Saturday, May 3, 2014

Paradigm Shift: Technical Analysis in the Altcoins & Bitcoin Market, & Introduction to Market Cycle, Structure & Manipulation

Remember this? I bet the first time you saw it in December you laughed this picture off, but it's okay so did I. And if this is the first time you're seeing this, don't dismiss it just yet!


Because, well, the harsh truth is that its all real. And this market cycle, believe it or not, is present in every market out there, including these Bitcoin & Altcoin markets.


If you haven't already, check out my previous posts earlier this year about trading Bitcoins and Altcoins, which highlight technical analysis basicsfundamental analysis frameworksmargin trading, and tips on developing a cryptocurrency trading strategy and TA. Here, I just want to point out the importance of understanding market structure, introduce you to market manipulation, and show you how technical analysis can be applied to your cryptocurrency trading.

As you read on, keep these following points in mind as these rules apply even more closely:
  • What goes up must come down
  • Buy on rumors, sell on news
  • All markets are linked to everything else


To take this one step further and understand the markets from an even wider perspective, the next thing to do is to put on your market manipulator hat. Check out these 2 really good resources covering this topic for a deeper understanding of what I'm trying to get at:


The whole point of learning about how market manipulators operate is not to actually manipulate the markets yourself or conduct pump and dumps, but to actually spot when others are trying to do so. This can help your trading strategy in various ways such as to:
  • Have a better understanding of the ebbs and flows of the market
  • Avoid getting caught in their squeezes
  • Identify a suspicious (potentially profitable) market
  • Know what the "smartest man in the room" is doing, and follow the "smart money"

From Wolong's ebook, he broke down the market cycle into 7 stages, namely:
  1. Position Building 
  2. Suppressing prices
  3. Test Pump
  4. Actual Pump
  5. Shakeouts
  6. Re-allocation and distribution
  7. Exiting - The Dump

If you compare the psychology chart above and the Pump & Dump cycle pointed out by Wolong, to the market structure chart below, you can see how they have very similar structures even though they use different terms to explain the phases.


And from this market structure chart, you can see that the stages can be further simplified to 4 phases:
  1. Accumulation
  2. Markup (Pump)
  3. Distribution
  4. Decline (Dump)

So why is this important, or how does it apply to the cryptocurrency markets? By understanding the market cycle chart, you will be able to better pick altcoins by spotting accumulation zones to join the breakout and profit, and to make your exit when you reach distribution zones. For example:


Although many people disregard the profitability (or possibility) of using technical analysis to trade the Bitcoin and especially Altcoins markets, it is most definitely possible. I think the problem lies predominantly in the limitation that some of you have put on the term 'technical analysis'.

Every piece of information on that chart you use is part of technical analysis; but the bigger question is how to make sense of it all. To better understand TA, we should think of the price charts as simply a graph of human behaviour.

Although the tools to do so efficiently are sorely lacking at this point in time, here's just a few examples of TA used on Altcoins and Bitcoin.

The first ever Technical Analysis chart applied to altcoins on Dogecoin, from way back in January 2014:

Example of a markup on Blackcoin BC last month:

How a Dump looks like and when you should exit:

Bitcoin on a Logarithmic scale:


Once you can wrap you head around the following facts, and combine them with what I have covered in the previous posts, you should be well on your way to developing a profitable cryptocurrency trading strategy. So here's a recap of the key takeaways:

1) Markets are fundamentally fractal in nature; for every one up or down trend, you can zoom in/out too see the same wave cycles. Read more about Elliott Wave Theory here.



2) Price charts are merely a graph of human behaviour. It doesn't matter if you're looking at a 3h chart or a 30m chart, they all tell the same story. Make sure to always compare two different time frames to better understand the macro and micro trend.


3) All markets are linked to each other, and affect each other in a dynamic fashion to create one over-arching ecosystem. Don't forget those crash cycle charts I showed you at the beginning; they're everywhere.

4) All markets are manipulated. Ride the waves and profit with the whales; don't fight the macro trend.




With that, I'll just end off with a few words of wisdom.





Thursday, March 27, 2014

How to Develop a Profitable Bitcoin & Altcoins Daytrading Strategy - Fundamental & Technical Analysis - An Intermediate Tutorial

Fundamental Analysis

I believe that for an Altcoin to be worth anything at all, it MUST first have technical aspects which are built with the future in mind. This is what solely determines if a cryptocurrency has the potential for the mid to long term. Even with 5 new altcoins launching everyday, you barely see 1 a month that can last even the mid-term.

Then, after that I judge the coins based on 7 mediating factors; developers, community, branding/marketing, popularity/virality, novelty, infrastructure, and liquidity. For more about fundamental analysis and an explanation of these factors, read up on the first few sections in my previous post about picking and trading the next profitable altcoin. In this post, I will focus more on technical analysis and trading strategies instead.

With so many coins out there, I like to use these above factors to weed out all the weaker shitcoins, and focus on altcoins which are substantially different from others, and more importantly, provide more value than other cryptocurrencies. After which, I use Technical Analysis to judge entry/exit positions for trading them.

What else do you think makes a cryptocurrency fundamentally better than another, and more sustainable as a currency?


Technical Analysis

Many will probably agree when I say that the Altcoins market is akin to the "penny stocks" of cryptocurrencies. In this sense, most altcoin markets have much lower liquidity, but have much higher volatility. Since there are over 200 different cryptocurrency markets to date, I prefer to narrow down my list of altcoins to a small handful, and buy under-valued coins or trade the breakouts. You're going to find it really tough to be watching more than 5 altcoins at the same time, so I highly suggest keeping your list small, and adapt your watchlist to the fast changing markets.

If you're new to technical analysis, here's a really good beginner's video on daytrading Penny Stocks, which also explains the basics of chart reading and an introduction to basic trading jargon that I'll be using throughout this post. The important concepts to take note of are resistances & supports, breakouts that coincide with high volume, and the general idea that "what goes up must come down".

