who bought it.
People say lots of things determine the price; marketcap, liquidity, value proposition, revenues generated by the coin, the number of said coin in circulation but ultimately it comes down to the number of buyers and number of sellers competing for that coin.
Perhaps the other thing is the size of said market relative to the money held by the players in it.
For instance in cryptocurrency Bitcoin is still the biggest player in the game. It carries a per unit price of $900 per coin. There are currently 16,090,137 (16 million) coins in circulation giving it a total marketcap value of [$900 x 16090137 =] $14481123300 or 14.48 billion USD.
This is 85% of the current cryptocurrency marketcap. (The total marketcap of all cryptocurrencies as of writing is 17.17 billion USD.)
Compare and contrast Shadowcash (SDC) which has a unit price of $1.27 with 6,616814 coins in circulation giving it a total marketcap value of [$1.27 x 6616814=] $8392766 or 8.39 million USD.
Thus Shadowcash in comparison to Bitcoin is a tiny cap of the cryptocurrency sphere. Shadowcash has a total value that is only 0.06% of Bitcoin when comparing marketcap's.
Shadowcash looks even more meagre compared to the total cryptocurrency marketcap with only 0.048% of the total cryptocurrency sphere. To any Shadowcash holders despairing at this point, relax. There are over 707 cryptocurrencies trading as of writing and SDC holds the 27th ranking in terms of market cap. In such a competitive field, filled with scams that's pretty good. Moreso when you consider that SDC is a legitimate technology and is currently probably very undervalued. ...
Lets look at the rich list for bitcoin:
The top holder has 124,956 Bitcoin valued at $1,12460400 or 1.24 billion USD.
The top SDC holder has 1027261 SDC valued at $1,304621 or 1.4 million USD.
Thus the wealth of the top SDC holder is 1.16% that of the wealth of the top Bitcoin holder.
Why did I just talk about this?
Well they say that a big fish can easily occupy, make a splash in and empty a small pond just by diving in.
In cryptocurrency I see this happening on the markets all the time. Indeed market manipulation effects every single cryptocurrency eventually. ...
Large holders of valuable, high marketcap coins will often make multiple small volume purchases of less valuable, low marketcap coins. Often this will follow announcements regarding developments in that low marketcap coin.
An example of low volume ordering is buying 1 SDC at $1.20, 0.5 SDC at $1.2001, 5 SDC at $1.2010, 3 SDC at $1.21, 10 SDC at $1.22 and 0.11 SDC at $1.24, but then leaving someone else to fill the order for 100 SDC priced at $1.242.
Thus by spending $23.77, in low volume purchases the buyer can raise the market cap of SDC from ($1.20 * 6,616814 coins) $7.94 million to (1.24 * 6,616814) $8.20 million! (4.2% increase).
Low volume buying in a market with low daily trading volume can gradually drive up the price attracting an influx of buyers into that coin; often they will make larger volume purchases of it which helps drive up the price much further. This will trigger a further chain of buyers experiencing FOMO (fear of missing out, detailed in Part 2) who will drive up the price even further. The price will pump. Often will smaller cap cryptocurrencies this may result in a sudden 20, 40, 60 or even +100% increase in value often over a very short time space (1-2 days, 1-2 weeks maximum).
Often the original purchaser who triggered these events will have accumulated a lot of said cryptocurrency cheaply prior to or during the early stages of the pump and will wind up selling the majority of his/her's purchases when the price reaches a peak; usually when the daily/hourly trading volume on that coin starts to decline but sufficient buyers are still available.
This results in a sudden or often more gradual dump in the coins value, usually by falling by 75% or more of the rise.
The only way to discern if the sudden rise in coin value is due to pre-rigged market manipulation is to look at:
the value proposition of that coin (discussed extensively in part 3a of this guide)
the order book
the depth chart
the pattern of change on daily trading volume (and liquidity)
You are looking for organic, gradual growth based on a solid value proposition. Sudden large spikes in value should make you pause and wonder if it's worth waiting for a gradual correction (organic drop) in price before entering your buy order.
Do not fall for a pump and dump. Stick to the lessons covered in previous parts of this guide (especially part 3a and 2) and you will be much less likely to lose money in the long run trading and investing in cryptocurrencies. ...
The pattern of change on daily trading volume, the order book and liquidity:
Lets look at SDC and Bitcoin again. This time we are going to compare the daily trading volume (last 24 hours) in USD.
