Crypto Trading Diaries Pt. 1
I am starting a little experiment…with money.
I am the kind of person who likes to experiment with trading. I dabble in several domains — stocks, options, passive income streams, cryptocurrencies. Not a lot of upfront capital, but enough to say I do it as a hobby. But I’ll always stay true to my nature — an amateur.
People say trading is like gambling — and I generally agree with those people, but I still find it fun and you can definitely learn about market dynamics and how a stock behaves in relation to other factors you think would affect the price.
But after listening to some podcasts about cryptocurrency — particularly some with Kraken and BitMEX and their capabilities — my interest was peeked. The next week, I was taking pictures of myself (something required) so I can get started on a crypto exchange platform.
Today — we will discuss volatility.
Whenever you hear about the price of bitcoin, or any crypto in general, you hear about volatility. They go hand in hand. It is why traders love it, and it is why hodlers are making money.
According to Investopedia,
Volatility is a statistical measure of the dispersion of returns for a given security or market index.
Yes, dispersion, indeed. In a nutshell, you better believe you’re in for a wild ride when you trade crypto.
You don’t really know what volatility means until you start trading crypto. There are a lot of things to take into account when placing your bets, and honestly, I am not at the point where I can look at market signals and understand where the market is going. That may be in some later articles.
The upside to volatility is if you are placing a bet that the price of bitcoin or whatever you are trading will go up or down 1–2%, you’re in pretty good shape. This can take anywhere from 5 minutes to several days.
However, keep in mind that swings do not happen everyday. So, if you are trying to trade on the swings, you may need to employ another strategy to get the returns you are looking for.
Let me explain.
Check out the image below.
Each candlestick (green and blue rectangles) has some messages embedded within it. The red indicates that the closing price for that time period (in this case one hour) was lower than the previous block’s close. The green indicates that the closing price for that period was greater than the previous block’s closing price.
Interestingly, you can see natural variation within the hour, and if you are trading on a per minute or per second basis, you will be able to see the true variation in price.
However, as you can see, there are two phenomena that occurs in this snapshot.
First, there is a long period of stability — or lack of volatility. This can be reassuring or frustrating depending on your point of view.
Second, there is a large uptick in price — a great bull run for those who are buying low and selling high.
You can make money in both scenarios (I think).
What I wanted y’all to see is that — this stuff is not science. In fact, it’s sometime so unscientific that I don’t even know why I am bothering. Currently, I trying to devise a strategy that can be more of a rational art instead of trying to stick to fundamentals. Not sure if that’ll work.
I’ll keep y’all posted.
In the meantime, thanks for reading.