How To Trade Penny Stocks (Part 1): http://www.youtube.com/watch?v=HYK2a77TjvU

So after you get the basics sorted out, you should be ready to learn how to trade! I'm gonna break this intermediate technical analysis tutorial down into five main portions, and have compiled videos from other trading experts to give even beginners a better overall idea, and teach you all you need to know to devise your own Bitcoin & Altcoins trading strategy.

1. Top Down Analysis

Firstly, lets look at the top down analysis method of reading charts. I always begin by trying to understand the market from a bird eye's view. Compare both charts from a long term period (e.g. 1d) against one from a shorter period (e.g. 15m) to get a holistic view of the market. This will help give you a general perspective of market trends, while peaks & troughs give you an idea of market resistances & supports.

Use these basic resistance & support levels to judge entry/exit prices. In general, previous high and low points are new resistances or support depending on where the price is, and points where u can see big breakouts will be the new short term resistance/support. To get a better idea of what I mean, watch these videos by Jason Stapleton who explains top down analysis, resistances & supports, and structure.


Forex Trading: Higher Time Frames and Top Down Analysis: http://www.youtube.com/watch?v=M9yCc7lD21Q

Learn to Understand Structure: https://www.youtube.com/watch?v=tJmMU-8yicM

Here's another video which points out some keys to being a successful trader; namely to learn the set-ups, and to learn risk-management. Watch it here: "3 Keys to Day Trading Success: http://www.youtube.com/watch?v=TzsVTvA9DoE".

2. Retracements

The concept of retracements is, in my opinion, the most important one that any trading enthusiast must grasp in order to understand how the markets flow. In essence, a retracement is a temporary price movement against the established trend, and helps us understand that the markets move in wave patterns as highlighted by the Elliott Wave Theory. One way to look at it, as highlighted by this video below, is that most price-actions follow a pullback rule to fibonacci retracement levels (38%, 50%, 62%).


The most important concept to take away from this is "what goes up must come down"; that price movements in one direction are always followed by retracements in the opposite direction. Of course, not all movements will follow the same pullbacks, and these levels should only be used as a guide. Here's another video: "Understanding Fibonacci retracement lines: https://www.youtube.com/watch?v=KzHjxPxGzMw".

So the question then is, how will we know if this counter-movement price action is a retracement or a reversal? There is no way to say for certain, but there are several patterns that have a high probability in indicating a reversal; such as double tops/bottoms & head-and-shoulder patterns, and large selling volume after periods of bounded movement. Keep in mind that trading is a game of probability, consistency, risk-management and profitability over the long-term; not about making the right trade every single time.

3. Trading on Volume

Another important concept you need to understand is that large price movements almost always coincide with high trading volume. Take the recent spike in Bitcoin price on 3rd March 2014 for example:

Bitcoin price spike coincides with high trading volume: 3rd March 2014. (Bitcoinwisdom.com)

With this in mind, this is where the liquidity of an altcoin also comes into play; the higher the trade volume of an altcoin, the lower the spreads, and the more likely you will be able to make some profitable trades from it. In general, the trade volume is a good indicator of, and is proportional to the popularity of the altcoin at the current time.

Apart from the actual trading volume itself, another good indicator is the change in volume over time; if you realize that the trading volume of an altcoin has been steadily increasing over the last few days, it could be an indication that a big price movement is coming up. "24 Hour Volume" data is usually shown on the exchanges, such as MintPal or Cryptsy, while another good website to use is Cryptocoinchart's Market Comparison Chart, Coinmarketcap, and Crypto Coins Table.

Do also check out these 2 videos about trading on volume, that I'm sure will be useful for your altcoins and bitcoins daytrading:

  1. Trading Volume Indicator on Your Day Trading and Swing Trading Charts: http://www.youtube.com/watch?v=byrjmP7DQJc
  2. How to Analyze Stocks Trading on Volume: http://www.youtube.com/watch?v=lzfo-mh1Zv0

4. Breakout Patterns

The last concept I want to share is breakout patterns. Although most people are familiar with this concept, many do not know how to profit from them. This is one of the best tools to use for planning your entry positions, while there are various ways to do so, which are highlighted by these first two videos below:


Phil Newton's Break out Strategy | Price Action Forex Trading: http://www.youtube.com/watch?v=3gN-6D8nH0E

On hindsight, these breakout patterns always look like the perfect indicator for entry positions. But how do we really pull it off? How can we enter positions pre-formation of a chart pattern? Watch these videos to further refine your entry & exits on your altcoin trades.
  1. Do You Trade Breakouts ? Trade Chart Patterns Simple Indicators: https://www.youtube.com/watch?v=XyR-m8aUY3I
    1. Breakouts on Triangle patterns:
      1. Ascending triangle - Trade long
      2. Descending triangle - Trade short
      3. Symmetrical triangle - Prior to forming triangle: only take long trades on the way up, and short on the way down
  2. High Profit Trades found with Candlestick Breakout Patterns" - Stephen Bigalow http://www.youtube.com/watch?v=1fB3EF7XeXU

5. Advanced Trading Strategies


Now comes the fun part: how can we take all that we've learnt so far and put into good use for trading Bitcoin/Altcoins? Here are some pointers for you:

  • What we've learnt is more of a tool to make better entry and exit positions.
  • Keep in mind trading the bitcoin & altcoin markets as you watch the rest of these more advanced videos, and I hope you'll be able to gain some insights to build up your Bitcoins & Altcoins trading strategy.
  • Granted, forex & equities trading is much different from bitcoin or altcoin markets. However, the fundamentals are the same, and you should learn to draw lessons from the strategies talked about in the videos to supplement your bitcoin/altcoins trading strategy.

In the next videos, more advanced trading strategies and chart patterns will be shared. These strategies may seem very specific, but my goal is to give you better understanding of how these analysis tools are used, and to give you an idea of how different tools can be used to develop a single trading setup. The specifics are not important; what I hope to achieve is to open up your minds to new ideas, expand your trading knowledge, and ultimately encourage you to explore a diverse variety of trading strategies.

