Learn Trading Bitcoin
You are alone in trading. You should take the time to educate yourself and take responsibility of your investing decisions. If you are looking for someone to tell you when to buy or sell, there’s a good chance you won’t succeed, because you don’t know the agenda of these people who might be getting paid to spread fear and greed.
When i lost my job at the begining of COVID and got scammed shortly after, i made a pledge to master technical analysis, so no one can fire or scam me again. You may not have such a reasons, but if you don’t do this on your own, you will always need someone to tell you what to do.
Only you can help yourself in trading and this is what this post is about. I’m planning to iterate this post along the way with your questions, so feel free to ask questions in the comments section and i’ll update my post as necessary.
1- Avoid Short Term Thinking
When looking at Bitcoin price, you should start looking from higher level to lower level timeframes and avoid intraday charts. I started with intraday timeframes like 4 hour, 1 hour, 1minute and even 1 second and i can tell you that the shorter the timeframe is the more dangerous, difficult and risky it becomes for a beginner. It also requires more time and effort with little return. There are a lot of “engineered” and robotic activity that you won’t be able to catchup or make sense of. You will make nickels at best, but i prefer generational wealth over short term thinking.
“the more you trade, the more you loose”
That said, you should trade as less as possible and a big part of this is about patiently waiting on the side lines while NOT losing any money!
Markets tend to trend higher or lower about 25 percent of the time in all holding periods and get stuck in sideways trading ranges the other 75 percent of the time!
That means you need not trade 75% of the time! Yes, it’s boring and it works!
As a rule of thumb, higher level timeframes are more reliable than lower level timeframes. Monthly, Weekly and Daily charts will tell everything you need to know. I stick with the daily most of the time, while double checking monthly and weekly. You will filter out most traps when you stick with higher timeframes.
Note that, you should be using logscale in your higher timeframe charts in order to normalize the price action. If you don’t use logscale, you may not make a sense of the price action and your trend lines etc. will not work because of the difference between the prices.
2- Identify Long Term Trend Channels
Prices move in four ways:
- Up Trend (Markup)
- Down Trend (Markdown)
- Sideways Bullish (Accumulation)
- Sideways Bearish (Distribution)
Interactive version of this chart:
When Lambo? for INDEX:BTCUSD by BitcoinMillio18
Yes, we all want the Lambo, but first we need to understand where we are and how can we get there. In this monthly…
What you need to know about Bitcoin’s uptrend right now is that, the current bull market started on December 2018, right after the hard fork event of BCH and BSV, which were the biggest attacks on Bitcoin. Do not buy in to those shitcoins as they have already miserably failed by the market response, but the damage they gave was the break of the primary uptrend.
Notice the magnitude of the waves and how Bitcoin ranges between $6.500 & $65.000 in a single run. That’s is a HUGE move! and that’s how you 10x. This is the reason we should always be looking to identify high level trends. Now that the price has felt from 65k to 30k, it’s still hard to say we are in a bear market! Not even at 17k!
Here’s a good trendline construction workshop from Bruce Fraser, who is a wyckoff method guru i follow:
Prices nearing or exceeding upper band are overbought and prices nearing or below the lower band are oversold. Look for entries in the oversold area, but validate the bounce and return to channel first, don’t rush. Look for exits in the overbought area, again after validation. Look for wyckoff accumulation and distribution schematics (Also, re-accumulation and re-distribution)
Speaking of the primary trends and attacks on Bitcoin, current Chineese ban on Bitcoin Mining is perhaps the second biggest attack on Bitcoin. Although it’s a positive thing to get the f*** out of a totalitarian regime, it gives other countries an idea on how they can fight with Bitcoin and they may follow the same route. Therefore, current short term downtrend is very important to find support, reverse back up and stay within the current uptrend.
Don’t Trade In Sideways Markets Or In A Descending Triangle
As i’ve stated above, markets trade sideways 75% of the time. During this time, there won’t be any clear direction. It will be full of traps, FUD and Hopium. Stay in the sideline until breakout to either direction. Not loosing money is a good option when you are in a swamp!
3- High’s & Low’s Are Support & Resistance
This one is simple, yet one of the most powerful tools in trading. The trick here is to use multiple timeframes on the same chart:
- Monthly highs & lows
- Weekly highs & lows
- Daily high & lows
The higher the timeframe, the stronger the support or resistance. The thicker the line is, the stronger it is.
