Brother Sheng has been trading cryptocurrencies for over 10 years, experiencing three bull and bear markets. It is during the bull market that one can truly make big money in the crypto world!
As long as you truly catch a wave, that's enough. Last month, I played with one of my small accounts and caught a meme coin that surged 160% in a day, turning 100,000 into over 6 million. All you need is one opportunity!
There is a simple and foolish method that can help you avoid losses. This trick is common sense; as long as you have self-discipline, all cryptocurrency traders can achieve it.
No matter what type of investor you are, whether you are a short-term trader, a dip buyer, or looking for trend breakouts, as long as you are in the crypto world, you must respect these eight common sense rules. By adhering to them over the long term, you will find that your account stops losing and starts making profits.
The following content is summarized based on my practical experience and ideas, and I hope you can read it carefully. I hope to provide some help to confused trading friends.
1. The more you lose in trading cryptocurrencies, the more cautious you should be about averaging down. Many people become anxious after being trapped in the market and not only fail to consider exiting but keep averaging down to reduce their holding costs, hoping for a rebound to break even, which actually goes against common sense.
The process of declining prices cannot be reversed in a day or two. Averaging down is merely a form of self-comfort; the more anxious you are, the more likely you are to make mistakes, leading to regret. Why would you dare to average down at this position?
2. Strictly enforce operational discipline. Many traders will set detailed plans before the market opens, such as where to act if the market drops, or at what price to enter specific coins, but they often become easily influenced and tempted during trading hours. If you cannot execute your plan, you are not engaging in the crypto world but are gambling, and most of the trades made in the heat of the moment are wrong.
3. In trading markets, avoid frequent operations. Many traders who suffer significant losses are those who engage in ultra-short trades, while those who treat trading as entertainment, without advanced skills, tend to wait patiently and will not incur significant losses.
4. In trading markets, avoid continuously increasing your position, while some in the community throw large sums, living frugally. However, this is a very real depiction. Before being able to make money, do not continuously add to your account, especially if it affects your standard of living.
Losses indicate that your trading system has flaws; at this point, you should not use averaging down to fill the hole. Instead, reflect and calmly explore an effective method before increasing your efforts.
5. Missing out on trades doesn't result in losses, but chasing prices often leads to cutting losses. There is a common phenomenon in the community where stocks you are interested in rise significantly without you participating. However, when you try to buy at a high price, it crashes immediately.
The reason is that the company's operations have not changed, and it is best to choose a median price as a reference. When at a low point, avoid standing guard at high points.
6. In trading cryptocurrencies, you must follow the trend, which can be classified into three types: uptrend, downtrend, and consolidation trend. Undoubtedly, during a downtrend, participating with a light position or even no position in an uptrend can significantly increase your success rate.
7. Do not touch any asset that is in a downtrend without signs of recovery. Buying the dip in a downtrend is akin to catching a flying knife with bare hands, putting yourself in danger. Wait for a significant bullish candle to appear as a sign of recovery before slowly buying in; this is the right-side buying method. Blindly catching the dip will only deepen your losses.
8. Never trade based on research reports or rumors. Many retail investors are fond of rumors, which is a big mistake. Using common sense, if someone is quietly making a fortune, why would they bring you along? If a rumor reaches the ears of a retail investor, it is likely something the main players want you to know to get you to pick up the pieces. In such cases, many end up trapped.
4. Discovering patterns through volume: Skilled traders have the ability to recognize patterns and identify repeatable volume patterns. Understanding these common volume patterns can provide useful insights into market sentiment and future price movements.
Surging trading volume: This pattern occurs when long-term price fluctuations lead to a surge in trading volume, resulting in a trend reversal. It usually appears at the end of a long-term uptrend or downtrend and may indicate market weakness.
Choppy volume: The characteristic of choppy volume patterns is a significant decrease in volume, which triggers early traders to exit before price reversals. This often traps weak traders who yield to market pressure.
Retracement volume: This pattern occurs when volume declines during a counter-trend pullback within a larger trend. It indicates market consolidation before the trend continues.
Volume breakout: This pattern occurs when the price reaches a new high or low, and trading volume suddenly spikes. It confirms the belief in the occurrence of a breakout and indicates that the market is in an acceptance phase above or below critical barriers.
Declining volume in a trend: If volume decreases during an uptrend, it may indicate waning interest and a potential trend reversal. Conversely, during a downtrend, a decrease in volume may signal a bottoming process, with the trend potentially reversing to the upside.
5. Understanding volume and its impact in your trading plan is one thing, but effectively applying it to your personal trading strategy is another. Here are some suggestions to help you integrate volume analysis into your overall trading strategy: Compare the number of options on up days versus down days: When prices rise, there are more trades than when prices fall. This indicates that buying pressure is greater than selling pressure, which is bullish.
This may indicate that the current uptrend will continue. Pay attention to volume when re-testing support and resistance levels: When prices re-test support or resistance levels, it is common to monitor volume. If volume significantly increases during these re-tests, those prices will likely stabilize and may find volume divergence: Typically, volume and price should move in the same direction. If not, it may indicate that something is amiss.
For example, if the price rises but volume declines, it may indicate that the price trend is about to change.
Choose volume indicators suitable for your trading time frame: The importance of volume data depends on the duration of your planned trades. If you are a swing trader holding positions for days or weeks, daily volume data will be more useful. In contrast, day traders may find hourly to minute-by-minute volume data more useful.
Be cautious of one-time volume spikes: If volume suddenly rises without reason, it can be misleading, so it is essential to seek confirmation signals from other indicators or subsequent trading periods.
Using increased trading volume to detect institutional activity: Large investors or 'whale' investors can significantly impact the market. A sudden increase in volume on higher time frame charts may indicate that institutional traders are buying or selling a particular token.
Remember, any single indicator, including volume, is not a 'magic bullet' that guarantees successful trading. Analyzing volume is just one of many strategies available and should be combined with other criteria, indicators, and analysis tools. As the saying goes, 'Quantity precedes price.'
Incorporating volume analysis into your trading plan can give you deeper insights into market dynamics, helping you make more informed trading decisions and potentially gain an advantage in the market.
6. Disadvantages of volume analysis strategies
Although volume analysis strategies are a powerful tool in a trader's toolkit, it is necessary to understand their drawbacks. Using this strategy, you may encounter the following issues: Market manipulation: In certain cases, market participants, especially those with large amounts of capital, can manipulate volume levels to create false signals and mislead other traders.
Lagging signals: Sometimes, changes in volume may lag behind price changes, meaning that significant increases or decreases in volume may not immediately lead to significant price fluctuations.
False peaks: Volume analysis can occasionally provide false peaks. In such cases, a sudden spike in volume does not lead to significant price fluctuations.
Price distortion due to low fluctuations: In assets with low liquidity or "price fluctuations", changes in trading volume can be distorted, making it difficult to accurately interpret the data.
To mitigate these challenges, a prudent approach is to combine 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 for misleading signals.
7. Conclusion
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