In fact, whenever the market warms up, many newcomers flood into the cryptocurrency circle. Beautiful souls are a dime a dozen, while interesting souls want cars and houses. 'Blockchain may be the only life raft for young people', but in reality, it's not just young people; the cryptocurrency circle has also given countless ordinary people the opportunity to turn their lives around.
Today, I will share my personal experiences over the years in the cryptocurrency circle about several ways to make money. If you are a newcomer still confused, please keep reading.
1. Spot trading.
Spot trading is simply about buying and holding coins; it's quite simple as long as you can hold on. You can refer to this digital currency introductory guide or open the exchange app to learn by yourself. Most people start in this market with spot trading. What are the advantages of spot trading? Mainly stable growth and a variety of options. Capturing a quality project's token can lead to appreciation as the project develops. Over the past few years, out of the top 600 digital currencies by market cap, 61 have produced returns exceeding 100 times. The opportunities, possibilities, and probabilities of making money in the cryptocurrency circle are very high.
In fact, playing spot trading is just about buying low and selling high, which is the same logic as stocks. Spot trading is a one-sided market that is highly dependent on price increases. One either makes money from a one-sided rise or from buying low and selling high to earn the price difference. If you buy poorly, you will also be stuck, so the most important thing is whether you can hold on.
2. Contract trading.
Contract trading is essentially futures trading, where the trading subject is not the actual coin but the rise and fall in the price of the coin; one can go long or short. Trading is relatively freer compared to spot trading. However, due to the high speculation involved, it can easily lead to a gambling mindset, so traders need to have a solid trading foundation and a strong mindset.
In fact, contracts can transcend bull and bear markets because the bilateral profit attribute of contract trading provides profit opportunities for traders regardless of price rises or falls.
In a rising market, go long on strong coins; conversely, in a falling market, short the weakest coins.
Most of the participants in the cryptocurrency circle are short-term traders. When trading, it is often difficult to stick to closing at the ideal point, and they are usually not very skilled at position control. They cannot rely on fluctuations to average their positions, so for most traders, a good entry price is more important than anything else.
Once there is a profit, take some off the table to secure your gains, and set the remaining portion to cost price stop loss. This is something I have always emphasized in my community.
Techniques for making money with perpetual contracts.
1. Avoid going all-in.
Funds should be allocated reasonably, paying attention to liquidation prices and margin utilization rates. Generally speaking, a 30% position is already quite risky, meaning the margin used reaches 30% of the total contract account margin.
2. Grasp the overall market trend.
Trends are far more difficult to execute than fluctuations because trends involve chasing highs and cutting losses, requiring steadfastness in holding positions, while buying high and selling low aligns more with human nature.
Trading is often the case that the more it aligns with human nature, the less money can be made. It is precisely because it is difficult to execute that it becomes profitable.
In an upward trend, any violent pullback should be an opportunity to go long. Do you remember what I said about probability? So, if you are not on the bus, or if you got off, patiently wait for a 10-20% drop, and then be bold.
3. Set profit and loss targets.
Setting profit and loss stops can be said to be key to whether one can profit. In multiple trades, we need to ensure that total profits exceed total losses. Achieving this is not difficult; just follow these points:
① Each stop loss ≤ 5% of total funds;
② Each profit > 5% of total funds;
③ Total trading win rate > 50%
If the above requirements are met (profit and loss ratio greater than 1 and win rate greater than 50%), profit can be achieved. Of course, it is also possible to have a high profit-loss ratio with a low win rate, or a low profit-loss ratio with a high win rate. Anyway, as long as the total profit is positive, it is okay. Total profit = initial capital × (average profit × win rate - average loss × loss rate).
4. Remember to avoid frequent trading.
Since BTC perpetual contracts are traded 24 hours a day without interruption, many newcomers operate daily. With about 22 trading days a month, they might trade almost every day. As the saying goes: 'If you often walk by the river, how can you not get your shoes wet?' The more you operate, the more likely you are to make mistakes. After making a mistake, your mindset may deteriorate, and once your mindset changes negatively, you might act impulsively and choose 'revenge' trading, which could be against the market trend or overly leveraged. This can lead to a series of mistakes, easily causing huge losses that may take years to recover.
