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Bitcoin Trend Following By TrendFollower

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Bitcoin Trend Following:

I follow trend following principles when trading Bitcoin. So what exactly is this:

Well for me trend following an asset like Bitcoin is basically trying to capture the potential gains available by analysing indicators / signals like price action, volume and momentum in a specific direction. This is the direction of the trend. So when a price is moving overall (I tend to look at the 'daily' chart) in a certain direction so up or down then that is basically a trend. It is about following and trading in the direction of that trend. This is in essence trend following. 

So I want to use this thread to merge both Trend Following and Cryptocurrencies such as Bitcoin and the opportunities that exist by applying trend following principles. 

When I am trying to trade Bitcoin or to be honest any other asset using trend following principles I am looking to ride a trend. I want to stay in the position either 'Long' or 'Short' for as long as possible until the trend reverses. All the 'noise', corrections or just basic volatility is ignored. I want to maximise my profit potential and maximise my returns. It is all about letting your winners run and actually participating in the big winning trades rather than have your stop loss executed and you end up struggling to get back in and end up watching the asset achieve superior returns and gains.

Someone who follows trend following principles can be involved in assets where the price action is extremely strong. If you are someone who works for a living, lives a busy lifestyle and simply does not have time to be constantly trading then it can be a good match for your lifestyle and may even suit your personality. You do not need to complete complex technical analysis or be able to read difficult charts. Conducting complex technical analysis and being able to draw and read difficult charts does not guarantee you to be a successful trader or in fact a very profitable trader. 

Bitcoin as an asset is extremely volatile. Those who trade frequently will often get stopped out and normally their stop loss will mean they have made a loss. By applying trend following principles to trading Bitcoin it means that you can ignore these volatile price swings as long as you are trading in the direction of the overall trend.

If you only have time to trade a few times a year or may be even a couple of times a month, applying trend following principles may be worth considering. I accept it is not for everyone.

Bitcoin in my view is one of the 'Strongest Trending Assets' in the world so it is a must trade for those who follow trend following principles and apply them in their trading.

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@Dunn,

You can use this thread to discuss anything in relation to applying trend following principles to Bitcoin.

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Are there any aggressive trend followers or traders using other strategies that have initiated a 'short' position on Bitcoin based on it breaching its 20 DMA on the 'daily'?

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I have zoomed in to the 'daily' and as one can see the price is trading above its 20, 50, 100 and 200 DMA for now. 

Bitcoin_20190702_21_28.thumb.png.13eff0b8af317d038b08eaea447fb7f8.png

Now if I zoom back out of the 'daily' then one can understand why people think a downtrend is still in play and why Bitcoin could easily be heading to new recent lows. I have highlighted the relevant trend line in red in the chart below to help illustrate this.

Bitcoin_20190702_21_31.thumb.png.88c0344f5d2341b6fac109dc37d84868.png

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If you look at my thread then you can see two narratives in play. When I zoomed in on the ‘daily’ one could argue for an uptrend. When you zoom out of the ‘daily’ one could argue that long term downtrend could still be in play. 

Trading perspective will depend on which timeframe you are looking at. The strongest trends will have the same trending action on those different timeframes. Now if Bitcoin surpasses $20k then it will be in this situation.

The key question is whether Bitcoin corrects further and then if followed by a trend reversal to the downside or Bitcoin corrects and then experiences another parabolic move to the upside targeting $20k? 

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Bitcoin's current trend is weakening. Now it could either be a consolidation move before the next leg upwards or potentially the beginning of a trend reversal. 

Follow the price action to see exactly which it is and test it against what the so called media experts are predicting via online media channels.

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The so called Crypto experts are comparing the current parabolic trend with 2017’s rise.

From a trading perspective the question is whether Bitcoin is more likely to fall down to $8k or go back above $12k to $13k. Based on odds and probability which outcome is likely. This will determine the trend direction going forwards.

 

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Trend Following can be applied to Cryptocurrencies just like it can for Commodities. They are actually more similar than one would believe. 

