Introduction:
The mentalities needed in the cryptocurrency space and guidelines to avoid pitfalls.
People are not confused by the things themselves but by their views on those things — Ancient Greek philosopher.
A book states: "Mediocre generals, when faced with complex environments, will list a heap of problems and questions for themselves, feeling overwhelmed and unable to find their direction. A true talent for leadership, however, cuts through the chaos with a quick decision, perceiving the essence and key issues from seemingly ordinary situations and taking decisive action." This is quite similar to investment decision-making; excellent investors are adept at grasping the main contradictions in both the market and companies, and can see the whole from the details, ultimately forming a 'logical fulcrum' for their decisions.
What is mentality? Simply put, mentality is your attitude when facing situations. A more advanced version once said that mentality is essentially about being a bit more relaxed.
The importance of mentality for a person is self-evident; mentality determines destiny. Those with a good mentality often encounter better opportunities, are psychologically healthier, and tend to be happier; those with a poor mentality, due to their internal grievances, often miss many opportunities.
The most important point in entering the cryptocurrency market is to control your mentality; next comes technical analysis, fundamentals, and news. If your mentality collapses, you are doomed to lose money, and your life and mental health will be greatly affected. Most retail investors are emotionally fragile, and only a few can truly grasp this!
Do not imagine stability to be so sacred. I have been doing this for 10 years, including 6 years full-time. Life is relatively free and easy, without much pressure. Stable profits are certainly much stronger than those of ordinary office workers. However, this profit is also limited. It’s not that many people want to seize all the wealth in the world.
It took me 6 years to develop a trading system that suits me, and it was only with the guidance of experts that I had my breakthrough! Currently, I cannot claim to be immensely wealthy, but I have achieved stable profitability, at least outperforming over 90% of people consistently.
I realized long ago that an excellent trading system can effectively help investors in their investments. I also understood that without a trading system, investing without rules is destined to lose more and win less. However, summarizing a trading system is quite difficult. An excellent trading system is also counterintuitive; it requires you to overcome greed and fear, to be decisive and avoid subjective assumptions, and to execute strictly.
I’d like to share the correct usage and attention details of the million-dollar value indicator EMA for medium to long-term trading!
I went from losing big to winning big using this method!
1. Indicator overview
The Exponential Moving Average Convergence Divergence (MACD) is a common technical analysis tool in stock trading, proposed by Gerald Appel in the 1970s, used to assess the intensity, direction, energy, and trend cycle of cryptocurrency price changes to grasp the timing for buying and selling cryptocurrencies.
The MACD indicator consists of a set of curves and graphs, calculated by the difference between the fast-changing and slow-changing exponential moving averages (EMA) of stock prices or indices at closing. 'Fast' refers to the EMA of a shorter period, while 'slow' refers to the EMA of a longer period, with the most commonly used being the 12-day and 26-day EMA. As noted (from Wikipedia)
Friends who often watch the market should have seen something like this:
2. Explanation of the principles
To understand how to use MACD, we first need to understand what parts make up MACD.
The above figure shows the MACD of BTC/USDT on Bitfinex based on daily units.
We can see that the horizontal axis represents time and the vertical axis represents units. The graph mainly consists of three parts: the blue line, yellow line, and red columns. Let’s introduce them separately.
Blue line: DIF
The blue line is the MACD Line, also known as DIF, which by default indicates the speed difference between the 12-day and 26-day moving average lines. The calculation formula is as follows:
We can roughly treat the average closing price over a period as the average holding cost of the market during that time.
Here, EMA(close,12) indicates the average closing price over the last 12 days, similarly, EMA(close,26) indicates the average closing price over the last 26 days. The average closing price for the last 12 days minus the average closing price for the last 26 days gives us the DIF. From this, we can summarize that ideally, several situations may occur:
1. The stock price rises rapidly over a period, with increasing gains, and the average closing price over the last 12 days exceeds that of the last 26 days, DIF is greater than 0, and the value is increasing, moving further away from the 0 axis. The market's average holding cost rises and is significant.
2. When the stock price rises over a period, the increase becomes smaller, the average of the last 12 days exceeds that of the last 26 days, DIF is greater than 0, but the value is decreasing, approaching the 0 axis. The market's average holding cost rises but is small.
