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Crypto Indicators and Metrics for Beginners: Start building your Trading Strategy

I am not a professional trader or financial advisor, but I first got in touch with Bitcoin in 2013. It was interesting, but I was very busy with my startups back then, and I was not fully hooked yet. In 2017 I was diving deeper, and since then, Cryptos have been my constant companion. I have tried and learned a lot, and now I want to share it with you. First, if you join in a Bull market; everything is easy, almost no matter where you put your money, it will go up. The question is how much and how long. You might think this whole Crypto world is a money-printing machine. What can I say? It's very educational to go through a Bear Market as well. I went through at least two full circles by now and am still learning every day. Cryptocurrencies and Blockchain Technology will positively influence many lives in a financial and also in many other ways. There are tremendous opportunities out there. 

Today, I will write about different factors, indicators, metrics, and basics that should help you not to get wrecked and increase your Investment's value. Try to keep emotions out and have a plan ready to react to different situations. Not being emotional is easier said than done when you lose 40 % or more overnight, but panic rarely helps with anything. Please do not make it complicated at the beginning. Pick what you find helpful and use it. Here you find an overview of 7 different ways to make money, where you also see the complexity and time needed to get started with other methods. 

Let's get started. 

The importance of Bitcoin Dominance

Bitcoin, and especially the Bitcoin dominance is influencing the whole Cryptocurrency market. Bitcoin is still making or breaking the market. There are sometimes smaller cap coins that are not following Bitcoin movements, but most of them do. As an Investor, you should have an eye on Bitcoin dominance for different reasons. If you are using Tradingview, you can find the Bitcoin dominance under the Ticker BTC.D. 

💡 Bitcoin dominance is a measure of Bitcoin's market capitalization relative to the whole crypto market cap. 

Bitcoin Dominance - BTC.D - Tradingview

In combination with the Total Market capitalization Chart (Tradingview Ticker: Total), you can get a feeling of how the markets are developing. 

To simplify everything. If the Total Market Cap of the whole market is growing and Bitcoin Dominance is going down, we are likely in an Altseason and a Bull Market, and so on. 

In this oversimplified graphic, you see when you should stay alert and how the money in the Cryptocurrency market usually flows. Cash is mostly flowing down from Bitcoin, first to the big players like Ethereuem, Cardano, and so on to Midcap Crypto Projects and then to Low Cap Cryptocurrency Project. The smaller the Market Cap of a project is, the bigger the risk and the possible reward. Be very careful when you play with the mid and small Cap Altcoins.

Money Flow in Cryptos

💡 Altcoin season (alt season for short) is a time in the crypto market where alternative coins tend to outperform the leading Cryptocurrency

TIP: Use monthly timeframes in Tradingview to get a more stable view and see how the trend is developing. In these very volatile markets, there is a lot of noise in smaller timeframes. We will go down to daily and maybe 4-hour timeframes for technical analysis later on. 

If people feel the markets are crashing, money is usually flowing to Bitcoin since it's one of the most stable currencies besides stable coins. Generally said, Bitcoin is an excellent place to be in if the markets are crashing. 

After we know in which season we are, in Bull, Bear, or Sideways Movement Market, we can have a closer look at how to decide what we are buying, when, and which indicators you could use for that purpose. 

I am not a Technical Analysis guy, but those technical Indicators are beneficial and not so hard to understand. Here is a little introduction. 

Moving Averages (MA)

The Moving average (MA) is one of the most straightforward tools used in Technical Analysis (TA). The moving average is the average price over a time period, we often use the 200 days moving average, 50 days moving average, and the 20 days moving average. It can be used for any timeframe.

MAs with a shorter timeframe react much faster to price changes. There are also different kinds of Moving Averages used, for example, the SMA (simple moving average) or the EMA (exponential moving average). They differentiate in they behave a little bit. Since this is an introduction, I will not go into further detail here. 

 

The 200-Day (simple) Moving Average (SMA)

The 200 SMA represents the average price over the past 200 days. It is mainly used to spot up- and downtrends and also identify support and resistance areas. 

Bulb: At the Support level of a Crypto asset, the downtrend should stop or pause for a while. This happens because there is expected that there is a high concentration of buying interest of Crypto Investors. 

