Ichimoku Bitcoin Trading System - The Beginner's Guide To ...
Ichimoku Bitcoin Trading System - The Beginner's Guide To ...
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How to Trade Bitcoin Part 1: Getting Ready to Trade
The first part of our bitcoin trading guide series explains the basics of bitcoin and trading terminology. Instructions are also provided for buying bitcoin and getting ready to trade on BTC.sx. We originally produced the first part of this guide for our own traders to get started with our platform. However, after some really good feedback we thought we should share it publicly too. So please bear with us if it is quite orientated to our own platform. Future parts will be much more applicable to trading in general. Here is what we have planned for the series: 1) Getting ready to trade (this post) 2) Making your first trade
How to read a chart (candle sticks, volume, log vs linear scales)
How to spot a trend (moving averages)
How to open and close a position
3) Basics of technical analysis
Assumptions / theory behind TA
Classic support / resistance patterns e.g. head and shoulders
4) Advanced TA
5) Developing a sustainable strategy
Timing entry and exit points
Managing multiple open positions
Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning. Why should you listen to what we have to say? Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician. http://i.imgur.com/G06P306.png This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx. What is bitcoin? Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as ‘digital gold’ — it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations. http://i.imgur.com/hNnKxGE.png Why is bitcoin so volatile? Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoin’s price often changes by 10% or more — even in a ‘flat’ market. Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets. The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here). For example, bitcoin has a market cap of about $3 billion vs $31 billion for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million vs approximately $939 million for the gold ETF. The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand. For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence gold’s price. http://i.imgur.com/NLtgVrX.png Further information The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources: We Use Coins Bitcoin.org Bitcoin Wiki 2. How to Manage Risk Risk of buying bitcoin As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoin’s price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose. You cannot lose more than you put in, so don’t put in more than you can afford to lose and you’ll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor Risk of trading bitcoin Furthermore, investing more than one can afford to lose reduces a trader’s ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price. http://i.imgur.com/yrQbCsI.png Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx, losses cannot exceed your deposit — so simply make sure this is a comfortable amount for you to trade with. 3. Understand Basic Bitcoin Trading Terminology Trading Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading. Position A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls. Unlike a trade, a position has an open and close. At BTC.sx you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited — this depends on how profitable your position was. Trading platform A trading platform, like BTC.sx, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage. Leverage http://i.imgur.com/Aik56aI.jpg Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading. Trading with 10x leverage on BTC.sx, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made. For example, let’s say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin — this is the power of leverage when used correctly. Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own. Exchange Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoin’s price because they contain an order book. At an exchange you can either be a market maker or a market taker. Market maker A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price. Market taker A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them. Order book An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand. http://i.imgur.com/DuRYrnx.png Sell orders: “Asks” This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks. Buy orders: “Bids” This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids. Current bitcoin price This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid. In this example, the price is $244.39 — the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder. Order book depth This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the ‘deeper’ the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle. If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market. Order book execution An important feature of BTC.sx is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks. http://i.imgur.com/1Dk8G0t.jpg Why is this important? Firstly, when you trade on BTC.sx you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally. Secondly, order book execution means that BTC.sx does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx we want our traders to be profitable so they can keep trading. *4. How to Buy Bitcoin * As a bitcoin-only trading platform, BTC.sx only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity. If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including: Circle Coinbase LocalBitcoins Click here to see other ways to buy bitcoin in each region of the world. To store your bitcoin you will also need a wallet, such as MultiBit or Blockchain.info. 5. Create an Account on BTC.sx Once you have bitcoin, you are ready to start trading. Head over to BTC.sx to begin the registration process. 