Leveraged Cryptocurrency Trading Course Novice & Intermediate Level

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2 Leveraged Cryptocurrency Trading Course Novice & Intermediate Level Page 2

3 Table of Content Introduction...4 Chapter 1 - Introducing the MT4 and the Cryptocurrency Trading Dashboard...5 Chapter 2 - What is Cryptocurrency Trading and How to Make a Profit...7 Chapter 3 - Interpreting a Trading Account...9 Chapter 4 - Special Terminology Used in Financial Markets...11 Chapter 5 - Technical Analysis in Cryptocurrency Trading...12 Chapter 6 - Fundamental Analysis in Cryptocurrency Trading...13 Chapter 7 - Support and Resistance When Trading Cryptocurrencies...14 Chapter 8 - How to Ride the Perfect Trend...16 Chapter 9 - Cryptocurrencies with the Relative Strength Index...17 Chapter 10 - Buying and Selling with Moving Averages...19 Chapter 11 - How to Use the Bollinger Bands Indicator...21 Chapter 12 - Explaining the Head and Shoulders Pattern...22 Chapter 13 - The USD Role in Cryptocurrency Trading...24 Chapter 14 - Money Management in Financial Markets...26 Chapter 15 - Double and Triple Tops and Bottoms...28 Chapter 16 - Cryptocurrency Trading with Morning and Evening Stars...29 Chapter 17 - Rising and Falling Wedges in Cryptocurrency Trading...31 Chapter 18 - Using the Hammer Pattern for the Perfect Trading Setup...32 Conclusion...33 Page 3

4 Introduction Retail trading increased in popularity as more people have access to an Internet connection. Lately, the cryptocurrency market frenzy attracted an unprecedented number of traders to speculate/invest on one of the most volatile markets in the world. Brokers spotted the opportunity, and JAFX is now one of the first brokers to offer 24/7 cryptocurrency trading on sixteen virtual currencies. The best part of it: the broker provides them on the same trading account, and on the most popular trading platform: the MetaTrader4 or MT4. Unlike the Forex market, cryptocurrencies trade around the clock, including the weekends. For this reason, retail traders piled in the most promising market to speculate on its wild moves. The crypto-world gathers a diverse crowd. Some traders just want to own the new gold and look at it as an investment. Others like the technology behind the blockchain and find it more than promising. And others only want to speculate. The art of speculation mostly deals with technical analysis and understanding market psychology. This course aims to explain technical and fundamental aspects of trading leveraged cryptocurrencies simply and efficiently. The strategies explained here help novice and intermediate level traders to profit from the crypto-market swings. It all starts with the trading platform Page 4

5 Chapter 1 - Introducing the MT4 and the Cryptocurrency Trading Dashboard The MetaTrader4 is the world s most famous trading platform among retail traders. Its easy-to-use and understand features, combined with powerful charting and automated trading tools, makes it the number one platform to access financial markets. The MT4 comes with a designated set of trading indicators and oscillators. From the Insert tab on the top right corner, traders find a suite of powerful indicators that come with the default settings. Even if an indicator isn t there, there s always the option to import it to the MT4 platform via the Custom Indicators feature. The only trick is to have the indicator saved in the right format (.ex4 or.mql) Just go to File, find the Open Data Folder tab, and paste the new indicator under the Indicators folder. Don t forget to close the MT4 platform, as the change will become effective only when reopening. The Market Watch or the so-called trading dashboard shows the broker s offering. Here s where all the trading instruments appear, from currency pairs to commodities, indices, and cryptocurrencies. For the cryptocurrency traders, JAFX offers no less than sixteen pairs, starting with the all-important Bitcoin and continuing with well-known coins like Ethereum, Litecoin, Ripple, and so on. Charting is easy and straightforward. Pick a pair from the Market Watch list and drag in on the main MT4 window. Or, even better, right-click on it and choose the Chart Window option. Below is the BTCUSD daily candlesticks chart. It shows green and red candles for every day of the week. In trading, the green color is associated with a market s advance, while red with a market s decline. Traders can quickly change the timeframe to one that suits the trading style. Page 5

