The Power of Daily Chart Consolidation
Cryptocurrencies get their explosiveness from periods of consolidation where it trades in a relatively tight price range. Litecoin was consolidating for around a month in a 10 dollar range. We got long once it broke out of the top part of the range, after it got even tighter right under the breakout spot. In this kind of trading environment for cryptos, they will often have great follow through after a range is broken. This is one of our favorite daily chart patterns in cryptocurrencies. To get the best entries, you need to align patterns on the daily with the intraday time frame.
Be Patient for The Intraday Entry
After confirming a breakout on the daily, it is essential to find a safe entry on a smaller time frame. We use 15 minute charts for trading cryptocurrencies intraday. Just because there is a breakout on a daily does not mean you want to be buying immediately upon the break of the resistance level. You need an intraday pattern to enter safely that will give you the best risk reward possible. In our LTC trade, we didn’t buy immediately on the range break. We waited for a pullback after the initial push, for much better risk-reward and lower prices. It is usually easier to play the pullback after a big move has been made, instead of trying to anticipate a breakout. Cryptocurrencies usually don’t go straight up without taking a rest.
Scale Out Into Strength
Once you have found a good entry, you have to make an exit plan. You should base your exits based on daily and intraday resistance levels. We find it effective to scale out into strength with cryptos, as they are so volitile a nice unrealized gain can quickly turn into breakeven or even a loss. New traders often make the mistake of not making an exit plan and automatically assume that it will keep going up forever. If you’re a more experienced trader, you might prefer a different exit strategy where you sell your whole position when your target is hit. In our LTC trade we scaled out in pieces into the spikes and kept a quarter of our shares for the bigger move. We recommend scaling out if you’re newer because it prevents you from getting emotional when you watch a large unrealized gain evaporate.
Cryptocurrencies are an incredible new and exciting frontier in the financial markets. To prepare yourself to capitalize on this exciting new opportunity, check out our Cryptocurrency Trading Chatroom.
- About the Author
About Kunal Desai
Kunal Desai is the Founder and Lead Instructor at Bulls on Wall Street. Since 2010, Kunal has helped thousands of traders reach their trading goals through his unique live trading courses. Kunal is a day trader by day and industry leading instructor by night.