Ultimate Guide to Cryptocurrency trading : Get smart with Bitcoin, Ethereum and Ripple now.

We cannot conclude our analysis of fundamentalforces and sentiment trading without a reference to cryptocurrencies(Bitcoin, Ethereum, Litecoin, and so on).

Bubbles are not just about the madness of crowds—nor are they simply manifestations of excess liquidity and leverage. But both of these factors are present in the extraordinary rise of bitcoin over recent months. Every spectacular bubble involves a premonition of the future. The trouble is that they turn out to be deeply flawed premonitions. In this respect, bitcoin has much in common with great historic speculative manias.

What are cryptocurrencies? 

The answer is not that straightforward. Are they commodities? Are they money? The best way to understand them is that they are digitized assets, with blockchain algorithms that eliminate the need for a central counterparty to make an exchange. From a regulatory point of view, different countries have different ways of defining them.

Platforms are also emerging that allow trading of cryptocurrencies. (www.​binance.​com)

Going beyond the esoteric and regulatory arguments about the nature of cryptocurrencies, the focus here is on how to trade them. The best approach is using sentiment analysis. The best way to understand them, is that they are a manifestation of crowd behavior. It makes a lot of sense, as buyers of cryptos are buying because others are buying, and sellers are selling because others are selling. We are witnessing a virtual swarm movement.

The challenge to the trader is when to fade or follow the crowd. This is not an asy challenge as crowd mania makes traditional technical analysis unable to reliably analyze the patterns. But sentiment analytics using price break charts acts as a filter and can provide insight into when to enter or exit crypto currencies. It is precisely because the crypto underlying markets are sentiment based, that our price break visualizations can be an effective guide on how to trade them, for those who want to take on more than the usual risk. Let us explore this in detail.

Steps in Trading Crypto

Assuming that one has already obtained access to cryptocurrencies through a wallet, the first challenge is that of selection. Just which of the hundreds of Cryptocurrencies should one trade? There were, on April 11, 2018, 1566 cryptocurrencies listed at www.​coinmarketcap.​com. How can a trader make sense of this large domain and select trading opportunities?

Selecting the Crypto to TradeThere are uncountable approaches to trading cryptos. Some traders see them as similar to penny stocks and look for a very small priced crypto, such as below $1 and look to catch a large jump. It is important to keep in mind that the price at these low levels may actually reflect a lack of value, or perhaps ignorance about the potential. 

Another approach is to select those cryptos that have achieved a reasonable level of capitalization such hundreds of millions of dollars. Capitalization offers at least a modicum of rationality as it demonstrates that there is a crowd forming around that crypto. But once a crypto is selected a key filter is diagnosing the pattern. Is it demonstrating a buy or a sell opportunity?

Let us look at the top ten crypto currencies and compare their patterns using three-line break analysis.

Bitcoin 

The most commonly known cryptocurrency. Its market cap reached $117,633,712,941 with 16,971,525 coins produced. However, it has a maximum supply of 21,000,000.

While hindsight is 20/20 vision, insight is not. Insight into bitcoin (as well as other cryptos) can be used to identify in advance locations for entry that are optimal and exits that are advisable from a risk point of view. This can be achieved by converting the price action into sentiment visuals. 

Bitcoin day chart

Let us go through the process. In Chart  we see the historical rise and fall of bitcoin. It shows a bitcoin day pattern and when viewed in terms of volatility, we see it has had ranges of 30% in a day! It is not for the timid 

Bitcoin volatility

Candlestick and Bitcoin

Let’s zoom in on bitcoin from a three-line break perspective 

The immediate ability to see that there is a persistence of sentiment is of great interest. Bearish new low day closes of three or more days in a row of new low day closes can be seen. Also of great interest are the reversal patterns. When bitcoin reversed back into being bullish, there is no long sequence of white bullish new high closes. The reversals are swing failures. Using this analysis, we can formulate a strategy for trading bitcoin:

• 1.detect major sentiment direction; 
• 2.enter the market only after a reversal color has appeared and has been followed by another reversal back into the main direction. We can see in Chart  some of these key reversal areas.

Finally, let us evaluate the price patterns from a line break perspective.

Bitcoin day three-line break

We can see clearly whether the sentiment is bullish or bearish and, importantly whether it is persisting. We can see where it is strong enough to reverse and change color.

Bitcoin key reversal areas shown with three-line break

This strategy rides the sentiment wave when it is optimal; when the price pulls back and then recovers to take out the previous three-line high close! So we only enter on these conditions. We take profit when we achieve 2× and 3× the risk. This allows for large profits, and gets us out of the way. From a trading mind-set, this rule tells the trader to jump on a crypto only when it has demonstrated the ability to recover from a reversal being expressed as a 3 line break chart. This can be a Day 3 line break or lower time frames! Always trade with the prevailing direction.

Ethereum

Ethereum is a contending cryptocurrency that can also be traded. As of April 2018 it had a market cap of $41,394,737,549.

Let us look at the price pattern from a three-line break perspective. See https://​www.​ethereum.​org/​

The three-line break chart of Ethereum four-hour pattern shows that the sentiment is generally bullish

Ethereum four-hour three-line break

Bearish swings have failed to be sustained. A strategy for trading Ethereum based on the pattern exhibited is to buy it right after the three-line reverses back into a bullish new high close. The trader would apply our concept of a lower time frame aligned with a higher time frame. Looking at the one-hour, three-line pattern, we can see that it is exhibiting a sequence of new high closes


The one-hour, three-line entry point would be after a swing failure down, and the black line appears, which is followed by a reversal white line. The trader could go and buy at the market at the close of the one-hour three-line break

Ripple

Ripple is a popular cryptocurrency with a very low price, but still with a high market cap of $19,872,917,668. This makes it very interesting. The price pattern shows that it, like bitcoin, has large swings.

Ripple one-hour three-line

The three-line break chart hour (Chart ) shows a sideways pattern that encountered a bullish breakout. The signal to buy was on the close of the bullish line. With a crypto in a low price range of Ripple, many traders are looking to buy and hold, and three-line provides a good way of locating where to put on a position.