How We Trade Altcoins
Market Meditations | August 24, 2021
Disclaimer: This is not financial advice, purely for educational purposes. Backtest the strategies and use them to create your own strategies.
Step 1: Find an exchange you like.
It is essential to find one singular exchange you trust and are comfortable navigating. You will be relying on the exchange’s functionality, responsiveness, features and importantly, their security.
You want to get comfortable with the assets on the exchange. You will notice patterns and correlations between assets that are much harder to pick up when your attention is scattered.
There are many crypto exchanges and a lot of these exchanges are thriving: Coinbase, Binance, Kraken and crypto.com to name a few.
Our preferred exchange is FTX. There are many reasons for this:
- A wide range of altcoins
- Constant innovation and updates
- Great UI
- Extra perks such as lending features.
Whatever exchange you have will have filters…
Step 2: How to Find the right coins to trade
Do not filter by % daily change.
When browsing assets, set your filter as ‘24 Hour Volume’. The higher the better. This will give an indication of how much interest there is in the asset and how liquid the market is. Liquidity is extremely important, regardless of what position size you are trading and particularly as your position size gets bigger. Make sure you spend ample time looking at the lists.
? COMMON MISTAKE: too much focus on the charts in isolation.
Once you have arranged by volume, you can pursue two strategies:
1️⃣ Trend Following
“It’s too late, the asset has already pumped”… “You’re about 17 days late”… “Top signal”… This is what a large number of people responded when we tweeted the above.
Trends tend to overextend in crypto. That means, when you see a standout winner in terms of:
- 24 hour volume (big % changes)
- The charts have broken local highs and entered a breakout
- Market sentiment is aligned (more on identifying this later)
You can essentially follow that trend and profit. SOL is a good and recent example of this. Assuming continuation of the trend once a breakout is identified is profitable. You will, of course, need to test your own methods for identifying breakouts but you can abandon the ‘it’s too late’ mentality.
This strategy is technically easy but emotionally very difficult.
2️⃣ Reversal Plays
The key difference with reversal plays are that they rely heavily on predicting the next big narrative. The technical side is again not hugely difficult, just identifying an asset trending sideways and lagging behind the overall market.
Tip: Crossing moving averages are a great way to identify a neutral trend.
Now to spot market sentiment one of our favorite tools would be consider creating a list of your favourite accounts on Twitter. There are tons of accounts we love in the space but here are a few to get you started TraderSZ, RookieXBT, Devchart, NFTeddy, Joseph Young, Sam Trabucco, Altcoin Sherpa, Koroush AK, Bryce, Charles Read, Payne, Bitcoin Jack, Zhi Ko, Mr. Anderson, Cantering Clark, Cryptunez, TheCryptoDog, Roy Blackstone and Scott Melker.
You can spend hours everyday looking at multiple news sites or you can subscribe to our newsletter for free. Link here. We send 6 concise crypto reports a week. Making sure you receive everything you need to know to build wealth.
Outside of Twitter, you can find excellent market sentiment feeds across YouTube, Discord, Telegram, Podcasts and more. Find one you like. For instance, YouTube suits the more visually inclined and Discord allows you to directly engage with others!
Step 3: Trading Psychology and Risk Management
Every investment decision you make carries risk. Know the risks and importantly know your own risk tolerance before you make any decisions. Consider a game of poker, different people are willing to play with different hands. Perhaps you would fold if you held two pairs, others would raise. Trading is similar. People view the risks and worthwhileness of those risks differently.
Further, your strategies are only as good as your own mindset and ability to execute it. Master your trading psychology. Your profit journey begins and ends with your own mind and thought processes. Know when you are emotional and avoid making important decisions until you are back to being logical.