I recently introduced a friend to our humble, little subreddit and they quickly pointed out that the language spoken here did not appear to be English. I suppose we do toss around a fair amount of acronyms, memes, and slang. I put together a quick glossary of terms for them and figured I should post it here in case any other new ethtraders can benefit from it:
Exchange Websites where you can buy and sell crypto-currencies. Some popular exchanges in North America are: Coinbase GDAX Gemini Bittrex Poloniex Quadriga Kraken
Whale Someone that owns absurd amounts of crypto-currency.
limit order / limit buy / limit sell Orders placed by traders to buy or sell a crypto-currency when the price meets a certain amount. They can be thought of as 'for-sale' signs. These orders are what are bought and sold against when traders place market orders.
market order / market buy / market sell A simple purchase or sale on an exchange at the current price. Market buys purchase the cheapest ETH available on the order book, and market sells fill the most expensive buy order on the books.
margin trading The act of 'magnifying' the intensity of your trades by risking your existing coins. (NOTE: Very risky, only for experienced traders and only on certain exchanges even then)
going long A margin trade that profits if the price increases.
going short A margin trade that profits if the price decreases.
bullish An expectation that price is going to increase.
bearish An expectation that price is going to decrease.
ATH All-Time-High. We've gotten a lot of these the past couple months.
Altcoin Generally any crypto-currency other than Bitcoin or Ethereum. (Though some Bitcoin folks would probably still say Ethereum is an altcoin)
ETH The crypto-symbol for Ether. Kind of like stock market symbols. (i.e., the crypto equivalent of AMZN meaning Amazon stock)
Symbols of some other crypto-currencies that are regularly discussed/shilled around here: BTC - Bitcoin LTC - Litecoin ANS - Antshares SC - Siacoin XRP - Ripple ETC - Ethereum Classic FCT - Factom (described as a software license more than a coin, but can still be traded)
Tokens Refers to the 'currency' of projects built on the ethereum network that have raised money via issuing their own tokens. Some common tokens discussed on this sub: GNT - Golem REP - Augur BAT - Basic Attention Token ICN - Iconomi
ICO Initial Coin Offering, somewhat similar to an IPO in the non-crypto world. Startups issue their own token in exchange for ether. This is essentially crowdfunding on the ethereum platform.
Shilling / pumping Someone essentially advertising another crypto-currency. If a coin is promised to cure cancer or be the second coming of Jesus, it's being shilled.
stable coin A crypto-currency with extremely low volatility that can be used to trade against the overall market.
arbitrage Taking advantage of a difference in price of the same commodity on two different exchanges. Often mentioned when it comes to comparing ETH prices on Korean exchanges against US exchanges.
FOMO Fear Of Missing Out. The overwhelming sensation that you need to get on the train when the price of something starts to skyrocket.
FUD Fear, Uncertainty, and Doubt. Baseless negativity spread intentionally by someone that wants the price of something to drop.
FUDster Someone that is spreading FUD.
Pump And Dump The recurring cycle of an altcoin getting a ton of attention, leading to a fast price increase, and then of course followed by a huge crash.
Bagholder Someone still holding an altcoin after a pump and dump crash. Can also just refer to someone holding a coin that is sinking in value with few future prospects.
Market Cap The total value held in a crypto-currency. It is calculated by multiplying the total supply of coins by the current price of an individual unit. This site shows a great run-down of each coin's market cap: http://coincap.io/
ROI Return on Investment. The percentage of how much money has been made compared to an initial investment. (i.e., 100% ROI means someone doubled their money).
TA Trend Analysis or Technical Analysis. Refers to the process of examining current charts in order to predict which way the market will move next.
Crypto-currency related, but not really specific to Ethereum:
blockchain The classification of technology that Ethereum falls into. Blockchains are distributed ledgers, secured by cryptography. They are essentially public databases that everyone can access and read, but the data can only be updated by the data owners. Instead of the data residing on a single centralized server, the data is copied across thousands and thousands of computers worldwide. More detailed information available at: https://en.wikipedia.org/wiki/Blockchain
node A computer that possesses a copy of the blockchain and is working to maintain it.
mining The process of trying to 'solve' the next block. It requires obscene amounts of computer processing power to do effectively, but is rewarded with ether.
mining rig A computer especially designed for processing proof-of-work blockchains, like Ethereum. They often consist of multiple high-end graphic processors (GPUs) to maximize their processing power.
Fork A situation where a blockchain splits into two separate chains. Forks generally happen in the crypto-world when new 'governance rules' are built into the blockchain's code. Some more information available at: https://en.wikipedia.org/wiki/Blockchain#Hard_forks
POW Proof-of-work. The current consensus algorithm used by Ethereum.