Read up more on some of the main ideas discussed:




How The Pro's Trade Using Fibonacci Retracements/Extension Technical Analysis: https://www.youtube.com/watch?v=c9faCD9V838


Ratio Trading: How to Predict Market Moves: https://www.youtube.com/watch?v=i8sO3buv7sU

If you have more time to spare, watch these 2 very good (but lengthy) videos by Steve Nison for more trading strategies:


What other trading strategies and chart patterns do you use for Bitcoin & Altcoins trading? Share it with me! I'm always up for a discussion and would love to learn more & improve my trading strategy. Leave a comment below or tweet me at @onemanatatime.

Cryptocurrency Portfolio

Although I've been talking about conslidating my portfolio into a largely BTC/LTC one since January, I didn't really do it until earlier this month. For me, it's back to basics: use technical specifications as the basis & utmost important factor for long-term sustainability.

Hence, my cryptocurrency portfolio now consists of a largely Bitcoin one, with a large portion of the other half in longer term altcoins such as Peercoin, Litecoin, Vertcoin, and Dogecoin. Lastly, I also leave about 10-20% of my portfolio to daytrade altcoins. I have listed my cryptoportfolio on the right column of this blog, and will continue to update it as the markets evolve.

Also, keep a lookout for my Cryptocoinchart's Investment Club profile, where I share new altcoin trades.

Trading strategy

There are many available trading strategies to choose from to suit your own needs, such as daytrading, position trading, swing trading, fundamental tradingmomentum trading, or scalping, just to name a few.

Although the Bitcoin and Altcoins markets are very similar, I trade them very differently. With Bitcoin and trading on Bitfinex, I would say my trading strategy is mainly a position or momentum trading one, and largely technical. On the other hand, my Altcoins trading strategy is largely fundamental although technical aspects play a role in selecting altcoins, and consists of a combination of swing and momentum trading.

In general, I use simple technical analysis concepts like a top down analysis, resistance/support, and structure to read charts and find entry/exit positions. On Bitfinex, I typically trade using resistance/support levels, coupled with breakouts on high volume. While for most altcoin markets, I first look for rising trading volume, and typically try to predict breakouts with fundamental analysis, or buy on retracements when momemtum kicks in.

Timing is everything in trading, and I typically keep my watchlist to 5 or less cryptocoins at any one time, and only spend about a day or two trading each one. In fact, I was only looking at 5 different altcoins throughout the whole month of March, but that's more than enough if each one made profits of 100-1000%. The altcoins that I were watching this month include: Heavycoin, Blackcoin, Digibyte, Fluttercoin, and Hirocoin.

Lastly, I just want to share some of the tools I use for trading these dynamic Bitcoin & Altcoins markets. If you have a useful tool I didn't list here, share it with me!


More trading Tips

With that, let me just leave you with a few wise words and trading tips from @TraderHMS on Twitter.

1. What goes up must come down
Again, I just want to emphasize this, because I constantly get asked about chasing bubbles and if an altcoin is a good buy after rallying 500%. Every big price movement is followed by a big retracement, and the next retracements will gradually become smaller and less volatile; until new movement breaks the sideways momentum & starts a new cycle.

2. Money in the pocket is always better than potential profits
I typically don't hold a short-term altcoin for more than a week. In fact, I usually only spend 1 or 2 days trading a particular cryptocurrency. For now, my rule for trading shitcoins is "fast in fast out", and to always "sell too early and never buy at the bottom".

3. Trading is 99% watching and 1% trading
And another 1000% planning/learning/preparing. It is important not only to know "how" to trade, which I hope this post has helped you with, but also to know "when" to trade!


4. A good balance is essential
Do not be blinded by one particular type of analysis technique. Always try to couple a few different indicators in your trade setups, to improve the profit probability of your strategy. Finding a profitable strategy is easier said than done, but keep in mind that trading is a long term game where consistency is key. Think of profiting over the next 100 trades, and not just about the next 5 trades; and make sure to consider various types of analysis in your trading strategy, namely fundamental analysis, technical analysis, and market tone.



5. What is your trading strategy?
A trading plan is essential if you're thinking about becoming a profitable trader! But what constitutes a good trading plan? Firstly, fundamentals; you need a basic plan for SELECTING the coins, you don't want to be trading any old shit coin. Secondly comes the technicals to help you pick an entry/exit; devise a holistic trade setup which considers a variety of factors. And lastly, consider the market tone; is there enough liqudity in the market, or is there growing interest from the community?

So, can you answer this last question?

I hope this post has helped you on your cryptocurrency daytrading journey, and that you continue to learn and improve your strategy. Combine different analysis techniques, such as the ones mentioned above, and find a style that suits you; and you should be well on your way to developing your own profitable Bitcoin & Altcoins trading strategy!

If you have any questions at all, feel free to tweet me at @onemanatatime, or leave a question on ask.fm.

All the best & good luck!

P.S. If you're new here, make sure to check out my previous posts about Bitcoin & Altcoins daytrading:

Monday, February 10, 2014

How to Pick & Trade the Next Profitable Altcoin: An Insight into What Goes Through my Mind

Congratulations on owning some Bitcoins and being a part of this Global Revolution! If you don't already own one, buy one easily from an exchange like Bitstamp.net, Coinbase.com, or from someone near you at Localbitcoins.com. Once you own Bitcoins, you can easily trade them for any available Alternative Cryptocurrency from an altcoin exchange like Cryptsy. I like to use Cryptsy because they have so many available coins, and I also find them to be quite reliable.

So you've been seeing tons of people making money trading Altcoins, while you've been losing tons of Bitcoins buying high and selling low? Whether you're simply frustrated with your "bad luck", or just want to learn more & make more Bitcoins daytrading, I'm here to help! So here's an easy-to-understand guide to picking and trading Bitcoin and Altcoins profitably, and of course, more essential daytrading tips to help us all become profitable cryptocurrency traders.

