Crypto Trading Tips
The goal of Quantify Crypto is providing tools and visuals aids for Cryptocurrency traders. When we started trading crypto in 2016 it was very difficult to track the cryptocurrency price moves. We found significant moves would occur and we were too reactive to them often we were a step behind. We created Quantify Crypto platform as a solution giving traders the advantage to stay a step ahead by identifying emerging price trends. We are providing some of our favorite “Trading Tips”, the majority of these are self-learned from our trading experience. Yes, we have made mistakes, however it is always important to learn from your mistakes and take corrective action. It’s even smarter to learn from the mistakes of others.
Best Practices for Trading Cryptocurrency
- Investing in innovation
- Having "Investment" and "Trading" baskets
- Applying Fundamental and Technical Analysis
- Using analytics fine-tuned for the crypto market
- Using tools and websites to track the crypto market
- Having an investment plan that takes profits and reduces risk
- Diversify your holdings: Portfolio Management
- Performing your own research
- Keeping funds on the side to "buy the dips"
- Using common sense: "your gut"
Key mistakes to avoid
- Trading without an investment and trading plan
- Over trading (ignoring fee costs)
- FOMO / Panic selling (also called emotional trading)
- Trading on bad crypto exchanges
- Scams / "Get rich quick" scheme
- Trading on margin / leverage – Violates risk / reward principles. Remember, a good investment will reward you so do not rush it.
- Performing all or nothing trades. A single trade should never be more than 10% of your crypto portfolio. As your portfolio increases, the percentage used for each trade should decrease.
- Selling all your winning trades and holding on to the losing trades.
Institutional investors increased trading of Bitcoin
They are multiple reasons why institutional investing in sharply increasing:
- A better regulatory structure that allows investments by institutions
- Bitcoin has evolved from a currency on the dark web for drug to legal and viable use cases
- An investment hedge against inflation
- A reduction in bond yields coupled with the need for higher portfolio returns.
Strategy after a trade
After making a trade you need to plan out your exit points. Remember, do this with funds from the trading allocation not the investment allocation. An example may be selling 33% (of the trade investment) after a 10% gain, selling 33% after a 20% gain, and selling the remainder when upwards momentum stops. Additionally, you should have a stop loss percentage you are willing to wait out. The goal is to exit with a profit from most of your trades not all of them.
The advantage of using multiple indicators
It is a sound practice to rely on multiple technical indicators and several timeframes. Watch for instances when most of these metrics align for the predicted crypto price direction. For example, if 3 out of 5 MACD indicators are bullish, all RSI indicators are neutral, 4 Trend indicators are neutral while 1 is bullish, and the Baseline is bearish - This is an example that has some bullish, bearish and neutral signals. Combining all of these metrics yields a neutral indication.
The strongest scenario is when multiple indicators turn bullish at the same time. Continuing with the prior example, if you observe an additional MACD turns bullish, two RSI time periods are now bullish, 3 trend scores are now bullish, and the Baseline just flipped to bullish. When multiple indicators and time periods show a directional change, this is very bullish.
Why don’t stock indicators work for cryptocurrency?
Many stock indicators are designed for .5% to 2% price moves which are significant for the less volatile stock market. Tradition stock metrics were designed decades ago, and lag severely then applied for cryptocurrency price pattern analysis. Analytics designed for tighter time periods with larger price swings are necessary for cryptocurrency price pattern analysis.Learn more
Insight for the Quantify Crypto Baseline metric
This is a proactive support and resistant level that Quantify Crypto calculates. When the crypto asset has a price above the baseline, this is a bullish signal. When bullish, the baseline metric represents the calculated support level. A support level represents the lower limits of a price range the crypto asset is trading in.
When the crypto asset has a price below the baseline, this is a bearish signal. When bearish, the baseline metric represents the calculated resistance level. A resistance level represents the upper limits of a price range the crypto asset is trading in.
When a significant cross over occurs with the baseline metric, this represents a change in the pricing trend for this asset. An asset price that remains close to the baseline for multiple hours does not indicate a bullish or bearish trend change. Instead, it reinforces the support/resistance level of the asset.
What is the most important tool for cryptocurrency trading?
The price chart is the single most important tool for performing analysis. Our Coin Screener is designed to quickly identify which chart you should explore further. We do this by displaying multiple coins, time periods and metrics in a single sortable window. For altcoins we recommend using price charts against fiat and Bitcoin. The Altcoin/Bitcoin price chart provides important performance insight. There is a Trading View price chart on every Quantify Crypto coin page.
Essential candlesticks for cryptocurrency analysis.
