Brother Sheng has been trading cryptocurrencies for over 10 years, experiencing three bull and bear markets in total. The real opportunity to make big money in the cryptocurrency world comes during a bull market!
As long as you truly catch a wave, that is enough. Last month, I used one of my small accounts to play around and caught a meme coin that rose 160% in one day, making over 6 million from 100,000; all it takes is one opportunity!
There is a simple and foolish method that can help you avoid losses. This tactic is common sense; as long as you have self-discipline, all cryptocurrency traders can do it.
Regardless of what type of investor you are, whether it's short-term trading or bottom fishing, or trend breaking, as long as you are in the cryptocurrency space, you must respect these eight common sense rules. If you persist 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 thoughts. I hope you can read it carefully and that it provides some help to confused traders.
1. The more losses in trading cryptocurrencies, the more cautious one should be when averaging down. Many people become anxious after being trapped in the market, not thinking about exiting but continuously averaging down to reduce their holding costs, hoping for a rebound to break even, which actually goes against common sense.
The process of losing cannot be reversed in a day or two. Averaging down is merely self-comforting; the more anxious one is, the more likely they are to make wrong moves, eventually leading to regret. Why dare to average down at this position?
2. Trading discipline must be strictly enforced. Many traders will create detailed plans before the market opens, such as determining at which point the market has fallen before taking action, and at what price to enter a particular coin. However, during trading, it is often easy to be swayed by stimuli and temptations. If you cannot even execute your own plan, you are not trading but gambling; most actions taken at that moment are likely to be wrong.
3. Do not frequently trade in the market; many severely loss-making cryptocurrency traders are engaged in ultra-short trades. In contrast, those who treat trading as entertainment, without exceptional skills, simply wait and will not incur significant losses.
4. Avoid continuously increasing your position in trading; in the cryptocurrency world, throwing money into the market can lead to difficulties in life. However, this is a very real portrayal. Before having the ability to make profits, do not continuously add to your account, especially if it affects your standard of living.
Losses indicate that there is a flaw in your trading system; at this time, you should not fill the gap by increasing positions. Instead, reflect and calmly explore an effective method before increasing your efforts.
5. Missing out on opportunities does not incur losses, but chasing after highs often results in cutting losses. There is a common phenomenon in trading where stocks you have overlooked perform well, while when you want to buy at high levels, the price collapses immediately upon purchase.
The reason is that the company's operations have not changed, and it is advisable to choose a median price as a reference. At low levels, remain cautious and avoid being stationed at high levels.
6. In cryptocurrency trading, one should follow the trend; there are only three types of trends: uptrend, downtrend, and sideways consolidation. Undoubtedly, during a downtrend, participating with light positions or even shorting during an uptrend can significantly increase the success rate.
7. Never touch anything that is on a downward trend without signs of stopping. Trying to catch a falling knife during a downtrend puts you in a dangerous position; wait for a significant bullish candle to appear, signaling the end of the decline, and then slowly buy in. This is the right-side trading method; blindly trying to catch the bottom will only lead to deeper losses.
8. Never trade based on research reports or rumors. Many retail investors are fond of rumors, which is a huge mistake. Using common sense, if others can quietly make a fortune, why should they bring you along? If a rumor reaches your ears as a retail investor, it is likely that the main players want you to know and want you to take the risk. In such cases, many will find themselves trapped.
4. Skilled traders can identify patterns through volume; they possess the skill of pattern recognition and can 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.
Oscillating volume: The characteristic of the oscillating volume pattern is a significant decrease in volume, triggering early traders to exit before a price reversal. This often traps weak traders, i.e., traders who yield to market pressure.
Pullback/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: When the price reaches a new high or low and volume suddenly surges, a volume breakout pattern occurs. This confirms people's strong belief in the occurrence of a breakout and indicates that the market is accepting above or below key barriers.
Decreasing 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 indicate the process of hitting a bottom, and the trend may reverse upward.
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 that can help you integrate volume analysis into your overall trading strategy: Compare the number of options on up days and down days: when the price rises, there are more trades than when the price falls. This indicates that bullish pressure exceeds bearish 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 the price re-tests support or resistance levels, volume is usually monitored. If there is a significant increase in volume during these re-tests, those prices will tend to stabilize, possibly looking for volume divergence: typically, volume and price should move in the same direction. If not, it may indicate a problem.
For example, if the price rises but volume decreases, it may indicate a change in the price trend is imminent.
Choose volume indicators that suit your trading time frame: Whether volume data is important 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. Conversely, day traders may find hourly to minute volume data more useful.
Beware of one-time volume spikes: If volume rises suddenly and without reason, it may be misleading, so it's very important to seek confirmation signals from other indicators or later trading periods.
Using increased trading volume to discover institutional activity: Large investors or 'whale' investors can have a significant impact on the market. A sudden increase in volume on high-timeframe charts may indicate that institutional traders are buying or selling a certain token.
Remember, no single indicator, including volume, is a 'magic bullet' that guarantees successful trading. Analyzing volume is just one of many strategies that should be combined with other standards, indicators, and analysis tools. As the saying goes, 'volume precedes price.'
Incorporating volume analysis into your trading plan can give you deeper insights into market dynamics, help you make more informed trading decisions, and potentially gain an edge in the market.
6. Disadvantages of volume analysis strategies
Although volume analysis strategies are a powerful tool in a trader's arsenal, one must be clear about their disadvantages. Using this strategy, you may encounter the following difficulties: Market manipulation: In some cases, market participants, especially those with substantial capital, can manipulate volume levels to create false signals, misleading 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 substantial price fluctuations.
False peaks: Volume analysis can occasionally produce false peaks. In such cases, a sudden surge in volume does not lead to significant price fluctuations.
Price distortion in low liquidity: 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 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 into misleading signals.
7. Conclusion
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