6 Scalpers, or short-term oriented traders, use timeframes from M1 up the H1 (one-minute to hourly charts). Swing traders, on the other hand, keep positions open from a few hours to a few weeks. They analyze the market on the H1, H4 and even D1 (hourly, four-hour and daily charts). Finally, investors look at the bigger picture. In no hurry to close a trade, investors find valuable information on the weekly and monthly timeframes. A chart is a technical trader s playground. It is this window that MT4 allows traders to customize it fully. You can add any indicator, change the background, and do anything you can imagine from a charting perspective. A good trick to remember is to use the Tools tab, go to Options, and check the Select object with single mouse click box. It ll save you time when charting, as all you need to select a trendline or indicator is a single mouse click. Page 6

7 Chapter 2 - What is Cryptocurrency Trading and How to Make a Profit Trading implies the buying or selling of a coin with the purpose of making a profit. In fact, this is the very definition of speculation. As shown earlier, the dashboard has the cryptocurrencies paired with another financial instrument. For example, BTCUSD shows the value of Bitcoin against the U.S. dollar. Or, the BCHBTC pair shows the value of Bitcoin Cash against Bitcoin. And so on. In other words, one needs to consider both sides of the story, before opening a trade. Any pair comes with two quotes, or prices: the bid and ask prices. When selling, traders use the bid price, whereas buying can only take place at the ask price. Naturally, there s a small difference between the two quotes. That s called the spread, a fee paid to the broker. Volatile times may result in the spread changing, but most of the times it is stable. This is Litecoin against the USD, and the bid price, the one on the left, is smaller than the ask price, the one on the right. The difference between the two is the spread, in this case, When deciding to buy, traders must know the volume too. How much to buy on a transaction? From micro lots (starting with 0.1) to full lots (1), JAFX offers the possibility for all traders to participate in the crypto-market. No matter the account size, big or small, JAFX serves all traders. When buying from the ask price, or in the case of LTCUSD pair, traders expect the pair to advance. Or, to move to the upside. If that happens, and LTCUSD reaches, say, , a profit is made. To mark it, traders must close the position, or square it. The closing is made from the bid price. Hence, the bid price must be and corresponds to a profit of For the full impact on the trading account, multiply it with the traded volume. The opposite happens when selling. Traders use the bid price and square the position from the ask price. Opening and closing a trade is manual or automated. When manual, the trade happens at the market. Page 7

8 However, the MT4 offers a suite of pending orders to use. The most important ones: the stop loss and take profit orders. A relevant example appears above. Traders choose the symbol or the market (LTCUSD), the volume, the order type (at the market) and the two big quotes are the bid and ask prices. Before opening the trade, traders can set the stop loss and take profit levels. However, this can be done even after the trade is active. In this case, if we buy at the market, the take profit is and the stop loss When the market reaches either of them, the MT4 automatically closes the trade. Other orders to use are: Buy stop if you want to buy ONLY when the price reaches a higher level. For example, you can set a pending buy stop order for the LTCUSD at and set the stop loss and take profit levels. Buy limit buying happens from lower levels than the current market price Sell stop selling occurs from lower levels than the current market price Sell limit selling takes place from higher levels than the current market price These are pending orders, and the broker will execute them only if the market moves to the entry point. They indicate a trading plan and are great money management tools. Page 8

9 Chapter 3 - Interpreting a Trading Account The key areas of a trading account are: Balance Equity Free margin Remember the previous LTCUSD example? Here s how the buying order reflects in a trading account: This Demo account offered by JAFX had a Balance of USD. It will remain the same until an open trade is closed. Hence, it has the potential of misleading traders, as it doesn t reflect the reality in the trading account. Equity does. It will fluctuate with how the trade/trades evolve. If the sum of the open trades is positive, the Equity will be bigger than the Balance, reflecting the potential profit. If not, it indicates the potential loss. For every trade, the broker blocks a margin. It acts as collateral if you want. The bigger the trade size, the bigger the margin blocked. The free margin, on the other hand, shows the margin available for new trades. Obviously, the bigger, the better. Retail trading is done on leverage. For example, a trading account with 1:500 leverage, means the trader moves in the market five hundred times the amount traded. It is a feature introduced first by Forex brokers, as an alternative that allows retail traders access to the interbank market. In the meantime, the LTCUSD trade hit the take profit. Here are the position and the effect. Traders can check the account history, latest news, and many other features the MT4 platform offers. Page 9