Our research revealed that candlestick periods from five minutes thru two hours are crucial for cryptocurrency trading. We discovered the strongest price movements occur when indicators for multiple time periods all agree on the same trend direction. Shorter candlestick periods are needed for cryptocurrency technical analysis due to significant intra-day price moves. Our research indicates the one-hour candlestick pattern is the most important chart display for tracking Bitcoin and altcoins.Learn more
Cryptocurrency portfolio allocation
Allocate your cryptocurrency holdings into different tier levels:
Tier 1 – Established cryptocurrency that have significant usage and adoption. Quantify Crypto feels both Bitcoin and Ethereum are Tier 1 cryptocurrencies. (Tier allocation recommendation 40% —100%)
Tier 2 – Established use cases with a significant customer base. Examples include Binance Coin, Uniswap, Chainlink and Aave. (10% - 50%)
Tier 3 – Established use case with a customer base that is growing. Most of the coins in the Quantify Crypto system are at the Tier 3 level. (0 – 30%)
Tier 4 – Established use case without a regular customer base. (0 – 10%)
Tier Junk – 0%
Conservative: 100% in Tier 1
Growth with safety: Tier 1: 50%, Tier 2: 30%, Tier 3: 20%
Aggressive: 40%, Tier 2: 30%, Tier 3: 20%, Tier 4: 10%
Hypothetical Portfolio – Many recommend having a high allocation of both Bitcoin and Ethereum with a broad range of other cryptocurrencies with appeal.
Bitcoin 35%, Ethereum 30%, Binance Coin 10%, Uniswap 10%, ChainLink 5%, Solana 5%, AAVE 5%. (This is a sample, not a recommendation – Best Practice perform your own research)
When should an investor become a trader
When your crypto investment has a 20% increase or greater, it’s an ideal time to move profits from your investment allocation to a trading allocation. This is the only time we recommend selling funds in your investment allocation. The new trading allocation should be used for selling high and buying low. Since you do have a profit, this meets the definition of selling high. If your investment is still going up, we recommend one of the following:
- Set a sell limit order for a higher price.
- Set a stop loss order that guarantees a locked in profit (increase the stop loss level as the price goes up)
- Track the technical score of your cryptocurrency, when it turns from bullish to bearish initiate a sell order
After selling high you want to buy low. This will require patience and tracking the metrics. The hardest part of following this strategy is when the asset you sold continues to go up. At this point you must remind yourself that you are following an investment plan and that your asset going up in price is good news. Remember, you still own your investment allocations and part of your trading allocation. A common mistake is to follow the green candlestick spike and buy back in.
When the asset price starts to go down, wait for a quality entry point to buy back in. Buying low should always occur at a lower price than the initial asset purchase. Ideally, you want to buy back in after a 20% dip.
What is the difference between an "investment" and "trading" basket?
The investment basket contains funds allocated into an asset for the long term. The plan is to buy and hold these funds for a 1 to 3+ year time frame, or until there is a significant profit with this investment. In cryptocurrency the term "HODL" (Hold On for Dear Life) is often used for this. This is a best practice to avoid emotional trading.
The trading basket includes funds used for short to medium term trades to create greater returns than just holding onto an asset. Bitcoin, Ethereum and other crypto assets tend to have large price swings which can be used for a buy low / sell high trading method.
Support and Resistance levels for cryptocurrency
Support level identifies the bottom price point for a specific cryptocurrency based on its recent trading history. Quantify Crypto uses a modified Keltner Channel (KC) calculation for support level calculation. Normally a 10-day moving average is applied to the daily Average True Range (ATR) to determine the KC support level. Quantify Crypto is applying the 21-hour moving average to the daily ATR to determine cryptocurrency KC support level. Our support calculation is from our research of higher volatility crypto price movements compared to traditional assets.
When the price moves to the support level it represents an over sold condition. Many will view this as a price entry condition with the expectation the price will recover back to an expected trading range. This feeds nicely into the buy low, sell high trading philosophy. Quantify Crypto feels it is best to verify that the price has stopped its downward trend and has shown price stability or recovery before entering a new position.
The key concern when the support level occurs, is whether the supply of buy orders is enough to pause the negative trend. If the price decline continues at his level, it can be very significant. Often a support level will fail when there is significant news influencing the specific cryptocurrency or the overall crypto market.
Resistance price levels identities a price point when a positive price trend may slow down. The price resistance level represents the upper price range for a specific cryptocurrency based on its recent trading history. Like the support level calculation, Quantify Crypto uses a modified Keltner channel calculation using the 21-hour moving average with the daily ATR.
When price levels are above resistance, many traders will take this opportunity to reduce their positions and take some profits. This follows the buy low / sell high trading model.
Do you recommend Dollar Cost Averaging (DCA)?
Absolutely, this is best practice for new traders entering the market. Suppose you have performed your fundamental analysis for Bitcoin, and you want to invest $1,000. Start by dividing the funds into four $250 allocations. The first allocation should be used to immediately purchase Bitcoin. There are multiple methods to invest the next three allocations. A simple method is to use each allocation to purchase Bitcoin over the next 3 months. A recommended method is to wait for a Bitcoin price dip of 20% and wait for the Quantify Crypto trend algorithm to change from a bearish signal to a bullish signal for each of the next three allocations, this is a "buying the dip" method.