As a rule of thumb, if the price is above the 200 MA, the trend is up; if it's below, the trend is down. 

200 Moving Average - Daily Timeframe - Tradingview

The 50-Day Simple Moving Average (SMA)

This moving average is also very popular under technical traders. It is considered the first line of support in uptrend markets and the first line of resistance if the markets are going down. 

You may have stumbled across two important terms above: the Death Cross and the Golden Cross. In both turns of trend events, the 200 SMA and the 50 SMA are involved.

A so-called Death Cross happens if 50 SMA is crossing the 200 SMA from up to down. This is often seen that a bear market is coming up. On the other hand, the Golden Cross is when the 50 SMA crosses the 200 SMA from down to up, good times are supposed to happen. 

Death-Cross and Golden Cross - Bitcoin / Tether - Daily Timeframe - Tradinview

The 20-Day Simple Moving Average (SMA)

The shorter the timeframe, the faster the Moving Averages are reacting to the price changes in the market. With a shorter period, like the average price of 20 days, you can spot changes in trends faster, but it is also more likely that you get a false alarm because of a bit of breakout. 

Moving averages are popular within Crypto Traders and often used with other key indicators for both, exits and entries. Do not forget you can not predict the future from the past, but you can draw some lines in the sand, get some grip, and better understand price developments. 

Next will have a look at the relative strength index indicator, which is a momentum indicator. 

Relative Strength Index (RSI)

The RSI indicates if a digital asset is overbought or oversold. The Relative Strength Index indicates bullish or bearish price momentum; usually, if the RSI is about 70 %, that means a cryptocurrency is overbought. If the Index is under 30 %, it is oversold. The RSI measures the magnitude of a recent change in the price within a period of time (usually 14 days, 14 hours, etc.). The data are shown on an oscillator between 0 and 100.

Bitcoin RSI Relativ Strength Index - Tradingview

Generally speaking, when the RSI goes below the 70 % level, this can be seen as a bearish signal; on the other hand, if it climbs above 30 %, this can be seen as a bullish sign. A momentum indicator like the RSI can give an idea if buyers have the market under control or sellers might take over. 

Like all other indicators and financial metrics, the signals can be misleading, so it is best not to use them as a direct sell and buy signals. 

Moving Average Convergence Divergence (MACD)

The MACD is a trend-following momentum indicator. It subtracts the 26-period EMA from the 12-period EMA and measures the relationship between two EMA's.

The Moving Average Convergence Divergence is made up of two lines. There is the MACD line and the signal line. Most charting tools (e.g., Tradingview ) also show a histogram showing the distance between the signal and the MACD line.

Traders can get an insight into the strength of the current trend by looking at the MACD chart. 

For example, if the price chart shows higher highs, but the MACD shows lower highs, there is a higher probability that the markets could start going down soon. The price is increasing while the momentum is decreasing.

💡 Momentum is the speed or velocity of an Asset's price change 

Both MACD and RSI are used together since both, measure the momentum, but by different factors. 

Bollinger Bands (BB)

Bollinger Bands measure the volatility of the markets and also if the market is overbought and oversold.

BBs consist of three lines:

  • the middle Band - simple moving average. The standard is usually the 20 SMA
  • the upper Band (usually two standard deviations from the middle Band)
  • the lower Band (usually two standard deviations from the middle Band)

💡 A standard deviation is a statistic that measures the dispersion of a dataset relative to its mean.

Bollinger Bands - Bitcoin - Tradingview

With the increase in volatility, the distance between bands increases. Smaller volatility is shown with a smaller distance. The closer the price is to the upper Band in general, the more overbought the price; the closer to the lower Band, we are in an oversold market. A breakout of the Band shows extreme market conditions. 

Like with all the other indicators, it's not recommended to only trust one of the indicators. 

Build your own strategy 

After figuring out if we are in Bitcoin Season or Altcoin Season, if we are in a Bull or Bear Market or the Market are consolidating sideways and we decided on how we want to trade day, swing, or just HODL, it's time to pick a strategy.