I know you're all eager to make money, but keep in mind that nothing comes for free and I can only help you so much. Just because you've made 5 good trades doesn't make you a profitable trader, and neither does making 5 bad trades necessarily mean you're a lousy trader. Anyone can flip a coin and see 'heads' 5 times in a row. What we want to look for is consistency, and to do that you'll have to start forming Your Own trading strategy. Before I go on, keep these following points in mind when building up your personal Trading Strategy:

  1. Learn the basics; read my last few blog posts, and also other trading resources to learn more about Technical Analysis and other trading tips. "I don't think that you can write music if you don't know how to play an instrument. You have to know the basics, then you can go forward." ~Alber Elbaz
  2. Discipline is key; be patient and build up a fundamental understanding of the markets, and more importantly, hone that keen trading sense of yours. We all have it in us, just takes a little discipline and practice.
  3. Markets are ever-evolving; don't treat it like its static because past actions are not an indication of future performance. Always be open to and learn from other's opinions, be objective about it, and constantly adapt and improve your strategy.
  4. Lazy = poor; Nobody can help you but yourself, don't expect to be spoon-fed. Be an active learner and constantly seek new ways to improve your strategy. Reflect on what went wrong and don't make the same mistakes again. When in doubt, ask Google.
  5. There's only so much you can learn from reading; you don't learn how to ride a bicycle by reading a book, go out there and put your knowledge into practice. Start small to test your strategy and build your confidence.


How to Find new Altcoins?

So the first thing is to actually find new altcoins and to read up more about what it has to offer. To begin with, I always browse through the Alternative Currency announcements page on Bitcointalk to see what's popular. All new coins are definitely posted here so you shouldn't miss anything, and since threads with the newest post always appear on top, you usually don't have to look further than 2 pages. Things to look out for include the added value a coin brings (as I'll explain more in the next section), as well as the popularity and virality of the altcoin (i.e. high number of pages in a short time).

Another place to look at is Cryptocointalk where you can find a long list of altcoins available, sorted according to new coins or by algorithm. This list is not completely updated, but is organized much better if you want to find out more about a particular coin.

Secondly, you also want to cross-check your information about these coins on social media sources such as Reddit and Twitter. Start off on Reddit by doing a search for the coin, as well as looking at the number of subscribers on the altcoin's subreddit. I bought a ton of Dogecoin at 30 satoshi when I first saw the /r/Dogecoin community grow to 2500 subscribers 1 week after launch, which was way more than most other coins at that time (most new altcoin subreddits get less than 50 subscribers in 1 week). Dogecoin has even surpassed Litecoin to be the second largest cryptocurrency subreddit with over 50k rich shibes right now. I'd love to go on talking about why Dogecoin has much future, but I'll leave that for another post.

And of course, search for the altcoin on Twitter and see what other people have to say about it. If you aren't already on Twitter, I must say that you're missing out on the best available source of cryptocurrency news. Start following a few users like those listed in the Tweet below, and also follow my Bitcoin Trading Tips and Altcoin Trading lists where I try to compile the best Cryptocurrency trading advice available on Twitter. Leave a comment below or tweet me @onemanatatime & tell me who else should be on those lists!

And yes, that's all. I probably use less resources than most of you, but what's important is quality over quantity. It's crucial to learn how to spot a needle in a haystack. Make use of power of Social Media (a.k.a. Word-of-mouth on Steroids - Gary Vaynerchuk); ask the right questions, and you'll always get the right answers.

What to Look Out For?

With so many alternatives out there, we really need to be picky when choosing the next altcoin because you don't want to spread yourself too thinly. Firstly, clones of existing ideas/coins are mostly not worth holding for anything more than the short-term. In this sense, there's a few different kinds of coins with their respective leaders in each category, each with their own pros & cons:
  1. Bitcoin; SHA-256.
  2. Litecoin; Scrypt.
  3. Quark; Multi-algorithm for higher security.
  4. Dogecoin; Memecoin, also Scrypt.
  5. Nxtcoin; 100% Proof-of-Stake coin - no mining involved.
  6. Ethereum; A Layer/Protocol separate from Bitcoin, called Bitcoin 2.0 by some.
  7. Mastercoin; Not really an altcoin, more like a Layer/Protocol on top of Bitcoin.
  8. Vertcoin; Anti-ASIC, using Adaptive N-factor in Scrypt.
  9. Peercoin; Proof-of-Work + Proof-of-Stake combination.
While their blocktimes do not really make much difference, anything below 2.5 minutes is good enough, and anything below 30 seconds is worth looking at. Special technical differences make or break an altcoin, and can really shine when they add sufficient value ontop of Bitcoin; you can see much interest in Anti-ASIC coins, Layers, 2nd generation POS coins, and (less so) Multi-Algorithm coins. Another interesting to note is that many altcoins are now updating with Kimoto Gravity Well (read the comments here for more), tl;dr difficulty readjusts after every block, improves difficulty adjustment and makes mining fairer, more secure, and smoother.

I just want to add that not all pre-mines are bad. As long as the pre-mine is well justified and actually carried out by the developers, I think it helps altcoins to better market themselves and build up a community. On the other hand, some developers use this as an excuse to insta-cash out early, so be weary. Secondly, although there's a lot of negativity surrounding insta-mines like QRK, I'd just like to point out that these coins actually help make prices much more stable more quickly, and will not be subjected to volatility as much as Bitcoin. Withholding judgement, these two instances can be seen as simply different attempts to tackle the rampant problem of unfair distribution in cryptocurrencies.

