Updated Crypto Strategy

I have made some changes to my crypto strategy. The primary changes are the alts that I view as investment vehicles versus trading vehicles only. In the past it was primarily market cap based, but now I am going into more research and really looking at the tech behind the coins. The second major change is that I am now utilizing stops on BTC as, in my view, that market is reaching some extreme parabolic levels. It may not crash anytime soon, but if/when it does those without stops will be in for a very bad time. Another thing I want to do is try to get into more detail of a few trades that I have made and my thought processes behind them in order to make this more of a stand alone guide instead of people having to go through my stock trading guide.

If you want to see the old post it is here, but this is the best reference for my current strategy. Like all of my strategies I do iterate as needed. I don’t iterate just for the sake of iteration, but when it makes sense to I absolutely will.

Why Crypto?

I recommend newer traders, or traders with a smaller account balance to strongly consider trading Cryptocurrencies. The volatility is off the charts. Volatility equals potential. If you can be a winning trader here, you can do much better here than in equities. You can much more quickly grow your account in Crypto.

These markets have a lot of amateurs and not a lot of professionals. This equals opportunity if you are serious.

There are risks. High volatility does equal high risk. The exchanges have had many issues in the past with hacking, downtime, etc. I find these markets to be somewhat like a high tech version of Jesse Livermore’s bucket shops, if you have ever read Reminiscences of a Stock Operator.

Please do your research before jumping into this.

Prerequisites

I recommend going through my stock trading method series before reading this post, though I do attempt to cover most of what you need to know here. There are many parallels between my equities method and my crypto method. I have added in elements of the Brian Beamish “Little Old Lady” Method and Lucky36Luc’s method.

Tools

For charting and alerts I recently made the switch to Coinigy. I used to use TradingView for charts(I still use them for stocks, occasionally for crypto), and the android app Bitcoin Checker for alerts. The problem with Bitcoin checker is the client side nature of the alerts. Crypto moves fast and on occasion you will not get an alert as the app only updates on a set interval. Even with mine set at 5 minutes I would miss alerts from time to time.

Coinigy has server side alerts. This feature by itself makes it worth the cost. I never miss an alert this way. I can set up SMS and/or email alerts. It is powerful and useful. Coinigy is currently working on scanning features which would be a huge deal for me and many other crypto traders.

Exchanges I Use

I use GDAX to buy Bitcoin and Ethereum. Once in Bitcoin I move some over to Poloniex and/or Bittrex for alt trades. Poloniex is my primary alt coin exchange. Any popular alts that I cannot trade at Poloniex I trade at Bittrex. I have also been using Binance more and more recently.

For Ethereum I typically sell half at a 100% gain, but as with everything I plan every trade before hand and every trade is handled differently base on market conditions. I will also take small profits below key resistance areas. Free USD is used to place tiered orders near key support/retracement levels for both BTC and ETH. I do utilize stops on both ETH and BTC. I am a trader and investor of BTC and ETH, so I try to keep a small amount of each at the completion of each trade. There are times, however, that I make a decision to liquidate my entire holdings when the markets get extremely parabolic.

If you look at my Weekly Setups, you will see the alts that I am currently trading. I have a tab for “Top Alts” that I trade with larger position sizes. I will utilize up to 50% of my alt coin BTC balance(25% of total balance) for a trade. It depends on the quality of the setup.

Check my Google Sheet and you can see where I am placing my alerts/bids at. It is similar to my stock trading strategy in that I look for fairly deep pullbacks to strong support levels. Horizontal support meeting trend line support is ideal for me.

I do keep my technical analysis fairly simple. I don’t get into crazy 30 minute technical analysis of one chart. It works for me, maybe others need to go more in depth. I do look for deeper pullbacks in these coins than I would in BTC, ETH, or a stock. I will keep a small amount of these coins from winning trades in case of a blow off top rally. Crypto has some insane pumps. As always, stops are used on these trades.

Trade Only Alt Coins

Any coin not listed are coins that I will only trade, with smaller position sizes and typically shorter time frames.

The Next Tier of Alts

Some of these are undoubtedly good coins with good stories, but until the trading volume and/or market cap is high enough I will not add them to my tabs. Many of these are scam coins. However, I will trade them, but obviously with very small position sizes and I do not keep any after the trade. I did go through the arduous process of placing an alert with Coinigy on every single coin that trades on either Poloniex or Bittrex. I do this because I do not have a real good way to scan for setups like I do in stocks. I typically place these alerts on these coins at or near all time lows.

