How To Sell At The Top: A Case Study Starring Decred’s 125% 1-Hour Gain
As mentioned in previous posts, with a lack of traditional “fundamentals” in the cryptoassets markets, technical analysis has become essential in any investors toolkit for evaluating when and where to buy and sell said assets. Today, we’ll cover chart patterns for the setup for when to buy and order book price action for when to sell.
First, let’s start with the setup.
I originally posted on April 21st 2018 in my Telegram channel, JoesCrypt, that Decred was creating an early, but nice pennant formation (the dotted triangle shape).
And yet, on April 23rd, Decred did in fact break down below that triangle, however, instead of taking my loss I held for another reason: the 20 Day Moving Average acting as support.
The orange line is the 20 day moving average and by the time it fell out of the triangle, it bounced off of that support line so I stayed long.
This was the point of entry for a large core position if you weren’t already long, like I was, especially if it can get back inside the triangle…which it did.
On the morning of April 24th, Pacific Time, Decred caught a bid and started rapidly pushing up not only back into the triangle but testing the upper trendline.
Then, it broke even higher.
Now, this breakout was confirmed by the heavy volume as seen in the large green rectangle at the bottom of the chart, but the weekly chart showed a lot more upside if Decred gets some momentum behind it.
So all was well and good until I noticed later on that evening that the price action in Decred really started to change. It was spiking. Dramatically.
As the saying goes, bulls make money, bears make money, but pigs get slaughtered. When a move like this happens as a trader you’d be remiss not to sell into it and take your profits.
So when is the right time to sell? The order book is what you need to watch for.
I was trading Decred on Poloniex and they have a realtime order book that not only shows the current bids and offers, but also the time of sales window, which is in essence every single trade that has been executed in real time. It shows things like the price, the amount of the trade, a timestamp, etc.
The key to knowing when to sell is when the order book tells you, not necessarily the chart.
Poloniex provides a simple API to get historical data from. For Decred you can click this link to get a JSON object that holds all the information relevant to this particular trading scenario. Don’t trust me, trust the data!
But Joe, I can’t read JSON…I’m not a software developer! Don’t worry, I’ll simplify it for you.
Let’s start with the 5-minute chart so we can zero in on where the spike started.
At 7:00 PM PST we can see the first spike, but why is it spiking? Let’s look at the order flow to get a better look.
What we are interested in is buyers buying not sellers selling, so we will sort the data based on buys only.
Here we can see the trade amount (how much Decred was bought), the price the buyer bought it at and at what time.
When evaluating an order book or time of sales (the image above is representative of time of sales), there are two key components to evaluate:
- Size of Trades
- Frequency of Trades (measured in seconds)
In the above image, the sizes are relatively small and the frequency of buys has a wide delta, in one case a full minute and 38 seconds passes without a new buy begin executed. This is uninteresting.
Let’s get to the interesting part back to the time when Decred started spiking, at 7:00 PM PST or 2:00 AM UTC (universal time which is what exchanges use).
At 1:59:23 AM UTC, we can see a large buy of 22 units of Decred and quickly thereafter a number of buys started hitting the tape. In fact, you can see the delta between the time of additional buys at 2:00:44 was less than 1 second as a flurry of buys hit the Time of Sales with many of those trades being for large amounts.
This is the beginning of a spike.
If we fast forward just one minute we can see a huge trade of 346.69 Decred at 2:01:37 UTC this is 3 orders of magnitude larger than the previous trades.
This is another huge spike signal.
A few minutes later we can see buy sizes continue to increase and the price is now already significantly higher than it was just 3 minutes ago, in fact the jump from 0.00778 DCR to 0.00920 DCR is a 16.8% gain.
So you may be asking yourself, a 16.8% gain is great! Why not sell now?
The move is not over.
Within the span of 1 second loads of trades are hitting the tape many of them for large sizes, effectively wiping out the offers on the way up. At this point, Decred is up a whopping 74.8% from just 12 minutes ago.
But the move is not over.
Decred got all the way up to 0.01770 BTC, but began to stall. It couldn’t get above 0.01770 BTC.
Decred about 10 seconds later attempted to breach 0.01770 BTC but again, failed.
This is good information for a time to sell.
The offer is not budging at 0.01770 BTC and absorbing a ton of Decred here. No one can seem to breach 0.01770 BTC.
This is the 3rd failed attempt. Time to sell.
This was the last trade at 0.01770 BTC.
And down we go.
You can see the price of the buys is now at lower and lower prices.
And lower and lower…
And even lower…
The move is over and is seen here in the chart:
Luckily for me, I’ve seen this movie before and sold at the top:
The sale here was at 0.0176 BTC so I was lucky to get out. A 125% gain in less than an hour.
This takes a long time to develop seeing these patterns in realtime as a human being (I’ve been trading for nearly 20 years). Fortunately, there’s a solution.
CryptDex does this algorithmically and in realtime. Have a look here: cryptdex.trade.
And be sure and join JoesCrypt for realtime posts like this long medium post.
Finally, here is the raw data and the sales data for your own viewing pleasure.
