Crypto Trading Insights | #2 - Altcoins vs. Leveraged BTC

For the longest time I have tried trading altcoins and I have to say most of those attempts were rather disastrous.

It's not that alts don't give amazing setups once in a while, and there were a few really good trades that worked out but as most people will be aware: an altcoin's direction is massively decided by btc's direction. Alts are slaves to btc's price movements.

Altcoins amplify moves of bitcoin to a large degree and what sounds good in theory often turns out tricky to pull off in practice. Sometimes there will be major lags between alts and btc, meaning that btc has started to move upwards while alts are still selling off, only to catch up minutes later in one fell swoop that is almost impossibly hard to nail.

There are peculiar relationships between alts and btc, depending on which coin we are looking at. Generally, alts favor a slow increase in btc's price rather than steep price spikes. But even knowing that - it can be extremely difficult to utilize stops to a satisfying degree that gives the coin room to run but also protects the trader when things go wrong. Trading alts often means: Taking a gamble, even if it is well-informed and thought through.

So really if we want to know when a good time is to buy alts we HAVE to look at what bitcoin is doing and take the alt's rodeo ride as a given.

But then why are most people trading alts? They are trading alts BECAUSE alts move more impulsively, further and faster: They have much higher volatility than btc.

But what we gain in volatility with alts we lose in pattern "cleanliness" if I may call it that.

While BTC will often hit targets to the dollar (especially on the usdt chart) alts really have a mind of their own and apart from merely timing a market buy when btc DOES hit a major target, there is really not much we can do to get a great alt entry.

BTC is the god market of crypto and because of this and because it trades in so much bigger volumes than the rest of the crypto markets we get the most clinical and "smart" turning points in btc and not in altcoins.

So then really the question becomes: How can we use btc's clinical price behavior to our advantage without losing the volatility of alts? We trade BTC with leverage!


"Oh my, don't you know? Leverage is dangerous!"


Yes, yes we have all heard it before. We read about it after massive btc dumps where thousands of accounts get liquidated, and anyone with a youtube channel or a successful career in the stock martket basically warns everyone of using leverage. "It will blow up your account in days". "It will take everything you own." And so forth.

While there is truth to that (in case we become so audacious to use - say 100x leverage or something ridiculous like that) I have found it isn't quite that simple.

Trading btc on lighter leverages - say 3x or 5x - will give you a comparable level of volatility to alts but you will NOT lose btc's clinical behavioral nature. Which in turn increases and sharpens your edge CONSIDERABLY.

Not only that but we can devise a strict trading ruleset where the trade either works or we get stopped out instantly for a minor loss, looking for a new setup until it does work in our favor.

Where alts will swing wildly (even around the most ideal and perfect entry we are hard-pressed to ever pull off) btc will let you get away with hitting a major point of relevance and setting your stop to - say - 0.3% loss max. Often times 0.2% or even 0.1% can work. If you multiply that by 3x leverage we get a risk of about 1% max but we have a way better chance of actually hitting a low worth holding than with alts - at least for the short term.

This of course begs the question how we find those major points of interest, which is somewhat of a secret I feel. But it is possible. Selling tops is as possible as buying bottoms when we can flip the trade within a day or so rather than holding for weeks hoping that we nailed the ACTUAL LONGTERM TURNING POINT which I have never pulled off.

I really have learnt that all these pieces of advice: "don't use leverage." "Stop trying to pick bottoms and tops". "Hodl through the tough times" - are really just outdated pieces of advice that don't really put us on the right track if we want to find out what btc is doing and how it is moving and turning.

Rather I find myself doing the exact opposite of these bits of advice and I found it has by far the most promise of all the strategies I have tried over the years. This of course will depend on your trading style and your preferences.

What other advantages does trading btc on leverage have? You only really have to learn only one pair of currency inside out: Bitcoin. The coin that the entire crypto market depends on anyway and that any alt trader HAS to be aware of in order to make any good decision to begin with.

Why not try to decode btc to the core and find how it "ticks". How it behaves and what it likes to do?

If we can find that out and we have practiced our strategy successfully without leverage first (to make sure we are capable of executing our moves in the heat of the moment) - we are on the road to becoming consistently profitable in a market with lots of liquidity and smart but reasonable patterns and structures.

If we can ever hope to get a real good feel for BTC and we can trade 10x entries for minor moves during the day we will make more than most traders out there, even if most of our entries will get stopped out over the long run.

Let me repeat: I do not want to encourage newcomers to use leverage to hurt themselves. Using leverage comes with skill and experience and should not be used by those who feel BTC moves randomly and is basically a mystery. Newcomers have to practice without leverage.

But to those on the search for a more reliable way of trading I say: Take a look at this approach. If you can manage to consistently pull 1% out of btc per day because you understand why it does what it does and how it moves - you can do the same with leverage enabled provided you have done your homework.

BTC really is a game of strategy and does not behave like pure random chaos... Rather it seems to me a decodable riddle for the most far-out strategists and mystery solvers out there. A glorious riddle for all strategy gamers and code breakers. Ahahaha. But we will get to that in the next parts of the series somehow, stay tuned ;)


To be continued...


I am not a financial advisor and this is not financial advice


Read other parts of this series:
#1 - Trading Coins vs. Trading Futures


Img srcs:
bitcoinist.com
cryptheory.org
thebigsmoke.com.au


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