Trade Examples

BTC

[BTC pullbacks][(https://www.tradingview.com/x/RuZkVGpZ/)]

You can clearly see the pullbacks and lengths here.

BTC I trade basically as a trend follower. It has strongly trended for a long time. Every few days I adjust my buy levels for attempting to catch the next 30-40%-50% retracement. BTC has given these multiple times over that last few years. Pull up a BTC/USD chart and look at these pullbacks. They exhibit extremely similar characteristics. A sharp initial sell off of the break of the uptrend line, followed by a swift rally that makes many traders think the danger is over(bull trap), followed by a slow, steady pullback. At the end, capitulation occurs, wherein there is a sharp drop followed by a quick reversal with huge volume. This creates a V-shaped bottom. Finally the right side of the base is filled out quickly and soon new all time highs are reached. The average length of these pullbacks is about 52 days(that came from Brian Beamish, but you can easily figure this out yourself).

A lot of technical analysis is analyzing what has happened in the past in a particular market and trade based on the idea that history will likely repeat itself. That works until it does not, and in my opinion BTC is as of the time of writing this, very due for a real bear market type of correction with the chart being parabolic. and not having deeper than a 50% pullback in so long. The longer a market stays in extreme overbought conditions without a meaningful pullback the greater the chance is for the market to change characteristics. By that I mean provide a longer more intense pullback. Some would say crash or bear market.

Does that mean we cannot continue to buy pullbacks? No, we most certainly can continue to trade BTC on the long side in these situations, but it is advisable to use stops, smaller positions sizes, etc. Keep in mind the majority of players in this space do not believe in stops. Being stopped out is painful but feels amazing when it saves a catastrophic loss.

ETH

Ethereum made a massive run in early 2017 followed by a massive 70% correction that so far has lasted 166 days. I love to accumulate within these long boring bases. I like to leave some funds in reserve in case the base fails, but the longer this base lasts the less likely a break below this base is. If/when this base breakouts a big run is possible. Buying at horizontal support is not flashy or super complex, but it is effective and gives great risk/reward. Buying breakouts is way more exciting, but has much worse risk/reward characteristics. A lot of alt coins build these lengthy consolidation patterns where you can set orders near the bottom of the consolidation for accumulating.

When a coin is trending, buying trend line touches is viable, but I don’t go as big on my position sizes the longer the run goes on. The first trend line touch can be a fairly large buy. ETH is a good example of what tends to happen after a parabolic move ends…

XRP

XRP/BTC looks like a chart that would have caused a trade to stop out many times while buying support levels. Even though I buy most of the alts with BTC, I always reference the USD chart for setting profit and stop levels.

Stops

For setting stops on alts I always use the USD chart even if I buy with BTC. See my post on money management for an in-depth overview of setting stops in stocks. However, in crypto due to the enhance volatility you do need to often use larger stops. In a nutshell, I always try to have at least a 1:1 risk reward ratio for my stops. So if my first profit target is 50%, I want to use at least a 50% stop. Now I try to not use greater than 20-30% stops whenever possible, because a vicious correction across the entire sector could wipe you out. 20% across the board would be tough, but better than 50-80%.

I want my stop to be at a place that it is unlikely to be hit. Below a very strong support level that is outside the normal volatility range of the coin. I eyeball the chart, measure the past pullbacks, and try to be below the depth of the majority of the pullbacks for the coin. This is not always possible, but this is the ideal scenario. I often will adjust my targets based on where my stop is placed. If I have to use a tight stop, then I am going to take profits sooner.

I will raise my stop as the coin moves up and reaches profit targets. Since I layer into a lot of trades, I will adjust the stop as my average price changes.

Targets

Targets are often set after stops. My first profit target will be anywhere from 20-100% depending on the chart. A chart that has a history of 100%+ moves I will be more prone to using a larger target. Obviously, if I am setting a 100% profit target I am not going to use a 100% stop. I almost always have multiple profit targets.

Day Trades

I occasionally take on shorter term mean reversion trades. For these I really just emulate quickfingersluc. Joining the slack group and using the various scanners available can help. These trades are only done when I am at my computer. They require a great deal of active watching of the charts to pull off. Most of these coins cannot be traded with large size, so for me the big money had been made in the longer term trades.

The End

I think I have covered everything for my crypto strategy. Any questions please ask.

Disclaimer

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