I see a lot of people making videos and talking about positions, strengthening positions, weak hands, etc and I think there is a lot of people that maybe do not really fully understand what is being discussed here. In this post I will try to identify the goals here that will hopefully help a lot of you become more successful traders. This discussion is also targeted more for people who tend to day trade or flip coins versus those that hold long term although the strategies discussed in here will benefit long term holders as well.
First off. You need to get out of the mindset of comparing things to fiat. Your goal should be to increase your crypto weather it be BTC or something else. When you go into a trade, yes you want to end up with a gain but part of your strategy should be to not only get a gain but to also increase the number of coins you have from your initial purchase along the way. When you decide to purchase a coin or make a trade think of it as opening a position on that coin. Your long term goal will be to create as strong of a position as possible through multiple trades increasing the number of coin you have. Now, in the event the coin immediately goes up, great, sell and take your profits. This is essentially closing out your position assuming you sold everything.
But what happens when it goes down? We have all been here, we think we identify a trend and open a position only to see the price go down creating for us a weak position because now we need it to go back up in order to see a profit. One thing to note here though, a coin very rarely will do a straight line down or up. There will be dips and peaks as it tests support and resistance lines. These are your opportunities to strengthen your position.
So what do I mean by strengthen your position?
Well, if we look at the chart below, at position 1, we had a good buy signal based on the RSI. EMA's were a little weak but RSI below 30 is a decent buy signal. We buy in at 760 for 1 BTC and we want a 5% gain so we set a target sell point of 798. Our initial buy in gets us 131.5k TRX.
Now as we can see from the chart, the price drops and has developed a downward trend instead of turning and going back up. THIS HAPPENS A LOT!!! We now have a really weak position, our gut is telling us to start looking for that 1% or 2% gain and get out meaning we will most likely sell early or walk away with a loss. However.... Our goal now is to strengthen our position by increasing the number of TRX we own using our initial investment. This does a few things. First if we hit our original sell target, we make more, but it also lowers our needed target for profit since we now have more of the coin based on our initial investment. Using our RSI we see a good sell point at position 2 and sell at 750. We now have about 0.98 BTC. Yes we took a loss but our position is still open. This is key.
At point 3 we get a strong buy signal from the RSI and get back in at 630. Our 0.98 BTC now yields us 155.5k TRX. As you can see, our TRX amount has now increased. This move alone has now moved our overall 5% target down from 798 to 675. We have essentially strengthened our position. We do not need to see 798 anymore and we are much closer to the current price then before.
Moving along, we see a good sell signal on the RSI at point 4 and resell at 670, less than our goal so we keep our position open. This new sale gives us 1.04 BTC. Now, at this point you could take your 4%, but we still think TRX is under priced at this point so lets keep going.
At point 5 we see another decent buy signal, so we buy back in at 440 giving us 236.3k TRX. Again, our overall target sell point drops even further (still basing this on an overall 5% gain) to 444. This means that it needs to move up just a tiny amount for us to walk away with our original target of 5%.
Moving along we see a good sell signal at point 6 and resell giving us 1.79 BTC. A huge return here. Personally I would have probably called it a day at this point. However, it is still undervalued and it is still going to move.
Point 7 comes along. Now this is a really weak signal but we have a large dip on an upward trending line. What you should do here is pocket your 1.05 BTC. You have made your original gain, lock it away. We do this and use the remaining 0.74 BTC to keep it going and buy in at 650 again giving us 113.8k TRX.
At point 8 we finally sell again and decide to close our position completely. The final sale gets us 0.96 BTC for a total of 2.01 BTC. Looking down the chart, it should be noted that had you kept your position open, you would have continued to see gains.
As we can see, along our journey here, we kept lowering what our get out point was. We created a very strong hand to play with. Had we not done this and just held, we would have walked away with 1.05 BTC. Instead we doubled our initial investment by using our signals. This chart is an hourly chart and our buy in would have been on the 13th of Jan with our exit on the 18th of Jan.... DURING THE DOWNED MARKET.
Now this goes without saying, hindsight is 20/20 and we can't predict what is going to happen. But, look at any chart, look at the signals, this pretty much works in most situations. Also, this is using just 1 of many signals that are available. Find the ones you like and use them. If you think of trading like this using a set of trades as a position versus individual trades, you will find that you will make a lot more money in the long run. It should also be noted that RSI buy and sell are considered really strong when above 70 or below 30. In this scenario though once we have entered we are looking for the peaks in the RSI itself that are a good distance from the last low point. Our exit is still above 70.
The ONLY thing that needs to remain true here in order for this to not fail is that the coin does not fail completely. Try this for yourself, create an Excel or Google sheets file and try and perform 5 buy/sell trades (10 total) using these ideas but not any actual money, just pick your buy and sell points and log it. Practice this, once you can effectively do this in practice, put your money to work.
Lastly, it could be pointed out that you should have just waited for it to hit 440. Well first off, no one could predict that drop. Second off, had you bought in at 440 and sold at 850, you would have walked away with 1.93 BTC versus 2.01. You also had a weak position compared to the person that bought in higher and was strengthening their hand the entire time.
Please post below what your thoughts are and as always feel free to contribute!!
NOTE: I am not a financial advisor and this is just my opinion. Before making any investment please make sure you do your research and fully understand what you are investing in!