Lastly, besides the technical innovation and specifications itself, it's also important to analyze a few other Fundamental factors that may affect the price of an Altcoin. It's also important to recognize that these factors usually take longer to reflect in prices:
  1. Branding & Marketing. The most obvious case for Branding is Dogecoin, which literally went viral just because it was already a popular online meme. On another note, I also like the WorldCoin branding, and more so their marketing efforts. Although prices have been dipping for WDC, keep in mind that so has every other altcoin (Bitcoin up, altcoins up; bitcoin down, altcoins down).
  2. Community. This includes popularity among public, general consensus about the altcoin, as well as the supportiveness of the community. The last bit is important, and a prime example is Dogecoin's altruistic community, as well as the growing market for Dogecoin services. With no other coin can you find such a large & liquid pool of people waiting to sell all kinds of goods/services for crypto.
  3. Developers. Just like how technical specifications make or break an altcoin, developers are the backbone of the whole cryptocurrency's ecosystem.
  4. Infrastructure. With a good team of developers and community, infrastructure around the altcoin will quickly follow. I like to take Dogecoin as an example because they have grown so much and so quickly, but you'll see it pay off in the sense that the community and developers are working together to build all kinds of services for the Dogecoin ecosystem; USD exchanges, marketplaces, movements, apps etc.
Where to Buy?

The only way to get new coins pre-exchange is through P2P trades. High risk of getting scammed. Don't trade with new users, always trade with trusted users and gain a reputation until you can get others to send first. I've been scammed 3 times and had to learn the hard way. Best way is to totally avoid this method unless you're really dying to get a coin pre-exchange.

First few exchanges that adopt a new coin vary, but they're usually the smaller ones. Very high risk. Always try to leave funds in there for as short a time as possible. I.e. freshmarket hack etc. Look for the relevant information on the altcoin's Bitcointalk thread, Google it, or ask someone on Twitter.

Second exchanges, and they take up new coins pretty quickly too, include sites like Coinedup.com and OpenEx.pw. Thirdly, the biggest exchanges include sites like ValutOfSatoshi, Cryptsy, Coinex.pw, BTER. For a (updated but not full) list of which exchanges trade a particular altcoins, use Cryptocoincharts.info.

For Daytrading pairs of Bitcoin/Litecoin/USD, I highly recommend using Bitfinex where you can Margin Trade, i.e. Short sell or Long buy without actually having to own USD. Read up how on my previous blog post, and create an account with me to get 10% off trading fees for 30 days. If you have already created an account, but haven't used a referral code, you can still enjoy the discount by emailing support@bitfinex.com and quoting the code 'aQBHcxVPzj'.

When/What's a Good Price to Buy/Sell?

For new altcoins, and especially clones, all you'll need is to find a good price to buy, since there's no charts for you to do any TA yet. I found a pretty useful formula for calculating a fair price, and have found it to be pretty accurate. Use it, let me know what you think about it, and how we can improve it to apply to different coin types etc. by Tweeting me or leaving a comment below.


Just to clear things up, by total supply, I mean maximum supply. Of course, this varies by coin type, but is a good starting point for calculating a fair value for a new altcoin. For a more accurate estimation, also compare to similar coins "of the same type", or coins with similar maximum quantities. Example:
  • Dogecoin & Kittehcoin - Memecoin
  • Quark & Particlecoin - Multi-algorithm
  • NXTcoin & NEMcoin - 100% PoS
  • Mooncoin & Astrocoin - Based off the same "to the moon" philosophy
Secondly, like it or not, you'll have to learn more Technical Analysis basics if you really want to find the sweet spot for entry/exit prices. It'll also help to have a better understand of how markets in general work, and apply the knowledge to your crypto trading.

How to Trade?

Obviously, the most important rule in trading is to "buy low sell high". Unfortunately, that's usually harder to execute than it sounds because of panic and greed. Haven't you learn enough from bubbles? Whatever goes up must come down. Markets will always look for a correction after a big spike. Don't chase the bubble! EVERY parabolic curve/rise is a bubble, and a chance for you to sell your altcoins for a profit. Just wait for it and always set sell positions ready to eat up those buys.

Although learning all the basic trading theories are important to give a more wholesome idea of chart reading, I really only use support/resistance to judge price levels. If you want to get more in depth into Technical Analysis, here's two very good resources and must-reads for people working in hedge funds & the financial industry (courtesy of @ActualAdviceBTC):


If you have the time, also invest some of it reading the whole of my blog, and also this 6 part series on Technical Analysis for Beginners from a fellow cryptotrader, ClydeMachine.


Trading Tips

#0: Don't join Pump & Dumps, period.
For someone to make money, someone else has to lose. Don't be the one caught with the short end of the stick.


#1: Always trade with a plan. Before entering a trade, plan not only your entry but also your exit. Don't fall into the trap of panic buying/selling. Once you get over that, everything will start to come together.

#2: Discipline. Be patient and wait for good setups. Plenty of opportunity everyday, don't spread too thin. On a side note, I can't wait for a margin platform for altcoins to be built. If you're building one, hit me up and let see how we can work together (I'm a Business Development and Online Marketing Major).

#3: Money management. Don't spend more than 5-10% of your entire BTC portfolio on a single Altcoin, unless you're damn sure it's gonna be profitable in the mid-long term.

#4: Understand human psychology. Here's a good 5 part series to get you started:



Most Common Pitfalls
  1. Placing too much importance on:
    • Buy/Sell Walls. I barely look at buy/sell walls because these can be manipulated so easily especially for lower volume altcoins. I only use this, if ever, to have a better idea of support/resistance levels, although I know many people will tell me these work wonders and I trust you too.
    • Market Capitalization. Market caps are nothing more than two numbers multiplied by each other; total supply and price. It gives you a good judgement of how a crypto is currently doing, but in no way does it say if an altcoin is a good buy/sell now. I think what's more important when looking for long-term buys is the total hashrate (and rate of growth) of the cryptocurrency. 
    • News Stories. More often than not, news is already factored into price by the time you read about it. Of course, exceptions include "big" pieces of news such as China's government intervention, recent Russia's ban, and issues with (then) leading exchanges.
  2. Overtrading. I'll let the guy whom I learnt all my Bitcoin trading fundamentals from speak about this: Bitcoin Trading Webinar - How To Make Money Trading Bitcoin (@ChrisDunnTV). Long video, but worth it if especially for beginners.
  3. Not having a plan beforehand. I can't emphasize this enough. Many people jump into buying an altcoin without thinking about their exit plan. What is your target, when you do sell and take profit, when do you sell and cut losses, or do you have more funds/positions ready to buy more if it continues to dip? Are you holding this for the short term or long term? These are all important questions to ask yourself before making a trade. If you don't have a sound and comfortable strategy before entering trades, more likely than not, you're going to end up losing Bitcoins over the (not so) long run.
  4. Trying to predict a bottom/top. Nobody can predict exactly where the price is going next, only a better and more informed guess. I personally think this is the toughest problem to tackle, because when greed takes over, you always think "I could have made so much more if only I sold higher or bought lower".


