21/12/2018/09:50CET
I am here to show you an interesting swing trade opportunity and how I got to it.
Now it may be late to execute this particular trade now, but this is not the idea of the post.
I wanted to show you how I do it, and how it works. You may learn something from it.
here is the daily chart of BTCUSD on coindesk
Here you can see some construction lines that help visually see trends in the price action. They are very useful to have and add contrast for your eyes to better see trends and changes in those trends. I highly recommend you play with such geometry. Don't get hung up on exact tops and bottoms etc. Important is to see trends and inflection points, so focus on that.
You can see the trend change very obviously here.
When I had just these lines it was not so clear but there were hints a reversal was coming.
A simple lesson I have learned. Markets reflect mass human psychology. Nothing ever goes down or up fast forever. There is always a fear and greed mentality at work which when reaches a tipping point, reverses a trend. And here you see it. The sell side was vicious. Plenty of fear to go around. But greed was building amongst those on the side lines with capital to deploy. And then BANG! it broke with force!
At this point we can see that potentially a trend has broken, but it is still just potentially.
See how the force of the buy energy had punched right through the resistance curve.
I am not showing volumes on this chart deliberately, because I want to focus on price action alone. Thin volume at this breakout may have tempered a call for a breakout.
Now to think about potential risk/rewards for a swing trade. How to do this?
Well assuming it is a breakout, we need to identify where it will likely reverse on the upside(where will the forces of greed run out and fear take over), and where it makes sense to pull out if it proves to not be a breakout (fear had not completed it last cycle). These forces are what we want to translate into a profit and loss positions for a trade.
So where to look for these points?
We need to look for historical resistance and support. Let's go back to times we were at this same price. I have switched the chart up to a 4day scale to see things better.
So let's now zoom in here.
So green is support and red is resistance. I have circled the spots in price action that have lead me to pick these price levels.
When masses of people are in markets, they tend to act in somewhat predictable ways, and these behaviours tend to repeat themselves at the same price levels.
It makes sense if you think a little about it. A person who bought bitcoin at 1,000 usd has a completely different mindset about the price action today to the person who bought at 10,000 usd. In fact for each market participant this mindset switches over exactly at their entry price. Price above is in profit, below is in loss. Simple.
The charts shows us the sum of all trades at all prices in history, so we can derive the sentiment of the mass of market participants using this simple understanding.
Back to the trade, so odds are, price action will reverse again at these points.
Just to prove it, take a look at the price on the green line. $2986
It is not an exact match, markets are never exact, but notice how it is pretty close to the price we bottomed out at before this reversal.
Now back to today
Now with the lines in place we have some guidance. (notice the support line and how it hinted at the reversal a few days ago)
So let's do some calcs now.
The line (green and red meet) for the basis of this calculation is the line at which I entered my position. (for real guys)
I waited for the reversal to be confirmed (for me) and then I traded. The line you see is the average price of the trades I executed.
So the shaded areas show a potential 32% gain and a risk of 20% loss. I round my gain down and my risk up because mentally I know things are never as nice as you like them to be, and there are trading fees to take out as well.
There is an intermediate resistance line as well which is only at 19% gain. I think we may see some resistance here.
So how the trade was constructed:
- Spot the trend reversal (draw lines. it helps)
- Confirm the trend reversal (I wait a few days to see if it really is something new happening)
- Make a quick profit loss calc based on current price.
- Decide if I jump and with how much (Totally personal decision)
- Enter the trade.
- Recalc the profit and loss based on actual entry price point.
- Set the stop loss trade at the bottom of the loss profile (Actually place the trade that will stop you from losing your shirt)
- At this point we wait to be in the green with the trade and eventually move 50% of the trade over to profit taking at the first resistance line. I will look to do this in the next 24-48h depending on price action.
- If we take profit at the first resistance line and price action keeps looking good, we can move our stop loss up to our entry price. We lock in the first tranche of profit.
At this point you are in the green for 10% returns on your trade with no risk of loss and a potential extra 15% if price gets to the next resistance level.
This is swing trading. is not always going to work, but you gotta get in with real money to learn.
+30% vs -20% are not the best of plays, I prefer to see a +50% vs -20%, and I may have been able to get it if I had played one of the alts over the last week, but one must keep an eye on liquidity. Bitcoin is a safer bet at the moment imho, and only one step from fiat.
It takes work, time and experience to spot trends and inflections. Not to mention the time to execute and track trades.
It is not what I would call easy money most of the time.
But there will be those trades! The ones that will that makes your month, or your year!
So be patient and avoid being greedy, and the absolute hardest thing to do, keep your emotions out of it.
As always guys, leave comments, have fun and trade safe.
