When we have a strong correction like we did this week, it is tough to watch everyone freaking out, calling for the falling sky and panic selling to make things worse. Even though the cautious trader is hopefully well prepared for the situation, can navigate the indicators and setups (not flawlessly) and make a good profit, it drags on you when your HODLer friends resemble this: (
I use a good half dozen setups and indicators to make my trades and I have to show some patience and not barf them all at you at once and make you feel you are drinking from a firehose. So I am going to pick one and show you how I made profit in the big correction.
This is what a plain chart looked like. Without any indicators, we were flying almost blind and our only strategy was hope.
Support was weak (only touched twice before the bottom and once was a fake out. Consistent trends were very small and resistance was too strong. In times like these, you have to get out to FIAT as quickly as possible, and make quick trades so you are not caught in bull traps.
This is where a simple concept and indicator like Bollinger Bands comes into play. It is suggested you hit this link to start https://www.investopedia.com/articles/technical/102201.asp , and find more in-depth tutorials and do some more research on your own as well.......and come back and tell me the advanced stuff!
The VV notes version of Bollinger Bands is
- 98% of the time, the price of a coin (or stock) is inside of 2 deviations from the mean (in english, it is inside the blue lines with the red line being the average.) This means that when the price slides below the lower band, it it bound to snap back inside relatively soon, and you can pick your buy in point when it is outside.
- When it pops below, and you buy
- a conservative trader will sell when the price hits the mean (red line) while and aggressive trader will wait until it pops out the top of the band.
- In a downtrend (like the latest correction), I think it is smarter for buy outside the bottom band, and sell when it gets to the median (red line)
-In an uptrend, you buy back in when it drops from the top line to the median.
Lets add Bollinger Bands to the recent correction and pick out the buy ins and sell points. Based upon a $1000 trade, I will show the profit for each.
I should have changed the blue of the BB to a colour that POPPED but I picked only the price drops outside of the bands for the buy in. It was a downtrend so I calculated the price right when it hit the red median (except the first one because we were all still bullish on BTC!) The numbers add up to $431 profit on $1,000 over the course of the downturn that caused every crypto investor to question their existence, and every news agency to be predicting the end of crypto. Fairly dramatic. Advanced traders would have made WAY more.......and hopefully I will someday be one of those.
Truth be told, hindsight is 20-20 even through beer goggles and I personally only made half of these traders being a novice trader, but you get the concept. When you wrap STOCH and MACD and a bunch of other setups in to the equation, it helps you trade with a little more confidence.......and I will add those in later editions of this column.
Anyhow, I hope you add Bollinger Bands to your scalping strategy after you get a chance to do a bit of research on your own and practice with a little less than $1000 trades to start. Wise scalping means, at the basics as far as I am concerned:
- Buying the bottom and selling the top
- Profiting whether it is an uptrend or downtrend (and LOTS when it is sideways)
- Feeling more in control rather than at the whim of the market
- Taking profit based upon conservative goals for each trade.
I am hoping you will make even 1 better trade after reading this, and moreso that you will post a comment with your critisism, advice, feedback and questions.
Thanks for reading!