Interactive version of this chart:
Who's Selling? for BINANCE:BTCUSDT by BitcoinMillio18
Yesterday the long waited break of the so called uptrend was finally broken, but then unexpected things happened LOL :)…
Just by setting highs, lows and the trend lines, you can construct a descent analysis.
Here’s a tutorial on how to work with high’s and low’s:
Price will always follow liquidation to the nearest support or resistance. It will move towards and through these levels.
In this video, ICT also talks about the central bank algorithms and when exactly it operates for the forex market. In Bitcoin, there is no specific time for action, at least that i know of, but i do believe algorithms are working to liquidate short term traders 7/24 in a similar manner to central banks.
4- Markets Are Moved By Large Operators
The name of the game is selling at retail prices and buying at wholesale prices. In wyckoff method a concept called the composite man is the fictional character that organizes all these moves as one man. You can think of it as the market or the large institutions. If you think of him as a person who is trying to liquidate you, then you can understand what is being played on you.
You will often read very optimistic news near the top of the channel and horror stories at the bottom. You should stop retail thinking and start following the footsteps of the composite man.
5- Learn Wyckoff With Point & Figure Charting
Richard D. Wyckoff dedicated his life to educate retail investors in order to protect them from institutional players. His teachings are still working because they are based on human pyschology and the way large operators work.
“Imagine you want to sell 150.000 Bitcoins. You don’t go to your exchange, select 100% and click sell. You simply can’t. That is why they need to sell slowly during sideways trading range. The opposite applies when they want to buy. These are sideways distribution and accumulation phases.”
I highly suggest reading this mini tutorial on wyckoff method. It has everything you need to know on wyckoff method;
The Wyckoff Method: A Tutorial
Richard Demille Wyckoff (1873-1934) was an early 20th-century pioneer in the technical approach to studying the stock…
Learn P&F Charts
P&F charts are one of the main pillars of Wyckoff method. The main difference of these charts is that it does not have a time dimension in it. Time is a very important tool for the manipulators to trap traders. Not having time on a chart, will actually make it crystal clear on what’s actually happening.
- The “o”: down box
- The “x”: up box
Each box is set at a certain size, known as the “box size”. In Bitcoin analysis i’m using $1.000 as the box size
Reversal amount is the number of boxes needed for a trend reversal. The standard is 3, but you can use 1 for shorter term swing trades and 5 for a longer term. You can think of these as daily, weekly, monthly.
So, when we are looking at a p&f chart we see something like this:
Calculating Price Objective
“p&f charts enable us to calculate the distribution or the accumulation counts and gives us a price objective.”
You can think of this like the fuel in the tank. When price moves sideways, one of two things are happening:
- Accumulation (Bullish)
- Distribution (Bearish)
Regardless of the sentiment, counting the columns gives us the potential fuel in the tank that will take us higher or lower.
Here’s a timeless p&f chart analysis from Bruce Fraser on May 14th 2021, right before the crash of Bitcoin.
You may also want to read horizontal counting method on stockcharts:
P&F Price Objectives: Horizontal Counts
Point & Figure price objectives can be determined using the horizontal count method with a consolidation or congestion…
and also p&f chart patterns
P&F Pattern Alerts
Whenever common chart patterns appear on the right side of our Point & Figure charts, we will display an "alert" with…
6- Understand Risk / Reward Ratio
TradingView has a great tool set. One of my favourite is the long / short position tool.
You enter your stop loss and take profit targets and it calculates your risk to reward ratio on the fly.
Risk to reward ratio is important to consider before entering a trade. You want to enter trades that are higher than 3.
Inside the Risk/Reward Ratio
The risk/reward ratio marks the prospective reward an investor can earn for every dollar they risk on an investment…
Here’s one of my recent trade ideas with the long position tool. Although it looks good on chart with 2,76 r/r , i’m not taking this trade because i’m not willing to take 50% loss in my account. It’s also below 3.
You should always ask yourself, how much of a loss are you willing to take. My answer is zero :) Therefore, i’ll be waiting for the confirmations of an uptrend, before entering a trade.
Read more on the tool:
How to use Long and Short Position drawing tools?
This feature lets you estimate how an order will go if you go long or short, shows the Profit & Loss (PnL) and…
Practice On Paper Trading Account First
Speaking of risk, i recommend that you start practicing on a paper trading account before entering real trades. I use 3commas paper trading account for such purposes.
Alternatively, you can set yourself a small budget for practicing, like a $100.
7- Learn To Use Volume Profile
The most dangerous times are when prices start moving sideways. It really isn’t going anywhere with just random moves, hard to make money, easy to loose.
