After more than ten years of trading cryptocurrencies, I incurred losses of 8 million in the first three years. After self-adjustment, I achieved financial freedom in the following seven years, with stable compound returns, a monthly income in the seven figures, and an annual income in the eight figures!
If you are currently losing money in cryptocurrency trading, take a few minutes to read this article, and you will find the answer!
Everyone should take a look at my reflections after losing 8 million: I realized one truth—only one type of person gets rich from trading cryptocurrencies!
In the cryptocurrency world, one day is equivalent to a year in the stock market. Those who trade cryptocurrencies are no longer interested in stock trading. The all-day trading and unrestricted price fluctuations in cryptocurrency fulfill many people's dreams of getting rich overnight, which is one of the reasons why virtual currencies are so popular. This also explains why losses in the cryptocurrency market have become a very normal phenomenon.
It is better to teach someone how to fish than to simply give them fish. Cryptocurrency investors, whether novices or experts, gain not only financial returns on sunny days but also growth in investment knowledge and experience.
In following Yan An's investment process, it will not only provide investors with analytical thinking for the market, foundational knowledge for observing the market, and various investment tools' usage methods, but also deliver exciting macroeconomic interpretations, analyses of chaotic international situations, and the distinction of various investment forces.
Let you become both a winner and an expert in your investments!
So how can we do well in cryptocurrency trading? Once a person enters the financial market, it is difficult to turn back. If you are currently losing and still feel confused, but plan to make cryptocurrency trading your second career, you must understand the 'six-stringed instrument strategy.' Understanding and comprehending it will help you avoid many detours; these are personal experiences and feelings, so I recommend saving and repeatedly pondering over them!
To understand moving averages, you must know the relationship between moving averages and prices. So, part one: what is the relationship between moving averages and prices?
The moving average is born from the price; the price determines the moving average, and the moving average exerts support or resistance on the price. This is the relationship between price and moving averages.
All operations in the financial market are for profit. Before the short-selling mechanism appeared, the financial market only had an upward direction, allowing prices to generate positive price differences, enabling holders of spot assets to profit from these positive price differences. For example, buying at 1 USD and selling at 1.2 USD results in a profit of 20%, earning 0.2 USD on 1 USD. If the price falls, it creates a negative price difference, buying at 1 USD and selling at 0.8 USD results in a loss.
A moving average, as the name implies, is the average price line over a certain time period, referred to simply as a moving average. The 7-day moving average is the average price held by holders over the past 7 trading days. If the price is above the moving average, it indicates that holders over the past 7 trading days are all in profit, suggesting a positive market; if the price is below the moving average, it indicates that holders over the past 7 trading days are all in loss, suggesting a negative market.
When the price is farther from the long-term moving average (upward), it indicates that holders within that period are all in profit, leading to a very positive market. Conversely, when the price is farther from the long-term moving average (downward), it indicates that holders within that period are all in loss, leading to a very negative market.
So we often see that in a bull market, prices run above long-term moving averages for a long time, while in a bear market, prices run below long-term moving averages for a long time.
Next, everyone opens AICoin, finds the BTC/USDT trading pair on Huobi, then clicks on indicators, and I will teach everyone how to set up the six-stringed instrument.
The so-called six-stringed instrument is a moving average judgment system composed of six moving averages. These six moving average cycles range from short to long:
7-day line, 14-day line, 43-day line, 86-day line, 179-day line, and 359-day line.
Everyone should fill in these values, and then confirm, and you will see your moving average system transform into the six-stringed instrument strategy system.
Why these numbers? Because trading in the cryptocurrency market operates year-round, with a week consisting of 7 days, two weeks amounting to 14 days. This corresponds to the traditional market's 5-day trading week, totaling 10 days over two weeks. The efficiency of time operation in longer cycles is 6.6 times that of traditional financial markets (the cryptocurrency market operates year-round with no holidays, while traditional financial markets have weekends and holidays). Therefore, these numbers have been verified by Old K and are considered relatively accurate.
After setting it up, let's talk about why moving averages have support or resistance on prices.
When the price has not broken below the moving average, why is there support when the price returns near the moving average? Because outsiders believe that those who bought during that period are making a profit, leading them to think they can also profit by buying in. As this buying expectation strengthens, the support of the moving average will increase. However, once the price breaks below the moving average, it indicates that those who bought in that period are beginning to incur losses, which may signal a change in the market, leading to increased selling sentiment and further breaking of the moving average, creating a suppressive effect.
