On the journey of digital currency investment, I started as a small individual with only 20,000 yuan in initial capital, gradually striving and ultimately transforming into a middle-class individual with a net worth of 45 million.
Today, I am willing to selflessly share the valuable experiences from this journey with every like-minded friend.
Let me tell a small story:
On the African savannah, lions will guard a group of antelopes all night; lions will not recklessly attack at night; antelopes will take turns standing guard to observe the surroundings.
What is the lion waiting for? In fact, it is waiting for the antelope herd to appear with a flaw.
When the first ray of sunlight shines on the earth at dawn, the antelope that has slept all night will have accumulated urine. It is known that an antelope cannot urinate while running, and an antelope carrying urine cannot outrun a lion that is poised to pounce.
Thus, the lion will choose an antelope that has not urinated all night to attack in the early morning. The lion has also stayed up all night; it will not compete with the strongest antelope in endurance but will target the one that has accumulated urine overnight.
The prey either runs until it bursts its bladder or is ambushed by the lion (the sheep that sleeps without urinating all night is also lazy), or it cannot exert its full strength due to the burden of the bladder and is caught by the lion.
This small story illustrates the winning strategy for traders in their game against the market.
When trading, you must learn to wait; this is one of the important criteria for evaluating whether a trader is professional or not.
So how to excel in trading cryptocurrencies? Once a person enters the financial market, it's hard to turn back. If you are currently at a loss and still feeling lost, but plan to treat cryptocurrency trading as a second career, you must know the 'W-bottom pattern trading strategy.' Understanding and mastering it will help you avoid many detours. These are firsthand experiences and feelings; I suggest saving and reflecting on them repeatedly!
What does the 'W' bottom pattern look like? Let’s take a look at a real cryptocurrency price chart:
The black line indicates the W-bottom pattern, which resembles the letter 'W', and is a typical bottoming pattern, hence the name 'W-bottom pattern.' It is also called the double-bottom pattern.
How to predict future price directions through the 'W' bottom?
Through technical analysis, we simplify the complex K-line trends:
We will simplify the W-bottom pattern to make its structure clearer. To predict the future price direction, we need to rely on a magical straight line.
First, find the high point A between the two bottoms and draw a horizontal line through point A, called the neck line.
Above the neck line is the bullish advantage zone; within this range, it is advisable to buy long rather than sell short. ① Below the neck line is the bearish advantage zone; within this range, it is advisable to sell short rather than buy long.
When the price is below the neck line, the neck line acts as a resistance line. The market shows that near the price of the neck line, the number of active buyers is significantly less than the number of investors ready to sell, creating upward resistance. If there are no more buyers in the market, the price cannot break through the resistance line, leading to a natural decline.
When investors buying at market price continue to flood in, causing the number of active buyers to eventually exceed those willing to sell, the price breaks through the resistance line, forming an upward trend, and the W-bottom is declared successful. After the important resistance is broken, investors who were watching the market gain confidence in future price rises and buy the coin, further pushing the price up.
With the future price rises and falls known, how can we seize the best buying and selling timing?
When the W-bottom pattern is about to form and the K-line breaks through the neck line, as shown, it is a green rising line, and if the K-line body crosses the neck line, it is a clear bullish signal. This position constitutes the first buying opportunity, and the market is highly likely to rise.
Since the market is always in a state of long-short game, even if the price has formed a W-bottom, there will still be sellers suppressing the price rise. As shown, after the price breaks through the neck line, it forms a slight decline, pulling back to near the neck line before rising again. We call this price change a pullback confirmation of support. Pulling back to the neck line constitutes buying opportunity 2.
The third buying opportunity arises when the price pulls back to the neck line and then rises again, breaking through the previous high point. The method to confirm the breakout is still to observe the closing result of the K-line; whether the upward K-line body crosses the resistance line. If the result is as shown, then confirm buying point 3.
Let’s summarize the application techniques of the W-bottom pattern.
First, confirm the structure of the W-bottom pattern and draw important support and resistance lines—the neck line. With the continuous changes in the market, we can discover up to three excellent buying opportunities: breaking the neck line—Buy Point 1, pulling back to the neck line—Buy Point 2, breaking the previous high—Buy Point 3.
Careful students must have noticed that the application techniques of the W-bottom are very similar to those of the head-and-shoulders bottom pattern. What are the differences between the two?
1) The number of bottoms is significantly different. The head-and-shoulders bottom has a three-bottom structure, while the W-bottom has a double-bottom structure.
2) The shape of the neck line is different. The neck line of the head-and-shoulders bottom can be an inclined straight line, while the neck line of the W-bottom must be a horizontal straight line.
Investing requires not only knowing how to buy but also knowing how to sell.
Earlier, we learned how to find buying opportunities through the W-bottom pattern; now we will learn how to predict future price rises through the W-bottom pattern and find better selling opportunities.
First, we draw a vertical line segment from the nearest bottom to the neck line, measuring the height of the vertical line segment as H.
Move this vertical line segment, as shown, above the neck line. When the future price rises to height H, it forms the best selling point within the predictable range; the market is highly likely to decline afterward. Of course, if the upward trend is strong, it will continue to rise longer and higher. The excess portion belongs to excess profits, which are not within the predictable range.
