Dear traders, after the recent Ethereum flash crash on the GDAX exchange where the Ethereum/Ether price went from $317 to $0.10 in few seconds, it is time for you to understand the reason behind it and how you can profit from it next time.
Independently from the actors involved in the case of Ethereum, generally a flash crash is a preplanned operation made by big investors who want to:
- scare actual investors with a sudden price movement and induce them to sell
- trigger stop losses and margin calls in particular when the traders operate on margin and get them out of the market
- buy/accumulate at the minimum possible price
- induce shorters to short and stuck them in a position where they are forced to buy higher afterwards
Important: this phenomenon usually happen in bull markets, not in bear markets. So you it is highly probable that after a flash crash the price rise again (as we can see today in the Ethereum price).
So, given the assumption that the market is bullish and volatile with flash-crashes, I want to outline for you a very simple trading strategy that allows you to accumulate any cryptocurrency at low prices and make big money.
In my trading experience I have always seen that it is more important to have a good money management strategy than to know exactly where to buy and to sell.
The strategy is as follows:
First: do not trade on margin (especially in the crypto world) and use only the capital you can risk.
Divide your capital in 4 parts (1,2,3,4). Suppose that for our case that you have a capital of $1000. You divide the capital in $100, $200, $300, $400.
Look at the chart price of the crypto and decide where the price can go in case of a flash crash. Suppose in the case of the Ethereum that the price is $320 and you think that it might go to $20. You have a price diffential of $300.
Divide the price differential ($300) in 4 ($300/4 = $75) and place 4 orders according to the capital division. In our case:
order1: buy $400 at $20 (at the minimum)
order2: buy $300 at $20+$75 =$95 (at the minimum + diff/4)
order3: buy $200 at $20+2 x $75 =$170 (at the minimum + 2 x diff/4)
order4: buy $100 at $20+3 x $75 =$245 (at the minimum + 3 x diff/4)
What does happen in case of a flash crash?
Suppose that the flash crash send the price to $10. Then you have acquired $1000 of ETH at the price of $95. Not bad at the currenct prices!
If the minimum price of the flash crash is higher no problem. You still have part of your original capital intact and bought some ETH low and can enjoy the bounce the day after.
So make your money management strategy now, act on your exchange and you might wake up a lot richer tomorrow ;-)
CrackTheMatrix