Before going into any amount of detail on how to enhance something, it’s best to first clearly define what we are going to talk about in the article.
What is Cryptocurrency?
Just as the fiat money we carry in our pockets are just pieces of paper without having any intrinsic value, cryptocurrency is merely bits of data without having any worth on their own. The distinction is that cryptocurrency enjoys more liberation and freedom than fiat money does. Fiat money is controlled by the central and state banks of a given country, whereas cryptocurrency is not controlled by any intermediary, or any third-party, for that matter. It goes directly from user to user and no one can simply print more like central banks can with fiat money. This makes cryptocurrency less prone to inflation and counterfeiting.
Printing more pieces of paper under the label of ‘money’ only harms your economy in the long run. It decreases the per-unit value of your currency and also causes the prices of goods to skyrocket. Bitcoin currency is intangible and therefore cannot be abused like fiat money.
The Mysterious Technical Indicator
Before looking into the tips that can enhance crypto trading, let us first look at the basic technical indicator needed to optimally benefit from the maximizing strategies. Using 15% cryptocurrency trading strategy and 85% price action strategy, the best possible advantage can be drawn from one technical indicator which we will describe shortly.
The indicator is called the On Balance Volume (OBV), and describes the total money flow in and out of the market. Using a combination of volume and price activity, OBV shows you the flow of money going in and out of an instrument.
What we want to observe is that the OBV and Bitcoin charts are both going in the same direction, and not that one of them is up and the other one down. Along with this technical indicator, other evidence must also be kept in mind, but for now only OBV, Bitcoin and Ethereum (the second best cryptocurrency after Bitcoin) charts will be considered.
Following are the ways in which your Bitcoin trading strategy can be maximized:
1. Overlay all three charts for Ethereum, Bitcoin, and OBV
Open three charts in three different windows for Bitcoin, Ethereum, and OBV indicator. Overlay the charts so that the comparison between them becomes easier. Once you have done that, move forward to the next step to learn how to compare and what to look for in them.
2. Any Smart Money Divergence between Ethereum and Bitcoin Price?
Smart money divergence is simply defined as the inconsistency between the actions of two cryptocurrencies. For instance, if the price of Ethereum breaks above a swing high or resistance, but Bitcoin doesn’t, it shows that one of the two cryptocurrencies is reporting falsely.
This inconsistency between the two cryptocurrencies is usually the first indication toward a trading signal. This concept is important, because just as in all other trends, every indicator should move in the same direction, the same rules are followed with cryptocurrency trends. The moment there is a discrepancy between the two currencies, we know a smart money divergence is about to take place. Now it’s time to look at the OBV indicator.
3. Does OBV Increase with the Trend Direction?
If the OBV increases with the direction of the trend and goes beyond its previous values when the lagging currency traded at the resistance level, it is time to trade for the currency that first broke above a resistance level.
4. Catch the Possible Breakout by Placing a Buy Limit Order at the Resistance Level
Anticipating a possible breakout now that we are sure that a trend is about to begin, place a buy limit order at the level of resistance. Decide where to place your protective stop loss and when to gather profits.
5. Keep your SL Below Breakout Candle and When OBV reaches 105,000, Take Profit
The stop loss should be placed right below the breakout candle and profits should be collected just as the OBV reads above 105,000.