Trading cryptocurrencies. I have been trading cryptocurrencies for over ten years, experiencing three bull and bear markets, and the real big money in the cryptocurrency market comes during bull markets! Capturing one wave is enough; last month, I played with one of my small accounts and caught a meme coin that rose 160% in one day, turning 100k into over 6 million. All it takes is one opportunity!
There is a simple and straightforward method that can help you avoid losses. This trick is common sense; as long as you have self-discipline, all cryptocurrency traders can do it. Regardless of your type of investor—whether you're a short-term trader, a low-absorbing investor, or a trend follower—if you're in the cryptocurrency market, you must respect these eight pieces of common sense. If you stick to them long-term, you will find that your account stops losing and starts gaining.
The following content is summarized based on my practical experience and insights, and I hope everyone can read it carefully and that it provides some help to confused traders.
One, the more losses you incur in trading, the more cautious you should be about adding to your position. Many people are anxious after being trapped in a down market and do not think about exiting; instead, they keep adding to their positions, trying to lower their holding costs in the hope of recovering losses in one go. This actually goes against common sense. The process of a decline cannot be reversed in just a day or two; adding to a position is just self-comfort. The more anxious you are, the more likely you are to make erroneous operations, leading to regrets. Why would you have the courage to add to your position at this point?
Strictly adhere to trading discipline. Many traders make detailed plans before the market opens, such as at what point the market falls they would take action, or what price of a particular coin they would enter, but during the trading session, they are often easily swayed by stimuli and temptations. If you cannot even execute your own plan accurately, then you are not playing in the cryptocurrency market but rather in a casino, and most actions taken at the last moment are likely wrong.
Three, avoid frequent operations in the market. Many traders who suffer significant losses are those who engage in ultra-short trading, while those who treat trading as entertainment without high skills tend to wait patiently and incur minimal losses.
Four, avoid constantly increasing your position in the market. However, in the community, some people throw in their fortunes, even while struggling in life. But this is a very real portrayal. Before you have the ability to make money, do not keep adding to your account, especially if it affects your standard of living. Losses indicate that your trading system has flaws, and at this time, you should not use additional investment to fill the hole. Instead, reflect and calmly explore an effective method before increasing your efforts.
Five, missing out won't lead to losses, but chasing prices often results in losses. There's a common phenomenon in the community where stocks you were interested in but didn't participate in perform well. However, when you try to buy at high prices, it often crashes immediately. The reason is that the company's operations haven't changed; try to choose a median price as a reference. In a low position, it's best to avoid standing guard at high positions.
Six, in cryptocurrency trading, one should follow the trend, which can be categorized into three types: upward trend, downward trend, and sideways consolidation trend. Undoubtedly, during a downward trend, light positions or even no positions when participating in an upward trend will significantly increase the probability of success.
Seven, do not touch anything that is falling without signs of stabilization. Bottom-fishing during a downtrend is like catching a flying knife with bare hands, putting yourself in danger. You must wait for a significant bullish candle to appear, which is a signal of stabilization, before you can slowly buy in. This is the right-side buying method; blindly bottom-fishing will only deepen your losses.
Eight, never trade based on research reports or rumors. Many retail investors love to follow rumors, which is a huge mistake. Using common sense to think differently, why would others not quietly make big profits while bringing you along? If a piece of information reaches a retail investor's ears, it is likely something the market makers want you to know so that you will take the bait. In such cases, many will find themselves trapped.
4. Discovering patterns through trading volume Skilled traders have pattern recognition skills and can identify repeatable trading volume patterns. Understanding these common trading volume patterns can provide valuable insights into market sentiment and future price movements.
High trading volume: This pattern occurs when long-term price fluctuations lead to a surge in trading volume, resulting in trend reversals. It typically appears at the end of a long-term upward or downward trend and may indicate market weakness.
Oscillating trading volume: The characteristic of the oscillating trading volume pattern is a significant decrease in trading volume, which triggers early traders to exit trades before price reversals. This often traps weak traders, i.e., traders who succumb to market pressure.