10 Keep in mind that the Equity is the one that reflects the value of a trading account. Not its Balance. P a g e 10

11 Chapter 4 - Special Terminology Used in Financial Markets The financial world uses special terms when referring to the trading activity. Rarely traders use terms like buying or selling. Instead, they go long or short. Here s a list of some terms mandatory to know when trading financial products, cryptocurrencies included: LONG. Going long equals buying. SHORT. When selling a currency pair, traders go short. BULLISH. Buying happens for a reason. Either technical or fundamental, the idea creates an opinion. Further down the road, the opinion translates into a trade. A bullish analysis or view leads to a long trade. BEARISH. Short selling takes place when traders have a bearish view. HAWKISH. The equivalent of bullish, but a term used when referring to central banks actions. It comes from the hawk in the sky, as it flies at higher altitudes. DOVISH. The opposite of hawkish comes from the dove. Some traditional currencies/currency pairs have nicknames associated, like the GBPUSD being known as cable, or AUDUSD as the Aussie pair. So far, no cryptocurrency has a nickname, as the coins that make the market are relatively new. P a g e 11

12 Chapter 5 - Technical Analysis in Cryptocurrency Trading Technical analysis is as old as the market. Traders noted the price of a security moves in patterns, so they documented them to forecast future prices. Here is the technical analysis definition: the ability to use information from the left side of a chart (past prices) to forecast prices on the right side of it. A technical trader has a variety of tools for his/her disposal. Some use trend indicators and oscillators like: Moving Averages RSI Relative Strength Index Bollinger Bands Others use a pattern recognition approach. As such, they search charts for: Head and shoulders Double and triple tops Wedges, etc. Sophisticated traders use trading theories to analyze a market. Some examples are: Elliott Waves Theory Japanese Candlesticks Techniques Point and Figure, etc. Other elements like Andrews Pitchfork, Fibonacci ratios, trendlines, and channels, etc., come to complement a trader s technical analysis abilities. P a g e 12

13 Chapter 6 - Fundamental Analysis in Cryptocurrency Trading While technical analysis gives the direction, the market moves for a reason. Supply and demand drive price levels, but the currency world is so big that it absorbs vast volumes without blinking. The cryptocurrency market s capitalization is big enough for supply and demand to become invisible. Hence, the reason comes from something else. To put it simply, anything that doesn t belong to technical analysis is fundamental. The fundamental analysis comprises the sum of everything in the world that might affect the price of a currency. The economic news comes out on a regular basis, and traders look at entire economies to interpret their evolution. As a result, they form a bullish or bearish opinion about an economy and will act on it by selling or buying its currency. The most important economic news to check are: Central banks interest rate decisions Inflation data CPI or Consumer Price Index Jobs data unemployment rate, jobless claims, etc. GDP Gross Domestic Product PMI s Purchasing Managers Index Consumer data retail sales, hourly earnings, disposable income, etc. This set of economic data is enough to compare two economies and take a fundamental trade, or a news-based trade. Even the cryptocurrency world cares, as most cryptocurrencies are paired against the U.S. dollar. Other events influence the market s volatility and value, like elections, referendums, wars, natural phenomena (storms, earthquakes, etc.), and so on. Anything other than technical analysis that has the potential of moving markets belongs to fundamental analysis. A proper analysis looks at both technical and fundamental factors before deciding to go long or short a market. P a g e 13