I started with HODLing, which is not a bad strategy, but I also make mistakes, of course. You are just picking, buying, and holding your coins over a more extended period. The main mistake you can make with that strategy is to choose the wrong coins, e.g., shit coins are not great for holding.  They usually pump once and you have a short time window to cash out or in most cases, you will use 95% of your Investment.

Bitcoin or Ethereum and other coins with a high market capitalization turned out to be a great way to make money. I am still tweaking, learning, and improving my strategy. What I am doing now is a combination of using DeFi rewards, Holding and Swing Trading. Depending on your experience, time available, risk tolerance, you should find your own perfect way how to trade. 

Here are some ideas and thoughts about how to make some money and not get wrecked. 

How to deal with new Altcoins that look promising?

If I find a new Altcoin through my favorite TikToker or a friend who tipped me off, I try to do as much research about the projects as I can. There are also some influencers that I trust more, and then I am not doing as much research as I would usually do, and if I like the project, I invest a smaller amount. If I want to invest in a more significant amount, I might even do fundamental analysis and publish a full Crypto Review like with (fantom, Avalance, mina link). I have a look at the Usecases, the Team & Investors, Tokenomics, possible demand drivers, active community, and whatever else comes to seem to be relevant. I also try to estimate how high the project could go. The primary metric for that is the market cap. 

If you do not want to HODL for an extended period, setting yourself price targets is a good idea. It could be that you sell a part after making 2x, more after 3x, and maybe if everything looks good, hold the rest for a further ride up. This strategy depends on your preferences, but remember taking profits on the way up is never a bad thing. The profits can be reinvested in other promising projects, or you can buy the Dip if your favorite projects are temporarily going down. 

If you are not Dollar Cost Averaging into a coin, when is the best moment to buy a currency? Maybe you heard that you should buy the Dip? How to do that. 

How to buy the Dip?

It's not unusual that Cryptocurrencies are dropping their value by 10 or 20 %, sometimes up to 40 % overnight. Maybe you remember the last major correction in May 2021, where even Bitcoin, which is considered as one of the more "stable" coins, went from over $60.000 to a bit over $30.000 in a matter of days. In previous Bull runs, the correction of the Bitcoin Value was over 50 %. 

💡 "Buy the dips" means purchasing an asset after it has dropped in price. 

It is usual for Bitcoin to go up or down five percent per day or over ten percent per week. For Altcoins, a daily price change of ten percent or 20 percent per week or more is considered normal. If some price movements out of those ranges are happening, that could signify that the price is dipping. This can mean a temporary correction in a bull market or a crash into a bear market; be careful. 

A first step would be to check the price chart and see if you see a long-term price trend is changing the direction. If not, it probably just was a temporary correction. 

Bitcoin Chart

A next step could be to find out what could cause the Dip, usually that this is a combination of multiple things. e.g., a series of bad news, like regulations or bans in countries like Turkey, Elon Musk tweets, etc. Such information could lead to panic selling. 

The next step is to figure out how low the dip could go, there is no way to be sure about that, but there are ways that can help you estimate how far the Dip goes. 

Let's jump into it. We will need Trading View or another charting Tool of your choice. I usually start with the BTC / USDT chart even if I am not holding BTC.

Go to Trading View and choose BTC/USDT and begin with the weekly timeframe. Find the next strong support zone and then open the EMA Indicator to identify other support zones.

After finding out how a further drop could look like, go to the daily timeframe to look closer. Again look at visible signs of support by looking at where prices have clustered in the past.

Add some indicators like the EMA and the Bollinger Bands and recheck the chart. Generally speaking, the 100-day EMA has been shown as solid support in the previous bull markets. If you check the Bollinger Bands and are almost outside of the lower Band, you could get another sign if it's already time to buy.

Next, we should also check RSI to see if Bitcoin is overbought or underbought. To figure out if the Dip is over, activate the MACD indicator and try to see if there is a trend reversal? (red bars are going back to the midline).

You can also check the trading volume; you want to see an increase in buy volume and a decrease in cell volume.

Always keep an eye on the Bitcoin Dominance as well. Try to buy when support was confirmed. 

How to take profits on the way up or sell the top?

