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Trading 101

Trading 101: Trend Analysis with Basic Charting Tools

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In our previous post dealing with swing trading we laid off the basics off trends in financial markets, and now we are going one step further. Getting to know the simplest charting tools will help you in analyzing trends, refining entries and exits, and building more sophisticated strategies. What’s more, these easy-to-use tools will be helpful not just in trading, but in your long-term investment decisions as well.

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For those who hear the terms “charting” and “charting tools” first, charting is the name of the analysis of price charts which contain the price history of financial assets, while charting tools are various drawings like trend-lines, chart patterns, support and resistance levels, and other visuals that traders use for their decisions.

We will get to all the different chart types (and later the hundreds of indicators that are out there), but for now, this is more than enough to progress. In fact, as you will see, keeping your analysis simple should be one of your most important long-term goals as a trader.

The Role of Charting Tools and Indicators

Before we get into the tools themselves, it’s crucial to note that charting tools and most trading indicators have one very important thing in common; they don’t add additional information to the price (and volume) data that’s already available on a basic price chart. This means that they are not some sort of magical forecasting methods. That said, by visualizing the data in different ways, they can uncover hidden, or hard to understand tendencies in the price history of an asset, making them very useful in practice.

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OK, but why do traders need that information? Well, the basic premise of technical analysis is that by studying the price history of an asset, we can predict the probability of the direction of future price movements.

The word probability is very important here because, without it, it’s easy to misunderstand technical analysis and charting tools. The key is that these methods don’t predict the future (because that’s not possible), but they help you in taking the position with the highest probability. Indicators will also be of great help in this process, providing simple and convenient ways of discovering ongoing trends, cycles, and waves in the price action.

The Structure of Trends

As we have seen previously, prices move in advancing and declining waves (or swings) that are separated by swing highs and swing lows. The most basic tools of trend analysis are trend lines, which simply connect these swing highs and swing lows. On the chart below, you can see that these trend-lines give traders a good idea of the”angle” of a certain price movement.

Rising and falling trend-lines in the EUR/USD currency pair

The trend-lines connecting swing lows and swing highs usually form a trend-channel that defines the movement of an asset for the period of the trend.  Because trends can be broken down into smaller waves on shorter time-frames, there are most of the times several “active” trends in motion for every asset. You can see those different trends (the lower time-frame trends drawn with red) on the chart below:

Rising and falling trend-lines on different time-frames

For our example, we deliberately chose trends that are not perfect (notice the small deviations from the trend-lines), as trend-lines are rarely precise enough to base exact trading decisions on them; they are more for roughly estimating the angle of the trend and the end of the price waves.

Cycles and Trend-Lines

You might ask the question that how it’s possible to spot a meaningful swing low or swing high on a given time-frame. The answer lies in cycles, which we indicated on the next chart. The swings on a time-frame tend to be roughly similar in length, giving you a good estimate for the length of the coming cycles. Using this, when a trend is established (after you identify a higher high and a higher low, or a lower high and a lower low), you simply project the length of the first wave (Cycle 1 on the chart) to get the possible points for the next swing lows (the vertical purple lines on the chart).

Cycles and swing lows in a rising trend

Again, these tools are not 100% precise, but they can help you immensely in your timing decisions. The major swing lows in our example were roughly around the projected cycle lows, and they were confirmed by the break of the lower time-frame trend lines. This is how a larger time-frame trend develops from shorter time-frame trends and major swings. In a rising trend, swing lows are more important, but the same logic can be applied for swing highs as well.

Trend-Line Signals

Trend-lines provide great value in several swing trading and other types of strategies as secondary signals. Secondary trading signals are signals that are less reliable but often come earlier, than primary signals, such as higher highs or higher lows. If the price reaches a trend-line it often means that the lower time-frame trend is close to its end, while a trend-line break is often a sign of the weakening the prevailing trend. These might provide the perfect opportunities for profit taking, switching to a more aggressive stop-loss level, or conversely, re-entering into a full position.

Let’s look at this in practice on the next chart:

Secondary trend-line signals in a rising trend

For this example let’s assume that you are already bought the asset in question, so we can fully understand the role of secondary signals. As soon as we established the trend-lines by identifying the higher high and the higher low, we can start using those for trading.

As you can see, this trend gave 3 clear profit taking points when the price touched the upper trend-line and two re-entry points when the price touched the lower boundary and broke above the declining shorter-term trend-line. It also gave an early warning to exit the whole trade before the price finally broke below a major swing low, providing a swing trading exit. This last signal is a good example when a trend-line break can serve as a primary signal—a clear break of a long-term trend often proves to be the end of a move or at least the start of a major correction.

Parabolic Trends

Some of you might already know about trends that are not exactly like the ones we discussed so far. Trends in financial markets can’t always be described by straight lines. Why? There could be several reasons for that—the cause of the trend might not be stable, the trend might attract more and more traders causing an acceleration in the trend, or conversely, a negative trend might cause a quickly spreading panic among the holders of the asset, leading to a swift collapse.

Whatever is the reason, these so-called parabolic trends are great opportunities for traders. As the moves accelerate, profits can pile up quickly if you are positioned correctly. That said, identifying these trends is not always easy, and the jump in volatility usually causes troubles for beginners, especially if they try to trade against these powerful moves.  For those reasons, we will dedicate a whole post for these trends; until then here is a recent example of a parabolic move:

A recent parabolic short-term advance in gold

What’s next?

Now that we introduced trends, the most important analysis tools for traders, in our next posts on we will take a look at some other crucial elements of charting, which complement and refine your trend analysis. Support and resistance levels, chart patterns, and special candlesticks will be on the menu.

Previous article: Trading vs. Investing

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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2 Comments

2 Comments

  1. sambkf

    May 4, 2017 at 9:47 pm

    Thank you for the great visual example of trend lines.

  2. dgimness

    June 11, 2017 at 5:32 pm

    Good article Mate!

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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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