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Trading 101

Why I Switched to Momentum Investing

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Momentum investing

After sticking to various reversal trading strategies for a while now, I have started to look more into momentum and trend when it comes to investing in stocks specifically. Some people may find the idea of momentum a bit strange to begin with, and it is only after watching individual stocks, while also keeping an eye on the movements of the overall market, that you rally understand its meaning.

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Seasoned stock investors, especially those that adhere to value investing, are often skeptical towards the idea of buying a stock that has already increased in price. It basically goes against their instincts of buying low and selling high. However, as people start to understand the mechanics of it, they tend to change their opinion.

Never catch a falling knife

An unwritten law in any market is that a trend tends to continue. Hence, if a stock has been moving up three straight months, it is more likely that it will continue to move up for a fourth month instead of turning down. A “cheap” stock can always become cheaper and an “expensive” stock can always become more expensive. These are well-known principles that explain the basics behind why momentum and trend trading works, and it is the idea behind old cliché’s like “never catch a falling knife” and “cut your losses, let your profits run.”

Over time, however, any financial asset has a tendency to revert to its mean. As such, when a trend has been overextended, a reversal in price can be expected to follow. This is the idea behind reversal trading. However, it is important to understand that it can take a while for this to happen, and you may very well get wiped out in the process.

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The trend is your friend

The concept of buying stocks on their way up makes a lot of sense from this perspective, as you are then buying something that the market is starting to like, which is about to be valued higher. Trying to catch the falling knives is simply to risky from a risk:reward perspective, and in my opinion it should be avoided altogether. Why would you buy a stock that is falling when you instead can buy it at its way up?

Still, there are situations that arise in the grey areas, where a stock seems to have gone so low that it can do nothing but go up again. It may be tempting to give it a try, but remember that this is an extremely difficult thing to do, and the stock may just as well continue its steady decline. When the stock finally turns, there will still be plenty of time for you to jump on the bandwagon.

Mining companies, some companies within the maritime shipping industry, and the entire Japanese stock market are all examples of great bargains from a value standpoint, where the investor would sometimes have to wait for decades to earn his initial investment back. Don’t fall into this trap by picking stocks that are still falling and appear “cheap.” Don’t try to outsmart the market.

Combining momentum with value

Value investing

In my opinion, a killer long-term strategy in the stock market is to combine sound value-investing principles with momentum. In other words, you should look for undervalued companies that have been badly beaten up for years, and that are just starting to turn. Oftentimes, this is where the greatest potential is and I believe it is one of the best ways to beat the index over the long term.

We can find two examples of how well value investing with momentum works in the US after the stock market crashes in the mid-70s and the 2008 financial crisis. Following these two events, only value investing yielded a clearly higher return than value combined with momentum.

However, if you were a value investor before the crash started, chances are you would get wiped out before the market finally turned. If, on the other hand, you were a value investor with momentum as one of your criteria for holding, you would automatically get rid of all the stocks that were in decline, and instead buy them again after the crash was over.

Because of this, momentum indicators like the MACD can be of great help when making these investment decisions. When combined with value-principles, you have a killer approach to long-term success in the stock market. I’m definitely looking more into crafting a robust investment strategy based on this for myself, and I will come back and share more specifics on potential strategies later.

Featured image from Pixabay.

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Education

Research an ICO (Initial Coin Offering) Like a Pro – Insider Information

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I usually write about Altcoins investing and trading. Right now I wanted to spill the beans on how I research an ICO. If you are not familiar with an ICO, it is a coin offering an altcoin does to raise funds to build the product or to expand their company/reach.

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Instead of doing an IPO as most traditional companies do, a lot of companies are now going ICOs. Why? Many reasons but I would say the top 2 are the fact that millions of dollars are being raised in a short amount of time as investors are trying to be a part of the new altcoin launches in order get in on the ground floor. The second reason is that investors that take part in an ICO do not own actual equity in a company, they are essentially just giving the company money in order to launch their product. In traditional IPOs, investors would actually own a small or large percentage of a company when they invest possibly giving them voting rights as well as actual company ownership.