  5. Chasing the bubble. What goes up must come down.


  6. Getting emotionally attached to a particular altcoin. I have to admit this is still a problem for me, and I'm still holding onto bags of WDC, ZET, EAC, MSC, that are currently unprofitable. I bought them earlier on, and didn't take profits from the bubbles. But most important thing is that we learn from our mistakes, and that's why I now like to sell some positions to get into a position to "freeroll".
  7. Using Technical Analysis as the sole determinant for making trades. Every indicator is useless - by itself. The market is not stagnant, and prices are affected by everything we can, and cannot think of. Don't be bound by one system of analysis; use every single piece of information you can find, and objectively analyze the markets with a bird's eye view.

My Cryptocurrency Trading Strategy

Firstly, I must emphasize that I'm VERY Bullish on Bitcoin for the Long Term. I've invested every single FIAT dollar I have into Cryptocurrencies since November 2013, and I literally have to start selling Bitcoins 2 months later to pay my rent (or wait for a Bitcoin ATM to appear here). Because of this, I spend a ton of time & effort researching Bitcoin and Altcoins to constantly look for ways to grow my number of Bitcoins. I also have a high risk propensity and so not all my trades will be comfortable for you. My point basically is that nobody's situation is exactly the same, so keep in mind that you'll have to build your own strategy to suit your personal needs, risk preference, available resources, and environment.


To give you a better idea of how I manage my cryptocurrency funds, I'll share a breakdown of the coins I own. I have 50% of my funds in Bitcoin, which is split into two portions. Half of them (25%) is in Bitfinex and used for Daytrading, and is also the Bitcoin I will never be selling. The other 25% of my funds is in various Bitcoin wallets/exchanges, either waiting to be traded for an Altcoin, Cryptostocks, or even for Poker on SealswithClubs. As for the rest of the 50%, I have them split over ~15 altcoins right now but I'm looking to weed out the weaker ones as soon as I find a good exit point, and hopefully only hold on to 5 or so for the longer term (and these will probably keep changing).

Super short-term strategy usually consists of Shitcoins; less than 2% investment per altcoin. Look for cheap entry price, sell portions as it increases, and I'll let go all during the first bubble that comes (sell all at a retracement after highest peak). Look to get in and out quickly. If you miss the boat, you might just end up holding a bag of coins with decreasing worth, and will probably take you months to break-even, if ever.

Short-term altcoins are usually those that offer something more than useless clones; willing to risk less than 3-5% of total portfolio. These usually include the leading clones of the 7 types of coins I mentioned in the second section from the beginning. Look for cheap entry price, and sell portions as it increases. I usually sell until I break-even my initial Bitcoin investment in the altcoin, and then freeroll the rest. Depending on the coin, I may or may not sell all my coins after we double-peaked in a bubble, and bring some coins to the mid-term.

Mid-term altcoins include those that provide various distinct and valuable features, such as NXT, VTC, DOGE, QRK. They're usually also the leader in their altcoin category, although it could be interesting to see which alternative eventually emerges as the Silver to each of these Altcoin's Gold. Layers and added protocols also for me fall under this category, and could be added to my long-term portfolio depending on how they perform (e.g. Ethereum). I'm willing to risk up to 10% of my total BTC on a single mid-term altcoin.

My long-term portfolio really only consists of Bitcoin and Litecoin, solely based on the Network Effect that these two cryptocurrencies have garnered thus far. I agree to some extent that Litecoin will remain the second to Bitcoin and eventually live out its prophecy as Silver to Bitcoin's Gold. I have 10% of my portfolio in Litecoin and I'm just holding them for the long haul. I'm just waiting to sit through my second Bitcoin bubble and make some money. I feel bad for saying this, but I can't wait for the economic meltdown.



Cheap Bitcoin from $440/$688. Last few days of Discount b4 ATH! by onemanatatime on TradingView.com

My Current Altcoin Watchlist

Long Term

Mid Term
Others (Not so impressive but still watching):

  • MaxCoin. Way overpriced. Could probably fall 10x-100x. Wait and see where the bottom is.
  • KarmaCoin. Decently priced. I think 1 to 2 Satoshi is definitely a steal. Provided this coin can gain enough traction for a bubble. 


Check out the rest of my current & updated watchlist at Cryptocoinchart Investment Club. Don't forget to stop by periodically and bookmark my Cryptocoinchart Investment Club profile for updates on which coins I'm eyeing/buying.

FAQ

1. How do you feel about XYZ coin?

First of all, there are over 100 altcoins out there, so don't expect me to know about every coin. If it's an exactly clone of Bitcoin, Litecoin, or anything already available, chances are, it's not worth either of our time.

Secondly, read my tweets and do your own research (lazy = poor). If its worth mentioning, I probably did mention it. If you can't find it on my timeline because its too cluttered, again, do a Twitter search for the Altcoin and find out what the World has to say about it.

Thirdly, there's 100s of altcoins out there for you to choose from. Don't spread yourself too thin and buy into every possible bottom. Leave the shitcoins to die, and stick to altcoins with a stronger fundamentals.

2. If I'm holding a bag of XYZ coin, should I just wait or sell for a loss now?

Rule #1 of the game: Buy Low Sell High. But obviously easier said than done.

If you think the coin isn't going make it to the mid-term, and want to liquidate them, you have two options. Sell now and take the loss; that's the hardest thing to do, but also what every good traders knows he needs to do. Or if you think the coin has potential, buy more at where you think is a low, so your average buy price drops, and you can liquidate some/all as soon as it bounces back up. Think Martingale (doubling) strategy.

Got more questions? Leave a comment below!


