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The Rules to Buying & Selling & A Few Tips

07/05/2020 10:13

Going into the week price action have become completely dull. There are a few approaches to look at. Hodling if you already have bought or stay safe in a stable coin or USD. Trying to short term trade this chop feels disgusting and there really is no point. I say hodl because there is always a risk of a dump followed by a huge wick and pump as you may end up selling the bottom. Also trying to buy the pump there is the risk of buying a short term top. If you do this as has happened over the last few weeks it will cost you greatly in capital. In closing, hodl if you already own and if you don't own yet wait until the trend is fully defined.

Last week outside of price action while there is time letting the trend be defined. Reading and then re-reading allows you to make something your own. I believe these two pieces to be of value during July as we wait for this trend to be defined:


25 Years of Lessons Learned
https://bitcoin.live/blog/25-years-of-lessons-learned

Controlling Your Trading Destiny
https://bitcoin.live/blog/controlling-your-trading-destiny

 

The Rules to Buying & Selling & A Few Tips

WHEN TO BUY

The best time to buy cryptos are when they initially move out of the basing phase and start to enter the advancing phase, those are the coins or tokens I like to trade. This is the best time to be getting buys entered as the risk to reward is at its highest potential. The discipline will be on you for entering a stop loss in case the basing period breaks down and you are wrong on entry. It can be hard to walk away, but this is what will ultimately allow your trading career to thrive. On the flip side if you are right the advancing in stage two is where you will make the bulk of your money. To make money it will require extreme patience at times as stage two can take many days for momentum to build and push prices upward.

Once stage 2 is underway and the advance is happening, a coin/token will drop back close to its moving average and consolidate. Moving averages should still be clearly trending higher (look at their slope).  It will break out anew on top of resistance zones. This is how you make a continuation buy.

Early in bull markets plenty of coins will be breaking out for the first time (those can be some of the best buys you will make). As the bull market continues on there will be less breaking out but there will be a variety of continuation buying opportunities. Its the disciplined trader with rules that will capitalize the best on these opportunities because he or she is buying upward momentum coins during bullish times.

One thing that is of importance is using buy stops (A buy stop order is when you purchase the coin/token when it reaches a pre-specified price). What it allows you:

  1. You won’t have to watch the market as closely or stare at charts all day long.
  2. You’ll feel better, less emotional about the decisions.

The more mechanical your system and less subject to outside noise, the more profitable you will be in the long run.

 

WHEN TO SELL

Always have protective stop-losses. When you set an initial stop, pay attention to the prior low that happened before your buy. Now after you have bought on a breakout place your stop-loss below the lower end of the basing period by a few satoshis. When a coin or token is trending, give it plenty of room to run and raise it after each substantial correction. When your buy hits stage three (the topping period) which can be a short term top be more aggressive with your stop loss. 

A way of locking in profits is to utilize moving averages within your trading. One method that keeps things relatively simple is to sell when a trendline (make sure it connects at least three different candles on your chart) is violated and a candle closes below that specific trendline. Utilizing a proper time frame (not hourly charts but a minimum of 4-hr and above) will be paramount in making sure you are not exiting too soon or fall for fake outs.

Remember, taking a loss on some positions is just the cost of doing business. You can’t get rewards without putting some “skin in the game”.

Lastly, coins and tokens fall much faster than they rise, because fear causes panic reactions which in turn makes more sellers rush to the exits. The saying assets take the escalator up and the elevator down has rung true more times than I can remember over my trading career. 

Helpful Notes:

    1. Market Phase - What type of market is trending for your buy or sell (are times bullish or bearish). 
    2. Don’t be trying to buy a coin/token that is bearish while the rest of the cryptos are bullish. More times than not it’ll be a losing proposition.
    3. Tops generally get formed after a significant run-up. So if you are late to the party. It’s best to wait for the next opportunity. There will always be another opportunity and trade. FOMO is a surefire way to blow up your account.
    4. Volume - Look for volume at bottoms and tops. On the moves up, the volume should be more than the average in order to support a strong advance. Likewise, at tops when volume starts to shrink on moves up and sideways action occurs after a runup it can be a sign the coin/token is exhausted and profit-taking needs to take place. If you miss the ideal profit-taking situation than you must have executed a trailing stop.
    5. Do not trust breakouts that are not supported with higher than normal volume.
    6. Remember to measure how strong a coin/token is in relation to the overall market. Do not buy if its relative strength is weaker than its competitors.

 

  • The bigger the basing period, the bigger the moves!

 

  1. Diversify yourself between bitcoin, USD/T, and a few positions. During euphoric times it can seem appealing to take on lots of positions but you are a one-person show, not a trading firm. Proper risk management is paramount for long term success.

Have a great start to the week and we will talk soon.

-Mark


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