In the last 24 hours (dated 8th Jan 2016), SDC traded a total volume of $26,033. This is 0.01% of all USD daily trading volume on exchanges and only 0.39% of the total marketcap of SDC.
In contrast Bitcoin traded $163,306,776 ($0.16 Billion) over the same 24 hour period. This is 76.15% of USD daily trading volume on exchanges and only 1.12% of it's total marketcap.
I'd just like to use this opportunity to point out and reinforce the idea that day traders not holders dictate the daily price of an asset. I'd also like to point out daily global trading volume on Forex is $4800 billion which makes Bitcoin a very small fish in the broader arena of global finance and trade i.e. Bitcoin is still very vulnerable to all the price manipulation tactics and liquidity issues I am going to be describing in this article by bigger players with richer pockets.
The numbers means that just because the marketcap of Bitcoin is $14 billion, that does not mean that there is truly $14 billion worth of fiat currencies (USD, Yuan, Euro etc) in Bitcoin; the total fiat volume is merely an estimate based on current price and number of Bitcoin in circulation.
The daily trading volume also gives you an idea of how much fiat currency you can invest into a given cryptocurrency before you suddenly shift the price.
For example based on the 24 hour daily trading volume for SDC I know that if I blindly spent $15,000 (57% of the daily trading volume) buying SDC without any regard to the price, I can be confident that I will likely cause the price of SDC to go up significantly.
In contrast spending $15,000 to buy Bitcoin (0.0092% of the daily trading volume) without regards to it's price, I can be confident that it will not likely cause a significant rise in the daily spot price of Bitcoin.
A sudden rise in coin price heavily out of proportion to the rise in daily trading volume should be the first sign to alert you to a pump & dump scam.
It implies a low volume trading at low prices to trick the unseasoned trader to perpetuate higher volume, high price buys.
If daily trading volume cannot organically increase to sustain the price, it will eventually fall when the original pumper (or group of pumpers) sell to take their profits.
Daily trading volume should show a steady increase over time with sustained buy support at new price levels; this is a good marker of organic, sustainable growth.
This does not always have to be the case! Sufficiently large price movements (several 1000%) can significantly raise the next absolute low in price for the mid-term (months) even if that is several 100% lower than the peak!
Conversely declining trading volumes indicate loss of interest in the coin and a price that is potentially more prone to and at risk of price manipulation with smaller amounts of fiat/bitcoin (than if higher daily trading volumes existed).
Finally the fact that daily fiat trading volume for Bitcoin and Shadowcash is such a small percentage of it's total marketcap reinforces the idea that price is set by day traders not by holders!
For more detail you can now look at the depth chart:
The depth chart is very useful to know how much fiat currency is required to cause the spot price of a given cryptocurrency to rise or fall by a given amount.
The depth chart groups different bids (buy orders) and asks (sell orders) by price and volume e.g. 17.739 bitcoin worth of SDC are currently on sale at poloniex for 0.00117500 bitcoin each ($1.07 per coin) and 0.149 Bitcoin are on sale at the current spot price of 0.00135750 Bitcoin ($1.24)
So as of writing, I can see (from the charts) to raise the price of SDC from 0.00135750 Bitcoin ($1.24) to 0.00181381 Bitcoin ($1.66) I would need to spend 26 Bitcoin ($23783).
NB the price of most cryptocurrencies is expressed in Bitcoin because it has the largest market cap and daily trading volume of all cryptocurrencies by a very large margin and because with a few exceptions (Ethereum, Monero) most cryptocurrencies do not have routes to directly purchase via fiat currency without first purchasing Bitcoin.
The depth chart shows me how many coins I can buy without significantly increasing the price and how many coins I can sell within a given price range.It gives me an idea of the liquidity and volatility of the market i.e. if I buy SDC right now and need to sell it later today or tomorrow for fiat, what is the realistic probability I can get my entire amount in fiat returned to me in the amount originally spent.
Liquidity is super important. People often complain about a market lacking liquidity but that is often because they are trading in fiat volumes which far exceed the daily trading fiat volumes of the cryptocurrency they are referring to. If you are investing or trading in a cryptocurrency, always factor in the your personal liquidity and need for liquidity relative to that of the cryptocurrency you are investing in. In other words don't expect to make a profit next day selling 'cryptocurrency x' if the size your single buy order composes >90% of the buy orders on the market for 'cryptocurrency x' that day (indeed in such a scenario be very prepared to sell at a loss next day if you absolutely have to)!