So we often see the market rising along a certain moving average, and every time it returns near the moving average, it produces a rebound. When it breaks below that moving average, even if there is a rebound, it will fall back when it encounters that moving average.
Therefore, from a certain perspective, we can consider the moving average system as a gas station or air compressor for the market. In an upward trend, every pullback to the moving average is like refueling, while in a downward trend, every bounce off the moving average is like pressure release.
After setting the relevant values, everyone opens AICoin and enters 'Bitstamp' in the box in the upper left corner. This is currently the most comprehensive Bitcoin chart available in the cryptocurrency market.
Regarding Bitcoin's market, it can be traced back to the lowest price of 2.2 USD around August 2011.
Have you opened your mind?
Then everyone should see that the longest cycle, the blue moving average line, the 359 line, has not been broken during the market's upward phase; once it breaks, the market enters a bear market.
In the above chart, it is clear that when the daily line breaks below the blue line, the market is almost doomed to turn bearish; breaking above the blue line indicates the market is about to turn bullish. Except for the slight unexpected break and recovery during the 2019-2020 period, all other times have followed a very regular pattern. Why did that period change? It's simple: the four-year halving market created excessive expectations; without a little trickery, it would be impossible to force out retail investors' holdings. Thus, subsequent lure points led to a wave of short-killing and a wave of long-killing, with the blue line being broken and pierced like a needle.
However, if we zoom in on more details, we will see that the brown moving average, the 179 line, forms a golden cross with the blue moving average, the 359 line, which generally indicates strength, while a dead cross generally indicates weakness.
So what is the current state?
With the blue-brown golden cross state, as long as the blue moving average does not break, worrying every day that the bull has left is rather foolish.
There should be no dispute about the golden cross of the 179 line and the bull market of the 359 line, and the death cross leading to the bear market, right?
Since there are no doubts about this point, we can move on to more detailed studies, which is the second part: the rules of moving averages.
We have briefly discussed the rules of moving averages in the first part: when the price is above the moving average, a pullback is like refueling; when the price is below, a bounce is like releasing pressure. In other words, moving averages exert support and pressure on prices. When the price is above the moving average, the moving average is the source of rebound power; when the price is below the moving average, the moving average is the source of downward pressure.
In practical application, for example, if we look at the current situation, if we operate without breaking the blue line, we will find that I cannot open a position at around 60,000 USD and set a stop-loss at the blue moving average around 22,000 USD. How much margin would that require? It would be like using a wallet worth tens of thousands to hold a few coins; that wouldn't be appropriate, right?
Thus, we need to observe more detailed aspects.
These detailed aspects are the core essence of the six-stringed instrument strategy, so please pay attention.
Details of the six-stringed instrument strategy: First, find the core string (moving average).
The so-called core moving average is the one that the main force likes to use when manipulating the market; when the market is above that line, it indicates strength, and when it falls below, it indicates weakness. This moving average is the core moving average of that market. Each round of market activity has a different core moving average, which should not be memorized mechanically.
For instance, at the very beginning of the market details, you can see that the yellow and white lines not breaking indicates an uptrend, while breaking the purple moving average indicates consolidation, until it returns to running above the yellow and white lines. When the yellow and white lines entangle and repeatedly form golden and dead crosses, this indicates a consolidation market. Thus, during that phase, for short-term trading, the purple moving average is the core moving average; if this line is not broken, it indicates an uptrend, and if it breaks, it shifts to consolidation.
The market from 2015 to 2017 was also the same, which indicates that in detail, the play style is the same: the area above the purple line is strong, breaking it leads to consolidation. The purple line is the core moving average for short-term fluctuations.
Since this wave of market activity, the initial phase clearly follows this play style: the yellow and white lines indicate an uptrend, while breaking the purple line leads to consolidation. However, after 10,000 USD, pay attention to the market; the first time the purple line was not broken, it continued to rise. The subsequent movements were slightly below but never broke the purple moving average for more than one day. Hence, market developments have never seen a relatively significant consolidation; it looks daunting, but overall, it remains in an upward trend because this key moving average has not been broken.