1. Click ‘Sign Up’ http://i.imgur.com/Fikj8Nd.png 2. Enter your details and read and agree with the terms of service http://i.imgur.com/AjnKzRY.png 3. Click on the email activation code http://i.imgur.com/lz5yBqK.png 4. Login to your account http://i.imgur.com/P6VJ0xm.png 5. Visit trade screen http://i.imgur.com/WjGockR.png 6. Send a deposit to BTC.sx You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions: 1. Click on ‘Deposit’ in the trading screen http://i.imgur.com/1TxpgUh.png 2. Send bitcoin to your wallet address http://i.imgur.com/cTZim5t.png If you do not know how to send bitcoin please contact your wallet provider for assistance. Conclusion** ** You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx to begin trading. In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook or follow us on Twitter for future updates. If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents
How to Trade Bitcoin Part 3: Beginner’s Technical Analysis
The third part of our how to trade bitcoin series covers the basics of technical analysis. The post begins with the theory and principles of technical analysis, then covers support and resistance patterns. Introduction What You Should Already Know Before embarking into the world of Technical Analysis (TA) you should be familiar with the basics of trading that have already been covered in our how to trade bitcoin series. Part 1: Getting Ready to Trade Bitcoin The first part covered the basics of Bitcoin, trading terminology and how exchanges work. Part 2: Making Your First Trade The second part covered how to read charts, how to spot trends using moving averages and the MACD, and lastly how to place a trade. It is recommended that you are familiar with these topics before continue to learn more about technical analysis. Key Terms Explained Technical analysis — the process of analysing a financial assets’ price, volume and volatility data and patterns with the objective of predicting future trends. Fundamental analysis — the process of analysing a financial assets’ non-chart based data. This would include data such as a company’s revenue, price-to-earnings ratio and business strategy. For bitcoin, fundamental analysis would be studying adoption rates and the health of the ecosystem. Blockchain.info’s charts are great for a fundamental analysis of bitcoin. Support — a specific price or a price range that a financial asset rarely falls below. Below is an example of current support lines for bitcoin. Generally, the more a support line is tested, the stronger support at that level becomes. http://i.imgur.com/VfwsE8Z.png Resistance — a specific price or a price range that a financial asset rarely rises above. Below is an example of current resistance lines for bitcoin. Generally, the more a resistance line is tested, the stronger resistance at that level becomes. http://i.imgur.com/jyUq7DC.png What is Technical Analysis? Theory and Assumptions of Technical Analysis Technical analysis is founded on the belief that a price is determined by every piece of relevant information that is known about a financial asset. This makes price, and its historical trends, the most important piece of information for traders. By conducting technical analysis to make price predictions, traders make two key assumptions. Firstly, it is assumed that prices follow trends. These trends are driven by the human psychology of traders. One theory is that technical analysis works as a self-fulfilling prophecy: if enough traders spot a signal that suggests the price will rise, everyone will begin to buy, causing that predicted price rise. Secondly, it is assumed that history tends to repeat itself. That is, if the price of bitcoin is currently falling it is assumed the likelihood of a further price decline is more likely than a price rise. When this is not the case, it is normally attributed to a ‘trend reversal’. Why Bitcoin Traders Care About Technical Analysis Technical analysis is by far the most popular form of analysis conducted by bitcoin traders. This is primarily because the price of bitcoin tends to be driven by cycles of fear and greed. Consequently, the people trading bitcoin create price patterns which can be studied through technical analysis. The aim of every trader is to be one step ahead of the crowd. http://i.imgur.com/nlOvbhg.png Conversely, there is a lack of information for fundamental analysis of bitcoin. Unlike companies, there are no income statements, balance sheets, business strategies or management team to consider. This places greater importance on technical analysis for traders. Limitations of Technical Analysis As with any investment strategy, there are risks and limitations. There are two alternative theories that infer technical analysis is not a legitimate method for predicting future prices. Efficient market hypothesis claims that it is impossible to beat the market — or in other words, be one step ahead of other traders. This because not only do prices reflect all relevant information, they instantly change as more information is revealed. The end result of this is that a financial asset can never be under or over valued. Therefore, price data is not useful for traders. Random walk hypothesis claims that prices of financial assets move randomly. Hence, if there is no real trend, technical analysis has no strong evidence to make forecasts from. Support and Resistance How Support or Resistance is Formed There are numerous factors that can cause support and resistance to be formed. Let’s take a look at some practical examples that have occured with bitcoin. Psychological price points As markets are made up of people buying and selling, prices tend to converge around