Now I want to jump right into how I analyze and research an ICO. While some people start with the technology or the idea itself, I have to admit that I start with the ICO token metrics. First, calculate market cap to make sure they are not overvaluing themselves compared to other ICOs or existing altcoins.

Determine the Market Cap of the ICO:

  • Calculate the token price with this formula ETH Current Price/Num Tokens per ETH
  • Now multiply Token Price * Number of Tokens in Circulation (tokens sold in crowdsale + presale)

This is the company market cap roughly if the ICO sells all available tokens during the crowdsale. Take this market cap and compare it to the top 100 altcoins to see how the coin compares. If the market cap equals $30,000,000 then they would need to grow to $90,000,000 in order for you to make 3x your investment. Now go to Coinmarketcap.com and see what companies have the same market cap as this ICO. Ask yourself: Is this ICO as good as the existing altcoin and is it or should it be worth the market cap they are trying to achieve with the ICO launch.

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Now that you have determined that the market cap is good and that the altcoin has the potential to make you 3x – 5x your initial investment it is time to move on.

Read the Whitepaper:

Ask yourself these questions: Is the technology unique? Can this company survive/thrive without doing an ICO? What is the purpose of the token in the company ecosystem? Are they just creating a coin to profit in this ICO craze or does the coin serve an important purpose? How will the coin increase in value, is it based only on hype on exchanges or is it from it being used as a utility in the company? Does this company have competitors that may make this one irrelevant?

Research the Team:

First off, is the legitimate? Do they really exist on Linkedin, etc. You would be surprised how often the team members can be faked. Read the linkedin description to see if the team member is full-time with the ICO and if the ICO is even mentioned at all.

Research the ICO Advisers:

Are the advisers relevant to the ICO or are they just a shiny attention grabber? If you see the same adviser on multiple ICOs then their credibility/value to the ICO diminishes greatly.

Determine Level of Hype:

Don’t underestimate this step. An easy way to get a feel for hype and popularity is to google the name of the ICO. See how many mentions are in the google search results. Make sure you use exact matches such as quotes in the google search so that you don’t get results for the word ‘the’ or something generic. How many times are they mentioned on social media? The best way to do this is to go to buzzsumo.com and type in the name of the ICO. This will give you a results list showing content and mentions on Facebook, Linkedin, Twitter, Pinterest and how many times the content pieces were shared. Go to the ICO website and search for the websites, social media and chat programs where they interact. Some of the most popular are Slack Channel, Telegram Chat, Twitter, Bitcointalk.org, Reddit.com.

Check out their existing product and code:

For this step you don’t have to know programming or anything like that. You will just want to go to their Github.com account as this is where they will store the code for their project. You can see how often they update their code and how active they are developing. Also, do some research on their past products if they are an existing business that is just expanding by offering an ICO.

Research similar altcoins:

Go to Coinmarketcap.com and CryptoCompare.com and study similar coin charts. Of course, every company is different but you just want to get a general feel for the potential. Right now ICO investors are leaning towards investing in Protocols and Platforms such as 0x, Kyber and Raiden. Ideas that are needed to propel blockchain and cryptocurrency forward.

Good luck researching ICOs and may you see 3x – 100x returns. CryptoDayTrader, over and out…

Featured image courtesy of Shutterstock. 

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Cryptocurrencies

Make More Profit with Proof of Stake Altcoins – Ultimate Guide

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Here is a list of all coins that are Proof-of-Stake. Some of these coins get very little volume but I wanted this to be an extensive list of all coins that are proof-of-stake. The value of these type coins is that you can buy and hold any amount of the coin and you will get paid interest each year for holding them in an active wallet. The more coins you have, the more you make. Long story short: Buy the altcoin, hold the altcoin, make money from holding it each year.

