Trading Crypto

In my experience, trading is hardest in chop and low intraday volatility in the established markets is a key reason trading is hard. Cryptocurrency trading, which has exploded in the past couple of years has high volatility and affords new opportunities to traders but also new dangers.

The biggest risk in crypto trading is custodial risk. Exchanges can get hacked and lose all your coins. There is usually little recourse if this happens. Second, most of the platforms are substandard in performance, so when there is a huge volume, you may not be able to get your order in. There is also liquidity and slippage risk but that should not be unfamiliar to traders of CL futures.

However, opportunities are big. You can trade tiny size in some instruments and since fees are percentage based, it makes it very affordable to learn trading.

Technical analysis is a lot more simplified in a highly volatile 24x7 market. Many traders can simply switch to daily charts and trade small size with huge stops. Daily and hourly charts give higher quality signals and can be held for a larger duration. Moves are typically large and even with less than 50% of correct calls, you can do well with disciplined trading.

Nine Transitions -- The book

One of my readers was kind enough to organize all the material in the blog by category. This may be an easier form to consume for most people.

Download Nine Transitions Book

Soon, I will restart the blog with a focus on trading crypto-currencies.

Trading setups have been greatly simplified, enabling easier recognition in time.

We are back in business!

EDIT: Link updated

Patience and discipline as keys to trading

The key to trading is not simply taking the right trades, but to also pass on any trades that don't seem right. After all, its easy to just take every trade and ignore the failures, but this only makes your broker rich.

When the price action is choppy or the signal is weak, wait for the market to move away and give a better setup. This is patience and the key to limiting your losses.

Once you are in the trade, follow your trading plan. Do not be shaken out of your position. Exit where you think is a reasonable and conservative exit. Do not be greedy or your winner may turn into a loser.

The shallowest trendline from the prior day

There is a shallowest possible bull and a shallowest possible bear trendline every day. These trendlines have some predictive power as to where the price can turn and trend. For example, the shallowest bear TL from the prior day from HOD and b21 caused a reaction that led to a large move. If the final bar is the highest or lowest bar of the day, then you can use a TCL instead, which has lower predictive use.

Note that when the price gaps far from the prior day's action, the shallowest TL from the prior day may never be tested and you should not wait for it.

Small trend bars in a hard trend

When the first two bars have strong closes and very little overlap, it is reasonable to assume a hard trend is in progress. In a hard trend, any small bar can use used as a signal bar, especially if its a trend bar near the TL (b3). In a pullback, you can often enter above any small trend bar (b10).

Large inside bar on 1W

Inside bars are tricky and often require judgement to trade correctly. In general, large inside bars are overlaps and therefore a mini trading range. It is generally best to wait for the trade to trigger and take a pullback.

An outside bar that traps traders who did not see the reversal and entered (b23) makes an excellent signal bar if its not too large. If it does not trigger any small trend bar after it (b24) should work.

Waiting for chop to end

The day opened choppy from b1-8. From b8-11, bars suddenly had strong closes and shorter tails. This is a sign that the chop is ending.

When the chop ends, the initial move can usually be faded. In today's case, the initial move was a continuation up, which resulted in a large down move. If on the other hand, the move had been down, we would probably see a trend break up