POS Proof-of-stake (not piece of shit). The proposed future consensus algorithm to be used by Ethereum. Instead of mining in its current form, people that own ETH will be able to 'lock up' their ether for a short amount of time in order to 'vote' and generate network consensus. The plan is that these stakeholders will be rewarded with ETH by doing so.
sharding A scaling solution for blockchains. Typically, every node in a blockchain network houses a complete copy of the blockchain. Sharding is a method that allows nodes to have partial copies of the complete blockchain in order to increase overall network performance and consensus speeds.
software wallet Storage for crypto-currency that exists purely as software files on a computer. Software wallets can be generated for free from a variety of sources. MyEtherWallet (MEW) is one of the popular. (more on MEW below)
hardware wallet A device that can securely store crypto-currency. Hardware wallets are often regarded as the most secure way to hold crypto-currency.
Ledger Nano S / Trezor Two of the most popular hardware wallet models.
cold storage The process of moving crypto-currency 'offline', as a way of safekeeping your crypto-currency from hacking. There are a variety of ways to do this, but some methods most commonly used: ---Printing out the QR code of a software wallet and storing it somewhere safe, such as a safety deposit box. ---Moving the files of a software wallet onto a USB drive and storing it somewhere safe. ---Using a hardware wallet.
Terms more specific to Ethereum
smart contract Code that is deployed onto the Ethereum blockchain, often directly interacting with how money flows. Not my quote, but: "A normal transaction allows you to send money from A to B. Smart contracts allow you to send money from A to B, on the condition that C happens."
Dapp Decentralized Application. This refers to an application that uses an Ethereum smart contract as it's back-end code.
The Flippening A potential future event wherein Ethereum's market cap surpasses Bitcoin's market cap, making Ethereum the most 'valuable' crypto-currency. This site shows the progress of the Flippening in real-time: http://www.flippening.watch/
gas A measurement of how much processing is required by the ethereum network to process a transaction. Simple transactions, like sending ether to another address, typically do not require much gas. More complex transactions, like deploying a smart contract, require more gas.
gas price The amount of ether to be spent for each gas unit on a transaction. The initiator of a transaction chooses and pays the gas price of the transaction. Transactions with higher gas prices are prioritized by the network.
Wei The smallest denomination of ether. 1 Ether = 1000000000000000000 Wei (1018)
Gwei Another denomination of ether. Gas prices are most often measured in Gwei. 1 Ether = 1000000000 Gwei. (109)
Raiden Network An upcoming protocol change to Ethereum that will enable high-speed transfers across the network. It is similar in some aspects to Bitcoin's planned Lightning Network. The name, I assume, comes from the Mortal Kombat character named Raiden that can shoot lightning. More reading available at: https://themerkle.com/what-is-the-raiden-network/
Frontier, Homestead, Metropolis, Serenity The four planned stages of the Ethereum development roadmap. We are currently in the Homestead phase. The Metropolis update is likely to be available sometime in the next year.
MEW MyEtherWallet. A free site that can generate ethereum software wallets for you.
EEA Enterprise Ethereum Alliance. A coalition of startups and corporations trying to figure out the best way to use this dang thing.
DAO Decentralized Autonomous Organization. An investor-directed venture capital fund built on the Ethereum network that was hacked in June 2016. The hack stole about a third of the DAO's funds and led to Ethereum being hard-forked the following month. The DAO is often cited as one of Ethereum's biggest stumbles thus far.
r/Daytrading - Select your new user flair! Also start using post flairs!
Going off my last post: Please select your new user flair. There's still an opportunity to suggest new flairs if you feel the available flairs don't describe what kind of day trader you are. Same goes for post flairs. The post flairs are:
user assignable flairs:
new (will make default)
penny stock trader
algo stock trader
algo options trader
algo futures trader
algo forex trader
algo crypto trader
trades multiple markets
mod only assignable flairs:
market wizard (given to users who have consistently given good advice)
I will have automod assign post flairs based on keywords at a later time, for example, someone says "any crude futures traders here?" then the post will be auto assigned the flair "futures," but the user can change it afterwards if they want. Ok thanks day traders for all the feedback in the last post! update I just added flair search on the redesign: https://i.redd.it/odeh6xxpxfd31.png update2 I did start the automod for post flairs, but it's not as clear cut for each flair, but if someone would like to suggest some patterns for specific post flairs, let me know:
Bollinger Bands (also abbreviated to B.B.) are a charting indicator invented by financial analyst John Bollinger. They comprise three specific lines on the price chart of any given asset. The lines are overlayed on top of price candlesticks, moving and reacting based on the asset’s price action. According to his website, Bollinger explained he developed his Bollinger Bands based on researching former financial market players and their previous methods. These include Wilfrid Ledoux’s Dow Jones Industrial Average high low curves, and Chester Keltner’s 10-Day Moving Average trading system. Other indicators like Keltner Bands, Donchain bands, and percentage bands are similar but do not account for certain aspects of the market. “Bollinger Bands use standard deviation to adapt to changing market conditions”, Bollinger stated. His bands account for volatility in the market. Volatility is important to consider when trading crypto. Volatility is basically the state of price movement in the market. High volatility means more dramatic price swings. IMAGE COURTESY: TRADINGVIEW.COM The above image is an hourly bitcoin chart for the Bitmex exchange. Each candlestick represents one hour of price movement. The two blue lines and single red line are the Bollinger Bands. The specific parameters for the lines remain unchanged, even after more than 35 years, Bollinger said. “20 periods for the moving average with the bands set at plus and minus two standard deviations of the same data used for the average”.