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“Proof of Stake is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. Unlike Proof-of-Work (PoW) based cryptocurrencies (such as bitcoin), where the algorithm rewards participants who solve complicated cryptographical puzzles in order to validate transactions and create new blocks (i.e. mining), in PoS-based cryptocurrencies the creator of the next block is chosen in a deterministic (pseudo-random) way, and the chance that an account is chosen depends on its wealth (i.e. the stake).”- Wikipedia

I will highlight some of the more profitable and well-known proof of stake coins and include a link to their website. This is meant to be an exhaustive list of all PoS coins as of 2017 and will be updated as new coins get added.

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  • AcesCoin (ACES)
  • AcesCoin (AEC)
  • Aegis (AGS)
  • Aero Coin (AERO)
  • Algo.Land (PLM)
  • Allsafe (ASAFE)
  • Ammo Rewards (AMMO)
  • ArchCoin (ARCH)
  • Ardor (ARDR)
  • Asia Coin (AC)
  • Atmos (ATMS)
  • Avatar Coin (AV)
  • AvonCoin (ACN)
  • BattleCoin (BCX)
  • BattleStake (BSTK)
  • BigUp (BIGUP)
  • BitBay (BAY)
  • BitCurrency (BTCR)
  • BitHIRE (HIRE*)
  • BitLuckCoin (BTLC)
  • BitMoon (BM)
  • BitOKX (BITOK)
  • BitVegan (VEG)
  • BitVolt (VOLT)
  • BitcoinTX (BTX*)
  • BitluckCoin (BTCL)
  • Bitradio (BRO)
  • Bitshares (BTS)
  • Bitz Coin (BITZ)
  • BlackCoin (BLK)
  • Blackstar (BSTAR)
  • BlitzCoin (BLITZ)
  • Boats and Bitches (BNB*)
  • BonesCoin (BON*)
  • CAIx (CAIx)
  • CabbageUnit (CAB)
  • Cardano (ADA)
  • CheckCoin (CXC)
  • Clickcoin (CLICK)
  • CoffeeCoin (CFC)
  • Coin to the Future (BTTF)
  • ColossusCoinXT (COLX)
  • CoolCoin (COOL)
  • CoralPay (CORAL)
  • CraigsCoin (CRAIG)
  • Creatio (XCRE)
  • Crowdwiz (WIZ)
  • Crypti (XCR)
  • CryptoCircuits (CIRC)
  • CryptoJournal (CJC)
  • CryptoPennies (CRPS)
  • Cryptokenz (CYT)
  • CybCSec Coin (XCS)
  • Dash (DASH) – Website: https://www.dash.org/ – Annual Return: Approx 7.5%
  • DeOxyRibose (XNA)
  • Decent (DCT)
  • DeltaCredits (DCRE)
  • Diggits (DIGS)
  • DigiCube (CUBE)
  • Digital Bullion Gold (DBG)
  • Draftcoin (DFT)
  • Dropcoin (DRC)
  • EGOcoin (EGO)
  • Ebitz (EBZ)
  • EbolaShare (EBS)
  • Exclusive Coin (EXCL)
  • Extreme Sportsbook (XSB)
  • FaucetCoin (DROP)
  • FazzCoin (FAZZ)
  • FindCoin (FIND)
  • FlyCoin (FLY)
  • Forever Coin (XFC)
  • FreeCoin (FRE)
  • Fuel2Coin (FC2)
  • FuturePoints (FTP)
  • GAIA Platform (GAIA)
  • GPU Coin (GPU)
  • GameBetCoin (GBT)
  • Global (GLOBE)
  • Global Currency Reserve (GCR)
  • GlowShares (GSX)
  • GorillaBucks (BUCKS*)
  • GrexitCoin (GREXIT)
  • GrowthCoin (GRW)
  • HealthyWorm (WORM)
  • HeelCoin (HEEL)
  • HiCoin (XHI)
  • Horizon (HZ)
  • Iconic (ICON)
