Well, the knowledge of when to buy and when to sell is the holy grail of trading – basically, this is the entire point of the trader’s profession. Obviously, it is not possible to explain everything about it in one short article. Moreover, there is no single trader that can answer this question 100% correctly – all traders make losing trades. After all, there are far too many factors that can influence the Bitcoin exchange rate for any prediction to be 100% reliable.
However, there are still factors that are necessary to watch for and rules and patterns that allow predictions that are “good enough”.
So today we won’t give you a ready, clear answer, intead, we will show you what to pay attention to.
It is necessary for any successful trader to constantly monitor the news background – the market always reacts to the news. And major events like changes in regulation in a large market segment, network updates or hacked exchanges influence the crypto market quite strongly. While it is true that “trading on the news” (relying only on the news to make trades) is a bad idea, it is still necessary to take the news background into account.
Ratio of long and short positions
Ratio of long and short positions is an indicator that is very often used by margin traders. Basically, it helps to figure out what the “whales” (traders with overwhelmingly huge amounts of funds) are doing – after all, smaller traders are almost always forced to follow the “whales”, and the better they do it, the more money they will get. Of course, it is not “be all and all” of trading, but it is still a very useful indicator.
The point is that it is profitable for large players to open positions in the opposite direction to the most of the market, once critical disbalance in the ratio is achieved.
Let’s say that there are 80% long and 20% short positions in the market. It means that there is a great probability that large players will start opening short positions en masse. The strength of buyers is spend and it is a good opportunity to push them out of the market and take their money.
Of course, exceptions happen, but they are rare.
It is worth remembering that the market volume changes cyclically throughout the day with trading sessions in opening one region and closing in another. Well, technically, unlike traditional markets, the crypto market doesn’t have specific trading sessions – most exchanges work 24/7, but there is still a correlation, since people tend to trade during the daytime in their region.
Thus, the largest volumes are active in the market during the workday in the US and in China. Keep that in mind and take notes when the market activity is at the highest and at the lowest. For different strategies you want different levels of activity.
Besides, it will still be a good practice to keep tabs at trading sessions in the traditional markets – all markets are interconnected, so major movements in the traditional markets can affect the crypto market.
What to do if trading goes wrong.
There is no way to avoid making losing trades completely – some losses are inevitable, so the trick is just to make more winning trades than losing ones. Don’t rely on luck – only on calculations and statistics.
However, what to do if you are taking serious losses?
There are three reasonable options in such a situation.
- Hold the losing position until the growth will resume and your losses will be compensated. This method works well for long-term (really long-term, for at least a year or better more) investments in Bitcoin, but for smaller cryptocurrencies it is risky and in the short or medium term the losses may very well increase.
- Average the losing position. In case of renewed growth, you’ll be able to offset losses and even gain profit much faster than by holding, but it can also increase your losses.
- Compensate your losses for selling crypto at a higher rate than the market average. While this may look too optimistic, due to different market makers, different sources of liquidity and different conditions, the rates on exchangers can differ quite a bit. It is not uncommon to find a platform that at the moment offers the rate 5-10% more profitable than the market average.
It may be difficult to find such profitable offers, since there are dozens of crypto exchange platforms with constantly changing rates. Fortunately, the Changevisor service takes over the task of monitoring these platforms and showing you the best offers available right now. Thus, you can exchange crypto at a much more profitable rate and either increase your profit or at least offset the losses you took due to exchange rate fluctuations.