How The Bands Work
As mentioned above, Bollinger Bands are three lines around price action. The middle line is a 20-period moving average. Based on a chart with hourly candlesticks, the 20-period moving average takes into account the past twenty hours of price, concluding an average price for that time frame. The two outer bands lie two standard deviations above and below the middle line. According to Bollinger, the upper and lower bands “answer the question as to whether prices are high or low on a relative basis.” Bollinger continued explaining. He said, “Bollinger Bands work best when the middle band is chosen to reflect the intermediate-term trend, so that trend information is combined with relative price level data.” When volatility increases, the outer bands widen in opposite directions, proportionate to the amount of volatility. Trading crypto (or any asset for that matter) is a tough game. What may work for one person may not work for another. Bollinger Bands are just one tool out of many that traders and investors can investigate for their personal use. *CryptoInsider is sponsored by Blockmodo. As part of our arrangement, we may occasionally link to them and quote them when appropriate. This is done at the discretion of CI staff and CI sponsors have no say in any editorial decisions made by CI.
How to Trade Bitcoin Part 1: Getting Ready to Trade
The first part of our bitcoin trading guide series explains the basics of bitcoin and trading terminology. Instructions are also provided for buying bitcoin and getting ready to trade on BTC.sx. We originally produced the first part of this guide for our own traders to get started with our platform. However, after some really good feedback we thought we should share it publicly too. So please bear with us if it is quite orientated to our own platform. Future parts will be much more applicable to trading in general. Here is what we have planned for the series: 1) Getting ready to trade (this post) 2) Making your first trade
How to read a chart (candle sticks, volume, log vs linear scales)
How to spot a trend (moving averages)
How to open and close a position
3) Basics of technical analysis
Assumptions / theory behind TA
Classic support / resistance patterns e.g. head and shoulders
4) Advanced TA
5) Developing a sustainable strategy
Timing entry and exit points
Managing multiple open positions
Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning. Why should you listen to what we have to say? Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician. http://i.imgur.com/G06P306.png This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx. What is bitcoin? Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as ‘digital gold’ — it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations. http://i.imgur.com/hNnKxGE.png Why is bitcoin so volatile? Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoin’s price often changes by 10% or more — even in a ‘flat’ market. Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets. The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here). For example, bitcoin has a market cap of about $3 billion vs $31 billion for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million vs approximately $939 million for the gold ETF. The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand. For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence gold’s price. http://i.imgur.com/NLtgVrX.png Further information The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources: We Use Coins Bitcoin.org Bitcoin Wiki 2. How to Manage Risk Risk of buying bitcoin As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoin’s price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose. You cannot lose more than you put in, so don’t put in more than you can afford to lose and you’ll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor Risk of trading bitcoin Furthermore, investing more than one can afford to lose reduces a trader’s ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price. http://i.imgur.com/yrQbCsI.png Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx, losses cannot exceed your deposit — so simply make sure this is a comfortable amount for you to trade with. 3. Understand Basic Bitcoin Trading Terminology Trading Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading. Position A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls. Unlike a trade, a position has an open and close. At BTC.sx you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited — this depends on how profitable your position was. Trading platform A trading platform, like BTC.sx, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage. Leverage http://i.imgur.com/Aik56aI.jpg Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading. Trading with 10x leverage on BTC.sx, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made. For example, let’s say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin — this is the power of leverage when used correctly. Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own. Exchange Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoin’s price because they contain an order book. At an exchange you can either be a market maker or a market taker. Market maker A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price. Market taker A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them. Order book An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand. http://i.imgur.com/DuRYrnx.png Sell orders: “Asks” This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks. Buy orders: “Bids” This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids. Current bitcoin price This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid. In this example, the price is $244.39 — the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder. Order book depth This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the ‘deeper’ the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle. If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market. Order book execution An important feature of BTC.sx is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks. http://i.imgur.com/1Dk8G0t.jpg Why is this important? Firstly, when you trade on BTC.sx you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally. Secondly, order book execution means that BTC.sx does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx we want our traders to be profitable so they can keep trading. *4. How to Buy Bitcoin * As a bitcoin-only trading platform, BTC.sx only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity. If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including: Circle Coinbase LocalBitcoins Click here to see other ways to buy bitcoin in each region of the world. To store your bitcoin you will also need a wallet, such as MultiBit or Blockchain.info. 5. Create an Account on BTC.sx Once you have bitcoin, you are ready to start trading. Head over to BTC.sx to begin the registration process. 1. Click ‘Sign Up’ http://i.imgur.com/Fikj8Nd.png 2. Enter your details and read and agree with the terms of service http://i.imgur.com/AjnKzRY.png 3. Click on the email activation code http://i.imgur.com/lz5yBqK.png 4. Login to your account http://i.imgur.com/P6VJ0xm.png 5. Visit trade screen http://i.imgur.com/WjGockR.png 6. Send a deposit to BTC.sx You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions: 1. Click on ‘Deposit’ in the trading screen http://i.imgur.com/1TxpgUh.png 2. Send bitcoin to your wallet address http://i.imgur.com/cTZim5t.png If you do not know how to send bitcoin please contact your wallet provider for assistance. Conclusion** ** You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx to begin trading. In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook or follow us on Twitter for future updates. If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents
How to Trade Bitcoin Part 3: Beginner’s Technical Analysis
The third part of our how to trade bitcoin series covers the basics of technical analysis. The post begins with the theory and principles of technical analysis, then covers support and resistance patterns. Introduction What You Should Already Know Before embarking into the world of Technical Analysis (TA) you should be familiar with the basics of trading that have already been covered in our how to trade bitcoin series. Part 1: Getting Ready to Trade Bitcoin The first part covered the basics of Bitcoin, trading terminology and how exchanges work. Part 2: Making Your First Trade The second part covered how to read charts, how to spot trends using moving averages and the MACD, and lastly how to place a trade. It is recommended that you are familiar with these topics before continue to learn more about technical analysis. Key Terms Explained Technical analysis — the process of analysing a financial assets’ price, volume and volatility data and patterns with the objective of predicting future trends. Fundamental analysis — the process of analysing a financial assets’ non-chart based data. This would include data such as a company’s revenue, price-to-earnings ratio and business strategy. For bitcoin, fundamental analysis would be studying adoption rates and the health of the ecosystem. Blockchain.info’s charts are great for a fundamental analysis of bitcoin. Support — a specific price or a price range that a financial asset rarely falls below. Below is an example of current support lines for bitcoin. Generally, the more a support line is tested, the stronger support at that level becomes. http://i.imgur.com/VfwsE8Z.png Resistance — a specific price or a price range that a financial asset rarely rises above. Below is an example of current resistance lines for bitcoin. Generally, the more a resistance line is tested, the stronger resistance at that level becomes. http://i.imgur.com/jyUq7DC.png What is Technical Analysis? Theory and Assumptions of Technical Analysis Technical analysis is founded on the belief that a price is determined by every piece of relevant information that is known about a financial asset. This makes price, and its historical trends, the most important piece of information for traders. By conducting technical analysis to make price predictions, traders make two key assumptions. Firstly, it is assumed that prices follow trends. These trends are driven by the human psychology of traders. One theory is that technical analysis works as a self-fulfilling prophecy: if enough traders spot a signal that suggests the price will rise, everyone will begin to buy, causing that predicted price rise. Secondly, it is assumed that history tends to repeat itself. That is, if the price of bitcoin is currently falling it is assumed the likelihood of a further price decline is more likely than a price rise. When this is not the case, it is normally attributed to a ‘trend reversal’. Why Bitcoin Traders Care About Technical Analysis Technical analysis is by far the most popular form of analysis conducted by bitcoin traders. This is primarily because the price of bitcoin tends to be driven by cycles of fear and greed. Consequently, the people trading bitcoin create price patterns which can be studied through technical analysis. The aim of every trader is to be one step ahead of the crowd. http://i.imgur.com/nlOvbhg.png Conversely, there is a lack of information for fundamental analysis of bitcoin. Unlike companies, there are no income statements, balance sheets, business strategies or management team to consider. This places greater importance on technical analysis for traders. Limitations of Technical