round numbers or meaningful numbers. The below graph shows the resistance bitcoin has faced when attempting to break above $400 and $300. http://i.imgur.com/NaiG9o7.png Interestingly, a lot of bitcoin traders have observed how the price used to become ‘sticky’ around to $666. This is a good example of retail traders acting irrationally and deliberately setting buys and sells at the number of the devil. http://i.imgur.com/CgWY1kq.png Multiple Highs When a price reaches a high multiple times, resistance is formed when traders develop the belief that the price will continue to fail to break that price or resistance line. This can be seen in the 2014 bear market, where the price followed a series of downtrends that eventually became weaker over time. http://i.imgur.com/2NxInj9.png Multiple Lows Similarly, when the price reaches a low several times traders begin to expect the price to continue to fail to fall below that price. This can be seen throughout 2014 at three key resistance levels. http://i.imgur.com/MZyXBzO.png Former Resistance Becomes Support (or vice versa) When a support or resistance line is broken, it is possible for the influence of that line to be reversed. In the below example the price encounter resistance at $280 during the April 2013 rally. This then acted as support in October 2014. But once this support was broken in December 2014, this price has been acting as resistance. It is quite likely that the peak of the April 2013 rally has a lot of physiological influence over traders. http://i.imgur.com/tSCTmin.png How Support or Resistance Influences Future Price Patterns It is normally the combination of support and resistance which influences future prices. When both support and resistance are in effect, which is nearly always, the price is said to be inside a ‘trading zone’. These trading zones are monitored very closely by bitcoin traders. Let’s take a look at the current trading zone influencing bitcoin’s price. http://i.imgur.com/qIxVIg9.png After rallying to $300, the price of bitcoin is currently correcting. The support the bottom support established in January and June has not yet been tested. Hence we can expect the price to trade within the two support and resistance lines between now and October. If the price breaks above the resistance line, this would be a bullish signal. If the price falls below the support line, this would be a bearish signal. Eventually the support and resistance lines converge, this tells us that we can expect a bullish or bearish price movement to occur sometime before or at this point. How to Draw Support or Resistance Lines Now is a great time to try and draw your own lines. Simply follow the below instructions to get started on BTC.sx. 1) Click on the small arrow at the edge of the chart. http://i.imgur.com/rBB5Wlt.png 2) Click on the line tool, which is the second from the top. http://i.imgur.com/SdalLdh.png 3) Click once on the graph to start the line, and click again to end the line. http://i.imgur.com/lW29ayh.png Additional tips: Hold shift when drawing the line to make it straight. Draw your lines following the ‘line’ part of the candlesticks. These are known as wicks and represent the highest and lowest price traded within the candlestick’s time period. Support and Resistance Patterns Now we have covered the basics of support and resistance, we will now look at more advanced support and resistance patterns. These are generally combinations of support, resistance and trading ranges. Tops and Bottoms Double top A double top is considered to be a bearish indicator. This was observed during the December 2013 rally. A double top gives traders the opportunity to go short, which is possible on BTC.sx, at two key moments. Firstly, when the price fails to break upper resistance on the second attempt. Secondly, when the price falls below the first layer of support after the second top. These shorting opportunities are indicated by the yellow circles. http://i.imgur.com/luUJXz9.png Double bottom A double bottom is considered to be a bullish indicator. Bitcoin has never recorded a double bottom, but the downtrend during the Fall of 2014 is a close representation. A double bottom gives traders to go long at two key moments. Firstly, when the price fails to fall below on support the second attempt. Secondly, when the price breaks above the first layer of resistance after the second bottom. These opportunities to go long are indicated by the yellow circles. http://i.imgur.com/e6sPaiP.png Head and Shoulders The head and shoulders pattern is a bearish signal. This can be spotted when a peak is preceded and succeeded by two smaller peaks. This gives the formation a ‘head and shoulders’ resemblance. The neckline is the level of support formed between the first and second shoulder. http://i.imgur.com/ykVhxDs.png In the above example, traders have two opportunities to go short. This is firstly at the second shoulder. This is to profit from an incoming drop that is normally equal or greater than the distance between the head and neck line. The second opportunity to go short is at the neck line. This to profit from the recently formed downward price trend. Cup and Handle As the name suggests, this is where the price follows the formation of a cup and handle. This considered to be a bullish indicator — a great opportunity to go long. An important consideration when looking for this signal is that the ‘cup’ part of the pattern should not be a V shape. Ideally, the cup should have a round or flat bottom. http://i.imgur.com/ROnysWo.png A trader should go long at the point at which the price leaves the cup and begins to follow the handle. This area has been marked by the yellow circle. The length of the rally after the price leaves the cup can be hard to