Hazards of margin trading
Margin trading is extremely risky with much higher trading fees. When margin trading, the odds are stacked against you since a transaction requires predicting the correct price direction whilst the clock is ticking against you. If the price of your trade asset is neutral or moving in the wrong direction, the interest expense will continue to increase while the position is open. Liquidation is the biggest risk as you can lose all our funds if your trade goes bad. Most exchanges, banks and even advisors encourage margin trading since it often makes money for them, but not for you. You will see major headlines declaring fantastic gains, beware this if often a trap you should avoid.
If you are bullish on an asset, the best strategy is to execute a simple buy order and then wait. If you are in a good investment/trade, profits will occur. Patient traders tend to have the best long-term results.
Learn more – This link tells the story of an expert trader that led a 20 million dollar cryptocurrency hedge fund into bankruptcy due to margin trading.
Investing in Innovation
Historically, investing in winning innovation ideas has led to tremendous returns. Identifying a product or technology in its early stages that transforms the way society works is an investment everybody welcomes. Examples include Microsoft in the 1980s with Windows, the Apple iPhone, Amazon online retailers, Facebook social media and the list goes on. Today, blockchain, a recognized technological innovation offers similar potential.
Investing in Meme Tokens
This is very speculative and is an exceptionally risky investment. Quantify Crypto recommends avoiding high risk assets and focusing on projects that have a clear focus with an established customer base and an active development team.
Will Elon Musk tweet again about Doge coin and the market respond with a huge surge? Probably. Yet it’s unlikely that you can predict the exact moment when this will happen thus it’s further speculation. While some may make money, there are safer more reliable ways to invest.
The Trend Algorithm
The MACD uses three exponential moving average (EMA) calculations to determine its bullish or bearish momentum signal. The Quantify Crypto Trend algorithm includes 11 EMA calculations. Our research shows small steady price movement over a 12-to-48-hour period often precedes significant price moves. The Trend algorithm is designed to detect these smaller moves taking place prior to significant moves.
We have many examples of this pattern. Learn more.
Cryptocurrency price movements have significant spikes and dumps. The primary objective is to capture major wins and avoid severe losses. Being on the correct side for significant price moves is more beneficial over time than the percentage of winning trades.
Using our Trend algorithm to improve your cryptocurrency trading results. Learn More
Moving Average Convergence/Divergence (MACD)
The MACD is a leading trend-following indicator performing calculations with three different Exponential Moving Averages (EMA). The formula: If (EMA 12 – EMA 26) > EMA 9 (called the signal line) then the MACD is Bullish. The EMA places higher calculation weight and significance on the most recent price points than the Simple Moving Average (SMA) which applies equal weight to all price points. Algorithmic indicators that use EMA averages are more responsive to price swings that occur with an asset. A problem with algorithms that use SMA is that they lag, giving a delayed indication.
The MACD may be the indicator that is used the most by stock traders and our research showed it is also a good indicator for analyzing cryptocurrency price patterns. Two factors for this are the MACD usage of EMAs and that it does not use absolute price ranges. Since cryptocurrency has larger price swings in shorter time periods the MACD is an excellent choice to use as a crypto indicator. Our findings show the 30 Minute, 1 Hour and 2 Hour are accurate time periods to follow.
How does the RSI signal work for cryptocurrency?
The Relative Strength Index (RSI), developed in 1978, is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Its goal is to identify "overbought" and "oversold" market conditions. For stocks, an RSI value over 70 is considered "overbought" and under 30 is considered "oversold".
Oscillating indicators work best when prices move sideways within a well-defined range. Keep in mind, the RSI was developed for stock market price tracking that were rarely greater than 1% in a single day. However, with cryptocurrency you do not have well defined price ranges and price swings of over 1% is commonplace.
Our research shows reversing the RSI test for shorter timeframes is an excellent indicator for detecting cryptocurrency breakouts. Specifically, an RSI value over 70 for 5-min, 15-min and 30-min candlestick periods is bullish with an increased probability of a price breakout. Conversely, an RSI value under 30 indicates a shift to a bearish downturn. In summary, the RSI, when used correctly for cryptocurrency, is an important signal that a major move is forthcoming.
Review longer term RSI timeframes, specifically daily and weekly candlesticks. Our research shows that using the RSI in the traditional way, as with stocks, (over 70 bullish, under 30 bearish) is most reliable.
In summary, 5 minute, 15 minute, 30 minute, 1 hour, 2 hours, 4 hours: Use inverse RSI signals (over 70 – Potential Breakout). Daily and Weekly: Use normal RSI signal (over 70 – Overbought).Learn More
Why is technical analysis more important for crypto than for stocks?
The stock market has greater regulatory requirements with higher visibility than the cryptocurrency market. Publicly traded stock companies are required to produce quarterly financial reports, are audited yearly, have a CEO to identify the corporate plan, etc. With fewer news and reporting requirements for cryptocurrency, the analysis of price patterns (technical analysis) becomes critically important.
Disclaimer: Lastly, we are NOT financial advisors. Any information displayed should not be interpreted as financial advice. If you seek financial advice speak to a professional. Trading is an extremely risky activity. Your trades are your responsibility so trade at your own risk.