Cycles, Time and Position Sizing for Crypto Trading
There are many in the industry who have taught traders a far too simplistic approach to entering and exiting positions. I’m not sure how or exactly why this style of market play has become so pervasive, but it has. Often times I am asked about a particular trade or I am asked about the direction of a particular market and it is usually followed up with a need for specific “price targets”. See the problem with most traders mentality and their approach to the market is they rely on just 1 entry and 2–3 exit points or price targets. This style of market play is very restrictive and binds the traders optionality limiting their odds of success.
The beginner or novice trader tends to plunge all of his or her capital allocated for a particular trade, into the market all at once — at one particular price, at one specific moment in time. If you truly think about this concept, it is quite naive or overconfident to say the least. Trading is hard enough as it is to try and get both direction and time right, yet why is it that some traders think they can pin point the exact moment in time at the exact price point to commit ALL of their hard earned capital? This style of market play limits your odds of success right from the beginning. But it’s not just the 1 entry method that restricts your probability of success, it’s this concept of 1–3 “price targets” after your enter that is again attributed to some magical price point with no concept of the time it takes or how a coin goes about reaching that particular price target. How much TIME has gone by matters.
Timing is far more important than fundamentals and valuation
This is how I trade based on oversold/overbought, cycles and TIME. I also employ a strategy where I do not buy in one lump some at one price but scale in over several entries and also add and reduce the size of my plays further compounding my results. Then I exit based on the cycle and time as well as when a market becomes overbought and oversold, not just based on specific price targets.
It’s important to understand why I use an approach to trading that values the importance of understanding TIME and cycles as a prerequisite to learning about price action and any type of trend analysis.
Technical analysis covers price action and trend, but it is in the field of cyclical analysis that we begin to advance into the understanding of not just space but space & time.
We view space as the area of price action on the chart — the distance of highs and lows relative to each other. When we begin to understand the aspects of TIME relative to a markets’ price action, then we begin to discover the keys to market timing and one increases their probability of picking specific highs and lows within the trend. We also begin to increase the probabilities of recognizing potential trend changes and it is this understanding of cycles and TIME analysis that we begin to properly anticipate the beginning and ends of a move and one will naturally then begin to achieve much higher success rates in one’s trading.
My favorite way to take TIME into account in a chart is with a Pi Line. Let me begin with an understanding of a few basic concepts surrounding time and cycles, and how we use these cyclical approaches in our trading to produce high probable market setups. One of the core concepts in my trading model is what I call the Pi Line. Pi is the ratio of the circumference of a circle to its diameter, and Pi’s mathematical significance is well known throughout many fields and its origins go back to antiquity.
Pi has been represented by the Greek letter “π”, and because its definition relates to the circle, π is found in many formulas in geometry and trigonometry.
Pi appears in other sciences such as number theory and statistics, as well as it is found in thermodynamics, mechanics, and electromagnetism. We can also see the numerical significance of Pi in cyclical wave structures, sine and cosine functions repeat with a period of 2 π this oscillation and wave form creates a rhythm of time. It is these oscillations and wave formations that we try to identify in our trading. Much like the rhythm of a pendulum, we look to trade around the same rhythms of time on the chart.
It is this oscillation through time that creates this cyclical rhythm and these mathematical constants show that there is an underlying structure and geometry of not just space but also TIME.
The price action on a chart is simply energy moving through people in what we call the markets. Everything moves in waves — it’s how energy travels. This is why I built a model around such wave formation cyclical vibration. Pi defines the circle and thus it is the perfect cycle, this is why I originally began to search for ways to incorporate this cyclical and mathematical phenomenon in my trading model. What I discovered next was really a very simple basic discovery but one that produces amazing results on the price charts on all time-frames.
I decided to put Pi on the chart. I was looking for a longer moving average to incorporate into our trend analysis and decided why not take Pi 3.14 x100 and put a 314 simple period moving average on our chart. When I did, I was astonished at the accuracy and the frequency in which price made prominent highs and lows putting in tops and bottoms often times to the exact level as the moving average line itself. The incredible number of failures and bounces off this line was outstanding and it happens regardless of the time frame. I knew in my 15 years of trading and all my institutional experience talking to some of the largest and most well respected traders that I had never heard of anyone using such a moving average. It’s fair to say that most traders never even go out past the well used 200 period moving average. So, I knew the idea of a self fulfilling prophecy with everyone using the same 314 period moving average was not a contributing factor as to why this average was doing such a spectacular job at defining price action. There was clearly more to why this moving average line worked so well. This was and is clearly proof of an underlying cyclical structure to how energy moves.
In my model, I do not use any one particular moving average nor do I use simplistic moving average crosses to determine when to buy and sell. It is much more complicated than such strategies but this one simple Pi Line concept is irrefutable evidence that there is a hidden design to markets and under the surface of what seems to be chaotic random events, there-in underneath the complex lies repeatable cyclical patterns and my Pi Line concept proves this. Here are just a few examples of the many occurrences you will find on the charts concerning our Pi Line concept:
These types of events, both highs and lows with the Pi Cycle are very common across all time-frames and in all markets. Now I do not just simply buy and sell when price hits the Pi Line nor do I go bullish or bearish just based off price being above or below this line. This model, to reiterate, is more in depth and the process only begins with the Pi Line. But as an overall good general rule, our Pi Line acts as a great starting point to begin an individual’s trade and many successful trade setups occur at or near this significant cycle line.
This is the model and process I have been following for over 10 years trading the Futures and Forex markets and have now taken it to the Crypto world. I started at Charles Schwab as a trader in the equity and options markets before moving to the sell-side to trade fixed income at vFinance, JVB Financial, and CG Capital.
The crypto market responds well to the trading model and I trade them all the same. It also is an exciting time to get involved. Knowing a proven process and following it in a great market such as cryptos is a great way to add to your bottom line. Trade well and trade smart!
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