Finding Profitable Altcoins
Market Meditations | April 13, 2021
Using the Right Platform
Before we get into what to focus on, we want to remind everybody of the importance of using the right trading platform. You want an exchange with:
- High liquidity so you can get in and out of a position quickly with minimal slippage.
- A reputation for only listing high quality projects, so you minimise your risk of being rug pulled.
- High quality customer service, so that if something does go wrong you can resolve the issue effectively.
We use FTX as our exchange of choice.
Identifying the Right Altcoins
Consider these 3 steps when trying to identify the right altcoins:
1️⃣Use 24 Hour Volume. Most people make the mistake of focusing first on the daily percent change of coins. This is not as important as the 24 hour volume. Coins with higher volume demonstrate that more market participants have had interest in trading that particular asset. This often means that a coin with high volume moves faster and therefore is much better suited to quick trades with relatively low opportunity cost. Opportunity cost in this case means that you won’t be trapped in an altcoin position that doesn’t move whilst other coins pump.
2️⃣Next, Consider the Percentage Change.
Remember, as traders it is irrelevant whether a coin moves aggressively on the upside or downside because we can make money longing or shorting respectively. Traders simply need volatility. Whilst the coins with relatively high volume and percentage change are good indicators for the altcoins to include on your watchlist, in order to determine whether they are “tradeable” we must dive into technical analysis and what the charts are telling us.
3️⃣When Analysing the Charts Consider the Following:
Market Structure: is the coin on your watchlist printing higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend)? Are there levels of support and resistance you can trade around?
Moving Averages: how is price interacting with different moving averages? Are moving averages proving to be key support or resistance and what setups that align with your trading system is the market presenting?
Fibonacci Levels: look for confluence with the 0.382 Fibonacci level and areas of supply and demand. In a parabolic price advance, price will often reject at the high and come down to test the 0.382 as potential support before continuing higher. Longing the 0.382 often presents a good risk:reward trade opportunity whilst traders looking to build more aggressive positions could add on dips until price loses the 0.5 Fibonacci level as support.
Beyond the Charts
Most people we know focus on trading trending coins. Remember, in a bull market it’s okay to buy high and sell higher. In fact by doing so you minimise the opportunity cost of holding onto a coin that doesn’t have the attention or volume it needs to make meaningful moves.
When trading altcoins remember that trends change, momentum and attention shift, and in order to profit effectively and consistently you need to make sure you’re aware of the global narrative. Just because a coin from 2017 was hot and trending doesn’t mean the same is the case today. In 2021, the hottest of narratives seems to be that of the exchange token.
BNB, for example, has rallied 1600% since January. Knowing that an exchange token narrative is a trending one, you may consider putting other exchange tokens on your watchlist. We’ve seen many coins like $SOL and $SRM associated with Sam Bankman-Fried who founded the FTX exchange have gone onto parabolic price increases. Knowing Sam also has an exchange token, $FTT, gives traders good confluence for a coin that could potentially rally. Remember, do not buy based solely off a narrative. Use narratives in tandem with technical analysis.
If you can manage your emotion and risk then even the simplest of trading strategies are massively profitable. We hope this article gave you actionable insight into what factors to consider both fundamentally and technically when trading altcoins.