Analysis As with any investment strategy, there are risks and limitations. There are two alternative theories that infer technical analysis is not a legitimate method for predicting future prices. Efficient market hypothesis claims that it is impossible to beat the market — or in other words, be one step ahead of other traders. This because not only do prices reflect all relevant information, they instantly change as more information is revealed. The end result of this is that a financial asset can never be under or over valued. Therefore, price data is not useful for traders. Random walk hypothesis claims that prices of financial assets move randomly. Hence, if there is no real trend, technical analysis has no strong evidence to make forecasts from. Support and Resistance How Support or Resistance is Formed There are numerous factors that can cause support and resistance to be formed. Let’s take a look at some practical examples that have occured with bitcoin. Psychological price points As markets are made up of people buying and selling, prices tend to converge around round numbers or meaningful numbers. The below graph shows the resistance bitcoin has faced when attempting to break above $400 and $300. http://i.imgur.com/NaiG9o7.png Interestingly, a lot of bitcoin traders have observed how the price used to become ‘sticky’ around to $666. This is a good example of retail traders acting irrationally and deliberately setting buys and sells at the number of the devil. http://i.imgur.com/CgWY1kq.png Multiple Highs When a price reaches a high multiple times, resistance is formed when traders develop the belief that the price will continue to fail to break that price or resistance line. This can be seen in the 2014 bear market, where the price followed a series of downtrends that eventually became weaker over time. http://i.imgur.com/2NxInj9.png Multiple Lows Similarly, when the price reaches a low several times traders begin to expect the price to continue to fail to fall below that price. This can be seen throughout 2014 at three key resistance levels. http://i.imgur.com/MZyXBzO.png Former Resistance Becomes Support (or vice versa) When a support or resistance line is broken, it is possible for the influence of that line to be reversed. In the below example the price encounter resistance at $280 during the April 2013 rally. This then acted as support in October 2014. But once this support was broken in December 2014, this price has been acting as resistance. It is quite likely that the peak of the April 2013 rally has a lot of physiological influence over traders. http://i.imgur.com/tSCTmin.png How Support or Resistance Influences Future Price Patterns It is normally the combination of support and resistance which influences future prices. When both support and resistance are in effect, which is nearly always, the price is said to be inside a ‘trading zone’. These trading zones are monitored very closely by bitcoin traders. Let’s take a look at the current trading zone influencing bitcoin’s price. http://i.imgur.com/qIxVIg9.png After rallying to $300, the price of bitcoin is currently correcting. The support the bottom support established in January and June has not yet been tested. Hence we can expect the price to trade within the two support and resistance lines between now and October. If the price breaks above the resistance line, this would be a bullish signal. If the price falls below the support line, this would be a bearish signal. Eventually the support and resistance lines converge, this tells us that we can expect a bullish or bearish price movement to occur sometime before or at this point. How to Draw Support or Resistance Lines Now is a great time to try and draw your own lines. Simply follow the below instructions to get started on BTC.sx. 1) Click on the small arrow at the edge of the chart. http://i.imgur.com/rBB5Wlt.png 2) Click on the line tool, which is the second from the top. http://i.imgur.com/SdalLdh.png 3) Click once on the graph to start the line, and click again to end the line. http://i.imgur.com/lW29ayh.png Additional tips: Hold shift when drawing the line to make it straight. Draw your lines following the ‘line’ part of the candlesticks. These are known as wicks and represent the highest and lowest price traded within the candlestick’s time period. Support and Resistance Patterns Now we have covered the basics of support and resistance, we will now look at more advanced support and resistance patterns. These are generally combinations of support, resistance and trading ranges. Tops and Bottoms Double top A double top is considered to be a bearish indicator. This was observed during the December 2013 rally. A double top gives traders the opportunity to go short, which is possible on BTC.sx, at two key moments. Firstly, when the price fails to break upper resistance on the second attempt. Secondly, when the price falls below the first layer of support after the second top. These shorting opportunities are indicated by the yellow circles. http://i.imgur.com/luUJXz9.png Double bottom A double bottom is considered to be a bullish indicator. Bitcoin has never recorded a double bottom, but the downtrend during the Fall of 2014 is a close representation. A double bottom gives traders to go long at two key moments. Firstly, when the price fails to fall below on support the second attempt. Secondly, when the price breaks above the first layer of resistance after the second bottom. These opportunities to go long are indicated by the yellow circles. http://i.imgur.com/e6sPaiP.png Head and Shoulders The head and shoulders pattern is a bearish signal. This can be spotted when a peak is preceded and succeeded by two smaller peaks. This gives the formation a ‘head and shoulders’ resemblance. The neckline