14 Chapter 7 - Support and Resistance When Trading Cryptocurrencies One of the oldest technical analysis concept, support and resistance forms both on the horizontal and on a rising or falling market. The first one is called classic support or resistance level, and the other one is dynamic. Because part prices tell much about future ones, traders check on the left side of a chart to see where the market hesitated. Next, they project those levels on the right side of the chart. Finally, traders expect a reaction that the market will have in that area. A rule of thumb says that when broken, a support level becomes future resistance, and the other way around; broken resistance becomes support. Here is the ETHUSD recent hourly chart. It shows the Ethereum slide against the U.S. dollar. From left to right, every bounce comes from a classic support level. After the pair breaks below, the support becomes resistance that can be projected on the right side of the chart. It is foolish to ignore it and being long at a resistance level may have damaging consequences for the trading account. The natural reaction is to close any long trade or, even simpler, to go short. How about dynamic levels? The dynamic nature of support or resistance comes from the fact that it follows the price action. The easier explanation is that it doesn t form on the horizontal. P a g e 14

15 Check the DASHBTC four-hour timeframe above. If you draw a trendline connecting the first two points, you find future dynamic support levels. Or, levels where the market might hesitate. Starting from it traders project future dynamic resistance levels by merely copy/paste it on the most recent highs. That s technical analysis in all its beauty. Simple and efficient! P a g e 15

16 Chapter 8 - How to Ride the Perfect Trend Bullish or bearish trends have prices rising and falling for a long time. Depending on the time frame, a trend can take hours, days, or even months and years. In the trading world, the trend is your friend. There s no better way to put it, but riding a trend is what attracts people to trading. But even the stronger trends have their pullbacks. Nothing goes on forever, and trendriding strategies appeared. Trend indicators and trading theories that follow trends sparked traders imagination. However, the problem is that trends don t come often. When they do, traders use a series of elements to ride them until exhaustion. Highs and lows are vital in defining a trend. Therefore, a bullish trend sees an ongoing series of higher highs and higher lows, while a bearish trend forms lower lows and lower highs. This NEOUSD hourly chart shows what a trend looks like. If the market keeps making lower lows and lower highs the bearish trend will continue. Fighting a trend is a costly adventure. Why fighting it when you can ride it? Trend reversal patterns do exist, but they fail as often as they succeed. The only way to make sure a trend reversed, is to check if the lower highs (in a bearish trend) or higher lows (in a bullish trend) series is broken. Until then, the market will keep falling or rising. P a g e 16

17 Chapter 9 - Cryptocurrencies with the Relative Strength Index Perhaps the most famous oscillator ever created, the Relative Strength Index (RSI) comes with the default settings on the MT4 platform. Just follow this path to find it: Any oscillator appears at the bottom of a chart. They use various formulas to plot a value that imitates the price movements. Depending on the oscillator, various trading strategies exist. For the RSI, the default period is 14, meaning that the oscillator plots a value derived from the previous fourteen candles. The RSI travels only in positive territory, zero and one hundred being the minimum and maximum levels. However, a reality check tells us that a market rarely goes to such extremes. As such, the oscillator comes with two default levels: 30 and 70. The idea is that a print over the 70 level shows overbought conditions, and traders short the pair. Or, when the RSI moves below the 30, traders go long, as the market is in oversold territory. However, that strategy works only when the market is in a range. P a g e 17

18 The chart above sees the BTCUSD falling on the hourly timeframe. A bearish trend is in place as the series of lower highs continues. As such, buying in the oversold territory is risky, as long as trending conditions remain. However, selling in overbought makes more sense. Another way to trade with it is to spot trend reversals. Because the RSI follows the highs and lows of a market, traders look for divergences between the two. Ripple vs. Bitcoin hourly chart shows a terrible bearish divergence. While the price keeps advancing and makes two highs, the RSI fails to confirm the second one. That s a bearish divergence, and traders go short. P a g e 18

