The cryptocurrency market is in a much different place than it was a year ago today.
Heading into December, 2017, cryptos were on a meteoric rise with new highs being hit every week. The sky was seemingly the limit as Bitcoin pushed beyond $10,000 and continued to climb.
Today, the opposite is very much the reality we live in. We have just seen Bitcoin stabilize around the $6-7k range over the last couple of months, only for the floor to give way.
Those $10k days seem very far off now as we watch price push further down.
Looking at the developments over the last year, investors will not be the happiest bunch.
Fortunately, we aren’t investors – we are traders! For us, it doesn’t matter if price goes short because we can still earn profits from this movement.
A day trader wants to see price moving – flexibility is our strength so any movement of price is something we favour. From August 2018 through to November, the incredibly stable movement of cryptos was not ideal for day trading to say the least.
However, we have just seen a sudden burst of movement that could tell us quite a few things on how we should approach trading the cryptocurrency market…
State of the Crypto Market
Before we dive into the recent price lows, let’s take a step back and look at the state of the crypto market over the last year.
There has been a gradual but distinct change in the market which has had an immediate impact on how to best trade it.
Take a look at the chart below that shows BTC/USD over the last year.
There are three highlighted areas, each showing distinct behaviours of price movement.
A period of high volatility when Bitcoin peaked and then descended shows the most chaotic time to trade cryptos.
This is also the most profitable time with big moves happening almost everyday. The opportunity was high at this period, but it also meant you could lose a lot more of your capital.
In the image below you will see we have highlighted extremely large wicks.
The movement on display in this period was immense. The potential to make profits was huge, but the potential to be stopped out of trades was also high.
As such, your trading style in a volatile market should be much more sensitive to risk. This has direct impacts on your trade parameters and the length of time you stay in a trade.
The wild west is a fitting description for this period. For inexperienced traders, it was a dazzling icon of potential wealth and riches.
In reality, however, it most likely ended in the opposite. Having trading experience in this scenario is always going to be an advantage.
Nevertheless, tackling the challenge of a volatile market will gain you such valuable experience that it is not something you pass up on. How else are you to gain experience if you sit on the sidelines?
Demo accounts are there for a reason – if in doubt, take trades with a demo and record your results for future use!
Our second area of the chart, highlights a period of much more predictable price movement.
The style of trading is different than in the volatile period, but arguably this predictable period is much better for trading.
The moves in this period are much more predictable as they react to psyche levels as well as support and resistance areas.
You can see in the image that the ability to forecast moves is much better than in the volatile market. This is because price is reacting to psyche levels as well as support and resistance.
All of this enables us to trade in a more controlled and measured approach. There are opportunities to catch a wider variety of setups, including continuations, giving you access to more tools in your trading arsenal.
The downside, however, is that you won’t see moves as large as the volatile period. That means less potential profit.
Ultimately, this comes down to trader preference: do you thrive in the chaos and volatility or the patience and control?
Stable & Breakout
Last but not least, the third area highlights the most frustrating period for trading BTCUSD (which we write more about here).
Two months of incredible stability which was, quite frankly, not tradeable.
Price’s movement was simply not enough to trade unless you went down to the lower time frames.
We have gone into detail as to why that is currently not feasible – check out our 2019 Broker Fee’s Article to see why.
This was the slowest trading period in cryptos and you can see by simply looking at the chart how little opportunity there was.
Until November 14th, that is.
A breakout triggered a big downward push, essentially slicing the value of Bitcoin in half.
If you caught this short trade, you would have made a lot of money. $6,200 down to $3,700 is an incredibly big move.
Yet most traders will have missed the trade.
They will have missed it because the move was unexpected and they won’t have been in a position to take advantage of the situation.
So that begs the question: what is the best approach to trading cryptocurrencies?
So far, there have been 3 distinct styles of market movement. Volatile, predictable, and stable with a quick breakout.