The depth chart also gives me an idea of where significant supports exists (price zones with large buy orders relative to the depth chart) to determine the true base price (in conjunction with daily trading volume) and where significant resistances exist (price zones with large sell orders relative to the rest of the depth chart) to determine what the majority of sellers think the coin is truly worth. Be wary though as buy walls (large supports) and sell walls (large resistances) can be moved at any time.
There are certain patterns on a depth chart that make me believe a significant, sustained price rise is imminent: One example occurs when there is a very large volume of buy orders (>25% of total buy volume within 5% of current price) very close to the current (spot) price, and a very large number of sell orders close to but significantly above the spot price (approx 25% total sell volume within 10% of current price) and especially if the total buy order volume is a significantly higher percentage than it has previously been. This simply indicates high demand at current price which may soon outstrip supply. Again I stress that these patterns can be manipulated easily by wealthy traders.
It is up to you to study the depth charts and discern the patterns. You will learn more about day trading this way.
The order book is another way of looking at the depth chart and allows you to see the specific transactions occurring that compose daily trading volume by the second!
I find it useful because it allows me to identify:
If there is a string of low volume orders that can be filled to pump the price (or conversely a string of low volume sell orders to dump it). This can play on the psychology of the entire market as many people aren't simply aware of how the manipulations occur; most people simply look at the price!
Where resistances to price change occur and how much money it will take to break them (i.e. if I am day trading to make a profit via pumping, is it worth me spending X to clear a sell wall to encourage others to buy and push up the price further or do I need to spend so much of my capital that should I fail to stimulate buy orders, I become vulnerable to a dump in coin price with effective subsequent loss of fiat money).
The presence of automated trading bots rapidly cycling a buy or sell order of fixed volume between a series of prices that dynamically adjust with the overall trend in price movements. Bots can be your best friend (to pumping or dumping price) if you know how to manipulate them!
The price charts:
Discussions about price charts could be endless. I'm not going to go into too much detail, mostly because I'm an investor who believes the value proposition, good consistent development, decent marketing and communications will ultimately trump spot prices and adverse (or positive) short term price trends in the future.
I'm also going to skim this because I'm not as versed in this subject as I'd like to be.
I personally use the candle bar charts on Poloniex to look at 15 minute and daily candles on the hourly, daily, weekly and monthly charts.
I combine this with charts on Bittrex which can calculate the RSI (to estimate if a coin is overbought or oversold) and Bollinger Bands (again to help estimate if a coin is overbought or oversold).
I usually look at the overall direction of trading over a period of several days, compare it to the direction and trends over the last month. I then try to interpret it in the context of the daily trading volume and depth charts.
I often get my predictions on short term price movement wrong if I only look at candle charts without factoring in depth charts, order book and daily trading volume patterns! I have a lot more learning to do on technical analysis.
The charts do often reveal mid/long term supports and resistances in price!
Investopedia is a good place to start learning about different mathematical techniques to analyse charts (including any terms used in these articles).
I'm a big fan of u/kustonoy who inhabits the Ethtrader sub. I personally feel his analysis of the short term markets are generally pretty good. You should never be too lazy to not do your own regular market analysisespecially if trading short term, but if you want a good reference point, I suggest following him.
The news cycle:
I've mentioned this lower down the list because for intra-day and day traders and even to some extent investors, the news cycle matters very little unless it directly affects the value proposition in some way.
If a news event does result in real maturation of the proposed value proposition (such that the technology has confirmed a new sustained user base or revenue stream) then it might justify a sustained rise in price regardless of the volatility achieved reaching and following the peak.
Some assets may have nothing but an endless stream of good news which meets the above criteria yet it's valuation fails to increase. This is likely a sign that a larger player is deliberately manipulating the market to accumulate more of that asset to sell very high later (I believe Ethereum has fallen victim to this recently) or that it is occuring during long period of consolidation is where diversification of asset ownership is happening which means a new price floor is being set for much larger increases later on. The lowest most frequently occurring point which the price repeatedly bounces off of (stops falling below) is the new floor.