3. When the stock price declines over a period, the drop becomes larger, the average of the last 12 days is less than that of the last 26 days, DIF is less than 0, and the value decreases, moving further away from the 0 axis. The market's average holding cost decreases significantly.
4. When the stock price declines over a period, the drop becomes smaller, the average of the last 12 days is less than that of the last 26 days, DIF is less than 0, and the value is increasing, approaching the 0 axis. The market's average holding cost decreases but is small.
Red line: DEM
The red line is the Signal Line, also known as DEM, which by default represents the 9-day average of the MACD Line (DIF). The calculation formula is as follows:
In other words, it represents the average change in holding costs over 9 days. Therefore, DEM always fluctuates less than DIF and reacts more slowly.
Thus, we refer to DIF as the fast line and DEM as the slow line.
Bar line: OSC
The red columns represent the MACD Histogram, also known as OSC; OSC indicates the difference between DIF and DEM, with the formula as follows:
OSC = DIF - DEM
Sometimes for our convenience, we multiply the difference between DIF and DEM by 2, making the bars twice as high for better recognition.
OSC indicates the difference between today's average holding cost's change and the average change of holding costs. What is the significance of this difference?
We can reflect the market's rise and fall trends and the strength of willingness through the size and positive/negative nature of this difference. OSC can be considered as the 'acceleration' of price, indicating changes in momentum.
As shown in the figure, through OSC, we can see the changes in the short-term trends in the market, allowing us to judge the timing for buying and selling.
3. Two basic methods of using MACD
Next, let’s look at the two most basic methods of using MACD:
Golden Cross and Death Cross judgment method;
Bottom divergence and top divergence judgment methods.
Golden Cross and Death Cross
Golden Cross and Death Cross often represent turning points in a trend and are very important reference indicators for buy and sell points. As shown in the figure below:
The K-line of BTC compared with the MACD.
We observe the trend of BTC after reaching $20,000 in December. When DIF crosses below DEM from above, as shown in the first circle on the left, the blue line crosses the orange line from above, forming a death cross, leading the entire market into a downward trend. Until February 10, at the position of the second circle below, when DIF crosses above DEM from below, the blue line crosses the orange line from below, forming a golden cross, leading to a market rebound.
For death crosses, the higher the position, the greater the probability of a downtrend; similarly, for golden crosses, the lower the position, the greater the probability of an uptrend.
Thus, we see that between two peaks, there are multiple instances of DIF and DEM crossing or even intertwining. Due to insufficient height and depth, they cannot form strong buy or sell signals, often representing very short-term trends with little guiding significance for the overall trend.
In actual operations, it is essential to pay attention to the height and depth at the crossover positions, combining trading volume and K-line charts for comprehensive judgment. So, does this mean that if the depth is shallower than before or the height is lower than before, no operations should be made? Let’s take a look at the top divergence and bottom divergence judgment methods together.
Bottom divergence and top divergence
1. What is the phenomenon of bottom divergence? See the picture above:
The K-line and MACD comparison chart of ETC before the bull market in 2017.
Let’s first discuss the phenomenon: At the arrow position on the left of the K-line chart, the price first drops to the bottom, showing a massive lower shadow line, then enters a consolidation phase. Throughout the entire oscillation, momentum continuously shrinks, and while trading volume fluctuates somewhat, it remains very weak compared to trading volume when just falling to the bottom, indicating a shrinking trend.
Pay attention to the two groups of arrows in the middle and at the back of the picture. After experiencing a previous period of oscillation and washing out, the main force attempts to test the bottom for the first time at the group of arrows in the middle, testing the quantity of uncertain chips in the market. During this test, both trading volume and momentum increase simultaneously, but compared to before, they have significantly shrunk; at the last group of arrows, the main force conducts a second bottom test, showing a lower shadow line, and compared to the first bottom test, both momentum and volume are continuing to shrink.
This situation of price decline while trading volume and OSC shrinking is called bottom divergence.