Therefore, for operational purposes, the simplest application of the six-stringed instrument is: primarily going long and buying above the 43-day line (purple line), and going short and selling if it breaks. If it re-establishes or breaks down again, repeat the above process. This is for short-term trading.
For the Pixiu, it’s simple: if the blue 359-day moving average is not broken, and the blue-brown moving average does not form a dead cross, it is not a bear market, so one can continue to hold. Of course, those of us who know some peak escape skills can exit at the highest point without waiting for a pullback or the moving average to form a dead cross.
For ordinary investors, having these two applications is basically sufficient, so those without further enhancement needs can study on their own. For those with enhancement needs, we will continue to break down to more detailed content. The next section will be relatively challenging and hard to integrate, so be prepared mentally. Let's further refine it.
Back to the initial price chart.
This is the entirety of the 2013 bull market.
This is the entirety of the 2017 bull market.
We will discover a problem: the blue line has not touched at any point, but the brown line has been pierced twice.
Why is the brown line important?
The brown line is the 179-day line, corresponding to the 120-day line in traditional financial markets, also known as the half-year line or the bull-bear dividing line. As the name suggests, this moving average represents a half-year period (excluding holidays, traditional financial markets only have about 250 trading days a year, so the half-year line is 120 days, while the cryptocurrency market operates without breaks, making 180 more appropriate; 179 is my precise calculation result). Therefore, this line is very important.
This is interesting; why did the market pierce the brown moving average twice during its run?
It creates an atmosphere where 'the bull-bear dividing line has been broken, and the market is about to turn bearish.' Breaking it twice reinforces this atmosphere, also known as creating a short-seller trap, making people think the market is over and prompting short-selling, which then leads to a kill.
By observing past trends, we find that after the second piercing of this brown moving average, it not only did not decline but instead welcomed a stronger rise, until the third time it broke down.
Why is it the third time things have gone wrong? It's not complicated. As the saying goes, things come in threes. If we want to be more philosophical, it could be said that one gives birth to two, two gives birth to three, and three gives birth to all things. I won't elaborate here, but in summary, numbers like 3 or 9 are very sensitive numbers. 3 represents the initial birth of all things, while 9 represents the ultimate state of all things.
So, for overall market judgment, it is quite simple: as long as the blue line remains unbroken, there is nothing to worry about; the first or second piercing of the brown line is an excellent opportunity to go long; breaking it for the third time is disastrous.
The moving average represents the average price level over a certain period, and different periods are actually the same; only the strength of the indicative meaning differs. For example, if everyone looks at smaller-level moving averages, such as the 4-hour line, it follows the same rule, where the yellow and white lines indicate an uptrend, breaking the purple line indicates consolidation, and returning to the purple line indicates a renewed rise, continuously cycling. The larger the level, the stronger the indicative meaning because it requires more cost to change that state, making it harder to change; the smaller the level, the lower the cost to change that state, making it easier to change. For example, in minute-level trading, the rules are the same, but much messier.
For example, in the 4-hour chart, the white arrow indicates an uptrend, but the purple line does not break; in the daily line, the same segment is represented by the yellow and white lines. If we zoom in, the answer becomes clear: in the 4-hour chart, the purple line is accompanied by many yellow and white lines. They are the same.
From another perspective, the 4-hour chart is 1/6 of the daily chart cycle, and its 359 line is actually the 60-day line of the daily chart level. For smaller cycles, you can calculate them on your own; I haven't gone into such detail. If you study and research it carefully, you could even calculate a more scientific and precise moving average system based on this.
Now, if we look at the 4-hour system, we will find an interesting phenomenon.
This means that a rebound market can allow for a maximum of four relatively obvious high points.
The first point is a normal breakout point; the second and third points are normal operational fermentation points. The fourth point usually indicates a turning point or a lure point, where a pullback may easily occur.
Zooming in to the daily level, similarly, a wave of significant market activity generally consists of four points.
Why are there four points? As stated above, the first is the breakout point; once the market confirms the breakout, it has begun. The second and third points are those that need to be made for the market to ferment. Two points anchor a straight line, and the third point determines whether the pressure or support established by the first two points is effective. If broken, it becomes ineffective, resulting in a fourth point; if not broken, the pressure or support is effective, and there is no fourth point. The generation of the fourth point usually indicates a lure for either long or short.
