Cryptocurrencies have been on a bull run lately and it’s been easy to get caught up in the frenzy. Read on for how Wyckoff VSA will help you trade cryptocurrencies in a sustainable way.
A digital cash gold rush
The rush was triggered by the announcement at the end of October that Paypal was going to allow its US users to buy and sell selected crypto coins.
With over 4000 cryptocurrencies in existence, this step towards increased legitimacy for the main currencies has prompted an avalanche of institutional investment as well as interest from traders who want to hedge against inflation in traditional currency markets.
This has prompted Bitcoin, the dominant currency, to reach record highs in the last month but also swing back down. For example, on Friday 8th January it closed at $40,000, more than twice its value from the previous all-time highs set in December. But by Monday 11th January it closed at $33,000.
Bitcoin's market cap - up and up and up?
This market activity has also prompted renewed attention from regulators, and warnings like this from the UK’s Financial Conduct Authority that investors need to be wary of losing more than their shirt trying to get some of the action.
Regulators are also working to bring the trading of cryptocurrencies in line with other financial instruments, helping to identify any bad actors.
So what does a trader using Wyckoff VSA need to know to make money trading cryptocurrencies?
1 - Wyckoff VSA and cryptos are a perfect fit
Since Wyckoff VSA enables a bird’s eye view of price movement it is ideal for such a volatile market as this. The fact that these aren’t lagging indicators based on calculations done on a past time frame keeps you as close to the real-time action as possible.
Yet because it does bar by bar analysis it trains you to be patient and look at the chart rather than get swayed by the hype.
The specific rules and actions that Wyckoff VSA traders follow mean they don’t get caught up in the melee but can calmly wait for their designated setup to appear on the chart, for instance, signalled by an ‘End of a Rising Market’ indicator that signals an imminent market top.
It also fits well with those traders who want to speculate on the value or price of a currency changing rather than take a macro approach, especially since this is a new technology space it’s difficult to predict how the market will take shape long term. Think back to the first ten years of the consumer internet. Where are AOL, Compuserve, Netscape and Yahoo now?
2 - It might be new tech but the old rules still apply
Even experienced traders can get sucked in by the hype, worried about missing out when they see those big market swings. So put the FOMO aside and stick to your trading plan.
And if you are new to the space? Cryptocurrency trading for beginners is the same as with any asset class: start with the basics. Make sure your foundational skills around observing risk/reward ratios, using stop losses, being patient, sticking to your plan, etc, are solid.
Whether you’re a newbie or a veteran, this all comes down to having a solid trading mindset. We have more tips on this in this blog.
Keep your head when all around are losing theirs
Education is always important too. While analysis needs a different approach in this space, it’s still important to educate yourself on the market, for instance learning how the different exchanges operate and watching out for how regulation is changing.
3 - Cryptocurrencies might just not be for you
Even with the strength and structure of Wyckoff VSA trading behind you, you might find you just aren’t suited to cryptocurrency trading.
There is no point trading an asset class that doesn’t interest you. If you don’t want to learn about the unusual market structure that make cryptocurrencies a unique space, then don’t get involved. You won’t be motivated to keep reading and learning about it, which will hinder your progress.
There are specific risks that everyone needs to be aware of. This is a high-volatility, high-risk game where you might have to wait to convert your assets into cash. If this doesn’t feel right, do yourself a favour and focus on another asset class.
And while the major currencies are totally legitimate, If you want to check out some of the lesser-known currencies in the hopes that they end up being the Next Big Thing, do some basic background checks beforehand. Make sure the exchange actually functions, that there is a website for the currency, with a phone number. Look it up on Bloomberg – check who the directors are, look at the balance sheet. If you can’t get hold of a real person via a phone number then think again.
Summary: Learn from the last gold rush and keep your head
Whether you want to day trade cryptos or do a longer term HODL strategy, it comes down to the core competencies of any trader: do your homework, keep your cool, stick to your plan. Only that way will cryptocurrency be worth trading.
And only trade the news if you know what you are doing because this digital cash gold rush is as unpredictable as its solid metal predecessor.
We ran a course on cryptos back in September 2018 and the information is still highly relevant to today’s market. If you want to check it out then look for Course 5 on our Educational Events page.
Tradeguider is the home of Wyckoff Volume Spread Analysis (VSA).Once you’ve learnt to use this system of trading you can apply it to any asset class including emerging technologies such as cryptocurrencies: the same signals and indicators apply. If you would like to have a demo of how to use one of our packages with cryptos, then get in touch and we will gladly show you how to make money trading cryptocurrencies by managing and capitalizing on the volatility in this market without losing your cool.