Let’s discuss the principles: We can imagine that when prices are bottoming out or peaking, they are often accompanied by fierce battles between bulls and bears, resulting in significant trading volume. When prices decline lower each time but trading volume and MACD changes become smaller, we believe the market is stabilizing; it becomes difficult for the main force to absorb chips, so they often seek opportunities to quickly lift the market, indicating that a bull market may arrive soon.
Therefore, when a bottom divergence phenomenon occurs, the market may have reached its bottom, signaling an opportunity to enter.
2. Top divergence
The chart shows two rebounds of BTC.
Let’s first discuss the phenomenon: In the leftmost first circle position, the price rebounded to 11230, then there was a pullback, forming a left high and right low head-and-shoulders bottom. The price rebounded again, but unfortunately, we see that although the closing price reached a new height, the OSC significantly declined compared to before, indicating weakened momentum. The bulls were already unable to continue breaking through, resulting in a steady price decline, with BTC dropping below 7000 and continuing to trend downward. This state of price increase while OSC declines is termed top divergence.
Let’s discuss the principles: Under normal circumstances, the bulls in the first rise attempt to break through the resistance level but fail, leading to a decline in market confidence. After a pullback, they gather strength to rise again. At this point, the resistance level is stronger; if it is not a volume-driven breakout trend, it is difficult to break through the resistance.
Thus, we believe that when a top divergence appears, the possibility of breaking through the resistance level significantly decreases, signaling a strong bearish signal, and one should promptly stop losses and liquidate positions to seek new entry opportunities.
4. Summary
MACD is one of the simplest and most reliable indicators, with the two most commonly used methods being:
1. Golden Cross and Death Cross judgment method;
2. Bottom divergence and top divergence judgment methods.
The golden cross and death cross judgment method, as a lagging indicator, has weak practicality; in contrast, bottom divergence and top divergence provide more guiding value for bottom picking and peak escaping.
Indicator introduction: EMA, moving average indicator, here only sharing medium to long-term usage, very practical and with a very high accuracy rate.
Applicable groups: Suitable for spot or low leverage medium to long-term trading users.
Applicable targets: High liquidity, high market value, meaning large and stable targets; not suitable for small altcoins or lesser-known tokens.
Applicable cycles: Daily or higher levels are best, with strong stability; the shortest signal should not be less than a 4-hour cycle.
Indicator parameters: EMA21-55-120-200, both bear markets and bull markets are arranged in a bearish (from top to bottom: 200-120-55-21) or bullish (from top to bottom: 21-55-120-200) manner, the initial signal only looks at the crossover signal of EMA21-55.
Signal judgment: Observe the crossing situation of EMA21 and EMA55 at the daily line level and above; buy on golden cross and sell on death cross; execute strictly.
Usage methods and attention details:
1. Buying: Buy when observing a golden cross at the daily line level.
You may not buy at the lowest point, but buying with the trend, letting time work for you, emphasizes positions that need attention.
During oscillation and consolidation, daily golden crosses and death crosses may frequently alternate, causing buy and sell losses, but eventually, one side will continue in the medium term. Therefore, even with losses, strictly executing buy and sell signals to prevent missing trends is crucial. To reduce losses, one can judge during oscillation and consolidation, such as waiting for price pullbacks near the average line to buy after forming golden cross and death cross signals, or initially opening positions and then waiting for the average line to rise close to the average price to add positions. Generally, buying is possible when EMA21 is close and above EMA55; there are illustrative examples below.
2. Selling: There are two types of selling.
1. When observing the daily line level, a death cross indicates selling (this often results in some profit taking when the mid-term trend is not long).
2. Sell when reaching predetermined targets (this point is flexibly adopted based on personal needs and plans, with the downside being that it is easy to miss out during a bull phase).
All of the above are important points and essential conditions; more details can be found in the illustrative examples.
In summary, the EMA indicator is used to determine medium to long-term directions, applied to profit from trends. You will never buy at the lowest point or sell at the highest point; greater profits and flexible applications can be employed.
When the EXPMA indicator forms a golden cross:
Each time a market trend reversal occurs, the price always reflects its presence in the eyes of the public in the cryptocurrency space, and the points of speculation are always different. The price increase and the arrival of a bull market are what everyone truly anticipates and desires.