19 Chapter 10 - Buying and Selling with Moving Averages Moving Averages (MA) are trend indicators that traders use when analyzing a market. Different types of MA s exist, like SMA (Simple Moving Average) or EMA (Exponential Moving Average) and the main idea is to divide the price action into bullish and bearish. As such, if the price sits above the MA, it finds support when testing it. Hence, going long is the typical reaction. On the other hand, if the price is below the MA, traders look to sell spikes into it. Obviously, the more periods it considers, the stronger the support and resistance provided. Moreover, the bigger the timeframe, the stronger the support and resistance as well. The black line on the BTCUSD daily chart from above is the SMA (14). It means that the MA averages the closing prices for the previous fourteen days and plots a value on the chart. The SMA (14) acted both as resistance and support, providing excellent opportunities to go long or short. Another way to use MA s is to look for golden and death crosses. This strategy requires two SMA s: the 200 and 50. When the SMA (50) moves above the SMA (200), it is said that the price entered a bearish market, the cross bearing the name death cross. On the other hand, a death cross forms when the SMA (50) moves below the SMA (200). P a g e 19

20 The death cross on the BTCUSD four-hour timeframe developed at the start of 2018 when the price was around Comparing with the end of March value of about 7000, we can say the death cross was an early sign that the Bitcoin entered a bearish market. P a g e 20

21 Chapter 11 - How to Use the Bollinger Bands Indicator Named after John Bollinger, the one that built it, the Bollinger Bands is a fabulous indicator. Listed under the trend indicators in the MT4 platform, it offers much more info about the price action in a market. The indicator has three lines that follow price: UBB Upper Bollinger Band MBB Middle Bollinger Band LBB Lower Bollinger Band The MBB is typically an EMA (Exponential Moving Average), and it serves the purpose of showing potential support or resistance for future prices. When the price reaches the UBB, traders expect a bullish trend and will buy on dips into the MBB. That s the standard interpretation. When the price breaks below the LBB, a bearish trend starts, and sellers emerge on every spike into the MBB. The recent DASHUSD price action confirms the strength of this strategy, as both longs and shorts worked fine with the Bollinger Bands. But there s another way to use this indicator. Perhaps the main feature of the bands, they signal a potential breakout. The thing to do is to check the distance between the UBB and LBB regularly. When it narrows, the new trend is stronger than usual, as it proved with the recent bearish trend. P a g e 21

22 Chapter 12 - Explaining the Head and Shoulders Pattern Belonging to classic reversal patterns in technical analysis, the head and shoulders forms when trends lose strength. While it takes time to form, the pattern signals the end of bullish or bearish trends. When it forms at the final stage of a bearish trend, traders call it an inversed head and shoulders. However, trading it follows the same rules, only that traders go long, instead of short. A head and shoulders pattern has the following elements: Head Left shoulder Right shoulder Neckline Measured move Right in the middle of a bullish trend, the market forms a consolidation area. Either a triangle, a pennant or a bullish flag, nothing indicates the potential reversal pattern. That s the left shoulder. When the price breaks higher, it does that with furry, attracting even more bulls on the way. However, a quick retracement follows, and price reverses to the same consolidation area. P a g e 22

23 Check the current daily chart on the ETHUSD pair. As a matter of fact, all cryptocurrencies paired against the USD formed the same pattern: a head and shoulders. The December 2017 highs proved to be nothing but the head of the pattern. It was quickly retraced, and the market formed another consolidation area. From that moment, technical traders can draw the neckline. It connects the lower part of the candles that belong to the left and right shoulders. The measured move represents the distance between the neckline and the top of the head, and traders project it from the neckline, to find out the target for the bearish pattern. Therefore, technical traders spotted the danger of being long on the ETHUSD in the last months, as this is a classic reversal pattern that forms on every market. Conservative traders use a smaller measured move, considering just the space between the neckline and the candles in the head. Moreover, they don t stay for the entire measured move, but gradually exit after the price exceeds 61.8% of it. In the case of ETHUSD, that s already reached. P a g e 23

