You Gotta Know When to HODL’em – Know When to Trade‘em

(Last Updated On: November 1, 2018)

When I first started thinking about investing with cryptocurrency I thought I’d buy and HODL for a few years until I landed on the moon…but that didn’t last long.

Before I made my first purchase of cryptocurrency, I researched with almost every moment I had for about a month. I narrowed down my choices from about 1200 coins and tokens (now there are over 1600) to 15 cryptocurrencies and 3 ICOs. Next, I pulled the trigger and bought-in around January 10th, 2018. At this time, I was thinking that I was buying ‘in a dip’ only to have half my portfolio vanish over the following few weeks. I felt helpless and took a passive approach by repeating to myself that I’m in it for the long run and I will just HODL until it goes back up…after all, that was my initial strategy. I believed in, and currently believe in, blockchain technology but that didn’t prevent me from feeling like eating backwards while watching my investment flop.

To fight the feeling of helplessness I dove into the technical analysis (TA) rabbit hole. Technical analysis is the use of various measurements and calculations in attempt to predict the movements in the price of a widget traded on the open market. In short, TA can be used to predict when, and where, the price of a cryptocurrency will change. If I would have known about all the tools available to help determine the prices of crypto, I would have definitely waited to buy-in.

Fortunately, I was able to scrounge up some pennies in the cushions of my couches to BTFD right after the market started to recover at the beginning of February…and this time was going to be different.

Yes, it costs money to trade (transaction fees) and it can be quite risky if the tools are not applied properly (using a saw to try and hammer something together doesn’t work well either). However, there are ways to limit your risk while maximizing gains.

 

Know when to HODL’em

With that said, I definitely do HODL. Strategically, when the tools to make an informed decision are not available, then it is safer to keep your crypto tucked away in the wallet of your choice. I recommend that you keep an ear to the ground for any news that may indicate big falls in price as a result of the rare demise of your crypto.

I also hold onto my coins to diversify my portfolio of risk. Holding will come with all of the crazy dips but it can also come with launches to the moon. If you truly believe in the coin and the possibility of it skyrocketing without notice, then I’d get a hardware wallet; such as a Nano S Ledger or a Trezor (I personally use the Ledger). If your crypto of choice isn’t compatible with your hardware wallet of choice then a paper wallet is my next best choice…all in aim to keep your stash as secure as possible. You can get a paper wallet at MyEtherWallet.com, for example.

 

Know when to trade’em

Binance.com has an amazing advanced-trading platform that allows me to make educated guesses as to when a cryptocurrency will spike and when it will plummet. While the technical analysis tools aren’t always perfect, they can sure give me an edge compared to the HODL approach. In short, I can sell when the price is about to go down (or going down) and I buy when the price is about to go up (or going up). This leads to a decreased amount of time that my portfolio is losing value and an increased amount of time that it is gaining value.

Some of the tools used in TA are called indicators as they are meant to indicate the direction of the price. I use about 6 different exchanges and only 2 have my indicators of choice built in:
• Kucoin has a decent advanced trading platform but doesn’t provide as much information as I’d like which makes me more conservative when trading
• Binance has everything I need to find coins and tokens that are approaching a potential turn-around point between a bear market (downtrend) and a bull market (uptrend).

TradingView.com has a great assortment of indicators and the pro features are definitely worth it if you are using TA to earn income and you can always just try out the free trial whenever you like. Trading is only recommended after you are confident that you know how to properly apply an indicator. There is a great knowledge base on TradingView and you can always Google the name of the indicator for more information. Access to such information allows you to make educated decisions that minimize risk while increasing the likelihood of making profitable trades. TradingView uses data from Binance and other exchanges in addition to many fiat exchanges. The sceenshots below were taken at TradingView.com.

 

The Tools of the Trade

Without further ado, here are the main tools I use. These tools are useful regardless of the time scale in your chart. The first chart below is the most common and is known as the daily chart. This means that every line (candlestick) represents the price movement during the day.

Similarly, as a 4-hour chart, the second screen shot has each line representing the price movement in each 4-hour period. Looking back at any point of a chart, of any stock or cryptocurrency, these indicators do a great job in giving hints as to what can happen next.

RSI (Relative Strength Index)
• Shown at the bottom of each screen shot
• Indicates whether the price of a widget is likely to increase or decrease by measuring historic price changes
• Measured from 0 to 100
o 0 indicates that the widget is over-sold which means that the market may want to start buying at the low price which may increase the price
o 100 indicates that the widget is over-bought which means that the market may want to start selling at the high price which may decrease the price
• Lines A and B are at the 30 and 70 level because these lines are commonly used to gauge momentum changes
o Notice how the ATH (all-time-high(highest price in the lifetime of the coin)) aligns with the highest peak in the RSI chart
 Also, notice that the ATH is above the 70 mark which is a strong signal of an imminent drop in price

Stochastic RSI
• Shown as the middle chart in each screen shot
• Similar to RSI but has two lines and provides the guidance to pick the right moment to make a trade
o Buy when the blue line rises above the red line
o Sell when the blue line falls below the red line

Bollinger Bands
• Shown in the top chart of each screen shot
o Includes a top line, bottom line and middle line – each of which acts as a point of resistance or a point where a price is likely to turn-around
• Uses standard deviation to show the expected volatility of the market
• Useful in seeing where a price might turn around
o If the price hits one of the boundaries of the bands then it is susceptible to turning around
o The center line of Bollinger bands can also indicate a turning point
• It is typical to see high volatility after periods of low volatility – and vice versa

Chart 2

There are dozens of tools available – you just need to find what works for you. Currently, I’m learning about Fibonacci lines and I occasionally use MACD and KDJ. I know, this may sound like a foreign language but this is why I recommend starting with Stochastic RSI, RSI, and Bollinger bands and discover more as you get more comfortable with trading.

 

***edit***
Since initially writing this post, I have stopped actively trading crypto. There is money to be made but it can be stressful. I have only had an eye twitch twice in my life; the first time was during an all-nighter finishing a project in university and the second time was while trading crypto. Also, unlike stocks, crypto markets are open 24/7 which led to me feeling to need to check on the market with every spare second I had and this took away from time with family and friends. So, while I do think that there are strategies that can be used to profit from the big price swings in cryptocurrency, I have experienced that those profits can come at a cost.

 

Do you HODL? Perhaps you’re a day trader or swing trader? Comment with your favourite indicator below!

 

Invest With Cryptocurrency; Grow Money