All liquid cryptocurrencies move in a series of price cycles. These oscillating patterns of buying and selling pressure can offer you prime low risk, high reward trade opportunities.
Some traders claim that cycles exist in and of themselves and are the trigger for all tradable market moves. However, others are equally adamant that the ongoing battle between bulls and bears is the primary driver of cyclical price action. This chicken versus the egg debate continues, of course, but all you need to know is that cycles exist, are identifiable, and can offer you the opportunity for profit.
The chart above depicts three different idealized price cycles in Litecoin/USD. The software automatically determines the optimum number of price bars for each cycle. The cycle semi-circles provide a forecast for upcoming cycle lows (all cycles are measured from trough to trough). In this example, the 18.6-, 38.1- and 79.3 – day cycles tend to bottom together at key market turning points. Looking to the future, the same three cycle measurements suggest that another confluence of cycle lows may occur around late November or early December 2018.
Cycle lows occur in bullish, bearish, and sideways markets alike and can be traded successfully in all market scenarios. However, you should not attempt cycle trades during ultra-low volatility consolidations. Bullish cycles feature relatively shallow declines into cycle lows and comparatively long rallies into cycle highs. Bearish cycles feature relatively deep declines into cycle lows and comparatively small rallies into cycle highs. Cycles in trendless markets are roughly equal in price moves up/down into the cycle high/low.
Make it a habit to calculate the number of price bars between significant swing lows in the cryptos you trade. Use as much historical data as possible for this task. You’ll be rewarded with a more accurate average cycle count. Note the 18.6- period cycle in the Litecoin/USD chart above. Most liquid crypto markets run on an 18 to 22-bar cycle across all time frames, so this is perhaps the most important cycle for you to focus on.
Cycles are powerful technical allies for serious traders, however, always use other confirming indicators before taking a new trade, such as:
At times, a cycle will expand to 24-26 bars or even contract to 13-15 bars, but the long-term average will generally mean-revert to around 18-20 bars. In the sections that follow, you’ll witness a powerful way to trade the short and long side of the crypto markets. All that you need is a 20-bar price cycle and a common trend reversal ID tactic.
Overlay a StochRSI or Double Stochastic indicator on any crypto price chart and you’ll see a repetitive oscillating pattern of buying and selling pressure. These two indicators tend to bounce from a valley (oversold) to a peak (overbought), offering you an excellent opportunity for profit. But you need to put this oscillating indicator action into proper context before you can trade it profitably.
Here’s how you can identify a low risk, high reward, short crypto cycles trade setup:
The short trade depicted was indeed a nice winner, with the stop loss never in danger of being hit. Notice how the rally into the cycle high (green circle) was weak in comparison to the subsequent decline into the ultimate cycle lows (yellow arrows).
Short winning trades tend to reach max profit potential sooner than their long brethren, so be aggressive with your profit taking.
By shorting the first pullback into a cycle high after a confirmed bearish trend reversal, you’re putting the power of a new and developing trend in your favor. This is the lowest risk, highest reward trade in any market, and it’s bullish counterpart is equally powerful. Let’s examine that trade setup next.
Here’s how you can identify a low risk, high reward, long crypto cycles trade setup:
The long trade depicted was indeed a giant winner, and the stop-loss was never in danger of being hit. Notice how the pullback into the cycle low (green circle) was weak in comparison to the subsequent rally into the ultimate cycle high (green arrow). Buying the first pullback into a cycle low after a confirmed bullish trend reversal is the lowest risk, highest reward trade in any market, in any time frame, and in every liquid cryptocurrency.
You now possess a working knowledge of how to use a low risk, high reward cycles trading strategy. So go further. Calculate the average cycle lengths in the crypto markets you trade and begin to develop your trading edge. Experiment with different oscillator settings and moving averages to fine-tune your strategy for trade entry and management. Begin working with these chart dynamics on your favorite coins today and see the crypto markets in a new light.
Disclaimer: Speculation in the cryptocurrency or other financial markets involves substantial risk; you should only use risk capital when trading. You should consult your licensed financial advisor before deploying risk capital in the financial markets.
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