In terms of market conditions, there’s not much to say, but it is crucial to note that regardless of whether it’s a bull or bear market, timely stop-loss and take-profit measures are vital for every investor. Avoid greed and impatience; turning chips into cash can determine ultimate profits. Do not aim to pocket all profits; taking the good when it comes can effectively mitigate risks.
Trading must not be emotional; feeling good leads to reckless high-leverage trades, while feeling bad leads to careless operations. Thus, one fears that a passionate approach may ultimately lead to failure. In investing, how much profit is secondary; preserving capital is paramount. If you cannot protect your capital, how can you talk about locking in profits or becoming wealthy? Therefore, today we discuss the Exponential Moving Average (EXPMA indicator) and common K-line technical patterns.
First, let’s look at the EXPMA indicator, which is a trend-following indicator based on exponentially weighted moving averages. Its construction principle involves averaging closing prices and analyzing based on the results to judge future price trend changes.
Compared to the MACD indicator and DMA indicator, the EXPMA indicator, due to its calculation formula emphasizing the price's current (or ongoing) market conditions, overcomes the lagging nature of the MACD signals regarding price trends. It also somewhat eliminates the early signal nature of the DMA indicator at certain times, making it a very effective analysis indicator.
So, in actual trading of cryptocurrencies, what are the buying and selling techniques of the EXPMA indicator? First, let’s look at the buying techniques:
1. When the EXPMA indicator forms a golden cross, the price reverses upward, trading volume expands, buy;
2. When the EXPMA indicator flattens or turns upward, and the price crosses above the EXPMA indicator, a bullish candle appears, buy;
3. When the EXPMA indicator points upward, and the price drops below the EXPMA, significantly oversold, reverses upward, and increases by over 4%, buy;
4. When the EXPMA indicator points upward, and the price adjusts confirming its support, buy on the appearance of a reversal upward candle.
5. When the EXPMA indicator points downward, and the price moves far from the EXPMA indicator, indicating significant overselling and reversing upward, trading volume increases, or a large upward reversal candlestick appears, buy.
The selling techniques, however, are quite the opposite:
1. When the EXPMA indicator forms a death cross, the price reverses downward, sell;
2. The EXPMA indicator's turning points flatten or decline; the price drops below the EXPMA indicator, and when a bearish candle appears, sell;
3. When the EXPMA indicator points downward, and the price breaks through the EXPMA, stagnates, reverses downward, and the peaks lower, sell.
4. When the EXPMA indicator points downward, and the price rebounds confirming its resistance, sell on the appearance of a reversal downtrend candle;
5. When the EXPMA indicator points upward, and the price rapidly rises away from the EXPMA indicator, if the price stagnates and reverses downward, sell.
Of course, all the techniques summarized here are merely references. Specific operations still need to be evaluated and analyzed based on one's own investment habits and focuses. After all, the existence of market inefficiencies and individual differences among investors means that dogmatism or opportunism can lead to vastly different outcomes. Moreover, the EXPMA is not necessarily accurate and universally applicable. It is important to note that the golden cross buying we emphasize must meet the following conditions:
1. The EXPMA indicator and MACD indicator must resonate;
2. Check if the MACD indicator crosses above the 0 axis;
3. Check if the EXPMA indicator has formed a golden cross before the MACD indicator crosses the 0 axis.
If the above conditions are all met, you may choose to add positions; if not, it is better to observe and wait for opportunities to buy.
Risk warning: The MACD technical indicator usage methods are for learning reference only. Technical analysis never relies on a single indicator to judge market conditions; using only a single technical indicator to assess future market trends has a high probability of failure. Be mindful of risks.
If you don't want to lose everything in the cryptocurrency market, what kind of mentality should you have?
In the cryptocurrency market, follow your own pace, do not predict rises and falls, just observe the current trend and operate according to the plan when conditions are met. At the same time, calmness, learning, patience, discipline, independent thinking, good mentality, decisiveness, courage, and the ability to summarize are all essential.
Many people rush into the cryptocurrency market with fantasies of instant wealth without realizing that this kind of short-sighted mentality is often the beginning of failure. True cryptocurrency experts often view hoarding coins as a foundation, accumulating wealth step by step.