predict. However, if the price leaves the cup with high volume, it should give a trader that a sustained rally is likely. The lack of volume in the above example explains why the handle rally did not last too long. Flags The flag is a short-term indicator which occurs when the price experiences a vertical price rise, followed by a period of consolidation. The flag indicator is used to predict the continuation of a trend — not the reversal of a trend. The vertical price movement is considered to be the flag pole, and the consolidation period the flag. The flag pole should be recorded with high volume and the consolidation period should experience low volume. Additionally, the flag should be slopping slightly downwards. http://i.imgur.com/aEfpJeJ.png A flag can provide a bullish buy signal in the right circumstances. This is when the price remains inside the flag for 8–20 candlesticks then exits at the top after low volume. This is demonstrated in the above example — a trader should be going long at the yellow circle. Pennant A pennant is very similar to a flag. The only difference is that the consolidation period follows the shape of triangle, instead of a rectangle. The triangle shape is typically formed by traders taking profits after a price rally. http://imgur.com/udP0JFL Like the flag, a trader can profit from the continuation of a bullish trend by going long when the price leaves the top of the pennant. This area has been indicated with a yellow circle. Wedges Wedges are common price patterns and they can be used to spot bullish and bearish trend reversals and continuations. The two main types of wedges are rising wedges and falling wedges. Rising wedge A rising wedge is formed when the price consolidates between two upward sloping support and resistance lines. This is bearish signal — it indicates an uptrend is about to reverse or a downtrend will continue. It is important to check that the support line is rising steeper than the resistance line. This is a key requirement for the wedge-shaped indicator to be drawn accurately. http://i.imgur.com/BHVhGQY.png In the above example, we have a wedge indicate a trend reversal. Traders should have gone short on BTC.sx after the price fell out of the wedge. Interestingly, we could have also drawn a bearish pennant immediately after this wedge, which would have further validated a decision to go short. Falling wedge A rising wedge is formed when the price consolidates between two downward sloping support and resistance lines. This is bullish signal — it indicates a downtrend is about to reverse or an uptrend will continue. Opposite to the rising wedge, the resistance line should be falling more aggressively than the support line. http://i.imgur.com/fLcCLNp.png The recent Grexit rally was a great example of wedges in action. Firstly, two falling wedges developed. This should have given traders confidence that the rally still had steam while traders took profits. However, towards the end of the rally, a rising wedge developed. This signalled that the rally was beginning to lose its pace and that a trend reversal was likely. Conclusion You should now be familiar with spotting common chart patterns and drawing them. It can be difficult spotting your own signals to begin with, but overtime it will become second-nature. If you want to learn more about technical analysis, make sure to look out for our next post on advanced indicators. This will include indicators, such as Ichimoku Clouds, RSI and Bollinger Bands. Make sure to follow us on Twitter and like us on Facebook for future updates. Written by Joe Lee, BTC.sx / Magnr CEO. Joe first discovered Bitcoin in 2011 and built his own trading bots turning an initial $100 investment into $200k. He then turned his attention to building trading infrastructure and BTC.sx was born. After gaining rapid traction, Joe left his investment banking job to focus on BTC.sx. If you want to use the power of leverage / margin trading to increase your potential returns, check out BTC.sx. We offer up to 10x leverage and direct market access to Bitfinex, Bitstamp and itBit. Alternatively, if you prefer more passive investments, check out Magnr. We provide interest-bearing investment accounts for bitcoin, with a promotional interest rate of 2.18% AER. BTC.sx / Magnr is not a financial advisor. The information contained in this article is for educational purposes only. Trading bitcoin carries high level of risk and BTC.sx / Magnr accepts no responsibility for any losses incurred.
Here, I am sharing a strategy based on Ichimoku Kinko Hyo and its Kumo breakout by price. Please be careful and make backtesting for each temporality. For example ... The Ichimoku cloud is a technical analysis indicator, which includes multiple lines, that help define the support, resistance, momentum, and trend direction of an asset. Best Ichimoku Strategy for Quick Profits. The best Ichimoku strategy is a technical indicator system used to assess the markets. This unique strategy provides trading signals of a different quality. Forex trading involves substantial risk of loss. Although, with Ichimoku cloud trading, those losses are contained and kept small. Ichimooku is a trend based system that can be used for Stocks, Currency, Forex, Futures, Bitcoin, Options, and more. It optimizes Fibonacci and Elliott Wave Here, I am sharing a strategy based on Ichimoku Kinko Hyo and its Tenkan and Kijun crosses components. It is similar to a strategy that I published here before Ichimoku: Advanced strategy by tekolo , but now I'm adding the option to use ADX + DI for confirmation of the trend and the option to use stop loss risk management. Please be careful and make backtesting for each temporality.
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