24 Chapter 13 - The USD Role in Cryptocurrency Trading The U.S. dollar is the pillar of the financial system as we know it today. It is the world s reserve currency and, like it or not; it dominates transactions around the world. Sovereign nations choose to keep their foreign exchange reserves in U.S. dollars. Oil and other commodities are priced in U.S. dollars. And, international transactions take place in dollars. For these reasons and many others along the same lines, the dollar has a special place when trading financial markets. In leveraged crypto-trading, coins are paired against the dollar, as the designated measure of value. As such, BTCUSD, ETHUSD, LTCUSD, XRPUSD are the pairs, even though traders refer to them as simply Bitcoin, Ethereum, Litecoin, and Ripple. It means the U.S. dollar plays a key role in the valuation of a crypto-asset. Hence, traders must know what moves the dollar and what to look for from an economic data point of view. The following is, in order of its importance, data to watch when trading cryptocurrencies that have the U.S. dollar in their componence: Federal Reserve of the United States (Fed) interest rate decisions P a g e 24

25 o Every six weeks the Fed meets to set the federal funds rate. Higher interest rate leads to a stronger dollar; lower interest rate results in a weaker dollar. Inflation data o The Fed has a dual mandate: it decides on the interest rate level based on inflation and jobs creation. Hence, traders anticipate the future Fed move by interpreting inflation data. The CPI or Consumer Price Index shows the change in prices of goods and services over a period (usual a month), and the Fed targets 2% as a healthy inflation rate level for the economy. Lower inflation is harmful for the dollar; higher inflation is positive. Jobs data o The other part of the Fed s mandate is to create jobs. As such, traders watch the following jobs related data during a month s course: NFP Non-Farm Payrolls, comes out every first Friday of the month Unemployment rate ADP private payrolls, released monthly, two days before the NFP Jobless claims published weekly, Thursdays ISM Manufacturing and Non-Manufacturing o This is a survey of the Institute of Supply Management that refers to the manufacturing and non-manufacturing sectors of the U.S. economy. They offer an early sign about the health of these two sectors, with the services being more critical. GDP Gross Domestic Product o It shows the value of total goods and services produced by an economy Retail Sales Housing data Luckily, all data is released following an established economic calendar. And, the information is free and easy to find. Therefore, before trading any of the cryptocurrency pairs that have the U.S. dollar in their componence, make sure you know the importance of the economic data and the potential impact on the market. P a g e 25

26 Chapter 14 - Money Management in Financial Markets Every trader must have money management skills if he/she wants to succeed in trading cryptocurrencies. Trading is subject to an emotional rollercoaster, with the market playing tricks on everyone. Managing money or risk is the primordial concern of every trader. P a g e 26

27 The ability to stay disciplined, to have patience, to let your profits run, the cut the losses quick, are traits of a money manager. However, easier said than done. Therefore, traders must have a set of rules that govern their actions, rules not to be broken no matter what. Here s a list of some rules that should belong to any money management system: Risk only a percentage of the trading account on any given trade. Typically, one or two percent per trade will assure traders have more chances to survive in the long run. Use proper risk-reward ratios. A risk-reward ratio refers to the amount to gain vs. the amount to lose. The reward must always exceed the risk, at least by a ratio of 1:2, for trading to make sense. Avoid correlated cryptocurrency pairs. For example, going long BTCUSD and buying at the same time other cryptocurrencies against the dollar leads to overtrading. It is like taking multiple positions on the same currency pair. Have a weekly trading plan. Check the economic events for the week ahead and decide what to trade based on the key U.S. economic data and the technical analysis setup that exist. Use pending orders as much as possible. The use of pending orders shows a disciplined approach to trading, a plan that already exists. P a g e 27

28 Chapter 15 - Double and Triple Tops and Bottoms Double and triple tops and bottoms belong to the classic technical analysis patterns. Between the two, double tops and bottoms form more often. Both double and triple tops and bottoms are reversal patterns. Hence, a trend must exist before the patterns form. The key elements of a double top or bottom are: The market fails at the same area twice It has a measured move It resembles the letter M or W, depending on the pattern. The Monero against the USD four-hour chart formed a classic double top in the middle of January 2018 that had all the elements needed: a prior bullish trend, the market failed two times at the same spot (around the 450 level) then it broke lower, filling the measured move. Was it a reversal pattern? If you consider that two months later the XMRUSD trades below the $200 mark, then yes, it was. A triple top or bottom follows the same rules, with the only difference being that the market fails three times at the same level. However, financial traders have a saying: the triple top or bottom rarely holds, meaning the price may return to the level after reaching the measured move. P a g e 28