Hoarding coins is a stable and visionary investment strategy. When you chat with friends during leisure time and mention your involvement in the cryptocurrency space, if you don't even have a valuable digital currency, how can you confidently consider yourself a 'crypto tycoon'? This is akin to a scholar claiming to have a vast collection of books, yet the study is empty, making it hard to be convincing. Owning a certain quantity of quality cryptocurrencies is not only a symbol of strength but also provides the confidence for long-term development in the crypto space.
Contract trading in the cryptocurrency space is like a double-edged sword; it can be a shortcut to high profits in the short term but also hides enormous risks. Many people are attracted by the high leverage and high returns of contracts, diving in, only to end up losing everything. In contrast, hoarding coins feels more like a lengthy marathon; although it may not have the thrilling ups and downs of contract trading, persistence often leads to unexpectedly fruitful results. Contracts may just be an interlude on the path to wealth, while hoarding coins is the key route to finally reaching the financial shore.
It must be clear that the cryptocurrency market is absolutely not a place where you can become rich overnight. Those who expect to achieve financial freedom instantly often end in disappointment. However, this does not mean that there are no profits to be made in the cryptocurrency market. By learning professional skills and deeply understanding market operating rules, investors can reap substantial returns in the cryptocurrency space. Just like an experienced fisherman who, after understanding the habits and movement patterns of fish, can harvest abundantly from the vast ocean.
In this regard, Teacher Qing Tian has summarized a set of effective trading mnemonics based on years of experience in the cryptocurrency field, which is a precious asset for beginners entering the crypto world and for investors seeking breakthroughs.
1. "Buy sideways, buy pits, don’t buy vertical; the selling point is where the excitement is": This mnemonic emphasizes that when investing, one should choose cryptocurrencies that are in a sideways consolidation or pullback phase, avoiding those that are rising sharply. When market sentiment reaches a boiling point and everyone is buying frantically, it is often the best time to sell. For example, in the price trends of certain digital currencies, when they experience a long period of sideways movement and suddenly start to rise, the entry risk is relatively low; while when the price skyrockets in a short period and the market is exuberant, investors need to be vigilant and consider selling at the right time.
2. "Continuous small rises are genuine rises; continuous large rises require exiting": Continuous small upward movements indicate a relatively stable upward trend for that cryptocurrency, gradually acknowledged by the market. In contrast, if a cryptocurrency experiences consecutive large rises, this could likely signal market overheating, possibly due to manipulation; at this point, investors should decisively exit to preserve profits. For example, some emerging cryptocurrencies may initially attract investor attention with steady small increases, but when they suddenly surge significantly in a short time, a price correction often follows.
3. "If the price surges significantly, it must pull back; do not dig deep pits or buy heavily": After a substantial price surge, a pullback phase will inevitably occur. Investors should not blindly chase high prices at this time, but rather wait for a significant pullback to a certain depth, forming an obvious 'deep pit' before entering the market. This effectively reduces investment risk and increases profit margins. For example, Bitcoin’s price has experienced deep pullbacks after multiple significant increases, providing excellent entry opportunities for those patient investors.
4. "When the main rise accelerates, it is time to see the peak; sell quickly during sharp declines and slowly during gradual rises": When a cryptocurrency enters a main rise and accelerates upward, it usually signals a peak, and investors should be prepared to exit at any time. Conversely, if the price decreases sharply, it may indicate a sudden release of market panic; in this case, one should sell decisively. If the price decreases gradually and trading volume increases, it indicates that the market is digesting negative factors, and one should also exit quickly. In the trends of some altcoins, one often sees situations where the main rise accelerates and quickly reaches a peak. If investors cannot detect this in time, they may find themselves trapped.
5. "Sharp declines with low volume are intimidation; slow declines with high volume require quick exit": If the price drops sharply in the short term, but the trading volume does not significantly increase, this is likely a means for the main force to wash out and intimidate retail investors into giving up their shares. Conversely, if the price declines slowly and trading volume continues to expand, it indicates that investors are selling off significantly, and at this point, investors should quickly exit to avoid further losses. In actual trading, many investors panic sell during sharp declines with low volume, while feeling lucky during slow declines with high volume, ultimately leading to losses.