Bitcoin in my opinion can be used to apply trend following principles in the way you trade it. Some of the things one must consider if they are thinking of doing so are:

  • Do not fight the price action of Bitcoin so in in other words do not fight the tape as Jesse Livermore would put it. 
  • Keep losses to a minimum and maximise profits by not selling to early (Let your winners run and cut losses early)
  • Use leverage to maximise profits (Apply sound risk management though)
  • Ignore 'Market Noise' and all the online media channels

What I find with applying Trend Following principles is that it allows me to be less exact with my entry and exit points. No one has a crystal ball and very few if hardly any on the IG Community will have the ability to physically trade the optimum price points in terms of entry and exit. Trend Following eliminates this issue for me. I really am not bothered about finding the perfect entry points. Of course I will try and identify the best entry and exit points I can but it is not a necessity for me personally.

Now what causes a trend to manifest itself in Bitcoin?

Based on my personal experience things such as 'Fear of Missing Out' (FOMO), greed, news, fundamentals, Risk On / Risk Off market environments, etc.

I personally would not want to trade against the trend on Bitcoin. It would decimate your trading capital as it experiences extreme volatility. Your stop loss and risk management system would be tested to the limit and it would drive you crazy.

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On my live spreadbet account I have these 2 small positions.

  • Position 1:Long BTC.
  • Position 2: Short Bitcoin Cash/Bitcoin.

Bitcoin.png

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@Excel09,

There appears to be some really nice consolidation going on with Bitcoin at $11k price area. 

There were times when Litecoin would lead the price assault upwards but I think Bitcoin has taken over this mantle and will lead the way going forwards. 

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I think one must be looking at any potential breakout from the current trading range / consolidation period to see if a new upward trend emerges. Following the price action will be key.

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Posted (edited)

@TrendFollower Ive added to my short on Bitcoin Cash/Bitcoin as my Bitcoin long position edges upside :)

Edited by Excel09
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@Excel09,

It is 10:30 pm UK time and Bitcoin is trading at around $12240 levels. There were some who have a negative bias towards Bitcoin who were inferring / suggesting $8k and maybe even $6k but based on nothing but personal negative emotions. 

Never fight a strong bullish trend. It can last a lot longer than you think. Upward trends can last longer than downward trends which tend to be quicker and sharper than upward trends. Yes there will be lots of 20% or even 30% corrections along the way which will feel like a trend reversal but may not necessarily be so. Once one understands how Bitcoin's price behaves in a bull market then one can appreciate the trading opportunities it presents. 

Do not fight the tape!

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Bitcoin hit $12801.30 and is currently trading at $12735 so is now heading for $13k. It also seems like a breakout is materialising should this price action continue. 

Looking at the 'daily' timeframe it seems $17k will be the first target before making new highs of over $20k. 

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Posted (edited)

@TrendFollower :) That saying "The market is always right " .What we think,analyze,assume etc really doesn't matter lol. I learnt that lesson very fast and it was painful. However I use some technical indicators and read credible analysis on who I see credible and proven individuals.

That saying as well " Bulls make money,Bears make money,pigs slaughtered" . I refuse to be a pig on this trade lol I am also on the sharp lookout for my exit strategy to kick in before I close my positions. So far so good on this one.

Edited by Excel09
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@Excel09,

I would slightly disagree with you. What we think, analyse and assume can have a bearing on the assets we decide to trade. I make a lot of assumptions. Some are right and some are wrong. I allow the price action to test my assumptions. I am not worried or scared about my assumptions being wrong. Assumptions allow me to have a view on the direction I think the asset is going to travel in. 

I made an assumption yesterday as you can see in my post that I felt Bitcoin was heading to $13k. It actually hit $13,170.60 overnight. It is currently trading around $13k levels now at the time of writing this post.

Bitcoin at this rate is looking like going to $14k double the $8k predictions and more than double the rumoured $6k level.

This ego, emotion and personal belief stops a trader from profiting from the strongest trending asset in 2019. 

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Bitcoin is trending strongly on the upside right now and is over 5% up.

  • The price action is positive.
  • The trend and the charts are showing bullishness.
  • The momentum is clearly with Bitcoin over other 'altcoins'. 