29 Chapter 16 - Cryptocurrency Trading with Morning and Evening Stars The Japanese candlesticks techniques became known to the Western world relatively recent. However, the Japanese used the patterns to trade rice futures since the years 1700 s. Mostly reversal patterns, the Japanese candlesticks patterns rival the familiar classic reversal patterns like the head and shoulders and double and triple tops and bottoms. Between the two approaches, the advantage seems to be on the Japanese patterns side. The reason for that is the time it takes the market to form them. While the double and triple tops and bottoms or the head and shoulders patterns take a lot of time until the market reverses, the Japanese patterns take only a few candles. The morning and evening star pattern, for example, is a three-candle pattern. Yes, only three candles are enough to reverse a trend. Before anything, we need to define the concept of a candlestick. It has a real body (the difference between the opening and closing prices), and an upper and lower shadow. A bullish candlestick has a green color, while a bearish one, red. However, the colors are fully customizable; traders can change them as they wish. Judging by the name, a morning star is a bullish formation. It forms at the end of a rising market, and has the following characteristics: The first candle is bullish, has a strong real body, belonging to the bullish trend The second candle has a small real body and can be either green or red Finally, the third candle is bearish and has a strong real body How to trade it? Very simple: Go long at the closing of the third candle Place a stop loss at the bottom of the pattern Set a target that respects 1:3 risk-reward ratio P a g e 29

30 The morning star on the XMRUSD pair offered a tremendous risk-reward ratio, as it is easy to integrate the Japanese candlesticks patterns into a solid money management system. P a g e 30

31 Chapter 17 - Rising and Falling Wedges in Cryptocurrency Trading Wedges form at the end of bullish and bearish market swings. Technical traders know that a rising wedge is falling (hence, it is a bearish pattern) while a falling wedge is rising (therefore, it is a bullish pattern). During a wedge s formation, the price finds it difficult to advance or decline any more. While it keeps making new highs or lows, it is only a matter of time until it reverses. Wedges appear exceptionally often on any chart. And, the approach to trade a wedge is the same, no matter the market and timeframe. The IOTUSD recent four-hour chart illustrates the power of a wedge. A rising wedge formed on a trend that saw the pair rising from $1.2 to $2.2. However, instead of staying on the long side, traders that spotted the wedge formation just waited for the price to break to the lower side of it. Next, they placed a stop loss at the top of the pattern. Finally, traders integrate the risk in a stable money management principle, targeting a risk-reward ratio of 1:3. P a g e 31

32 Chapter 18 - Using the Hammer Pattern for the Perfect Trading Setup A one-candle pattern, the hammer shows impressive strength. It reverses bearish trends, while offering solid risk-reward ratios. The opposite of a hammer is the shooting star which reverses a bearish trend. For a hammer to form, the following need to exist: A bearish trend A candle that has a small real body, either green or red The shadow if it must have at least two times the length of the real body Trading a hammer has rules similar to trading the morning or evening stars patterns. Here are the steps: Go long at the closing of the candle Set the stop loss at the bottom of it Set the take profit following a 1:3 risk-reward ratio Just like in the example below, showing a hammer on the IOTUSD four-hour chart. P a g e 32

33 Conclusion The technical and fundamental analysis allows traders to speculate on the value of a cryptocurrency. However, traders keep forgetting that the value of a currency or coin is relative to another currency or coin. Hence, leveraged cryptocurrency trading must consider both sides of a currency pair. The concepts explained here were designed to help traders understand cryptocurrency trading, with its opportunities and threats too. There s no holy grail in trading financial markets. Instead, trading is a delicate balancing act between going in the market at the right time, using the right set of technical and fundamental tools, while keeping everything under control via a proper money management system. The closer a trader gets to this concept, the better for the overall performance. P a g e 33