Crypto currencies Trading Indicators
Within the next decade, or less, trading in cryptos is going to be dominated by algorithms and artificial intelligence. There is not much to dispute on that. We have already started to see that equities and bonds have started using Quants (Quantitative Analysts). Quants in traditional markets are similar to the technical traders we talked about earlier in the book when it comes to trading cryptos. They essentially trade on statistical and mathematical strategies.
Don’t worry, you don’t need to be a mathematician to do any of this. What you do need to do is get started now, so that when the time comes, and you want to remain competitive, you will be able to understand what the technical analysis is and how the program you get into will be able to assist you when trading cryptos. Remember that cryptos, more than anything else, naturally lend themselves to program trading.
There are four market zones that you need to be aware of. The first one is the Japanese time zone, which starts at about 8pm EST and ends at 4pm EST. During this time you get fair volume. Then comes the Middle East Market, which opens at about midnight EST and stretches to 8am EST. This overlaps with the European Market and stretches the active tomes to about 10am EST, by which point the US east coast comes online and kicks up the volume, and that stretches all the way to about 8pm EST due to the west coast.
Even though these are 24-hour, 7-day week markets, there are peak times that you need to be aware of. If you are not using an AI to monitor the volumes, then you can just use these times in your program to assume that these are the times – especially the times when there is an overlap that there will be greater volume and better use of statistical and computational strategies. Increased volume plus increased volatility make trading profitable, and that is a function of peak overlap business hours.
Whether you get a sophisticated system, or you decide to run the numbers by hand, you need to start your technical education with the simplest and most effective tool that you will find. It is called Moving Averages and you will see them denoted in forms like MA-30, MA-5 and so on. MA of course stands for Moving Average. But the number that follows it represents the period that the average is computed for. So MA-30 represents the moving average of prices over the last 30 periods.
Note that I wrote ‘periods’ and not days. The reason is that the time-scale is up to you. If you are looking at short-term trades, then the time-scale can be as small as 30 seconds or a minute or even 5 minutes. If your investment horizon is in the long-term, then you would use days. You can even use them in conjunction to understand the longer trend and the short-term fluctuations.
For instance, you can use a 30-day moving average to get a feel for the long-term trend, and that would give you y0ur bias. So, for instance if the trend indicated an up-swing, then you would have a bias that the prices are going up, and that you should favor long (long is the term used to indicate buy positions) positions. If the long-term trend is moving downward, then you should have a bias for short positions (short is the term for selling).
Typically, you would use two long-term trends, let’s say an MA-35 and an MA-21 (I find that using Fibonacci numbers gives better results). This timescale is measured in days. That will give you the long-term bias. Then you can have the short-term indicators, like the MA3 and MA8. These are measured in minutes. So, I take the price at the end of a minute, three times consecutively, then add them up and divide it by 3. So, let’s say at 9:01am the price is 10. At 9.02am the price is at 10.5, and at 9.03am the price is at 10.8. You would take 9, 10.5, and 10.8 and add them up to get 30.3. Divide that by 3 (since it is three periods) and you will get 10.1. As such, the MA3 is 30.1. You will then plot that line and superimpose that plot on the price chart. What you will find is a smoothed out price movement chart. If you then superimpose the MA8, which is the 8-period average, then you have two similar lines that tend to flow together.
The signal comes when one line crosses the other. When the MA3 is below the MA8, it indicates a falling trend, and when the MA3 is above the MA8 it indicates a rising trend. This is your short-term indicator.
The same happens with your long-term indicator. If the long-term indicator (the one measured in days) shows a longer-term trend, this can form your extended bias. So, if the long-term trend is set to rise, that is your long-bias. Thus, if you have a long-bias that is necessitated by the longer MA, and the short-term trend indicated by the shorter MA, then what you have is a good position to scalp the market in both directions whichever way it goes.
Here is how you do that.
If the long-term MA is a long bias, then you keep your eye on the fact that the market is poised to turn up quickly, and so you start with a footing of a buy position. As soon as the short-term indicator also shows a buy signal, then you jump into the market. The moment the short-term indicator changes to the sell, then you liquidate that position, and enter a new short position. But this second short position needs to be more sensitive. At the first indication of the short-term changing back to the buy, you liquidate that position, reap the profit, and also enter a new buy position. You keep doing this at every opportunity, especially when there is large volume in the market during peak time. This indicator is most effective and accurate when the market is liquid.
This is a good indicator, and in unsophisticated markets is strong enough to be the only indicator that you will need to profit from a market. If you start doing program trades, which you should, then just use the test feature in the app to test the strategy on past price movements and observe the trade signals. I have done this many times while programming the AI version of the trade algorithm and the rapid-fire efficacy – which is to take every trade every time without hesitation. Strict programmatic trading resulted in 81% accuracy of trades and a 27% return in a day. (this was in test mode, not live market). That was the program trade version. In the AI version, we programmed the engine (AI engine) to run millions of simulations until it found the best interval and the most accurate signal. The results were better than expected, and it is one of the reasons I mentioned earlier that crypto trading will be fully programmatic or AI-driven within the next decade. So you might as well get on board now.