It seems almost every Crypto trader went through the same set of mistakes, like being too emotional, holding too long, selling too early, buying at the top and selling low, risking too much or too little. Let's be clear Investing or even trading Cryptos is not for everyone. 

There is no general advice; you need to adjust this to your own needs and figure out for each Cryptocurrency you hold when the best time to sell is for you. Rule number one is to sell high, buy low. A straightforward rule, but how to follow it?

We need to figure out when the best moment to sell the top. In the past, the crypto market came in cycles. One cycle usually lasts around four years and is closely related to the Bitcoin halving every four years. After the halving till now, there was usually 1,5 years of the bull market followed by 2,5 years bear market. Following this pattern, the bear market should show up somewhere around this September till January if we add a little buffer time. See how the prices were behaving in the last cycles. 

Golden Bull Cycle ration - Bitcoin halving
Bitcoin Halving Development - Growth - Image via masterthecrypto

First, we need to know there are long-term tops and local tops that we can sell. Both tops have the same price patterns; they are parabolic and have a blow-off top. 

Bulb: A blow-off top is a chart pattern showing a sudden rise in price and volume, followed by a sharp decline in price also with high volume.

Bulb: Parabolic Move It refers to when an investment makes an upward price move that looks like the right side of a parabolic curve. 

To identify, besides doing Technical Analysis (TA), you should also consider checking the news, influencers pushing it, or something else is pumping an asset. Consider that it is much easier to move a coin with a smaller market cap than one big 20 coins. 

Here are some ideas on how to sell the local top, which is easier with smaller coins since they underlay more significant fluctuations. The big boys are way less volatile. 

First, look for a blow-off top or parabolic movement on the daily or 4-hour chart. 

Confirm the top with EMA, Bollinger Band, and the RSI if you find a local top. Those indicators should help you to confirm a local top. 

If you have confirmed the local top, you can sell the top or take a little profit and let the remaining pack rise further. With the profits, you could buy in again into the next Dip and accumulate more. 

Always have a look at what Bitcoin is doing, even if you are not holding BTC. Bitcoin is still influencing almost the whole market. 

Also, be aware of bull traps and try not to FOMO into the market.

💡A bull trap is a false alarm signal, referring to a declining trend in a stock, Index, or other security that reverses after a convincing rally and breaks a prior support level. 

💡 FOMO, or "fear of missing out," As crypto trading is still very much driven by emotions rather than valuation. FOMO is a huge factor to consider when swing trading in Crypto.

Another great way to reduce the risk of getting crushed like a cockroach is to set a realistic market price target at which you plan to sell after identifying a bull market and sticking to the plan. 

An example: 

If you buy $FTM Fantom for $1 and you have a price target of $5.

You could take profits on the way up at $2, $3, $4 and put the profits into Stablecoins or more stable coins like BTC or ETH and buy more $FTM if it is dipping. 

Before you buy the Dip of your favorite Crypto Project, it's also always good if the support area holds up and bounces from there. That is also an excellent moment to start allocating again. 

Summary

There are different ways to make money in Crypto Space. Here I show seven ways how to get started making money

If you start Trading Crypto Assets or even if you are HODLing, it helps a lot if you understand the importance of key metrics like Bitcoin Dominance, the total Market Capitalisation, or Technical Indicators like Moving Averages, Bollinger Bands, MACD, RSI. All this can help you estimate future price movement and find a price range within which you are willing to buy or sell. 

We tried to introduce you to the terms and some ideas on how you can get started with building your investment strategy to become a long-term investor in the blockchain industry. Be aware we are just scratching the surface here, and there is way more to learn. 

Psychology of market cycle - Cheat Sheet

As I said, I am not a professional trader, but I hope this article gave some ideas on getting started. Never forget to try to understand yourself and do your research. 

We would love to hear from you what you think?

Disclaimer

This website includes information about cryptocurrencies and other financial instruments. All these areas are complex instruments and come with a high risk of losing money. We are NOT giving financial or investment advice; this page is for educational and informational purposes only. Please be careful and make sure that you understand how these instruments work. Also, think about whether you can afford to take the risk of losing your money.

Weirdo.Rocks encourage you to do your own research before you make any investment decision.

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