 

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@TrendFollower No worries. I understand your take however the strategy I use is both good on bull & bear markets on any trade in any sector I see that fits the principles of a good trade for me. This would in cooperate a calculated risk appetite on my part on a specific point where the indicators  or price I see that signals my exit strategy. If I was on a long position and it goes against me I am happy to recalculate my risk and if the trade fits into my shorting strategy. If it ticks all the boxes I am happy to switch sides and be a bear on that same trade. I know what I am willing to loose but it would be a price/indicator signal that I know I should exit without doing the "hope" thing :)

I am happy to switch from bear to bull on a same trade or vice versa. I am saying I could use all my understanding on trade analysis on why I should take a position/trade. When the market turns against me I would turn with it which is what  I meant by "the market is always right "no matter what I analyze/think,assume. 

Many thanks for your sharing your thought process on this.

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@Excel09,

There is no real right or wrong strategy. Each strategy will be better suited to certain individuals over others.

When someone asks me something on the IG Community I tend to answer based on my own trading philosophy. Others on IG Community take it as if I am trying to sell Trend Following to everyone or trying to force my views on everyone and that simply is not the case.

I live and breathe by my trading philosophy and therefore when I comment and post on IG Community then more times than not it will be from a trend following perspective. Then it is for others to offer different answers based on their own trading philosophy, 

 

Trend following is not perfect and it has its flaws. You can end up entering trades based on signals and indicators which the counter reverse quickly and sharply and you are sitting on a small loss because your stop loss has been triggered. This happens pretty frequently. That is why trend following is not for those who cannot accept lots of small losses frequently. It required a lot of discipline but the aim is to ride the biggest trends and they will pay for the lots of small losses. 

Bitcoin Trend Following since the start of the year is a great example as is Litecoin and then Bitcoin Cash. 

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For me the big drop in Bitcoin's price (nothing new or unexpected their for seasoned Bitcoin traders) has not changed the longer term upward trend. This is still in tact. 

If Bitcoin's price went below $10k and stayed there then I would have to seriously anticipate a trend change. If it went below $9k then based on probability it would be likely to continue going downwards as a lot of stop losses would be triggered and sellers would emerge. It would also attract new short positions being opened. 

For now nothing changes in terms of Bitcoin's directional charge upwards.

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@TrendFollower

Thank you and I do agree all strategies will have some good and bad about it. Trend following is how I trade the financial markets and I really do enjoy it. Apologies if I may not have been eloquent with my words in my previous comments and overall I do agree with you.

I also agree with you on the Bitcoin direction. The bitcoin fans on the institutional levels recon that Bitcoin will cruise pass 20k without an issue. :)  I will be smiling more on that day.

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Posted (edited)

@Excel09,

The mere fact that after such a large drop Bitcoin is still trading at $11.6k is very encouraging in my opinion. For me it was not that long ago that Bitcoin was below $10k so anything above that price point is still bullish in my opinion. Should the price drop below $9k then my view may change. 

I choose to trend follow Bitcoin as for me personally it provides me with the greatest opportunity to maximise my profits by trading in the direction of the trend for Bitcoin. It also gives me the best chance of increasing the odds and probability in my favour as I am trading in the direction of the trend and not against it. This allows me to relax once I am in as everything in between the trend reversal is just mere 'noise / volatility'. I just have to ride the trend and do nothing clever what so ever. 

For me it is the easiest way to trade not only Bitcoin but all other Cryptocurrencies available on IG. The same applies during large downtrends. Once your signals / indicators are hit you 'short' Bitcoin et al and ride the slide downwards until the trend reverses. If you end up holding the positions for many weeks and months then so be it. The daily charges will be minuscule compared to your profits when you take leverage into account. You do not have to worry or panic about daily price swings or unexpected drops or rises. You also do not have to spend hours on the screen or hours conducting complex technical analysis which does not guarantee greater profit maximisation. 

It is one of the easier trading philosophies to follow. This can lead some to think that because it is so much more simpler than other trading strategies that it cannot be more effective or profitable as it is not complicated enough. You do not have to use complicated technical analysis or complex charts with lines everywhere so it must be overrated or simply not an effective trading strategy. 

Edited by TrendFollower
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Hello,

BTC topped  at the $13,8k, it is now in a corrective phase, price could end up at the sub $8k level. I personally have buy orders with the last one set at $7,650.