Other interesting points: The 'coin x' scenario and the ridiculousness of marketcap:
'Coin X' is an imaginary hypothetical coin. There are only 10 in circulation. It has no value proposition beyond it's speculative value i.e. it will never generate a revenue independent of it's speculative value.
If 'coin x' had only 10 in circulation, was indivisible and each coin had a value of $3 billion, the market cap of 'coin x' would surpass Bitcoin!
If all 10 coins were not on sale then 'coin x' would have a value of zero.
If 9 people had bought 'coin x' at $1 and the 10th person bought it at $3 billion, it's marketcap would still be $30 billion. This does not mean there is $30 billion of fiat stored in coin X.
If an 11th buyer came along and bought 'coin x' at $1.20 the price of coin X would fall to $1.20 and the marketcap of 'coin x' would be $12.0.
This still does not mean there is $12 of fiat stored in coin x.
This does not mean everyone can sell 'coin x' at $1.20.
A new buyer blind to the purely speculative nature of 'coin x' looking at the trend charts could try to argue it is now extremely undervalued and a great buy or possibly was a grand scam and untouchable.
Either way the next price at which 'coin x' is bought/sold is purely arbitrary and determined by the patience of the seller and the impatience of the buyer.
[Edit]: I could also issue 10 more of 'coin x' and if it's unit price remained $1.20 the market cap would instantly double from $12 to $24!
I'd like to point out the similarities between ZCash and 'coin x' (especially during it's launch). ...
Marketcap is derived from the price, not the other way around. Until a cryptocurrency generates significant revenue independent of it's speculative valuation this will remain the case.
Price is determined by the day traders, not by the holders.
The spot price of any given cryptocurrency is determined by the patience of the seller and the impatience of the buyer.
Price of most cryptocurrencies is derived from bitcoin unless they have a direct fiat gateway. Unless a significant amount of trading volume occurs via the fiat gateway, the price of that cryptocurrency is still heavily dependent on the price of bitcoin.
Bitcoin is (for now) is the gold standard of cryptocurrencies. Because it has the largest marketcap (by a very massive margin).
Market manipulation means that large holders in more valuable currencies (large marketcaps) can tamper with and set the value of much smaller currencies (i.e. smaller marketcaps).
Bitcoin's price itself can be manipulated by investment banks, governments or firms who trade in multi billions of USD daily. This is because the daily trading volume is almost 5 trillion trillion USD (which is several thousand times larger
There is nothing wrong with investing or trading in cryptocurrencies with low daily trading volumes and marketcaps, just be concious not to put more money into them than their long term buy support can handle and only invest what you can afford to lose.
The concept of liquidity in a market is important relative to the amount of fiat you are planning to invest or trade in it.
Whether day trading or investing, pick cryptocurrencies with good fundamentals i.e. excellent development teams, good marketing and strong value propositions that will provide the cryptocurrency in question use and value independent of speculative valuations.You are less likely to get manipulated or scammed in the long run that way especially if you are a holder.
Be very weary of trading or investing small amounts of money in larger markets that allow leveraged trading. Those markets will behave irrationally and not follow the fundamentals in the short term.
It is up to you to study the depth charts, order books, candle bar charts, daily trading volumes and news cycle to discern the patterns. The price is a composite of this and the psychology of people who don't understand this. You will learn more about day trading this way and more importantly learn to trade/invest independent of the price.
Coin market capitalisations and data including rich lists derived from:
Full disclosure/Disclaimer: At time of original writing I had long positions in Ethereum (ETH), Shadowcash (SDC), Iconomi (ICN), Augur (REP) and Digix (DGD). All the opinions expressed are my own. I cannot guarantee gains; losses are sustainable; do your own financial research and make your decisions responsibly. All prices and values given are as of time of first writing (Midday 8th-Jan-2017).
Second disclaimer: Please do not buy Shadowcash (SDC), the project has been abandoned by it's developers who have moved on to the Particl Project (PART). The PARTICL crowd fund and SDC 1:1 token swap completed April 15th. You can still exchange SDC for PART but only if it was acquired prior to 15th April 2017 see: https://particl.news/a-community-driven-initiative-e26724100c3a for more information.
Addendum: Article updated 23-11-2017 to edit references to SDC (changed to Particl where relevant to reflect updated status) and clean up formatting.
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The Simple Double Top Pattern: Naked Trading Explained ...
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