Bitcoin breached $40,000 and rose rapidly towards $50,000 with the news that Tesla had invested $1,500,000,000 ($1.5 Billion) into Bitcoin.
That’s all well and good…
But could you have seen it coming?
Reading the markets correctly will make or break your trading account, and today we wanted to talk about how you can make sure you are on the right side of the next breakout.
Skip to the bottom to learn how you could’ve made 👆 those 👆 gains semi-automatically through Binance. But first you should know:
How to read the cryptocurrency markets
An important first step is understanding Bitcoin’s price action & Bitcoin’s dominance, and how it affects trading for cryptocurrencies!
Here is a small guide on how to read the markets:
Focus on 3 charts.
- Chart #1 – Bitcoin / USDT
- Chart #2 – TOTAL (Total MarketCap)
- Charts #3 – BTC.D (Bitcoin Dominance)
TOTAL represents the Total MarketCap, which is the value of all cryptocurrency markets combined.
BTD.D represents a % value of how much Bitcoin’s MarketCap makes up the Total MarketCap.
So if the total market cap is 1000 Units & Bitcoin’s MarketCap is 550 Units that means Bitcoin alone is worth 55% (550 Units out of 1000 Units) of the entire cryptocurrency market.
This is the single most important factor to decide when to trade Bitcoin and when to trade other ALT coins.
Let’s discuss some scenarios:
Scenario 1: Bitcoin goes up & Bitcoin Dominance goes up
Bitcoin is gaining more and more value at the cost of other coins, and therefore it’s risky to trade other coins, and it’s best to focus on bitcoin and use bitcoin as a base currency! Because not only is bitcoin’s value is going up, but bitcoin’s market share against other coins is also going up.
Conclusion: Bitcoin Bullish / ALTs Bearish
This is an oversimplified scenario, and we wouldn’t apply it across the board all the time. We can still play trending BTC-paired coins to gain more Bitcoins.
Scenario 2: Bitcoin’s going up, but Bitcoin Dominance is going down
This is the best scenario for traders. When this happens, we can see the market moving up across the board (We could say this was the case for mid-January onwards this year).
When this scenario happens, you can make money on literally every coin. But at some stage the bubble bursts, and we see plenty of stop losses being hit.
We love to trade in these times, but we also always keep in mind that it’s only a matter of time before the market dumps. Big time.
Conclusion: Bitcoin Bullish / ALTs Bullish
We play these price movements during the initial trend but stay on the sidelines when the move is over, and you suddenly start seeing plenty of stop losses getting hit!
Scenario 3: Bitcoin’s going down & Bitcoin dominance is going down but TOTAL Market cap is going up
When this happens, we stay away from trading bitcoin and focus mostly on ALT coins. During this time, ALT Coins can outperform Bitcoin! We prefer to focus on trending coins with huge volumes. Stay away from SHIT Coins with poor volumes!
Conclusion: Bitcoin Bearish / ALTs Bullish
Senario 4: Bitcoin going down & Bitcoin dominance unchanged and TOTAL MarketCap going down!
This is when you have to be extremely careful with your trade selection! The market is in an extreme dump mode! When this happens, Both Bitcoin and Altcoins will be dropping in value at the same time.
We remind ourselves that the best trade for this period is NOT TO TRADE or a SHORT TRADE!
Bitcoin Bearish / ALTs Bearish
Conclusion on the recent market state:
So, we’ve discussed 4 scenarios today! We’ve been at Scenario 2 for the most part during the middle to end of January. From the beginning of February we’ve seen Bitcoin’s dominance rising (More or less scenario 1).
Now we need to wait & see what scenario evolves from here on!
We expect bigger dumps across the board for overheated coins, considering some of them have pumped as much as 500-1000% within just a few days! Cryptocurrency pullbacks are brutal, and they’ve historically dumped as much as 50-90% of their entire move. For example, a coin could go up from $2 to $20 and then come back down to a $2/3 area.
Here’s what we’ll be doing: Booking profits & giving bitcoin a few days to decide what it wants to do and where it wants to go. We’ll let the scenario evolve & then resume trading based on the emerging scenario.
Some Pro Traders will profit from shorting when the market is going down. We do not short during up trends, and we do not long during downtrends.
A great piece of advice:
As long as you don’t over trade and over leverage, you will likely be okay during a transition!