P.S. I recently came across an idea of a Cryptocurrency Hedge Fund; form a network/team of crypto traders to synergistically work together and achieve profitable returns. Different teams mining, selling altcoins, buying altcoins, looking for potential entry positions, trading bitcoin etc. If you'd like to discuss the idea, feel free to email me at alvinlee133(at)gmail.com or hit me up on twitter @onemanatatime.

P.P.S. This post took 5 months of hard work and research, and one full work day (with overtime) to write. Feel free to donate some coins my way on the donate link below, or send some altcoins to my Cryptsy Trade Key: 9c1e289981a685bf0b8a4e48bc00b35eb1380afa.



Cheers and hope I've helped you in some way, and hopefully more than just making money. Peace ^_^V

Sunday, January 19, 2014

A Beginners Guide to Margin Trading on Bitfinex: Why you Shouldn't be Trading on Exchanges

So I've been talking a lot about Bitfinex recently, since I started using it about 2 weeks ago. Up until now, I've been using a variety of exchanges including Bitstamp and BTC-E to trade my Bitcoin. I just want to point out that there is a big distinction between exchanges, and trading platforms like Bitfinex. On exchanges, all I could do was sell Bitcoin at a high, and buy them back at a low, or hold some USD in the hopes of snatching up some cheap Bitcoin. In fact, I'm sure all of you reading this have been trying to do exactly that for the last few months. If you haven't heard of Margin trading, get ready to be blown away; you'll be kicking yourself for not doing so earlier.


When I first started trading on Bitfinex, I was totally tripping out about how I didn't find out about this platform and trade on it earlier. Trust me, when you start using Bitfinex to Margin Trade, you'll be wondering wtf you've been doing on those exchanges for the last few months. Because that's exactly how I felt, and that's also why I'm so excited to share it with you. Since then, quite a few people have been asking me on Twitter to cover some Margin Trading and Bitfinex trading material. So here goes nothing.

DISCLAIMER: As much as I like Bitfinex and recommend them for Trading, I do not endorse the site in any way. I do not know if they'll close down today, tomorrow, or a year from now. I also do not know how they handle their funds internally and whether that will pose a problem in the near future. Please trade with caution, and only use money you can afford to lose. If you hear anything negative (e.g. withdrawl issues etc.) about Bitfinex on Reddit/Bitcointalk/Twitter, please make sure to let me know too! 


You must be wondering, first of all, what exactly is Margin Trading? In a nutshell, margin trading is basically borrowing money from the broker (trading site) for trading. Bitfinex currently offers a leverage of 1:1 up to 2.5:1, meaning that you can borrow 1 up to 2.5 Bitcoin for every 1 Bitcoin deposited. For beginner traders, I suggest changing your leverage right after you set up you account to 1:1. Keep in mind that by borrowing funds, you'll be subjected to interest charges (10-13%) which is automatically factored in when you close your position. If you're inexperienced, please listen to my advice, or you could get burnt badly (although 2.5 leverage is pretty decent). For example, if you use 2.5:1 leverage, and short sell your whole account from $800, but price goes up by $800/2.5=$320 to $1120, you're going to lose ALL your Bitcoin in your account (even lower than that actually, because of a platform's stop-out level and margin call). Of course, this can be easily managed with a good trade size & risk management strategy, which I will cover later.

There are 3 options to choose from on Bitfinex; Exchange, Margin Trade, and Liquidity Swaps. If you head to their 'how it works' page, you'll be able to find a good explaination of each of the 3 different functions available. More importantly, I will only focus on Margin Trading, because that's all you'll need to get started on Bitcoin/Litecoin trading.


Let me just orientate you the site before we go on further. Once you create your Bitfinex account, you'll arrive at this page as you see below. So first of all, click on Margin Trade, and select the currency pair that you would like to trade. Secondly, you can see your active positions held, for example I have a sell order (indicated by the '-' sign) at a price of $845, and I'm making ~5% on my trade at the time of posting. You can also see a 'close' action available, which allows you to close your position at the current market price. Thirdly, you can see some of my active orders; red is sell, and green is buy. I have already set 5 different buy positions on $BTCUSD at $701, $688, $622, $555, $471, and 3 sells at $850, $899, and $988. You can see already, that there's much more room to play around with trading on Bitfinex as compared to a traditional exchange. And lastly, the 4th section is where you place your orders. There's 5 different kinds of order types, namely Limit, Market, Stop, Trailing Stop, and Fill or Kill. Do read the links provided for an explaination of each different order type.



So what we'll focus on here is how to actually place orders, and how to manage your orders on Bitfinex. For more about technical analysis and an introduction to trading strategies, visit my previous blog post here. If you're thinking of starting out on trading, I highly advice reading the linked article, as well as this set of very good resources by Reddit user ClydeMachine.

Let's say we deposit 10 Bitcoins into Bitfinex for trading, and we think that the general trend is going down, and want to place a short sell to capitalize on the fall. You'll place a Limit Order, enter your price say $850, for a total of 1 Bitcoin, and click the Margin Sell button. Let's also say from Technical Analysis you figure out that the next support levels are at $760, and $700. So at the same time, you can also place a Limit Buy order for something like 0.5 BTC at $760, and 0.5 BTC at $700. On top of that, if you think that there's a strong resistance at $900 and feel that it may break up to $900 but not beyond that, you can also place a Stop Buy Order at $910, or a Trailing Stop Order for $60 (provided it's currently $850, it will add on the market price -- they both work the same way, only different in the way the position is entered). And if you're going long (buying because you think the market is bullish), it'll be the exact opposite of a short sell as mentioned above.

When your $850 sell order is reached, it will then appear on your Active Orders (section 2) list. From there, if the price moves in your favour, and reaches $700, you'll make 0.5*($850-$760) + 0.5*($850-$700) for a total profit of $120. Point to note is that your Limit orders will cancel each other out. On the other hand if market moves against your favour, and completes your Stop or Trailing stop orders at $910, you'll lose $60 on your trade.