Down in 3 moves, a,b,c - a should finish around the 10600, the bounce of the b move into the 11,4k-11,5k zone, then c completing at least into the $9,5k zone, possibly lower as per above.

BTC has been excellent to trade, it's all about managing risk, use stop losses and stick to your trading plan.

Exciting times ahead for BTC, big targets ahead, as when we complete this wave 2 corrective move, then remember we enter wave 3, wave 3 is the largest of the Elliott Wave moves, into all time highs.

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My chart attached, showing what i consider to be the basics of the current move.

BTC - A,B,C Basic.PNG

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@PJ19,

Ok let us see what happens going forwards. I do not think trading is that easy that you can follow Elliot Wave Theory (EWT) and be correct and anticipate with any accuracy the future price, especially in relation to Bitcoin. I think trading Bitcoin is extremely difficult at times and if using EWT was all it took to predict future price movements then would'nt trading Bitcoin be so much easier? I am not discounting EWT and I am sure it has a place when trading the likes of Gold, etc. However, Bitcoin is a different animal altogether. Bitcoin will go down when you least expect it to and go up when you least expect it. 

I cannot see Bitcoin going down to those levels until after the halving event in 2020. However, I am more than happy to be proved wrong. At least you have supported the reason why you are anticipating the price drop to $7k to $8k levels. 

The price action will either support your EWT or it will reject it. I am very intrigued what will happen here. I am more than happy to be proved wrong here. There is a clear disconnect between Bitcoin's price action and narrative compared to other 'Alt Coins' available on IG so I think Bitcoin's road map is going to be different based on the having event but that it just an assumption from me. The price action will now test that assumption. 

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@PJ19 Lets all just hope that we are on the right side of this trend/move. :) Great analysis on your comment above and thanks for sharing it. I don't personally use the Elliot wave as one of the tools to make my trade decisions but it would be a classroom day for me if I am wrong and you are right👍

On the daily chart timeframe Bitcoin has gone into a range(sideways) with highs of 12500 and lows of 10400(candlestick). Will it bounce between these prices and then make a move up or down?  Which ever side it will go we will see. I see it breaking on the upside passing 12500 soon.

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Moving Averages are widely used in Trend Following Trading Systems. My Trend Following Trading System is no different. Just to put things into perspective with regards to Bitcoin and its current trend from a 'daily' chart perspective I include the chart below. I find that use 'Daily' and sometimes even 'Weekly' and 'Monthly' charts are better for following longer term trends than the short time periods but each to their own. 

Bitcoin_20190713_09_09.png.1ce68536a16ec69c78aac7d9648635d1.png

For me there is no confirmation of a trend reversal. Bitcoin on the 'daily' timeframe is still trading above its 20 (only just), 50, 100 and 200 DMA's so the longer term uptrend is still in tact for me. If anything Bitcoin seems to have found support above the $11k level which seems bullish to me. 

It seems Bitcoin is taking a pause for breath and consolidating before its next leg up. There seems to be more chance of $14k being hit and then $15k being hit than Bitcoin going down to $6k to $8k levels. However, this is Bitcoin and it can act in a way that we least expect so nothing can be put off the table. 

I always believe in keeping things simple when trend following and asset like Bitcoin. The more complicated we make it the more difficult it becomes to even action a trade as complex technical analysis will always give us a reason why not to trade Bitcoin. Based on price action alone, Bitcoin, still looks good!

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For sure, i always follow price movement, as we all know it can change when it's least expected, so always on guard, especially in this fast paced market. I never want to get caught on the wrong side of price.

My saying is, it's not about being right or wrong,but keeping and protecting thy capital.

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Here is an alternative that's now looking very promising.  I will update this as the days go by. But we might be seeing the low in at 9,984.51 level. (but remember to account for the spread on any position).

I've been looking at the 4 hourly, and we might be in a Contracting Triangle phase of this Bull Market.

I'm seeing the current move (C wave) getting to the 9,984.51 level, and then to see if price moves higher up into wave D zone, followed by a move lower to complete the end of the wave E, and if that happens then it would look like a sharp move higher from that level, at say 10,850 which would be approximately 61.8% retrace of the previous move.

Chart to follow... i'm always keeping an open mind on where price may go.

This is of course just my take on things.

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