What types of contracts are there?
Perpetual contracts: Perpetual contracts have no expiration date; users can hold them indefinitely and carry out their own closing operations.
Delivery contracts: Delivery contracts have specific delivery dates, including weekly, bi-weekly, quarterly, and semi-annual delivery contracts. When the specific delivery date arrives, the system will automatically execute the delivery, regardless of profit or loss.
USDT margin contracts: This means you need to use the stablecoin USDT as collateral. As long as you have USDT in your account, you can trade contracts for multiple coins, and profits and losses are settled in USDT.
Coin-based margin contracts: These require holding the corresponding coin as collateral before trading, and profits and losses are settled in that coin.
Starting from the trading strategy of the demigod in the cryptocurrency circle, which yields four hundred times in a year.
Bitcoin has soared dramatically, igniting some previous trading strategies. The simplest and most straightforward might be the MACD trading strategy of 'Half Wood Summer - The Cryptocurrency Demigod', which claims to yield four hundred times in a year.
To put it simply, it is all about looking for opportunities in MACD continuous divergence.
The above chart is a very good example, fully illustrating the two core points of this trading strategy: continuity and divergence.
What counts as continuity?
When MACD is above the zero axis, if it peaks and does not drop below the zero axis before rising again to create another peak, or drops below the zero axis and quickly crosses again to create a peak, this is what is referred to as continuity.
What constitutes a divergence?
The MACD peaks are gradually lowering, while the stock price is gradually rising, meaning the MACD trend is inconsistent with the stock price trend. This is called divergence.
Of course, inconsistency in trends can be divided into two situations: when the indicator lowers while the stock price rises, it is a top divergence; when the indicator rises while the stock price falls, it is a bottom divergence.
The above image is an example of a top divergence, also for the Hang Seng Index. Before the market started on 924, a bottom divergence had already appeared.
The demigod's trading strategy is to look for opportunities for continuous divergence in the MACD indicator.
First, modify the default first two parameters of MACD from 12 and 26 to 13 and 34, then look for continuous divergences with significant differences between peaks and troughs. Short when there is a top divergence, long when there is a bottom divergence, and then apply ATR with a parameter of 13 for stop losses.
Causes of divergence:
From the above two screenshots, it is evident that shorting at top divergence and going long at bottom divergence indeed presents great opportunities. Everyone can also test this strategy on the subjects they are interested in to see if it can capture some significant opportunities.
In this process, you may encounter two issues: one is that the MACD indicator provided by the platform only includes fast and slow lines and bar charts, without adding divergence identification. This makes it very inconvenient when validating the effectiveness of divergence signals through historical data; the second is that after backtesting the data, one will likely find that divergence signals are quite effective, but bottom divergences tend to be more effective than top divergences.
How to solve the problem of identifying divergence signals, we will discuss later. First, let's analyze the causes of divergence and why bottom divergence signals are more effective.
First, we need to look at the code for the MACD indicator and analyze the logic behind constructing this indicator.
1. DIF: EMA(C, 12) - EMA(C, 26), COLORRED;
2. DEA: EMA(DIF, 9), COLORGREEN;
3. MACD: (DIF - DEA) * 2, COLORSTICK;
That's right, the original MACD indicator is that simple. Implementing the so-called 'king of technical indicators' MACD only requires three lines of code.
The first line calculates the difference between two moving averages of different time periods based on the closing price and displays it as a curve.
The second line calculates the average of the difference of the two moving averages from the previous step and displays it as a curve.
The third line subtracts the two and amplifies the result, then displays it as a bar chart.
Even without studying the design principles of the MACD indicator, we can analyze the causes of divergence just from its code.
If a top divergence occurs, meaning the MACD peaks are lowering while the stock price is rising and reaching a new high, if this situation arises, it indicates that the MACD value is declining.