is the level of support formed between the first and second shoulder. http://i.imgur.com/ykVhxDs.png In the above example, traders have two opportunities to go short. This is firstly at the second shoulder. This is to profit from an incoming drop that is normally equal or greater than the distance between the head and neck line. The second opportunity to go short is at the neck line. This to profit from the recently formed downward price trend. Cup and Handle As the name suggests, this is where the price follows the formation of a cup and handle. This considered to be a bullish indicator — a great opportunity to go long. An important consideration when looking for this signal is that the ‘cup’ part of the pattern should not be a V shape. Ideally, the cup should have a round or flat bottom. http://i.imgur.com/ROnysWo.png A trader should go long at the point at which the price leaves the cup and begins to follow the handle. This area has been marked by the yellow circle. The length of the rally after the price leaves the cup can be hard to predict. However, if the price leaves the cup with high volume, it should give a trader that a sustained rally is likely. The lack of volume in the above example explains why the handle rally did not last too long. Flags The flag is a short-term indicator which occurs when the price experiences a vertical price rise, followed by a period of consolidation. The flag indicator is used to predict the continuation of a trend — not the reversal of a trend. The vertical price movement is considered to be the flag pole, and the consolidation period the flag. The flag pole should be recorded with high volume and the consolidation period should experience low volume. Additionally, the flag should be slopping slightly downwards. http://i.imgur.com/aEfpJeJ.png A flag can provide a bullish buy signal in the right circumstances. This is when the price remains inside the flag for 8–20 candlesticks then exits at the top after low volume. This is demonstrated in the above example — a trader should be going long at the yellow circle. Pennant A pennant is very similar to a flag. The only difference is that the consolidation period follows the shape of triangle, instead of a rectangle. The triangle shape is typically formed by traders taking profits after a price rally. http://imgur.com/udP0JFL Like the flag, a trader can profit from the continuation of a bullish trend by going long when the price leaves the top of the pennant. This area has been indicated with a yellow circle. Wedges Wedges are common price patterns and they can be used to spot bullish and bearish trend reversals and continuations. The two main types of wedges are rising wedges and falling wedges. Rising wedge A rising wedge is formed when the price consolidates between two upward sloping support and resistance lines. This is bearish signal — it indicates an uptrend is about to reverse or a downtrend will continue. It is important to check that the support line is rising steeper than the resistance line. This is a key requirement for the wedge-shaped indicator to be drawn accurately. http://i.imgur.com/BHVhGQY.png In the above example, we have a wedge indicate a trend reversal. Traders should have gone short on BTC.sx after the price fell out of the wedge. Interestingly, we could have also drawn a bearish pennant immediately after this wedge, which would have further validated a decision to go short. Falling wedge A rising wedge is formed when the price consolidates between two downward sloping support and resistance lines. This is bullish signal — it indicates a downtrend is about to reverse or an uptrend will continue. Opposite to the rising wedge, the resistance line should be falling more aggressively than the support line. http://i.imgur.com/fLcCLNp.png The recent Grexit rally was a great example of wedges in action. Firstly, two falling wedges developed. This should have given traders confidence that the rally still had steam while traders took profits. However, towards the end of the rally, a rising wedge developed. This signalled that the rally was beginning to lose its pace and that a trend reversal was likely. Conclusion You should now be familiar with spotting common chart patterns and drawing them. It can be difficult spotting your own signals to begin with, but overtime it will become second-nature. If you want to learn more about technical analysis, make sure to look out for our next post on advanced indicators. This will include indicators, such as Ichimoku Clouds, RSI and Bollinger Bands. Make sure to follow us on Twitter and like us on Facebook for future updates. Written by Joe Lee, BTC.sx / Magnr CEO. Joe first discovered Bitcoin in 2011 and built his own trading bots turning an initial $100 investment into $200k. He then turned his attention to building trading infrastructure and BTC.sx was born. After gaining rapid traction, Joe left his investment banking job to focus on BTC.sx. If you want to use the power of leverage / margin trading to increase your potential returns, check out BTC.sx. We offer up to 10x leverage and direct market access to Bitfinex, Bitstamp and itBit. Alternatively, if you prefer more passive investments, check out Magnr. We provide interest-bearing investment accounts for bitcoin, with a promotional interest rate of 2.18% AER. BTC.sx / Magnr is not a financial advisor. The information contained in this article is for educational purposes only. Trading bitcoin carries high level of risk and BTC.sx / Magnr accepts no responsibility for any losses incurred.
Had some fun with Bollinger bands tonight! Here's why Bitcoin's extreme volatility can cause them to break if calculated the standard way, and here's the better (multiplicative) way to do it instead. (Also, what should we call these bands?)