6. "When the price breaks through the lifeline, do not hesitate to make a swing trade": The lifeline here refers to a certain key moving average. When the price breaks upward through this lifeline, it indicates that the market trend may reverse. Investors should seize the opportunity to make swing trades by buying low and selling high to gain price difference profits. For example, when Bitcoin’s price breaks through the 200-day moving average, it often heralds a considerable upward trend, allowing investors to make swing trades.
7. "Look carefully at the daily and monthly lines; follow the main force to build positions": The daily and monthly lines can reflect the long-term trends of cryptocurrencies and market trends. By carefully analyzing daily and monthly charts, investors can better grasp the movements of the main force and build positions in line with them. For example, when the main force starts to accumulate significantly at the monthly level, investors can also follow suit at an appropriate time to share in the future gains.
8. "If the price surges without volume, the main force is luring the crowd, do not stand guard": If the price rises without accompanying trading volume during the uptrend, it is likely that the main force intentionally raises the price to attract retail investors to follow suit, achieving the goal of unloading. Investors must remain clear-headed at this time and avoid blindly chasing highs to prevent becoming 'chives' standing guard. In some cryptocurrencies with severe market manipulation, such situations of rising without volume often occur, so investors should be particularly cautious.
9. "A new low with shrinkage is a bottom signal; when volume increases upon recovery, enter the market": When the price continues to fall and trading volume gradually shrinks to an extremely low level while reaching a new phase low, this often signals that a bottom is about to form. When the price begins to recover and trading volume simultaneously increases, it indicates that the bullish strength in the market is beginning to enhance, and investors should decisively enter the market. For example, in some historical price trends of Ethereum, many instances of new lows followed by increased volume have provided precise entry timing for investors.
These mnemonics seem simple, yet they contain profound market wisdom, representing valuable experiences summarized by countless investors in practice. They are like guiding lights illuminating the path for investors in the cryptocurrency space; as long as they are kept in mind and flexibly applied in practice, many detours can be avoided.
In cryptocurrency trading, in addition to mastering these practical mnemonics, one must also deeply understand the 'art' in trading, namely the application of technical indicators. In secondary market investments, we can divide investment into three levels: Dao, Fa, and Shu. These three are complementary and indispensable.
- Dao: It represents investment philosophy and belief, encompassing investors' macro perception of the entire market, including judgments on long-term market trends, analyses of macroeconomic conditions, and studies of investment fundamentals. For instance, investors who firmly believe that blockchain technology will have a profound impact on the future world are more inclined to invest long-term in high-quality digital currency projects rather than be swayed by short-term market fluctuations.
- Fa: This aspect involves the rules and regulations of investment, covering the formulation of investment strategies, methods of risk management, and techniques for asset allocation. For example, investors can formulate a reasonable investment portfolio based on their risk tolerance, diversifying funds across different types of digital currencies while setting stop-loss and take-profit points to control investment risks.
- Shu: This mainly refers to technical analysis, quantitative analysis, and grasping trading psychology in investment. Technical analysis predicts future price trends through the study of historical price and trading volume data. Although technical indicators have a certain lag, they cannot directly guarantee profits, but mastering commonly used technical indicator methods can help investors better understand market dynamics and make more rational investment decisions. For example, through moving averages, relative strength indicators (RSI), and other technical indicators, investors can judge market buy and sell signals and determine entry and exit timing.
In trading, the application of 'Shu' is crucial. For most investors, there is no need to pursue overly complex and obscure technical indicators; instead, one should master the analytical methods of commonly used technical indicators. By deeply studying these indicators, investors can better interpret market signals, seize investment opportunities, and achieve steady profit growth in this challenging cryptocurrency field.
In summary, in cryptocurrency investing, we must abandon wrong mentalities, focus on hoarding coins as the core strategy, remember trading mnemonics, and master the application of technical indicators; only then can we steadily advance in the waves of the cryptocurrency market and achieve wealth appreciation.
Follow the successful strategies of others, using precise strategy analysis and significant AI big data selection to position yourself for success? The market never lacks opportunities; the question is whether you can seize them. By following experienced and capable individuals, we can earn more!