To TA or not to TA
The Basics II — A soft Introduction to Technical Analysis with Octoracle
Technical Analysis (TA) is the traders most commonly used toolkit. However there are as many opinions about TA and its appropriate use, as there are traders on this planet.
No matter what opinion you hold dear or shaped your self, with Octoracle you can visualise your TA — be it extensive or very basic — in your strategies via our TradingView plugin.
First we’re introducing some basic terminology followed by a description of the bots unique abilities and how to employ them, before we dive into the basics of TA.
Basic Terminology
Scalping
What is it?
Executing orders with high frequency and taking small profits, while moving in short intervals (usually max.4h)
When is it used?
Most suited if volatility is low and volume ranging from medium to high
Swing trading
What is it?
Executing orders with low frequency, while taking medium to high profits and moving in medium to long intervals (usually min.4h)
When is it used?
Most suited if volatility is high and volume ranging from medium to high
EZ Setup
In case you had difficulties to apply the exercise from the last post ,
we will now provide some more detailed information on how to create your first own strategy.
Why we call it easy? Because we’re going to setup a strategy without any indicators and only basic TA!
Why and how you might ask?
This is why!
Due to the algorithms unique ability to grow and shrink your trigger lines with a custom factor, the strategy will adapt automatically to price movements and fluctuations.
Additionally the bot is highly skilled in avoiding to catch falling knives or chase a a pump, since buys are only triggered on a cross upwards and sells only on a cross downwards.
Blended with the growth and shrink factor of the respective lines, this allows for an elaborate setup that can react to trend reversals, as well as price spikes and troughs.
This is how!
Only by setting the following lines, and the respective growth and/or shrink factor.
📉Sell-Line
The trigger line that marks the price the bot should sell the asset.
Growth: If the price is above the preset sell-line, you can choose to let the line grow with the price by a certain percentage.
Example: growth factor 50%; sell-line is at 15 & the price is at 17 -> line grows to 16
Shrink: If the price is under the preset value of the sell-line, the line shrinks with the given percentage.
Example: shrink-factor: 50%; sell-line is at 18 & the price is at 16 -> line shrinks to 17
📈Buy-Line
The trigger line that marks the price the bot should buy the asset.
Growth: If no buy order is triggered, but the price is above the buy-line,
you can choose the to let the line grow with a custom percentage.
Example: growth factor 50%; buy-line is at 15 & the price is at 17 -> buy line grows with the price & would be set at 16
Shrink: If there is no buy-order triggered, but the price is under the value of the buy-line, the line shrinks with the given percentage.
Example: Shrink-factor: 50%; buy-line is at 15 & the price is at 13 -> line shrinks to 14
Trailing Stop
The threshold from which trailing should be activated.
Set the percentage of the saved profits after activation. If profits are made they will be saved when the price crosses under the percentage of the growth factor.
Example: buy-order is filled at 10; Trailing stop active after: 10% -> trailing-stop activates at 11
Example: grow factor set at 50%; Once the price is at 11 the profit would be 1. The profit saved would be 0.5 (because of the 50% factor).
If the Price goes below 10.5 a Sell-order is triggered. The profit would be 50% of the possible Profit. (0.5 not 1)
Stop Loss
The line that signals the bot to sell an asset at a small loss, in order to mitigate bigger losses.
Remember to play!
To play attentively is to learn.
You most likely won’t be able to grasp all the above concepts right away and might have a hard time translating your ideas into strategies.
That’s why it’s important to play with the tools you’re given. Setup a play environment:
0️⃣ install Octoracle Bot (to access Simulation Mode)
1️⃣ allocate time to focus on playing
2️⃣ get a pen & paper
3️⃣ sketch ideas
4️⃣ test ideas
5️⃣ collect data
6️⃣ analyse data
7️⃣ repeat from 3️⃣
Try to come up with at least one swing and one scalping strategy that performs well, good performance in a bear market is somewhere around 5%, in a bull market it’s about 10%.
If you feel overwhelmed, that’s alright, continue playing and join our Discord for community support:
https://discord.gg/RMNMSma
NOTES!
It’s advised to use limit orders with a low percentage (ca 0.5%), in order for your buy and sell orders to be picked up by the market.
Choose your interval wisely, in general short intervals are good for scalping and longer intervals are more suited for swing trading strategies.
How to do basic TA to find your asset of choice!
Once you’re sure about your strategy setup, you can go on deciding what assets would be most suitable and profitable to trade.
The following TA parameters are very basic and should be taken into account when identifying assets and adjusting your strategies:
1. Volatility, high or low?
Helps with deciding on the type of strategy to be employed (scalp or swing)
How? Simply turn on Bollinger Bands (BB) in the chart software of your choice (you can use TradingView with up to 3 indicators for free!), the broader the band, the higher the volatility. Remember to look at different intervals to get the full picture! A contracted band signals low volatility, as opposed to and expanded that is characteristic for high volatility.
Some argue a trend reversal is indicated by the candles hitting the upper (down trend incoming) or lower (uptrend incoming) edges of the band.
2. Volume, high or low?
Helps with deciding on the type of strategy to be employed (scalp or swing)
Increasing price and decreasing volume show lack of interest, and this is a warning of a potential reversal
How? The volume indicator usually is turned on by default and represented by green or red bars below your trading chart.
3. Market cap, circulating and total supply!
Helps with long term planning and is one of the most important parameters to look at.
How? Coinmarketcap usually has the correct numbers, but always verify through additional sources, preferably directly from protocol developers.
The market cap informs you about the emission rate of the asset. Especially noteworthy when opening long or closing short positions.
Let’s look at XRP for example.
A circulating supply of 41,208,093,050 at a price of $0.3 USD / XRP results in a market cap of $12,498,893,944 USD.
The total supply is $99,991,698,361 USD at a price of $0.3 USD / XRP resulting in a market cap of $29,997,509,508 USD.
How the remaining assets are to be released differs from protocol to protocol, hence it’s important for traders to assess when and how the tokens are released (or even new ones minted), keeping in mind that if they’re sold shortly after the price will most likely drop.
4. Support & Resistance
Helps you to single in on your entry and exit price.
How? The only Indicators you need to create your self.
Depending on your mode of trading (scalp, swing, long or short) you want to adjust to a reasonable interval (e.g. 1 month for short/long positions; 1 week for swing; 1 day for scalp).
The lowest value in your chosen interval and zoom level corresponds to your entry, draw a horizontal line and colour it green, this is the support line.
As opposed to highest value in the same interval and zoom level, most likely your exit point, drawn as a red horizontal line and called resistance.
4. All time low (ATL), all time high (ATH)
Helps with understanding the context of current support and resistance levels.
How? Set your trading chart to the maximum zoom level and intervals depending on how long the asset has been trading. If it’s been trading for more than a year, setting a daily or weekly interval makes sense.
Emotional control is critical, without it even the best technical analyst will be lost.
Make the above quote, from a short and well written Crypto Rand post, into your personal mantra.
Once you have your strategy setup, test it again and adjust it to your liking. Once it performs, switch it over to live trading and start with a small amount.
Stick with your strategy for at least 5–10 trades, otherwise you won’t have enough data to learn from the actions and decisions you made.
Stay safe, don’t trust — verify; live long and prosper!
Next blogpost
Completion of basic TA with trend channels and dipping our toes into fundamental analysis! More analysis? Yes. But we’ll make it fun!