The value of MACD is obtained by subtracting DEA from DIF, which indicates that the gap between DIF and DEA is narrowing.
DEA is the average of DIF, which indicates that DIF is gradually decreasing or the increase is slowing. At the same time, due to the smoothing effect of DEA, DIF may still rise when the increase narrows, resulting in the narrowing or even reversal of the difference between the two.
DIF is the difference between two moving averages of different periods. When DIF gradually narrows or the increase slows down, it actually indicates that the difference between the two moving averages is decreasing. The short-term moving average is sensitive, while the long-term moving average is smooth, so the narrowing difference can be seen as the slope of the short-term moving average starting to approach the slope of the long-term moving average.
The slopes of the short-term and long-term moving averages begin to converge, which may be due to two reasons: either the stock price has fallen or the increase has slowed. The condition for a top divergence is that the stock price is still rising and reaching new highs, so the narrowing difference indicates that the increase is becoming smaller, which means stagnation in growth.
The same deduction process can conclude that the cause of bottom divergence is stagnation in decline; the decline has stalled.
After a long period of fluctuation, once a trend develops, it is difficult to reverse. After a top divergence, some profit funds may cash out, but those who didn't believe it at first, now gradually entering as they just begin to believe it. Although momentum has weakened, the trend remains, and after a top divergence, there may still be a top divergence, potentially leading to even higher stock prices.
Similarly, after a bottom divergence appears, there may also be lower low points formed. However, compared to rising trends, falling trends are often shorter in duration and larger in amplitude. Especially after several rounds of panic release, people become desensitized to negative news, feeling that there is no further drop. Most of the remaining participants are determined holders, combined with the psychological advantage of buying at low levels, often triggering a strong rebound. Therefore, bottom divergence signals are more likely to materialize.
Identifying divergence.
When the stock price reaches a new high while the indicator does not, it indicates a top divergence, suggesting that the strength of the bullish trend is weakening, and the market may undergo a top reversal; when the stock price reaches a new low while the indicator does not, it indicates a bottom divergence, suggesting that the strength of the bearish trend is weakening, and the market may undergo a bottom reversal.
Since it is a 'possible reversal', this indicates it is a left-side trade. If the trade is also a contract, it is understandable why the demigod can achieve such high returns relying on this strategy.
Of course, since it is left-side trading, there may be situations of 'peaks within peaks, troughs within troughs, divergences following divergences'. Thus, the demigod's trading strategy specially adds ATR-based stop losses to avoid trading contracts against a strong trend, which poses the risk of going to zero or even liquidation.
Having both entry signals and stop-loss rules logically presents a relatively complete trading strategy. However, the problem is that if one relies on the naked eye to identify MACD continuous divergence situations, the efficiency may be very poor.
Although there are relevant indicators in TradingView to assist in trading, such toolbox-type indicator tools are rarely seen in domestic trading software. Most just have flashy names, giving people the illusion that they can earn without loss just by trading according to indicator signals.
However, we all know that for different markets, different subjects, and different timeframes, the trading signals issued need to be treated differently.
In strong trending markets, the KDJ indicator may remain in the overbought/oversold range; in fluctuating markets, moving average indicators may repeatedly cross positively and negatively. If one relies entirely on a single signal, it is likely to lose all their capital after a period.
Therefore, technical indicators should actually be viewed as auxiliary tools, primarily serving to improve efficiency. For instance, for MACD continuous divergence, if we can use technical indicators to automatically identify this pattern, it can help us better seize such opportunities.
The identification of divergence has three key points: triggering mechanism, time range, and judgment method. In previous articles, we have introduced a simple way to identify divergence using MACD color changes.
This identification method is quite simple, using the golden and death crosses of MACD as the triggering mechanism, using two golden/death crosses as the time frame, and judging whether divergence has occurred based on the trajectory of DIF and stock price at the time of the crosses.
This actually belongs to a speculative shortcut method, which may be acceptable in general cases for a rough overview, but if one wants to identify signals based on the demigod's trading strategy, it is clearly not suitable.