Pullback/rollback volume: This pattern occurs when trading volume decreases during a counter-trend pullback within a larger trend. It indicates market consolidation before the trend continues.
Volume breakout: When the price reaches a new high or low and trading volume suddenly spikes, a volume breakout pattern occurs. This confirms a strong belief in the occurrence of a breakout and indicates that the market is in an acceptance state above or below a key barrier.
Decline in trading volume during an upward trend: If trading volume decreases during an upward trend, it may indicate weakened interest and a potential trend reversal. Conversely, during a downward trend, a decrease in trading volume may signal a bottoming process, and the trend may reverse upwards.
5. Using volume indicators in your trading plan to understand trading volume and its effects is one thing, but effectively applying them to your personal trading strategy is another. Here are some suggestions that can help you integrate volume analysis into your overall trading strategy: Compare the number of up days and down days in terms of options: When the price rises, trading occurs more than when the price falls. This indicates that buying pressure is greater than selling pressure, which is bullish. This may suggest that the current upward trend will continue. Pay attention to trading volume when re-testing support and resistance levels: When the price re-tests support or resistance levels, trading volume is typically monitored. If trading volume significantly increases during these re-tests, these prices will likely hold steady and stabilize at these levels. Look for volume divergences: Typically, trading volume and price should move in the same direction. If they do not, it may indicate that a problem has arisen.
For example, if the price rises but trading volume decreases, it may indicate that the price trend is about to change.
Choose volume indicators that suit your trading time frame: Whether trading volume data is important depends on how long you plan to trade. If you are a swing trader holding positions for several days or weeks, then daily trading volume data will be more useful. Conversely, day traders may find hourly or even minute-by-minute trading volume data more beneficial.
Beware of one-time spikes in trading volume: If trading volume suddenly rises without reason, it may be misleading, so it is crucial to look for confirmation signals from other indicators or later trading periods.
Use increased trading volume to discover institutional activity: Large investors or 'whale' investors can have a significant impact on the market. A sudden increase in trading volume on higher time frame charts may indicate that institutional traders are buying or selling a particular token.
Remember, any single indicator, including trading volume, is not a 'cure-all' that guarantees successful trading. Analyzing trading volume is just one of many strategies available and should be combined with other standards, indicators, and analytical tools. As the old saying goes, 'volume precedes price.' Incorporating volume analysis into your trading plan can provide deeper insights into market dynamics, help you make more informed trading decisions, and potentially give you an edge in the market.
6. Disadvantages of trading volume analysis strategies
While trading volume analysis strategies are a powerful tool in a trader's toolkit, it is essential to be aware of their downsides. Using this strategy, you may encounter the following challenges: market manipulation: In some cases, market participants, especially those with considerable capital, can manipulate trading volume levels to create false signals, misleading other traders.
Lagging signals: Sometimes, changes in trading volume may lag behind price changes, meaning significant increases or decreases in volume may not immediately lead to substantial price fluctuations.
False peaks: Trading volume analysis can occasionally yield false peaks. In such cases, a sudden spike in trading volume does not lead to significant price fluctuations.
Price fluctuation distortion: In assets with low liquidity or 'price fluctuation,' changes in trading volume may be distorted, making it difficult to accurately interpret the data.
To mitigate these challenges, a cautious approach is to combine trading volume analysis with other indicators and technical analysis tools. The combination of multiple signals can enhance the reliability of trading strategies and reduce the likelihood of falling into misleading signals.
7. Conclusion
Trading volume provides a way for traders to understand the intensity of market activity and the psychological dynamics of traders. After understanding what trading volume is and how it affects price movements, you can incorporate it into your trading strategy to gain deeper insights into market sentiment.
By using volume indicators such as OBV, VWAP, VROC, and Chaikin money flow, and understanding common volume patterns, you can significantly enhance your trading acumen. If you integrate these tools into your trading plan, you will gain a more detailed understanding of market dynamics and be able to predict price movements more accurately.
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