Episodic Pivots in Cryptocurrency Trading
Safest Buy Level
Where is the safest, or best risk:reward ratio place to buy that also encompasses the characteristics of a trade that will quickly resolve in one direction or the other? Well for the me the safest place to buy is in the long flat base that occurred from August through early December(see the chart above). It is safest because we can be assured if the rally begins we are at a very low buy level. We can also place our stop below the base. Our risk:reward is extremely favorable.
What is the downside? You have dead capital sitting in a trade for who knows how long. I had dead capital sitting in this name for an extremely long time. Looking back on it, what that the best move? As I am always looking to improve, I would have to say no that was not necessarily the best way to play this.
Fast Trade Resolution
Where is a place we can buy that still retains much the same risk:reward characteristics and has the advantage of a quickly resolving trade? The first pullback after the break of the flat base. For me I buy the bottom support level as the symmetrical triangle forms as I prefer to buy at support. Others may buy the breakout of the pattern which is an even quicker resolution of the trade. Still others would buy the breakout of the flat base itself. Just know that there is a fairly high failure rate on those breakouts and utilizing a stop loss is of heightened importance in that style of trading. I have no problem with either strategy, just pick one that suits you and master it.
In this particular trade I had some capital in the name that was accumulated near the bottom of the long, flat basing pattern. Then when I saw the sym. triangle develop I had some free capital and put on a second trade. I will continue to buy in the long bases, if I have no where else to trade, but I would prefer to trade the Episodic Pivot style setups if there are available.
Stock EP’s, from a technical analysis perspective, are an extremely high volume breakout from a long period of sideways neglect. We look for stocks that have a valid catalyst to accompany the move. Typically this is a massive earnings surprise. This is something that is possible to qualify and trade on.
How do we qualify the catalysts in these crypto names? Unless I missed it, I don’t think there was some amazing news story that came out that would count as the catalyst for this or any of the recent alt moves. These moves are largely the result of an alt market that has been beaten down for a long time and is in full scale rally mode at the moment.
If someone has a good example of news that may have triggered this move, I am open to hearing about it. I think it could very likely have something to do with the banks wanting to attack bitcoin(futures shorts) while encouraging the bank friendly coin. That is pure speculation on my part, as I do not closely follow the news. I am purely a technical analyst in these markets for the most part, though I do research the back story of these names before trading/investing in them.
That means we need to rely almost exclusively on Technical Analysis to trade these moves. Dave Landry would call this a “first thrust” pattern. Essentially identify a new trend, enter on the first pullback with a fairly tight initial stop(a larger stop than you would use in stocks is required), and trail your stop higher as the move progresses. Others may have a profit objective in mind, but I have found recently that trailing the stop as the move progresses works fairly well for me. I don’t trail 1:1, after say a 100% move up I may only move my stop up 70%.
I try to keep my stop below a major support level if possible. However, as we start to reach nose bleed levels I will start to tighten my stop and possibly even scale out of my position. On XRP for instance right now, there could easily be a cap on this move at double our current level. That would put XRP very close to the exceeding the market cap of BTC. While I think we will see that happen in the near future I am not sure the market is quite ready for that.
Originally published at Speculate Freedom.