🧘♂️Crypto Cycle Guide
Market Meditations | March 29, 2021
Understand where money flows in crypto, then use the information to profit.
Understanding crypto cycles is an essential skill that many new traders struggle with. After 4 years, we’ve got a pretty good idea of what’s going on ?
? Today’s article will help you understand where money flows in crypto and how to use the information to profit.
CRYPTO CYCLE GUIDE
Among the many esoteric phrases newcomers to the crypto space will stumble upon, perhaps one that carries the most excitement is “alt season,” a period of time crypto traders cherish as coins left and right begin to rally parabolically ? Alt season is catalysed by a principle known as the money flow cycle ? In this section, we’ll look at how money flows in crypto. Make sure to grab a pen and paper, because this one is jam packed with actionable tips and tricks to help you profit ?
❓Does this sound like you? You open a short because a red candle briefly wicks below support, sending you into a whirlwind of fear only for the price to rip up after you panic sell? Or you open a long because the price is at resistance and “looks like it’s about to break.” You FOMO and then price comes crashing down ? If you can relate, that means you’ve traded. You are not alone. In fact, emotion and psychology are eerily predictable and since markets are a human representation of emotion and psychology, we can also predict the way money flows. Let’s take a look at how you can profit by studying crypto money flow ?
Put simply, money in crypto flows like this:
Bitcoin ➡️ Large Caps ➡️ Mid Caps ➡️ Low Caps.
? As traders in Bitcoin see the price rise and their profits increase, naturally they begin asking the question, “where can I roll my profits into?” As Bitcoin price continues increasing, traders begin rotating out of Bitcoin into other large caps like Ethereum that haven’t yet pumped. This cycle repeats as capital rotates out of assets that have pumped into assets that haven’t, until capital pours back into Bitcoin. For example, a trader may sell Bitcoin for Ethereum, sell Ethereum for Solana, and sell Solana for one of many small-caps ?
Knowing how to rotate between Bitcoin and altcoins effectively is critical if you’re a trader looking to maximize profit during the crypto bull market ?
Consider the following 3 things ?
1️⃣It’s rare to catch the top or bottom. Rotating from bitcoin into altcoins is tricky. If you sell Bitcoin too early, you’ll likely miss out on a parabolic move upwards whilst your alts hold USD value but drop drastically in BTC value. Sell Bitcoin too late and now the altcoin you planned to long is already up 50%, throwing off your risk to reward ratio. Consider these two things as a solution to this issue:
?Don’t trade with your entire portfolio. Hold spot Bitcoin as a long term investment that you never rotate into altcoins (your time horizon may be several years or decades so remember to position size accordingly). This can ease the psychological setback of rotating into altcoins too early as you’re still profiting off of a Bitcoin rise with your long term stack.
?You can scale in and out of your position slowly. Instead of rotating all of your Bitcoin into altcoins, consider rotating incrementally.
2️⃣Diversify your rotation. Given that altcoins are less liquid than Bitcoin, big money can manipulate them relatively easily, especially the mid-caps and small-caps ? Thus, trading altcoins is more risky as you’re susceptible to the actions of a small group. Thus, as you begin rotating out of Bitcoin into altcoins, you may decide to rotate across many altcoins and adjust your position size based on the risk of the particular altcoin you’re playing. Additionally, you may think to rotate a percentage of your Bitcoin profits into stablecoins so you have purchasing power in the event of a Bitcoin or altcoin correction ?
3️⃣Trade with the Market. Whilst technical analysis is critical to develop your effective altcoin trading plan, not even the most bullish, technically sound altcoin setup is likely to break up if Bitcoin begins dropping aggressively. Trading with the trend of the overall market helps you avoid losing money during periods of uncertainty ?
Consider the following 2 things when developing your trading plan?
1️⃣Watch ETH/BTC. When Ethereum outperforms Bitcoin, it is a sign that mid-caps and low-caps should follow suit shortly as traders roll profits into higher beta coins. ✅ A bullish technical altcoin setup for a mid cap or small cap is more likely to break upwards when Ethereum is also bullish.
2️⃣Watch Bitcoin dominance. This chart reveals the ratio between the market cap of Bitcoin to the market cap of the other crypto coins. When Bitcoin dominance is bullish it is a sign investors and traders are deploying their capital into Bitcoin. When Bitcoin dominance drops this is a sign that capital is flowing into other coins ?
❌ It’s important to remember that just because ETH/BTC is bullish and bitcoin dominance drops altcoins do not have to increase. As traders, our job is not to predict the market. Our job is to utilise data and information available to us and create high probability setups ?
To see how I select which altcoins to day trade, check out my YouTube ? video ?
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