  • Incrementum (INC)
  • InvisibleCoin (IVZ)
  • Ionomy (ION)
  • KryptCoin (KTK)
  • LePenCoin (LEPEN)
  • Let it Ride (LIR)
  • Limited Coin (LTD)
  • LuckyBlocks (LUCKY) (LUCKY)
  • Lutetium Coin (LC)
  • MacronCoin (MCRN)
  • MaieutiCoin (MMXIV)
  • MapCoin (MAPC)
  • MasterMint (MM)
  • MintCoin (MINT)
  • Mojocoin (MOJO)
  • MudraCoin (MUDRA)
  • Nas2Coin (NAS2)
  • Nautilus Coin (NAUT)
  • Navcoin (NAV) – Website: http://www.navcoin.org/ – Annual Return: Up to 5%
  • Nebuchadnezzar (NEBU)
  • NEO (NEO) – Formally Antshares, Website: https://neo.org/ – Annual Return: Approx 5.5%
  • NeosCoin (NEOS)
  • NeuCoin (NEU)
  • Neurocoin (NRC)
  • NewInvestCoin (NIC)
  • NoLimitCoin (NLC2)
  • Noocoin (NOO)
  • NuBits (NBT)
  • NuShares (NSR)
  • NukeCoin (NUKE)
  • Obsidian (ODN)
  • OkCash (OK) – Website: https://okcash.org/  – Annual Return: 10%
  • OldSafeCoin (OLDSF)
  • OmiseGo (OMG)
  • Opair (XPO)
  • OptionCoin (OPTION)
  • PSIcoin (PSI)
  • PandaCoin (PND)
  • PayCoin (XPY)
  • Persistent Information Exchange (PIE)
  • Phreak (PHR)
  • PIVX (PIVX) – Website: https://pivx.org/  – Annual Return: Approx 4.8%
  • PokeChain (XPOKE)
  • PostCoin (POST)
  • Power Ledger (POWR) – Website: https://powerledger.io/Annual Return: Not Sure
  • PrimeChain (PRIME)
  • Prizm (PZM)
  • ProCurrency (PROC)
  • Pulse (PULSE)
  • PureVidz (VIDZ)
  • QTUM (QTUM)
  • QoraCoin (QORA)
  • Quantum Resistant Ledger (QRL)
  • RadicalCoin (RADI)
  • Radium (RADS)
  • RadonPay (RDN)
  • Ratio (RATIO)
  • Red Pulse (RPX) – Website: https://coin.red-pulse.com/Annual Return: 5%
  • RenosCoin (RNS)
  • Resumeo Shares (RMS)
  • ReturnCoin (RNC)
  • Ride My Car (RIDE)
  • Rise (RISE)
  • RoyalCoin (ROYAL)
  • RoyalCoin 2.0 (RYCN)
  • Rubies (RBIES)
  • RubyCoin (RBY)
  • SARCoin (SAR)
  • SelenCoin (SEL)
  • ShortyCoin (SHORTY)
  • Signatum (SIGT)
  • SkullBuzz (SKB)
  • Specie (SPX)
  • Spectre (XSPEC)
  • SportsCoin (SPORT)
  • Squall Coin (SQL)
  • Stakecoin (STCN)
  • Stakers (STA*)
  • Stakerush (STHR)
  • SteamPunk (PNK)
  • Steps (STEPS)
  • SterlingCoin (SLG)
  • StorjCoin (SJCX)
  • Stratis (STRAT) – Website: https://stratisplatform.com/ – Annual Return: .5 – 1%
  • Subscriptio (SUB*)
  • TeamUP (TEAM)
  • The Vegan Initiative (XVE)
  • TrashBurn (TBCX)
  • TrickyCoin (TRICK)
  • TrumpCoin (TRUMP)
  • Turron (TUR)
  • UPcoin (XUP)
  • Ubiqoin (UBIQ)
  • Ucoin (U)
  • Ultimate Secure Cash (USC)
  • Universe (UNI)
  • Vcash (XVC)
  • Versa Token (VERSA)
  • Viral Coin (VIRAL)
  • WMCoin (WMC)
  • Wanchain (WAN)
  • WarpCoin (WARP)
  • WayCoin (WAY)
  • WealthCoin (WEALTH)
  • Wexcoin (WEX)
  • Wink (WINK)
  • XDE II (XDE2)
  • YobitVirtualCoin (YOVI)
  • ZeitCoin (ZEIT)
  • Zennies (ZENI)
  • deCLOUDs (DCS)

Featured image courtesy of Shutterstock.