For those who don't know, Bollinger bands. They give you a range that price very often stays within, and which varies with the recent average price and volatility. I don't think an asset has ever in history pushed the limit of Bollinger bands like Bitcoin has. Here's a beautiful picture for you to see why. The view here is of a bit less than a year, covering the two superexponential runups from April and October. Look first at the left side, which has "normal" Bollinger bands. Both the top-left and bottom-left show the same data; one is on a linear scale and one is on a log scale. The average here is taken over 70 days and the range is 2 standard deviations from the mean. Since we're all brilliant technical analysts here, we might notice that, you know, maybe the lower band being at $-260 is a bit extreme. I mean, nobody has a crystal ball, and Bitcoin is volatile and all, and I can't promise it won't do this either, but, maybe there might be really strong support at, say, $0 or something. Also, maybe the log chart should not have the lower band being plotted at y=-Infinity either. Maybe. In contrast with that, the right side of the chart is the modified version which treats volatility in terms of percentages rather than absolute linear price differences. Now we can see what really happened: October was so insane that even after the crash, a month later average volatility was still such that we had a potential top of $1733, and if it had turned around and declined with equal ferocity, we'd have gone back all the way to $60. The log chart makes this particularly clear, especially since it can be plotted in its entirety without needing a screen with pixels down to y=-Infinity, which is a huge plus if you can't afford an infinitely large monitor. As we zoom in on narrower timescales, the two sides start to converge a bit, but the multiplicative one is still usually better. For instance, here's a daily chart that focuses just on the second bubble. It's better than the larger timescale, but still crazily biased towards the downside. If volatility got too much crazier, it would have dragged the band back to negative infinity again. You can see, though, that as we look at shorter timescales, and volatility gets narrower, the two start to converge. For instance, on the 30m chart, you can't see any discernible difference whatsoever. The point: on short timescales, the multiplicative bands behave more or less exactly the same as the bands you're used to, but on larger timescales, they won't leave you hanging out to dry as you wait for the price to hit $-260. Thus, these modified ones are the better choice for something like Bitcoin (and probably for any asset, I'd wager). How exactly the multiplicative ones are formulated is rather technical, so I'm going to put that in the comments. The basic idea, however, is to do all of the BB calculations on a log chart first (as though it were linear), then take the exp to de-log it. That's the simplest way to think of it. TL;DR, Bitcoin is so volatile it screws up Bollinger bands on large timescales. If you're using Bollinger bands, use these ones instead (mathematical details in comments). Pictures are provided above for a comparison. Of course, I could be wrong here and maybe we really hold out for the price to hit $-260, which would be nice, since we'd all get paid $260 for every Bitcoin we don't own. I personally don't own like a thousand Bitcoins, so I'd be rich real fast.
Pick a timeframe you'll be able to trade in and maintain for a long time. Stress is a concern here.
Do your research on Bitcoin exchanges before jumping into one. Bitstamp, BTC-E, Bitfinex, MtGox, Kraken, etc.
Multiple types of indicators are better than fewer. More research and understanding is required to use them, but that's what your money is worth to you.
Research money management, and don't put all your eggs in the same basket unless you can accept the possibility of losing all of them.
Backtest your plan, then make money!
7. A Trading Plan
This will be a short post, because most of it will be you deciding things for yourself, rather than me telling you what to do. You've got the tools already - now just to put it all together.
How often do you want to commit to trading? While daytrading is what it's usually called (for intra-day trades, every day all week), you don't actually need to keep to that. Many of us, myself included, are intra-week or inter-week traders. It really comes down to how often you'd like to trade, and how much you can actually handle. Daytrading in the traditional sense can have you refreshing your charts every fifteen minutes, which gets really stressful. Checking your charts a couple times a day right now? Maybe you should look at a day-to-day trading frame. Keep in mind that although emotions can creep their way into any trading timeframe, the longer timeframes are less susceptible because you're less frequent on the trigger. Pick the timeframe that you'll be able to make solid decisions inside of - avoid that indecisiveness mentioned last week!
This one's an easy choice, really: which exchange do you want to trade on? Although every exchange has its strengths and weaknessesthanksMtGox , they'll all get the job done. Commonly used exchanges include BitStamp, MtGox, BTC-E, Kraken, and Bitfinex, among others. Liquidity is the main thing to be looking for. This just means how much trading is actually going on within each exchange. The more money tied up on an exchange, the more trades occurring, the more liquid it is - which is good for you, because a liquid exchange should be able to resolve your trades quickly and with a small "spread" (difference between the bid and ask prices). If your chosen exchange has low liquidity, you might find it problematic getting someone to accept your money in a trade, because there just might not be anyone there to trade with! Consider also the location of the exchange, geographically. The farther you are away from an exchange, the harder it may be to deposit/withdraw funds. Generally speaking, withdrawing in Bitcoin and selling those coin on a site like LocalBitcoins.com or Coinbase.com is a common workaround to using foreign exchanges (and avoiding money transfer fees!).
