Follow the big players to reap benefits; even if you don't, you can still learn something. So if you're new to the crypto space, it's definitely not a bad idea to follow experienced traders; at worst, it's a form of indirect learning! Today, I will share my trading strategies and insights with fellow coin enthusiasts. There's a saying: standing on the shoulders of giants allows you to achieve ten years' worth of effort.
One, only trade with Bitcoin and Ethereum.
1. Don't touch random small coins, just focus on Bitcoin (BTC) and Ethereum (ETH).
2. Altcoins are like gambling, nine out of ten bets lose.
Two, when to short (bearish).
1. Find resistance levels: look at the yellow moving average on the 4-hour chart.
(MA60), if the price is consistently pressed against this line.
2. Sell in three batches: for example, when the price rises to around 2400, sell 1/3 first, and then sell more as the price rises.
3. Stop loss settings: if the price suddenly spikes to 2450 and then drops, set the stop loss at 2455, accepting this small loss.
Three, when to go long (bullish).
1. Find support levels: look for positions on the daily chart where prices previously failed to break down.
2. Buy in three batches: for example, at the 2300 support level, buy 1/3 first, and buy more if it drops further.
3. Stop loss settings: if the price suddenly drops to 2280 and bounces back, set the stop loss at 2275.
Four, how to manage money.
1. Limit daily losses to a maximum of 20%, and then turn off the computer and go to sleep.
2. Do not exceed 5% of total capital for each position.
1. Do not open new positions after 2 AM; try not to trade on weekends.
Five, how to chase a big rally.
1. Only chase the top three coins with the highest gains for the day. 2. Risk $1 to earn $3: for example, if you risk $100 and earn $300, exit. 3. Move your stop loss to protect profits; for instance, adjust from a $200 gain to a breakeven of $180.
Six, what to do during a market crash.
1. Prepare cash to wait for bargains: keep 30% cash idle.
2. Wait for a crash of more than 8% before taking action.
3. Buy in three batches, with a 3% price interval each time.
Seven, when to stop.
1. Lock in profits after gaining 20 points on Ethereum and 350 points on Bitcoin. 2. If you make a lot, use the 5-minute chart to protect profits; for instance, after making 500 points, retract if it drops 50 points.
3. Stop trading after earning 15% for the day.
Eight, must-remember painful lessons.
1. Do not trade again within 12 hours after losing money.
2. Never go all in; no matter how optimistic you are, only use 20% of your capital.
3. Set your stop loss before going to the restroom; otherwise, you might get liquidated in seconds.
4. Don't open new positions from 2 AM to 8 AM; the market makers specifically target this time to cut losses.
Here’s a practical example:
Assuming you have $10,000 and want to short ETH:
Use $500 (5%) for the first position.
Set the stop loss $5 above the resistance level.
If the direction is right, add $500 every time it drops by 2%.
The maximum loss for the day is $2000 (20% of total capital).
After earning $60 in profit, adjust the stop loss to the cost price.
After making $105, reduce your position each time the 5-minute line breaks the previous low.
Remember: contracts are not gambling; they are a discipline competition. Controlling your hands is 100 times more important than skills!
Although the market trends only about 20% of the time, it is during these periods that traders have the best opportunities to make significant profits. Therefore, trend following is one of the most popular trading methods. Let’s discuss what a trend-following strategy is, how to build and execute such a strategy, and explore other ways to participate in market trends.
What is a trend-following strategy?
In simple terms, trend trading aims to capture opportunities where prices move continuously in one direction, profiting by following that direction. Essentially, it is a strategy designed to 'follow' trends and capture profits as trends develop. There are many ways to judge a trend, one of the simpler and more practical methods is to analyze 'peaks' and 'troughs' in price movements.
For example, if the price is generally rising and there is a series of higher lows and higher highs, it can be said to be an uptrend; if there are continuously lower highs and lower lows, it is a downtrend. This is the most basic method of judgment.
Trend trading is a form of technical analysis. However, its characteristic is that it does not predict future price directions; instead, it trades based on the trends that the market has already demonstrated. What traders need to do is to follow the market when a clear trend is detected, until signs of waning momentum or reversal appear.
This is very different from methods that try to predict future movements. The core of trend following is not to ask 'why is this happening,' but rather to see that 'a trend is underway' and then find ways to profit from that opportunity.
Benefits of trend-following methods.