For instance, a continuous top divergence refers to several consecutively decreasing peaks, and there are no pullbacks below the zero axis between the peaks, or if there are, the number of bars below the zero axis is minimal.
Thus, its triggering mechanism requires first finding the peaks, then backtracking to see where the previous peak was located, checking whether there is any part below the zero axis between the two peaks. If there is, we also need to check if the number of bars below the zero axis exceeds the threshold, and finally determine whether both peaks are descending while the corresponding stock price is still rising.
Similarly, a continuous bottom divergence requires a trough to appear first, then backtrack to the previous trough to see if there is any part above the zero axis between the two troughs. If there is, we also need to check whether the number of bars above the zero axis exceeds the threshold, and finally determine whether the two troughs are rising while the stock price is still falling.
Comparing the screenshots provided at the beginning of the article, we no longer need to manually draw lines to assess whether continuous divergence has occurred. By using a customized technical indicator, we can identify whether MACD has diverged and connect the peaks and troughs. In the main chart, we can connect the highest or lowest prices corresponding to the MACD peaks and troughs, making the identification of divergence clear at a glance.
Of course, since it is a custom indicator, the conditions for continuous divergence can be set according to your preferences. For example, whether peaks and troughs need to appear consecutively two or three times, how many bars below the zero axis are between peaks, and how significant the differences between consecutive peaks and troughs must be can all be adjusted.
Identifying trends.
A divergence-based trading strategy will enter the market when the trend is not yet fully confirmed, exhibiting the characteristics of left-side trading. Therefore, ATR-based stop losses are indispensable as an important component of the demigod trading strategy.
However, we can definitely combine other technical indicators to further reduce the potential risks brought by left-side trading. MACD measures the strength of the trend; regarding the trend itself, moving average indicators can naturally be used to measure.
Generally speaking, most people identify trends based on the crossover of short-term and long-term moving averages. However, there is a persistent problem: if the two time parameters are too close, the two moving averages may frequently cross, leading to a large number of false signals; on the other hand, if the two time parameters are too far apart, the timing for entering and exiting will be severely delayed.
Thus, we can adopt such a method: choose a personal preferred time parameter, and then select different moving average algorithms to obtain the fast and slow lines.
For example, we first calculate MA10 from the closing price, then find the EMA10 of MA10. This mimics the calculation principles of DIF and DEA, resulting in two fast and slow lines, and then we can establish buy and sell signals based on the crossover of these two lines.
Of course, this method, compared to traditional double moving averages, although it only has one time parameter, it inevitably faces the issue of filtering out false signals.
The market is often in a state of fluctuation, so we can use whether it is overbought or oversold as a filter for moving average crossover signals.
For example, when the double moving averages cross positively, if the RSI indicator value is in the range of 50-70 (over 70 is considered seriously overbought, do not chase high) and is rising, it is considered an effective long signal; when the double moving averages cross negatively, if the RSI indicator value is in the range of 30-50 (below 30 is considered seriously oversold, do not chase low) and is falling, it is considered an effective short signal.
At the same time, further restrictions can be placed on candlesticks, requiring that during long trades, the lowest price must be above the fast line, and during short trades, the highest price must be below the fast line. This way, the effects shown in the image below can be achieved.
Thus, this is actually a complementary system, but there is still significant room for improvement in terms of signal prioritization, compatibility of short and long-term strategies, historical data backtesting, and parameter tuning.
We welcome all star friends to provide more feedback while using the indicators so we can further optimize and iterate on them.
Trading cryptocurrencies requires patterns, discipline, and mindset, all of which are essential. Understanding takes time; the longer you spend, the deeper your understanding.
At first glance, it seems like useless platitudes; once you realize it, you find that these six words are the essence of winning in cryptocurrency trading!
Closely follow Su Ge, analyze with precise strategies, use huge sums of AI big data to carefully select, and position yourself to be invincible? The market never misses opportunities, the question is whether you can seize them. By following experienced people and the right individuals, we can earn more!