Now we're back to the technical analysis! Once you've chosen your platform and timeframe (and funded your trading account), you can choose the indicators to guide your trading. If you've been keeping up with these Weekly Review posts, you should have a general understanding that a trading plan will often include indicators for at least the following attributes of the market: volume, momentum, volatility, and of course the price trend. A basic trading plan can start with a couple moving averages, the RSI and Bollinger Bands. This is enough to get a basic idea of what the market is doing in a given timeframe, and also gives you room to expand into using other indicators to make your plan more robust. One thing you will need is diversity in your indicators, just like your portfolio will need some diversity to protect yourself from disaster. What I mean here is that if you have three indicators that all tell momentum, you'll have no understanding of volatility. Having multiple indicators giving you the same kind of information doesn't help you if you have no other indicators to look at the market - it's equivalent (or worse) than covering one eye and saying your depth perception is still great. Just as you have multiple eyes (or at least I hope you do), one should have multiple kinds of indicators to guide their trading. As mentioned before, it's a common approach to have at least two MAs, an RSI, MACD, Bollinger Bands, and of course the all-important volume bars. These are not required - hell, you can make your trading plan out of anything! But this is a common basic plan to start with as far as technical indicators go. Couple this with news-watching and your own research into other indicators, and you'll have a much better understanding of market activity than you did otherwise. And when you've chosen those indicators, backtest) that thing!
This last bit is something I haven't discussed much, because ultimately it's your money, and I'm not here to tell you how to spend it. However, doing some reading on money management (or risk management) will help protect you from massive unexpected downturns in the market - which do happen. Look into portfolio diversification, pick up a book or two on money management for traders - it's important to know how much or how little to put into your trades, because it's all gambling. Can you gamble $10,000? Or maybe just $1,000 that you can get back in a couple weeks working your regular job? (Both texts that I've used throughout TAWR feature chapters on Money Management - Technical Analysis for Dummies, 2nd ed. by Barbara Rockefeller, and Technical Analysis, 2nd ed., by Dahlquist and Kirkpatrick. Both of those are also available as free PDFs in the Recommended Reading List here.) ―
And That's All For Now!
Alright folks, that's all I have for now for the Technical Analysis Weekly Review. I may return to do more of these posts in the future, but what we've covered thus far has touched on everything I've wanted to share with you, and has (I hope) set you up with enough information to let you do your own branching out from here, and improve your understanding of the market and have better discussions. If there's anything I can do to help, whether that's looking over your trading system setup, or defining some terms, feel free to comment or PM me, and I'll do my best to get back to you in a timely manner with a researched answer. I don't know everything - I technically don't know anything at all! - but I can help you find the answers to your questions. Thank you for letting me inject more technical analysis into the subreddit, and giving me the opportunity to test out this post-per-week platform of sharing knowledge. I've learned a lot - I hope you have as well. As always, take advice with a grain of salt (including everything I've ever said), do some reading when in doubt, trust the facts, have fun, make money, and I'll see you around the sub. -CM.
Soon the Bollinger Bands had company, I created %b, an indicator that depicted where price was in relation to the bands, and then I added BandWidth to depict how wide the bands were as a function of the middle band. For many years that was the state of the art: Bollinger Bands, %b and BandWidth. Here are a couple of practical examples of the usage of Bollinger Bands and the classic Bollinger ... NO FINANCIAL ADVICE – The Information you receive from Bitcoin Schmitcoin or the Bitcoin Schmitcoin Trading Community is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose. The Information contained herein or provided from or ... Bollinger Bands Squeezing, is Bitcoin (BTC) Ready for $9,000? The inventor of the Bollinger Bands, a widely used technical indicator, is giving Bitcoin traders a heads up. As per the indicator’s signal, John Bollinger expects increased volatility in coming days now that bands are tightening as BTC prices flatten, consolidating within a narrow trade range in the daily chart. Long time trader John Bollinger has warned that bitcoin's flash rally to over $10,400 on Monday was fake, adding that losses might be on the way."This is a Head Fake at the upper Bollinger Band ... Bollinger Bands Width (BBW) is a technical analysis indicator derived from the standard Bollinger Bands indicator. Bollinger Bands are a volatility indicator which creates a band of three lines which are plotted in relation to a security's price. The Middle Line is typically a 20 Day Simple Moving Average. The Upper and Lower Bands are typically 2 standard deviations above and below the SMA ...
How to use Bollinger Bands on Coinigy V2 Brought to you by: https://twitter.com/CryptoWendyO https://www.cryptowendyo.com/ https://www.youtube.com/channel/UC... What do you all think about the Bollinger Bands? Do you personally use them? Thank you all so much for watching the video. If you enjoyed the video, please c... How to Use Bollinger Bands While Trading Cryptocurrency (Litecoin, Bitcoin, Ethereum)-- Was this tutorial on how to use bollinger bands in crypto useful? What do you guys think about ripple? Let ... Hope you enjoyed today's lesson on how to properly use and combining Bollinger Bands and Stochastics indicators for your daily trading. This is a simple but ... Bitcoin & Altcoin Bollinger Band Indikator für Tradingview https://www.tradingview.com/script/83zvkaHh-3fach-Bollinger-Band-Cointrend/ 13.08.2018 - #Trading ...