Bitcoin Trading Strategies

WD Gann

Born on 6 June 1878, WD Gann was considered one of the greatest stock and commodity traders of his generation. Gann devoted the majority of his professional career to the study of technical analysis, including chart formations, astronomy, astrology, geometric patterns and mathematical formulas. He authored several books based on his trading methodologies. Gann’s most popular publication was a stock market trading course released in 1935.

The title of the course was The Basis of My Forecasting Method. Within the 33-page course, Gann laid out his most profitable trading technique known as Gann Angles. What are Gann Angles and why do many Bitcoin traders use this method? Let’s discuss the details.

Gann Angles

Gann was convinced that the future price movement of any asset class could be accurately forecasted based on geometric angles of time versus price. Based on Gann’s research, the ideal balance of time and price is 45 degrees. Gann validated his research by drawing 45 degree angles on weekly price charts. Shortly after the publication of his book in 1935, several Wall Street traders began using Gann’s methodology with great success. His trading method became known as Gann Angles.

Gann developed a total of nine different Gann angles based on his original concept that the ideal balance of time and price is 45 degrees. Each angle measured a unit of time and price.

Gann used the following combinations of time and price:

  • 1:1 – one unit of price for one unit of time
  • 2:1 – two units of price for one unit of time
  • 3:1 – three units of price for one unit of time
  • 4:1 – four units of price for one unit of time
  • 8:1 – eight units of price for one unit of time
  • 1:2 – one unit of price for two units of time
  • 1:3 – one unit of price for three units of time
  • 1:4 – one unit of price for four units of time
  • 1:8 – one unit of price for eight units of time

These nine angles became known as a Gann Fan. This methodology became incredibly popular with stock market traders throughout the 1940s and 1950s. Even today, Gann Fans are included in most chart subscription services.

Many traders in the Bitcoin community use Gann Angles. I began using Gann Angles in 2018. This technique has been quite useful in identifying major support and resistance levels for BTC and other cryptocurrencies.

Chart #1 contains Bitcoin trading activity for the past seven months. The Gann Fan consists of nine different 45-degree angles. The base of the fan is located at 29,348, which represents an important bottom on 20 July 2021. As you can see from the chart, BTC attempted to penetrate the 4:1 angle during the final week of October. However, the bullish breakout was unsuccessful. During the brutal price decline on 21 January, Bitcoin fell below the 1:4 angle. The next level of support is the 1:8 angle @ 32,912. Most likely, BTC will penetrate this important support level within the next several trading days.

Chart #2 contains the same price activity for the past seven months. Based on the Gann Fan, BTC must generate a weekly close above the 1:2 angle @ 45,616 in order to create a short-term bullish breakout. Therefore, the important numbers to watch are 32,912 and 45,616. The most likely scenario is that Bitcoin will drop below 32,912. At least for now, the bears as in complete control of this market.

What Separates Winning Traders From Losing Traders?

According to most investor surveys, approximately 80% of all traders lose money. Why do so many traders lose money and how can you become a winning trader? Let’s examine the details.

In 1989, Jack D Schwager released a book titled, Market Wizards: Interviews With Top Traders. As the title implies, the book featured several interviews that Schwager conducted with the world’s most successful traders and investors. Upon its release, the book quickly became incredibly popular within the global investment community. In fact, Market Wizards became so popular, that Schwager spent the next three decades releasing six additional books covering the same topic. Schwager discovered that investors were fascinated with the idea of learning how to become winning traders.

During his interviews, Schwager discovered that all of these successful traders had one common characteristic. The common characteristic involved cutting their losses. Each of these highly profitable traders liquidated their losing trades very quickly. They never allowed a losing trade to turn into a massive loss. Instead, they quickly eliminated their losses and moved on to the next trade. I follow the same approach in my personal trading. I liquidate my losing trades very quickly. For example, I rarely risk more than 200 points on a BTC trade. If my long entry level is 42,585, the protective stop is quickly placed @ 42,385. Additionally, if the trade moves 200 points in my favor, I immediately adjust the protective stop to breakeven.

Throughout my trading career, I have discovered that the best trades immediately move into profitable territory and never drop below the original entry point. For example, if I buy BTC @ 39,340, the price will never fall below my entry level. Instead, the trade will continue to gain momentum and accumulate additional profits. Unfortunately, these types of trades only occur about 20% of the time.

Based on my experience, if a trade fails to immediately move into profitable territory, the trade will eventually drop to its protective stop level and become a loser. The truly great trades are those that quickly become profitable and never look back. Therefore, based on this analysis, it’s always best to exit a losing trade with a small loss and patiently wait for the next trade. Never allow a small loss to turn into a substantial loser.

About Dave

Dave Reiter uses several different trading methods designed to capture short-term movements in BTC futures. This article provides a brief description of the various strategies, including specific entry and exit signals. Additionally, Dave discusses the keys to becoming a successful trader based on his 33 years of trading experience.

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