Bitcoin Trading Strategies

Chart Patterns

Richard Schabacker is considered one of the greatest technical analysts in the history of investing. Schabacker introduced the concept of technical analysis to an entire generation of new investors in the aftermath of the Great Depression. In 1932, he published a book containing his most profitable trading techniques. The name of the book was, Technical Analysis and Stock Market Profits. The book was filled with Schabacker’s original work on chart patterns and technical analysis. It became incredibly popular within the technical analysis community. Today, Schabacker’s book is considered the most important book ever written on technical analysis.

1-2-3 Tops And Bottoms

The majority of Schabacker’s chart patterns were originally used to trade individual stocks. However, these trading techniques have proven to be incredibly useful with commodities, forex and cryptocurrencies. Schabacker was a big believer in using simple chart patterns. For example, one of his most successful formations was 1-2-3 top and 1-2-3 bottom. Chart #1 displays a recent 1-2-3 top formation in Bitcoin. This particular chart formation was completed in about 30 days. A sell signal is triggered when the price of Bitcoin drops below point #2 on the chart.

Chart #2 is an example of a 1-2-3 bottom. The buy signal occurs on a bullish breakout above the price level at point #2. For this particular trade, the buy signal is 52,902. The profit target is the price range between point #1 and point #2, added to point #2. The protective stop is 25% of the range between point #1 and point #2, subtracted from point #2.

1-2-3 Bottom (Buy Signal)

  • Buy signal 52,902
  • Profit target 52,902 – 39,932 = 12,970 + 52,902 = 65,872
  • Protective stop 12,970 x 25% = 3,242 (52,902 – 3,242 = 49,660)

As you can see from the chart, Bitcoin exploded to the upside following the bullish breakout above point #2. The profit target was elected on 20 October. This trade resulted in a profit of 12,970 points.

The 1-2-3 chart pattern is a very simple formation. However, it has the potential to deliver excellent results. This chart pattern is one of my favorite trading signals for Bitcoin. It also works quite well for Ethereum.

Channel Formation

Another useful chart pattern is known as a channel formation. This pattern occurs when a market trades sideways for several consecutive days. Chart #3 is a perfect example of a channel formation. As you can see from the chart, Bitcoin was locked in a trading range for 30 days, thus creating a channel formation. The lower end of the range was 45,544. Therefore, a sell signal occurs @ 45,544.

On 5 January, BTC violated the channel formation when the price penetrated the lower end of the trading range @ 45,544, which triggered the sell signal. The protective stop is 25% of the channel formation. The profit target is 100% of the channel formation. The range of the channel formation is 45,544 to 52,007.

Channel Formation (Sell Signal)

  • Sell signal 45,544
  • Profit target 52,007 – 45,544 = 6,463 (45,544 – 6,463 = 39,081)
  • Protective stop 6,463 x 25% = 1,616 + 45,544 = 47,160

As of 18 January, this trade is still active. BTC has been drifting lower during the past few weeks. If this trend continues, the profit target will be elected within the next several trading days.

The Key To Becoming A Successful Trader

My trading career began with stocks and commodities in 1989. I added Bitcoin in 2017. Many traders have asked me how to become a successful trader. The most important factor to having a rewarding trading career is the development of a profitable trading system. Most traders lose money because they don’t have a trading plan or use a specific trading program. They don’t use protective stops or profit targets. This explains why 80% to 90% of all traders lose money.

Developing a trading system is not difficult. There are several different strategies that can be used to generate profitable results. Traders lose money because they lack the discipline to follow the system for more than a few weeks. Successful traders have the ability to follow a specific method for several consecutive years. Personally, I have been using the same trading approach for over 20 years. If you want to become a profitable trader, develop your own system and always follow the rules.

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