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Trading 101

Trading the News in Cryptocurrencies

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bitcoin news

Cryptocurrency trading shares many similarities with both forex and stock trading. All of these assets can be traded with a range of different trading strategies, using technical analysis, quantitative analysis, and fundamental analysis. In this article, we will focus on fundamental analysis and how you can succeed with cryptocurrency trading by trading the news.

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In the stock market, we all know how news can impact stock prices. This is especially true for penny stocks, where one corporate announcement can make a huge impact on the price. The same goes for forex, which is largely driven by fundamentals in the long terms and technicals in the shorter term.

Cryptocurrencies are ideal for news trading

One can argue that the cryptocurrency space is better suited for news trading than the stock or forex market is. The main reason for this is the lack of institutional traders, including high-frequency traders, in the crypto space. This is a space that is still dominated by retail traders, meaning you stand a much better chance at profiting from news releases by reacting in a quick and smart way.

So, what are some important things we need to consider when trading the news?

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  1. Is the news fresh? You need to evaluate whether the news is actually news or if it is already priced in by the market. Look at how the price moved ahead of the news release? Did the news just confirm an outcome that was already expected by the market, or did it bring new information to the table?
  2. Is the news of importance to the price of the cryptocurrency? Is it likely to impact the price over the long-term or is it a one-time boost?
  3. Is the coin liquid enough to be traded profitably in the short term? How many people are actually following this coin and related news?

Let’s take a look at how this can play out in a real-world scenario:

Phase 1 – The first leg: The news has just been released and the first reaction in the price is already seen. This is your first opportunity to take a position in the market to profit from. If momentum and liquidity is good, you can take your first position here.

Phase 2 – New buyers are joining the party: After the initial euphoria has settled, you will often experience a move in the opposite direction. This is expected, and happens because all the traders who were ready to buy right away already got their orders filled at this point. The market now needs new buyers to join in in order to continue to rise. And more often than not, that is exactly what happens. As the word of the positive news in your crypto asset spreads, more and more traders are joining in, extending the upward move in the price.

Phase 3: The swing trade opportunity: Medium to longer-term traders are now eyeing the opportunity to make money from this asset that is “in play,” instead of the boring stuff they are currently holding on to that is not making them any money. This type of trader is looking for longer-term opportunities in coins that are trending. Once an uptrend has formed, they look to enter as early as possible and ride the trend up.

How long should you hold the trade?

The trend will persist as long as new traders are jumping on this opportunity. Usually, trends act as self-fulfilling prophecies in the way that the longer the trend has lasted, the more people will hear about it and join in on it. When we finally reach a point where the sellers outnumber the new buyers, the trend ends and the cycle may repeat itself in the opposite direction.

One way to develop an estimate of how long the trend is going to last and setting a target price is by using Fibonacci extensions. You can also study previous trends in the asset and see if you can spot any pattern. In all asset classes, crypto included, trends move in waves that tend to repeat themselves.

Personally I prefer to hold on to the trade until the market has given a clear indication that the trend has ended. Usually, I will let this come in the form of price breaking through one of the moving averages, for example the 20 day moving average when trading on the daily timeframe. That way, I don’t have to second-guess when I should get out of the trade, and I also never change this rule once the trade is entered into. It’s not so important what strategy you choose for getting out of the trade, but it is very important that you do have a pre-determined plan for getting out and actually follow through with it.

These strategies work just as well for crypto trading as they do in the stock and forex markets. As the legendary trader Jesse Livermore said more than a hundred years ago:

“The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.”

Featured image from Pixabay.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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