It will feel like the sand is slipping through your feet with every wave hitting the beach, because it does!
You should stay in the sideline with patience during these times, however understanding what is going on is key for creating our next position.
The most important question at this moment is:
“Are we in an accumulation zone or distribution zone”
If you identify this correctly, your next move will be a success. And right here there’s an infamous tool we can use to identify if there’s accumulation or distribution. It’s called the volume profile.
“In accumulation, the composite man is net buying, in distribution though, he’s net selling.”
With this in mind, let’s look at one of my recent analysis;
And the interactive version:
$18.76 Billion Worth Of Bitcoin Was Dumped On Retail Investors for BINANCE:BTCUSDT by…
By looking at the volume profiles we can see buying volume and selling volume seperately for a certain price range…
With volume profile, the volume is calculated using a horizontal slice of price range within a certain time range. This is then split between buying volume and selling volume (Transactions happening at the asking price vs bidding price). You can see how much Bitcoin is sold and bought at any price and time range. When you subtract buying volume from selling volume, you get a net amount. If this amount is positive, then accumulation is in play, if it’s negative, then distribution is in play.
Once you identify what’s going on, you can use the p&f chart to calculate potential price targets. How cool is that :)
8- Learn Money Management
You know who survives a gun battle? The gunslinger with more bullets. If you invest all your trading capital in one trade, you fire one silver bullet and if you miss, it’s gone.
“Art of Execution” is an excellent book in this topic.
The Art of Execution: How the world's best investors get it wrong and still make millions
The Art of Execution: How the world's best investors get it wrong and still make millions [Freeman-Shor, Lee] on…
Few takeaways can be summarized as;
- Allocating not more than 5% in a trade idea
- Not exceeding 15% of your total trading capital
- Materially adapting to price change
You’ll find different types of trading styles and which has generated the most profit in the long run in this book.
9- Don’t Skip The Basics
Use limit orders instead of market
Especially when buying stable coins, you may loose more than you think
Save on transaction fees
By now, i think you understand why you need to trade less. This is first step in saving on fees. The second is to check trading fees section of your exchange, i use Binance and they have 25% discount in fees if you pay in their token BNB.
Don’t leave your funds on the exchange
By leaving your funds you are taking the risk of the exchange which is open to cyber attacks, legal action and regulations. Use a cold wallet to store your Bitcoin safely. “Not your keys, not your Bitcoin” saying comes from the private keys that comes with a cold / hot wallet.
Don’t use leverage
This is the sure way to get yourself rekt. Bitcoin itself is the leverage.
10- HODL’ing Is Not An Investment Strategy!
Allthe gurus will tell you otherwise and how Bitcoin made 182.256x over time. Looks good on paper, but in reality you should exit at the market tops and wait for the next run up.
The only reason these youtubers want you to HODL is the fact that Bitcoin is a pure supply and demand game. When you HODL, you are the demand. It’s good as long as price is going up, but when it goes sideways, it’s time to take profit. If you don’t take profit, what’s the point in making 10x? Take that profit and wait for the next run, it’s that simple.
You’ll make much more money, doing that and besides, you can buy some deprecating assets like cars, boats etc… and sell them before the next run :)
11- Don’t Use Indicators Without Backesting Correctly
Automated trading is a big idea and it’s also not for the lazy one. On the contrary before using any indicator you need to learn technical analysis, price & volume analysis, candlestick patterns, trend analysis, wyckoff method and other manual trader stuff.
Why? Because you need to tell the indicator what you want and when you want from it. I spent 6 months to optimize my indicator (Twin Optimized Trend Tracker) and i now understand why it took so long. I have backtested 4h, 1h, 15min, 1min and even 1 second timeframes with little or no luck. Then i switched to daily and my backtests started to speak to me.
Whatever indicator you use, make sure you use it on the right timeframe and between the right time range. For example, if you backtest Bitcoin between 2017 and 2018 you’ll get different results than last 1 years. You need to first identify the start of a trend, understand how it started and what happened along the way.
12- Be Careful Following Me Or Your Guy Or The Indicator
It’s easy to follow someone who will do the work for you and get lazy. However there’s a catch. They share their ideas based on their entry position not yours! They don’t know your entry point, they don’t manage your money, YOU DO! Take that responsibility and do your own research! Even if you are using an indicator, the time to buy or sell is the time that signal got triggered, not 5 weeks later when you just stumbled upon.