It is always difficult to choose when to buy, when to sell and when to do nothing. In this guide, we will try to see how a professional, clearly not us, would position himself on the market. These strategies have a long term objective, a few months, years and are very simple to implement for people with an investor style profile.
Disclaimer: This article does not constitute investment advice or an invitation to invest. It is strictly for informational purposes only. You are solely responsible for the trading and investment decisions you make.
The DCA, or Dollar Cost Averaging
What is it?
The basis of the basis, the DCA.
It doesn’t get any simpler than this, just find a project you like, whether it’s a cryptocurrency or a stock or metals etc….
Then the second step is to split your purchases and tell yourself when to buy.
From what? What the hell is this guy still talking about!
Ok, let’s do this with an example. Let’s say Bob has $10k to invest. In his strategy, he has decided to invest 50% in Bitcoin (BTC), so that’s $5,000. But is he going to buy $5,000 in one go in Bitcoin? Of course not!
That’s right, Bob helped me write this article so he knows he has to get it in installments. He told me he wanted to do this in 5 weeks, so Bob will buy $1,000 worth of Bitcoin every Sunday at 10:30 a.m. live from the church with Grandma.
But you are going to tell me : “So, I buy at any price, right?” Nooooo, I didn’t say that! You have to give yourself an upper limit, an amount where you won’t buy above. Let’s take a look at a simple method to determine our maximum purchase limit using Fibonacci!
Fibonacci, the ideal aid for setting up the DCA
Fibonacci (that smart guy) and its retracements, not always understandable, are more and more used especially for the long term where one of the retracements allows to know if we are on an interesting zone. To do this, I will help you a little. That’s right! You can always count on me, don’t worry!
First of all, we are going to do the Fibonacci plot.
To do this, go to tradingview or another type of chartist tool like cointrader.pro. Let’s start by tracing the retracement with the Fibo tool on the left:
Then you have to click once on the bottom of the previous bearmarket and then on the last top before the 70k$! So you should see this:
Beautiful rainbow colors, wahouuu! Well, now, what we are interested in, we will go to the settings.
Then click on the retracement and select the settings command:
Then all you have to do is simply choose to make the 0.618 appear! To do this you uncheck everything except the 0.618 box
You will have understood, here by using this method, you will not apply your DCA if the price is above 28.2k$.
This DCA method allows you to have 0 headaches. All you have to do is define the number of purchases, when to buy and an upper limit. No need for support/resistance etc. So if you are a novice and you don’t have much time, this strategy is for you!
Well, now for those who have time (and patience!) and are looking to optimize their entry point in order to always make their portfolio grow, we will see another interesting method and its selling strategy: the W weekly/Monthly associated with the SHAD method!
The W in Weekly or Monthly
What is it?
A method more used by professionals is to buy what is called the W weekly/monthly with pull-back on the neckline… (Mmmmmh again complicated terms? No don’t worry). It is a structure that represents a long term buying force. Price action is not the only assumption in this structure. We’ll come back to that later.
Recognizing a W
A W is a strict structure, there are no approximations in technical analysis. I am going to introduce you to the one and only W that exists. I say this because many approximations are made and they often lead to serious mistakes.
In yellow, you can see a W. This W is valid for 2 important reasons:
- It follows a lower high, i.e. a higher and higher low at the two V’s;
- It breaks (at the end of the candle) the previous high.
From this high, we can draw a horizontal line which will represent the neckline of the W. Finally, to validate and enter a position, a professional will wait for a pull-back on the neckline. This feedback is important, because it allows to say that the W is strong and that the neckline will be used as support from now on.
In real condition, it gives this:
Here we are on the Ethereum (ETH) bottom of 2019-2020. The chart is in monthly. We can already see that it took 1 year to put a real bottom on this asset!
Here, all the conditions of the W are met. A lower high for the second V, meaning that the buyers are strong on the low points. A break of the neckline at $366.80 with the green candle closing above it. Then a pullback that validates it all! A professional will certainly enter during the pullback if he has not yet entered the asset! However, a monthly or weekly W is good. But small additional conditions remain important to validate it.
The other conditions to observe to validate a W
Indeed forming a W is cool, however, the best Ws require additional conditions. I will name 3 of them:
- The volume which must be increasing
- Momentum which must be in line with the price, so ascending high and low too
- Volatility which must be low, tight Bollinger Bands for example
If we take the example of Ethereum:
It seems that Michel is not just talking nonsense! We do have a growth in volume, a growth in RSI (for momentum) and a contraction of the Bollinger Bands. Ideal scenario to make a small purchase on Binance or Kucoin!
Finally, we will finish with a classic strategy using the W’s for long term purchases also specifying the profit taking!
The SHAD, or how to sell half to double
This method is the SHAD for “Sell Half At Double”.
This allows you to recover your basic investment and to reinvest or put it aside in order not to lose anything if the asset goes to 0 and disappears… Not very likely in the case of Ethereum, especially with the merge that did not fail! (editor’s note: this is still not an investment advice from the Coinpri team).
Basically, this technique tells us that as soon as the asset does x2, we sell 50%. So we will sell 50% of our position at x2; x4; x8; x16 etc…
Let’s go back to the Ethereum example with a cleaned up chart. In this case, let’s say that we would have returned exactly to the neckline at $366.8.
To simplify the calculations, I have shown you on the right in yellow, the multiples of $366.8.
What we see here is that we would have sold in 3 places.
Thus, with this strategy, we would have recovered our investment but also 2 other times our investment.
A person having invested $1000 would have recovered $3000 without having to worry about the rise, saying to himself over and over again, “Should I sell? I do not sell? ” and ending up without having sold!
Defining a strategy like this one allows you to buy, to put your sell orders and to come back on the screens 2 or 3 years later!
The first one is to do a Dollar Cost Averaging (DCA), which allows you to smooth out your purchase price while setting a maximum limit for the purchase of an asset. This will allow you to avoid buying market tops! Indeed, if you ever see big green candles piling up as well as media and people talking about an asset everywhere, taking a step back by plotting your Fibonacci retracement will allow you to avoid buying “too expensive” and to be fooled like most novices!
Next, we have seen pullback buying of the neckline of a W on a large time scale (monthly or weekly). Plus, now these terms don’t scare you and you can even show off at the next family reunion by explaining why you bought like a pro!
Finally, a simple sales method associated with the purchase of Ws, but not only! Indeed, if you have applied a DCA, you can very well use the same method to sell!
I hope that you liked this article, and that you are now serene for your long term investments! Be careful, of course, to choose the assets you want to invest in! And if you’re wondering if it’s time to jump on the BTC bandwagon, we talk about it here. And if you want to read other guides, it’s here.
Entrepreneur & Dad, passionate about cryptocurrencies, I describe for you the technical analysis. Cofounder of Cryptocademia, a free platform to learn all you want/can about blockchain ! Meet you there at https://www.cryptocademia.com
My job: look at charts and interpret them for you.
Beware, I do not know all the truths.