With regard to choosing a suitable leverage for yourself, this is really up to your own personal risk preference, as well as how much you have to trade with. If you have more BTC to play around with, you can choose to deposit more and use a low leverage, unless of course you're in the mood to gamble. But again, please trade safe. This more or less covers Bitcoin trading on Bitfinex. Sign up with me and get 10% off your trading fees for 30 days here. If you have more questions, feel free to tweet me @onemanatatime.


With that, I just want to also cover some of the basics of Bitcoin Trading and share what I think are the most important tips for you traders out there. If you're thinking, why should you listen to me; I have to be honest and say that I've only been trading Bitcoin since September 2013, although I have some experience from Forex Automated Trading since November 2012. On the other hand, since making my first few mistakes trading, I've been putting a lot of effort into researching the topic, and I believe I have a pretty good fundamental understanding of the Bitcoin market. I like to think that I learn pretty fast, but who knows, I could just be getting lucky. Either way, I've made a few pretty good predictions since early December 2013, and I'm just here to help all of you who are interested to learn more.

As mentioned right at the start, one of the most important traits of a good trader is to be disciplined in your trade sizes and plan a risk management strategy that suits your risk-propensity and style. Before you dismiss the importance of this statement, I just want to add that I've been playing poker for over 5 years, and I know how important money management is in being successful as a poker player; and trading is no different. In Equities/Forex trading, traders typically risk 1-2% of their whole portfolio on any single trade. On the other hand, I understand that this % is wayyyy too small for any of you reading this (all you gamblers...). I'll just point out that I typically risk about 10% of my whole portfolio on each position, and up to 50% for active trades. If Bitcoin goes to $400-500 within the next 4 weeks, I'll be sure to be going all-in on a long position.

Secondly, the markets are ever evolving. Don't rely on static indicators or use past price-actions as a judgement of the future. Bitcoin is a largely free-floating market with no party controlling it per say (although you can argue that governments can manipulate prices, such as China's ban), and as such the price is truly an average price based on the sentiment of market participants. What comes as a surprise to me, is that there is still a very large uncertainty among the general adopter of bitcoin regarding its future potential. As such, we're currently seeing the tanking/falling of price I have been predicting for a week. On the other hand, any critical news (government level more than anything else) can affect Bitcoin price drastically and we'll have to see how China acts over the next weeks. I personally believe we'll see a last dip, before prices start climbing up, and finally breaking $1200 around March or April (start of the financial year, and we'll see huge businesses follow Overstock's lead, as well as investor and Wall St $$ pour into Bitcoin) this year and we'll probably see the start of the next bubble. In fact, I would make another bold prediction for 2014, that China will reverse this current ban. Things are heating up, and will get crazy. This time, be smart!

Lastly, plan your trades well! Don't jump into a trade without having planned out not just your entry position, but your exit plan (stop loss) as well as your target price. If you can't determine either one, wait for a better setup! Always look for a setup where you have a higher reward to risk ratio, of at least 2:1. Meaning that your stop loss is $50 away, while your take profit is $100 away.

I've also compiled a few of the most commonly asked questions I came across over the last few days:
  1. How do you judge price levels / How do you do Technical Analysis?

    First of all, please take TA only as a supplement to fundmental analysis, and more importantly with general market sentiment and psychology. For now, all I use is Fibonacci, and some basic resistance/support based on previous price-action. Nothing spectacular at all. As you can see, I'm not a very experienced trader, and really don't pay much attention to TA (but it helps, although too much TA is not good either). That's why I prefer to use a crystal ball.

  2. Why do you think price is going down now?

    I think news is factored in by the time you hear about it (more or less), and this only becomes more true as time goes on. It is more important to look at the market as a whole, from a bird's eye view. Think about the psychology of the market. For example, currently markets are bearish (since the huge drop 5th December 2013, coupled with a lower low on the 18th Dec, and a double top at around $1000) and many are uncertain of how China is going to act moving forward, and hence are generally uncertain about Bitcoin's future. We'll need some big news for prices to start climbing up again, but that'll just be a matter of time.
  3. I have lost a bunch of coins in the past from stupid trades. I have lost confidence in trading.

    Learn to manage your trades & crypto portfolio. My general guideline to everyone is to keep at least 50% in BTC/LTC and largely for the long haul, maybe about 20-30% for trading, and use the rest for your favourite Altcoins. Altcoin prices are highly volatile, and when prices of Bitcoin fall, you'll see that Altcoins fall much much harder. On the other hand, when Bitcoin goes up, you'll see Altcoins climb much faster. Considering that, now'd be a perfect time to stock up on cheap altcoins until Bitcoin starts climbing again.
  4. I (think I) believe in Bitcoin's future. Should I be worried about the price dropping?

    If you really believe in Bitcoin's future, gather as much FIAT as you can right now and buy your Bitcoin while we still have prices under $850. We probably won't be seeing such prices again once Bitcoin starts to skyrocket past $1200, making the November 2013 bubble look like nothing; just think how the April 2013 bubble looked like in November. Oh, and Bitcoin is going to change the world.

So there you go, I hope this post can help you get started on Bitcoin Margin Trading. If you haven't got your account by now, sign up with my referral code and enjoy 10% off your trading fees for the first 30 days. Click here to get started on Bitfinex.

Lastly, I'm building a list of very strong Bitcoin traders on Twitter, and looking to find only the best thought leaders on the topic. Do check it out the Crypto Trading List and feel free to give any feedback or suggestions for who else should be in there. Also feel free to visit my TradingView profile where I chart out my Bitcoin (and some Litecoin soon) predictions. If you haven't watched this video by @ChrisDunnTV, highly recommend checking it out!

Bitcoin Basics (Part 5) - "How To Make Money Trading Bitcoin"

I'm thinking of a few topics for my next blog post. Would you like to see something about Bitcoin Daytrading & Technical Analysis, a revisit & review of Altcoins, Poker & Daytrading, or something about Dogecoin? Drop a comment, send me a message with the form right at the bottom, or tweet me at @onemanatatime.