The market generally has four points; the significance of the fourth point is very simple: the way you stood guard initially and couldn't escape the peak is precisely because this fourth point gives a strong illusion that the market will open up higher space, leading to being trapped, so I call it the lure point. As for why there is no fifth point, it’s simple: if there were a fifth point, it would indicate that the fourth point has become the first point of the new market, and subsequently, there would be a sixth and seventh point to form the second segment, endlessly.
This means smaller levels build up to a larger level. For example, if we consider the overall trend of Bitcoin as a large segment, we can view the 1,163 USD point from 2013 as the first breakout point, 19,666 USD as the second point, and the current ongoing place or ultimate point as the third point, followed by a fourth point. Once the fourth point appears, the market develops into a larger level, making the fourth point the first point of the new market. Do you understand?
Some may ask why there seem to be fifth, sixth, or even more points in certain market segments. This is because you did not pay attention to the observations; these so-called obvious points only appeared after corresponding adjustments occurred in the respective market levels. If no corresponding adjustments have occurred continuously, like a sawtooth, then these points can only be counted as one point.
(Looking at the confused voices from your right side, I know this is indeed very difficult, which is why it's called the advanced version.)
If it were simple, everyone would know how to do it, and it wouldn't reflect value. It's rare that today I’m in a good mood and reveal all the specific parameters of the six-stringed instrument; you all are lucky.
In such situations, there is a simple summary called composite—multiple-level patterns forming a larger-level pattern.
For example, the market we are in may just be a part of something larger, and we think it is the whole. Only when you step out of the market do you realize that we are merely in a small level. For instance, the bull markets of 2013, 2017, and this year may seem like three separate bull markets, but they could just be the first phase of a larger market. Do you understand?
Don't limit your thinking; why can't you hold onto a thousand-fold coin? It's simple; you think doubling, tripling, or hundred-fold is all there is to it, but doubling, tripling, or hundred-fold is merely a segment of the thousand-fold.
If you don't understand, take your time to comprehend; it’s not easy to integrate and apply, otherwise, I wouldn’t have spent over a decade studying this in depth.
Understood, you have the insight; good, continue to delve into the details, and it will become clearer.
Part three: According to the six-stringed instrument strategy, what is the current situation? How should we operate?
Since this purple moving average continues to hold, and this is a consolidation market, it means the next phase will be an upward segment above the yellow and white lines, making operations very simple: as long as the yellow moving average does not break, you should primarily hold your position; if it breaks, especially if it breaks the purple line, the next consolidation phase will begin. The yellow and white lines have not yet begun to diverge but are about to; hesitating is pointless—just go for it! This is what I mentioned at the beginning, that the market will primarily consolidate and rise from now on; just hold your Pixiu.
If you are also a technical enthusiast, feel free to look at the chart below.
Lastly, I summarize a set of iron rules for trading cryptocurrencies to share with everyone, hoping it helps you!
1. Preserve your principal; survival is the first rule for investors.
2. As long as you are not greedy, making money is very simple; stable small profits.
3. Don't spread your investments too thin; never go full margin; go with the trend.
4. Don't over-leverage, don’t hold positions, don’t trade frequently.
5. Don't rush to buy; be decisive in selling; never delay stop losses.
6. Money can be endlessly earned, but it can be completely lost.
7. Cut losses in a timely manner, exit unconditionally; stopping losses is always correct.
8. Is the short position stable or is the long position stable? Taking profits is the most secure.
9. The only constant in the market is that extremes will reverse.
10. Do not trade without market activity; missing trading opportunities is normal; capturing a portion is sufficient.
11. Waiting for trading opportunities is always a hundred times better than trading opportunities themselves.
12. Stop trading after completing daily profit targets; energy is limited.
13. Stop losses are yours; profits are given by the market.
14. Money comes from waiting, not from frequent trading.
15. The mindset is easily defeated in the face of desire; strictly follow the trading strategy to achieve unity of knowledge and action!
Remember: there are many market opportunities; the key is to have the patience to stick to the rules. If you follow these few rules, after three months, you will find that making money in the short term is not as difficult as you imagined.
Even the most diligent fisherman won’t go out to sea during a storm; instead, they carefully guard their fishing boat. This season will pass, and a sunny day will come! Focus on the banquet and you'll be taught both how to fish and how to sustain yourself. The door to the cryptocurrency world is always open; by following the trend, you can lead a life that flows with the tide. Remember and cherish this!