As traders, we need to be able to trade in all three conditions if we are to make the most out of crypto trading.
Using a strategy that is adaptable to these changing market conditions will give you the flexibility you need to succeed in this market.
Let’s take a closer look at how we can achieve this.
Finding Trades With Cryptos
There are a lot of opportunities to take trades with cryptos in the right conditions.
Look, we aren’t going to dress up crypto trading as a perfect market to trade. 2-3 months of this calendar year have not been tradeable, as can be seen with the stable period.
But don’t forget about the remainder of this year which has shown us the best trading we have yet seen for cryptocurrency.
The challenge, therefore, lies in putting yourself in a position to enter the market when it is best to do so. If you set yourself up to succeed, you are giving yourself the best opportunity to do just that.
We have highlighted three ways that will enable you to have the best possible approach to trading the crypto market. These will help you find trades on crypto pairs and form habits that will have a significant impact on your trading skill set and results.
A strategy traded successfully by one trader is not necessarily going to work for another. We want to make it clear that your ability as a trader will always be more important than the strategy.
However you choose to trade the crypto market, it is vital that your strategy is adaptable.
This includes your risk management, trade parameters, analysis of charts, and entering trades. Your strategy as a whole will benefit immensely from being flexible.
For some traders this may mean a change of indicator – for others it could mean shifting their priorities in what setups to trade.
The trading strategy we are developing puts an emphasis on bending to market fluctuations. If you can react and trade in all of the market styles, you are getting the most out of crypto trading.
This is one of the goals of our strategy and we strongly advise yours to do something similar.
A well-rounded trader is going to find success in crypto trading.
Prepare, Prepare, Prepare
As we have just seen in recently, breakouts can happen in an instant. These are very hard to catch because they can move so quickly without any warning.
The best way to find trades like this is to prepare and prepare well.
Simply checking your charts every few days is not what we mean by prepare well. You need to go a few steps further.
Set alarms at important price levels – either side of where price is. Breakouts can happen in either direction so you should prepare for both directions.
If you notice a shift in price movement you need to be ready to quickly adjust your approach to the charts and trades.
Volatile price movement may result in your minimum RR adjusting. Perhaps your requirements for entering a trade change.
You need to know what needs to be done with your strategy so you can react quickly.
Being prepared means you have more time for trading and that is something we want to encourage!
This last factor relates to your trading psychology. This is a seriously undervalued aspect of trading that is the main reason new traders quit.
It is important to be realistic when you are looking at the crypto charts.
Forcing trades where there are none is only going to have a negative impact in the long run. Periods of quiet may come – cryptos could very well operate in seasons of volatile and calm movement.
Being realistic about the state of the market will help protect your capital.
Doing so is going to give you longevity and stability that will be valuable in the crypto market.
Patience is also going to play a big factor in staying realistic with your trading. A frustrated trader is more likely to make a mistake.
Your analysis of the charts also needs to remain objective, without your subjective bias. If you can maintain that, combined with your strategy and preparation, you will have put yourself in the best possible position to succeed.
Crypto trading can be a challenge, there’s no doubt about it. Trading this market successfully means that you need to put yourself in the best possible position to trade.
The three methods we have outlined in this article are going to help you achieve that.
There is no glass slipper when it comes to cryptos, no golden strategy that will earn you millions.
Becoming a well-rounded trader is going to enable you to get the most out of trading cryptos. Working on all areas of your trading does require effort but it will have an effect that will go beyond crypto trading.
These are core skills that traders across the world succeed with – forex trading skills are applicable to cryptos. Crypto trading is new – it’s going to be a bumpy ride with some crazy turns in the road!
Crypto trading is still being tested through trial and error. We have an emphasis on these core skills because they are not isolated to the crypto market. You can take these skills and apply them to many other markets.
So give yourself a stable foundation from which to take on the market. You are giving yourself an advantage not just for the crypto market, but for your trading overall.