Cryptocurrency Trend Trading and When You’ll Know Bitcoin is Ready for Another Bull Run
Studying the long term trend of Bitcoin is often shown like this:
Over the long term, its parabolic, and is riddled with bubbles that cause the price to go roaring up 1000’s of percentages, with the average pullback being roughly 75%. But trend can be defined in many different ways. In this article, I’d like to show a really simple system you can use to your advantage when trading Bitcoin and altcoins even with minimal knowledge of technical analysis.
This framework of a trading system will also be immensely helpful to the people who are wondering “when will we know that Bitcoin is starting a new bull run?” At the moment, I’m seeing a lot of side-by-side charts trying to compare this year’s bear market with that of 2014-’15 to find exactly when and where the bear market will end. This might work, but there’s an extremely low probability that you nail the bottom and you’ll probably keep yourself up at night trying to fix it when the market structure changes again. This system is great for identifying the high timeframe trend- something very simple but often overlooked in the crypto community.
If you’re a trader you’ve probably heard the saying “The trend is your friend, until the end.” This is especially true when it comes to cryptocurrencies. A very common misconception of new traders is that to trade you need to learn indicators in order to do technical analysis and trade, which is false. Many successful traders trade with no indicators at all. This is because most indicators are lagging indicators which are derived by price itself. If you can understand price and why it moves you will be at a big advantage when trading. Before we continue, if you are new to trading please do not attempt to trade with real money using this system. Study fundamentals (at the minimum support/resistance and risk management) before attempting to trade. I highly recommend Crypto Cred’s channel here or The Trading Channel. If you are more advanced, feel free to skip ahead to the “Application” of this system.
Definition
Markets can be in 3 states: uptrending, downtrending, or consolidating. For this post we are mainly going to be talking about the first two: uptrends and downtrends. Since we know Bitcoin’s strong correlation with trends are what causes its meteoric rises and falls, let’s first define what each will look like. My definition of a trend follows a “1,2,3” structure.
- Impulse move
- Pullback
- Continuation
Here is what it would look like in an uptrend. The “HH” and “HL” mark the Higher Highs and Higher Lows being made to sustain the uptrend.
*Note for the sake of this article 1 and 3 are the same move — since 1 is the impulse move that broke resistance and continued the trend*
Notice how the second pullback (2), bounces off the previous top marked HH.
The same applies to downtrends, except with Lower Highs and Lower Lows.
*Note: It’s still called a pullback in a downtrend*
Notice how the downtrend is topping out exactly where the previous bottom was. This is a sign of a healthy downtrend and that the sellers are still in control.
A break in market structure is important to define, because it a sign of a reversal in trend. Trends occur within trends on smaller timeframes, so always pay attention to how your trend looks on different timeframes such as the H1, H4, and Daily.
In an uptrend, the signal that market structure is broken is at the red X. This is when the candle of the timeframe you are charting on closes below your most recent Higher Low. It is not uncommon for markets to trade back beneath the most recent Higher High, so I would NOT consider the green check mark to be a break in market structure, but to proceed with caution because the health of the trend may be weakening. As a rule of thumb, until the Higher Low is broken or the market goes sideways for an extended period of time I assume the market will continue higher because it is in trend.
Application
Here is the 2014-’15 bear market followed by the 2017 bull market on the daily time frame. Think for a minute before you continue how you would divide this trend. Remember our rules for an uptrend and downtrend. Decide where you would buy and where to sell, then continue reading.
Applying our system we can now clearly see the trends of the market. From left to right we see a steep downtrend in 2014 which lead to the bottom, followed by consolidation for most of 2015. An impulse move (1) out of the consolidation zone occurred in late 2015. This would have been a great trade to buy the pullback (2) because it came right back into a year-long resistance during the consolidation period. This was the spark (impulse move) where we start paying attention. According to my rules, the uptrend did not officially start until we broke out of the prior resistance for the continuation move (3). I define trends conservatively because if not for that breakout of the resistance at $463 we would have rolled over back towards our consolidation range.
Look what happens after we officially started the uptrend. As the uptrend gained momentum the pullbacks got smaller and smaller, to the point where we went parabolic and hit $20,000. Obviously these trends are much easier to trade in hindsight but backtesting and learning from them is still very useful.
Just by using our “1,2,3” system for identifying trend and some support and resistance lines, we can see how powerful this is when establishing bias for the market. We may miss the very beginning of the trend, but we’ll capture the bulk of the move with much greater certainty. Take note of the duration of the trend for the 2014-’15 bear market. The same thing can be noted about the ’17 bull market and ’18 bear market: All trends played out for years with little to no breaks in market structure. If this bear market plays out anything like the previous one, 2019 could end up being a lot of consolidation. However, with all the bullish fundamental catalysts coming this year, I doubt this consolidation will last as long. But hopefully you see my point. I am in no rush for another bull run, because once it starts it will likely lead us into another parabolic market cycle just like it has in the past.
Make sure to use the trend to your advantage the next time you are planning on buying or selling a cryptocurrency. It is an amazing system for letting your winners ride and cutting your losses early. Simply buying “confirmed uptrends” and selling in “confirmed downtrends” can easily help you increase your profits. Just be patient, I’ve highlighted a few key points on the chart over a 3–4 year period where you only needed to make a handful of trades to make a ton of money. Sitting on your hands during this time and executing when your time finally comes is what will separate you from the rest. Luckily, you can also apply this to hundreds of altcoins but keep in mind Bitcoin is what ultimately decides the market direction, and that lower market cap coins do not follow technical analysis as easily.
Credit to TheTradingChannel on YouTube for inspiring this system with all of his educational content.