We've all heard the saying 'the trend is your friend,' one of the most widely known maxims in trading. But let's delve deeper into why the trend-following method is advantageous. Here are three reasons you should consider trend trading:
1. Potential for excess returns.
Most trades ultimately just break even; the real profits come from a few key trades. The essence of trend following is to hold as long as possible in the right direction, maximizing profits.
Moreover, most trend trading systems have strict money management rules, such as risking only 1% to 2% per trade. This way, even if the stop loss results in a small loss, when capturing a trend, it often achieves a reward-to-risk ratio of 3:1, 4:1, or even higher, because the system's built-in mechanisms require timely stop-loss actions while allowing profits to run.
2. Lower trading costs.
Unlike high-frequency trading and day trading that frequently enter and exit, trend trading is much simpler. Short-term high-frequency trading can sometimes consume 60-70% of the gross profit in transaction fees, while trend following incurs significantly lower costs due to fewer trades.
3. Save time.
Trend trading usually looks at daily or weekly signals, without having to watch the market all day. Spending a couple of hours each day to find opportunities, place orders, and manage positions is enough; the remaining time can be used for other work and life activities.
Systematic Trend Following vs. Subjective Trend Following
After we have developed a trading plan around the trend-following system, let's discuss two main execution methods. Essentially, individual traders can execute trend-following models in two ways.
The first is the so-called systematic approach, and the other is the subjective approach. The main difference is that the systematic approach generates trading signals directly through computer algorithm programs.
All trading rules and 'if-then' scenarios are programmed into the trading algorithm, which executes directly in the market based on these preset parameters. In contrast, the subjective trend-following method does not encode trading logic directly into algorithms for execution through computer models.
On the contrary, traders themselves are responsible for all decision-making processes regarding trade execution and position management.
Many professional traders using trend-following models tend to favor systematic approaches, including large banks, Commodity Trading Advisors (CTAs), and hedge funds. The biggest advantage of a systematic approach is that it reduces the emotional and psychological impacts that traders may experience. Trend-following algorithms operate without emotions or biases and execute trading rules in the market precisely and systematically.
However, it should be noted that while systematic trend following is the preferred method for most experienced trend traders, it is not without challenges or pitfalls. Those who adopt a purely systematic trend-following strategy must always be vigilant for potential technical failures within or outside the trading system (e.g., hardware or connectivity issues). Therefore, closely monitoring all positions is a necessary requirement for trend followers using systematic trading.
Trend Following and Diversification
We have discussed how to build and trade a trend-following strategy. Throughout this discussion, we focused solely on trend-following models involving a single trading instrument for simplicity. However, it is important to understand that the true value of trend-following techniques lies in applying them to multiple instruments, creating a trend-following portfolio.
There are many reasons to achieve diversification in trend-following models. First, no one can know in advance which specific currency pairs or financial instruments will experience significant movements in a given year. Therefore, to ensure capturing those few scenarios that may yield the highest percentage returns, trend-following systems must be applied to a large number of relatively uncorrelated financial products.
An example of a diversified trend-following portfolio may include the following instruments: US Dollar Index, Canadian Dollar, New Zealand Dollar, S&P 500 Index, US 30-Year Treasury Bonds, German 10-Year Bonds, Wheat, Soybean Oil, DAX Index, Crude Oil, Natural Gas, Gold, Silver, Cotton, Sugar, and Lumber. This sample portfolio contains 17 financial instruments that are relatively lowly correlated, helping to smooth the overall return curve.
At first, building such a portfolio may seem daunting, especially if you are not familiar with some of the instruments. But remember, the most important feature of a trend-following system is that it does not attempt to predict future price movements; rather, it aims to participate in those markets that have already shown potential to develop into trends. Consequently, trend traders are not overly concerned with the fundamental factors driving these markets but focus on the fact that a trend event may be forming based on current price behavior.
Summary
Undoubtedly, trend-following systems can deliver excellent returns in the market. These systems have a history spanning over 50 years, and their return levels are not only comparable to major stock indices but often exceed them. Traders or investors can participate in significant market trend trading in various ways.
One major benefit of employing a trend-following method is that, when implemented correctly, it can achieve a high degree of diversification. Additionally, the performance metrics of trend-following systems are very lowly correlated with major stock indices. This can inherently provide a better risk-adjusted return for a portfolio than merely investing in the stock market.
No wisdom is needed; just follow!
