Investment Rules and Trading Strategies for Cryptocurrencies-Part 1
You definitely have a friend who made a lot of money trading cryptocurrencies back in 2017 when the market was in a bull run. Even though he made good profits, was he really a good trader and investor? What defines a good trader? A good trader is someone who has a strong trading system and is self-discipline. One that is guided by probability and not possibility. Excelling well in trading using technical analysis also requires strong risk management.
Aside to the volatility, the cryptocurrency market is not very different from the traditional stock market as people make the market. Human psychology does not change, traders/investors today still face the same emotions of fear and greed.
This article will comprise of a three part series, going through 15 trading rules to follow when trading cryptocurrencies. We hope this article will give you the right knowledge to help you build up a strong trading system.
Golden Rule №1
Buy the most hated token
More often than not, those who were once lovers, soon became haters. For example if you were to look at Tron (TRX) and Cardano (Ada), these projects have strong fundamentals and a lot of followers who invested in the tokens. Prices sky rocketed, cementing their belief that these projects will go to the moon. Now if you were to look at the chart below of Cardano (Ada), you will notice that prices have declined over 90% from its all-time high in January 2018.
People who were once shilling these projects are now mad because they lost a great sum of capital and subsequently lose confidence over time. By following this doctrine rule, now is the best time to buy these projects! When you buy the most hated token, you avoid following the herd and fear of missing out (FOMO). You will be the shepherd and not the sheep!
The Cup and Handle (illustration below) is a common classical chart pattern where if you follow this rule, will be entering the trade at the bottom of the cup where prices are the lowest. This price pattern is considered a bullish continuation pattern and is used to identify buying opportunities.
Golden Rule №2
Price forecast will make the news and not the other way around!
Everyone is all brought up understanding the world through cause and effect. The human mind has to understand things through rationale. Journalist has to write articles to explain why the traditional share market has dropped by 5%. The content may not be the exact reason for the market movement and different journalist and market analysis may state different reasons to justify the price fluctuation.
A key point that i will like to highlight is that news is mainstream, while price is the purest form of sentiment. In technical analysis, the chart is the direct reflection of sentiment. There are many technical indicators out there such as RSI, moving averages, most of which are lagging indicators.
A forward indicator is Elliott waves which is founded by Ralph Nelson Elliott in the 1930s. This principle allows traders to do forward price projections. It states that price forecast will determine the news, and not the other way around. This technical indicator is easy to practice but hard to master.
Traders also often read the news and is influenced when drawing the chart, thereby given lower accuracy rates. The best advise while trading is not to read the news and be disciplined. The chart which captures all the price movements throughout the history can tell you everything about the token/company.
Golden Rule №3
Do not place all the eggs in one basket!
You probably have heard this many times before and ill not delve in it further. When trading cryptocurrencies, its best to trade a few tokens rather than holding one token alone. Most of the tokens are startups with a future roadmap of technological upgrades and development.
There is a fine line between gambling and trading. Portfolio management is important as well to ensure that risk is well managed.
Most of the tokens in the cryptocurrency market have a high similarity index. Where money flows into the crypto space and money flows out. About 70% of the tokens chart have similar patterns. A good portfolio will be 40%-60% compromising of the large cap tokens and the remainder are middle to small capitalization of about 10–15% allocation per token.
While it is convenient to leave your tokens in the exchange which can be traded anytime, it will be prudent to store your tokens in different cold and hot wallets. More details can be found at the end of the article. Recently a prominent exchange Cryptopia has been hacked and all the users have no access to their tokens.
Golden Rule №4
Never Short the Bull Market!
First, identify the trend, then trade with the trend. Back in 26th November 2017 when Bitcoin prices was about to reach $10k USD, all the traders and market analyst expect prices to hit the $10k USD mental resistance line and decided to short Bitcoin.
A lot of traders lost money placing that trade. Bitcoin prices later soared to about $19,400 USD on some exchanges.
Golden Rule №5
Do not margin trade for Cryptocurrencies
The Cryptocurrency market is highly volatile and traders should not need to margin trade to make decent profits. Another point to add is that every trader has different risk appetite and if you were to do margin trading, you will feel anxious which affects your trading performance.
You should start off trading with an amount you are comfortable sleeping with at night. If you place a large trade in the day and it is affecting your sleep, it means that your position size is too big.
Please note that this is not financial advise, this is just for sharing of our point of view.
Mars Wallet — A secure platform to store, trade and stake your tokens!
Mars Wallet is an important node in the ecosystem under the Mars Blockchain Group, which uses google 2FA, a two-factor authentication process that provides four-fold security verification to ensure that user’s tokens can be recovered in the event of a hack or fraud.
For more information on Mars Wallet, keep up with its following social media: