Foreword

This post is intended for beginner traders who wants to learn basic trading strategy. In this article, I will try to show you one of the easiest trading strategy which will surely be beneficial in your daily or long term trading. The strategy to be presented is actually a universal cryptocurrency trading strategy that can be used to trade any of the existing cryptocurrencies available in a cryptocurrency exchange. Before we proceed to the strategy guide, let us have a brief preview of cryptocurrency.

What is cryptocurrency?

To make it simple, cryptocurrencies are money that is used online. It has the same purpose as your physical money, however, cryptocurrencies are decentralized. Being decentralized means that no government or bank controls this currency. Unlike physical money (fiat currency) which needs intermediation by a bank if you want to transfer money, cryptocurrencies can be sent from your wallet directly to another wallet without anyone intermediating.

The first cryptocurrency made and the most famous is bitcoin. Since the last quarter of 2017, there was a lot of mainstream attention to bitcoin due to its sudden rise. In December of 2017, bitcoin’s price soared to around $19,500.00 apiece which had a total market cap of $326b. This is around 4.2% of the global gold market. If bitcoin is to rival gold as an asset, prices have a long way to go before it peak and this is a great opportunity for traders to invest in.

Now we know what cryptocurrency is, let us now proceed to the trading strategy.

As you already know, this is a trading strategy guide that can be used in trading all cryptocurrencies. Actually, this is an Ethereum or USDT trading strategy as much as it’s a bitcoin trading strategy. Why? Because most cryptocurrencies in most exchanges can only be traded using bitcoin, ethereum, or USD tether. Ex. in bittrex, if you want to buy ADA (Cardano), you can only use bitcoin, ethereum, or USDT. You cannot use any other cryptocurrency to buy ADA in this exchange.

Before we move forward, we must define the technical indicator to be used in this strategy. The indicator to be used is the On-Balance-Volume (OBV). OBV is a momentum indicator that uses flow to predict changes in stock prices. It was developed by Joseph Granville in the 1960s and he believed that, when volume suddenly increases without significant change in the stock’s price, the price will eventually jump upward, and vice versa. In layman’s term, if many bought a cryptocurrency but the price didn’t change much, a sudden bull run will follow and vice versa. OBV indicator can be found in most exchange platforms.

How to read OBV?

In theory, if bitcoin is on an upward trend and at the same time the OBV is moving down, this is an indication that people are selling into this rally so the move to the upside wouldn’t be sustainable and vice versa. What we really want to see is the OBV moving in the same direction as the bitcoin price. However, no technical indicator is 100% efficient and in this regard, this strategy will use the OBV indicator with other supporting evidences to sustain and give some confirmation of our trades.

Now, let us proceed to the strategy proper.

There are 5 steps in this strategy and are listed as follows:

1. Overlay the bitcoin chart with a cryptocurrency chart and the OVB indicator.

Your chart should basically look like this. To do this, I use tradingview.com. In tradingview.com, you can overlay multiple currencies and different volume studies in one chart. It is not necessary to use the same exchange but for me, it is better to use the same exchange to ensure that the price and volume movement is constant. Why did I say that a single exchange has constant movement? Because if you’ll analyze the movement of crypto prices, you’ll notice that the trend of bitcoin is somehow the same as the trend of other cryptos which is evident in the chart above. However, this change in trend may happen in different timeframe in different exchanges.

2) Look for the sudden breakout

Simple explaining it, it is the sudden breaching of resistance on a chart which is not present in the other chart.

As you can see in this chart, there is a sudden breakout in the price of ethereum at 1900H which is not constant with the bitcoin chart. Once you have spotted this kind of movement, you should now move to step 3.

3) Look for the OBV to increase in the direction of the trend

If bitcoin is lagging behind ethereum price, it means that sooner or later bitcoin price should follow the ethereum price trend.

The OBV will show us if fiat money is really used to buy bitcoin or the opposite.

The above figure is the perfect example of what we want to see. Looking at the chart, you can see ethereum and OBV breaking the resistance while bitcoin is continuing its sideward movement. This is where we place our buy limit order.

4) Place a buy limit order at the resistance level or a bit above the resistance level.

By putting this buy limit order, we are attempting to catch the possible breakout.

Most of the time, once a coin breaches the resistance level, the price of a coin will suddenly spike up and the resistance level (or a little bit below the resistance level) will become the new support line.

5) Place your stop-loss below the breakout candle and determine your selling point.

As mentioned in step 4, once the resistance level was breached, a little bit below the old resistance level will become the new support level. This is because most people will put a stop-loss below the resistance level and that is also what you should do.

Now, when selling the coin, the first thing to consider is the percent gain of the first coin to increase or decrease. You should calculate the percent gain of the coin that increased first. Once you have calculated the percentage, apply that percentage on the delayed coin. Most likely, that is the point where the bull run will stop. Ex. if ethereum increased by 25%, then increase the current price (or the resistance level price) of bitcoin by 25% (this should be or a little bit lower is your selling price). However, this is not always the case. You should also consider your experience. Based on my experience, 10-20% increase is the average in this kind of scenario. Thus, most of the time, I sell my coins once I already achieved 15% of profit. Just a little bit of advise, set a target profit % and follow this always. Sometimes you might sell too early and you will miss the train. But most of the time, selling at your target is more profitable than missing than train.

Conclusion

There is no strategy that can 100% guarantee that you will earn money. Only by losing will you learn and develop, so, don’t be afraid to try new strategies that suits your personality, time, and commitment. The more strategy you learn, the more strategy you can employ in your trading which in turn will give you better chances in earning profit. I hope this strategy will help you gain knowledge and confidence in cryptocurrency trading.

Example 1

Example 2

Example 3

Disclaimer

This post is not a professional guide nor do I claim it to be. I just want to share my knowledge to my fellow crypto traders; hoping that this will help them broaden their knowledge in crypto trading. The original source material of this strategy is from www.tradingstrategyguides.com (The Best Bitcoin Strategy – 5 Easy Steps to Profit).

Other guide

Crypto Guide for Dummies - Avoiding Beginner's Mistake - https://steemit.com/bitcoin/@vhmcrypto/crypto-guide-for-dummies-avoiding-beginner-s-mistake

Image source

https://venturebeat.com/2017/12/02/cryptocurrency-is-accomplishing-paypals-original-mission/

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