Now let's review a few real cases.
As shown, the 4-hour chart of Bitcoin against USDT formed a W-bottom pattern with three buying opportunities, indicated by yellow dots in the chart. The final rise exceeded the predicted range, resulting in excess profits.
The second case, as shown, is the 15-minute chart of EOS against USDT. After forming a W-bottom pattern, the price rose quickly. Although there was a pullback, it did not touch the neck line, and ultimately only one buying opportunity appeared.
Case three's screenshot is from the 1-hour chart of ETH in OKEx's quarterly contracts. After the W-bottom formed, the highest price during the first rise exactly reached the predicted highest point. Subsequently, a new round of bull-bear contention formed near the neck line.
The last case comes from the 1-hour chart of Litecoin against USDT. The W-bottom appeared near the previous low price level, and when the price later rose to the predicted height, it experienced stagnation and then decline.
The market changes rapidly, like unpredictable weather; how to foresee danger and avoid storms? The ancients said: 'The mountain rain is about to come, the wind fills the building.' Before a major drop, the market often provides some signals.
Even if a W-bottom forms, it does not guarantee that the subsequent rise will be foolproof. Once the price pulls back to the neck line support and forms a downward K-line, with the body falling below the neck line, it is a prelude to the coming storm, forming a sell signal; the market is highly likely to form a downward trend as shown.
An excellent investor will not only sell their chips when making a profit to maximize profits within a known range but will also sell their chips when losing money to minimize losses within a controllable range.
We will stop here for the bottom-fishing pattern—W-bottom. In the next lesson, we will discuss the 'bottom-fishing pattern—round bottom.'
Finally, let me summarize a set of iron rules for trading cryptocurrencies:
1️⃣ The time difference between the East and the West means staying up late to watch the market 🌙 Crypto market trends are mainly concentrated around European and American hours (21:30-7:30 Beijing time), and the early morning is when prices surge! So, do you want to make money? Staying up late is a must! Sleep at 20:00, wake up at 4:00 to monitor the market; this is the routine of a qualified trader ⏰
2️⃣ Don’t panic during daytime drops; foreign traders will pull the market at night 🚀 Domestic markets drop during the day? Don’t worry! At 21:30, foreign traders enter, and in a minute they can bring it back! Remember: daytime drops are buying opportunities, and don’t chase after daytime rises; they will likely drop back at night 📉
3️⃣ The deeper the pin bar, the stronger the signal 📌 K-line pin bars (long upper and lower shadows) are a common tactic of market makers; the deeper the pin, the stronger the reverse signal! After a pin bar, it is often the best time to buy or sell; don’t be fooled by market makers!
4️⃣ When news is released, it is usually bad news 📢 Before major meetings or good news, the price will definitely rise, but once the news is released, it will immediately fall back! So, layout in advance, and once the news comes out, hurry to sell, don’t be greedy!
5️⃣ Community recommendations? The reverse operation is correct! 🤔 The coins that are wildly recommended in the group, described in extravagant terms? Don’t believe it! They are likely traps! The hotter a coin is, the more cautious you need to be; reverse operation is the way to go!
6️⃣ Heavy positions will lead to liquidation; light positions are the way to survive 💣 Holding heavy positions? Congratulations, you are already on the liquidation list of the exchange! Market makers focus on heavy position users, pulling up and crashing down, making you liquidate in no time! So, diversifying with light positions is the way to survive!
7️⃣ Stop losses lead to drops, profit-taking leads to rises 😭 When stop-loss orders are executed, prices fall, and when profits are taken, prices rise; the market makers don’t want you to make money! Therefore, be cautious with stop losses, take profits in batches, and don’t let market makers lead you by the nose!
8️⃣ Is it just a little more to break even? Don’t dream! 🛑 Just about to break even? The rebound suddenly stops! How can market makers let you escape easily? Therefore, when approaching a break-even point, reduce your position appropriately; don’t be greedy!
9️⃣ Excitement = waterfall warning 🌊 When you are overly excited, the waterfall is about to come! Market makers use your emotions to harvest profits; maintaining calm is the way to survive!
🔟 When money is tight, the crypto market is full of opportunities 💸 When you have no money, every coin is rising, and FOMO emotions are at their peak! But remember, 80% of the market is manipulated; don’t rush in easily, patience is the key to winning!
The last two points are left for you to add! Tell me in the comments, what other crypto market traps have you encountered?
👇 The crypto market is a psychological battle, competing with patience, composure, and timing! Remember these 10 iron rules, avoid pitfalls, and make more money!
The above are trading insights from 10 years of cryptocurrency trading experience. After many ups and downs, these are heartfelt words of enlightenment, hoping they will be useful to everyone. Produced by Yan’an, they must be of high quality; there are beauties in the crypto world, unparalleled and independent, with a soulful approach to trading!
No matter how diligent a fisherman is, he will not go out to fish in the stormy season but will carefully protect his fishing boat; this season will eventually pass, and a sunny day will come! Follow me, and I will teach you both how to fish and how to fish sustainably. The door to the crypto world is always open; only by going with the flow can you have a successful life. Save this and keep it in mind!