Considering the fact that Bitcoin (BTC) price along with the most alts have begun to establish some steady supports, investors throughout the cryptocurrency market are slowly becoming more and more optimistic.
Usually, as the optimism spreads to the majority of investors, the bull market is bound to follow. Therefore, in this article, we are going to introduce some of the most common trading tactics to be implemented during the bullish market movement.
Buying a cryptocurrency and holding it until the price reaches some pre-determined value (if it reaches it) is the tactic that most decentralization and crypto advocates have been implementing since BTC has hit the market.
The only important thing is here is to determine the best possible entry point. To do that, a trader has to look at the big picture and wait for the cryptocurrency of their choice to establish strong long-term support.
An experienced trader can deduce the right moment to invest by following a number of technical indicators “stretched” across a long timeframe. Many of those we have already covered in the article about Fibonacci tools, Bollinger bands, and other about trend trading.
The EOS/USD example below shows how, by only following MACD technical indicator, a trader can enter the trade at the optimal moment.
Of course, the optimal moment would be the one when the indicator reveals the trend reversal, and in this case, that is when MACD finally, since May 22nd, 2018, crosses above the value of 0, and the golden cross between short and longer-term Exponential Moving Average (EMA) appears.
That exact moment would be ideal to invest and HODL until the price reaches the desired value.
Retracement additions are used by moderately aggressive traders who don’t want to risk all funds in one entry, but add additional entry points as the price of the cryptocurrency retraces after surges.
The basic entry point deduction is the same as with HODL tactic, but, as you’ll be able to see in the chart below, trader follows the price movement and invests once he spots the inevitable retracements during the bullish movement.
For example, a trader plans to invest $1000 into EOS, and when he spots the reversal (First entry), he invests only $500 at the price of $1.20 and continues following the price movement. Once the price retraces for the first time from $5 to $3.20, he adds another $250 to his position.
Finally, when he spots that the price has retraced 50%, from $12 to around $6, he invests the remaining $250 if his technical analysis revealed that the bullish market movement will continue.
The problem with this tactic is that, once the price starts dipping, it is difficult to deduce if that is just a temporary retracement or the bull run has come to an end and the trade should be exited.
HODL and increasing buy
Slightly less aggressive traders, once they have entered the trade due to the belief that the bullish reversal happened, can take more entry positions as the price reaches some pre-determined values.
The EOS/USD chart above is marked in one possible way a trader can pre-determine values to enter another trade. With a total of $1000, the investor takes the first position at $1.7, with $400.
As the price continues to surge, he realizes that, indeed, the bull run is taking place and decides to invest the remaining $600 when the price reaches $3, $5, and $7, trying to minimize the risk if his original judgment about the bullish reversal was wrong.
The obvious downside of this method is if the price doesn’t reach some of the pre-determined values, and a trader is forced to exit the trade prematurely, gains made from the original entry are far smaller than if he invested the whole amount of $1000, and uninvested funds remained unused.
The most aggressive and the most knowledgeable traders follow the bull run by trying to trade in accordance with price swings, buying lows and selling highs.
This is, by far, the riskiest tactic used by traders as it can severely cut gains or even produce heavy losses if they misinterpret highs or lows, and that is why it is always recommended to use stop-loss when using any trading technique, but especially swing trading.
Traders using this technique mostly enter the trade with all their funds, and rely on their knowledge of technical analysis to find perfect exit point and another entry once the price of the cryptocurrency retraces.
As can be seen in the EOS/USD chart above, MACD and RSI indicators combination can be very useful tools in the decision making process since, in this example, it perfectly reveals when to enter or exit the trade.
Momentum indicators are, usually, a crucial tool to determine if the cryptocurrency is being overbought or oversold at the given moment and to act accordingly.
Inexperienced traders can easily get drawn into “overstaying their welcome” while trading this way and fail to spot that the bullish trend has come to an end. In our example, an experienced trader would closely follow RSI readings as the coin is being overbought time after time, and spot that each overbuying session has been weaker than the previous one (the green line), and realize that the bullish momentum is close to being exhausted.
Analogically, after his last exit, he would not enter the trade until the market shows the next tendency. Even if the bull run is followed by a severe bearish market sentiment, the experienced trader would have an answer for that, but that is a topic for our next article.
As previously stated, the most important part of trading in a bull market is to correctly spot the first entry point and to implement the tactic a trader feels the most comfortable with. Every trading technique carries its own risks, and cryptocurrency market, as proven many times before, can be especially unpredictable.
The best thing to do is to educate yourself and learn as many techniques and trading tactics as possible to implement them in the right market phase.
Until the next time, trade responsibly.
Disclaimer: This article is not investment advice. Note that cryptocurrencies are highly volatile assets and very risky investments. Do your research or consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.