Daily BTC Update - RSI Divergence and ADX as a Trading Strategy
BTC, and the crypto market in general, have once again seen some steep declines. Legacy pricing models haven't broken but are being stretched like never before and I'm convinced it's entirely due to the arrival of institutions and big money to this space. Legacy markets (stock market etc) are closely regulated for price manipulation and financial institutions are regularly fined millions of dollars for breaches (and yet it continues to happen). The crypto market doesn't have this protection. Passed cycles have not had such a major presence of "big finance" and so it is highly likely the landscape has changed and we need to change with it. Short term/day traders are getting smashed by this volatility and market manipulation and our only defence is to step back and take a longer view because even the big players want to make money over a longer period.
With all of this in mind today I'm zooming out a bit and looking at the daily chart for Bitcoin and offering a no-fuss strategy for trading this market. Even smart money cant play without leaving a trace of their actions.
On the chart are my two favourite indicators...the RSI and the ADX. If you use these in combination you have a very powerful insight into where the market is likely to go next. Understand these two things:
1. ADX - Buyers need to be stronger than sellers for the price to go up. We need to see green!
2. RSI - Is a trend indicator. Where is it trending? Is it going up or down? Most importantly look for a divergence to identify when trends are about to change.
I've marked on the chart in bright pink divergences between price and RSI and these are at almost all of the major trend changes. Why couldn't you see what was coming...because we weren't looking.
Use basic trend lines to define the market structure. Note the breach of any trend line.
Sell when the ADX turns red, or when the RSI drops below 50% (goes red on my RSI DIv indicator, but you can use a standard RSI Indicator). I use the OBV indicator for confirmation of a signal.
Buy when ADX turns green, or when the RSI rises above 50%. Use OBV for confirmation.
As for today, we are out of the market. I watch the 4 hr chart for early indications that we are getting a change of trend, and of course, if you are sharp enough you can trade this same strategy on that chart but it requires more attention. Have fun with this strategy and tell me what you think. Once you've had a play try using the Multi Time Frame RSI for better (earlier) signals.
With all of this in mind today I'm zooming out a bit and looking at the daily chart for Bitcoin and offering a no-fuss strategy for trading this market. Even smart money cant play without leaving a trace of their actions.
On the chart are my two favourite indicators...the RSI and the ADX. If you use these in combination you have a very powerful insight into where the market is likely to go next. Understand these two things:
1. ADX - Buyers need to be stronger than sellers for the price to go up. We need to see green!
2. RSI - Is a trend indicator. Where is it trending? Is it going up or down? Most importantly look for a divergence to identify when trends are about to change.
I've marked on the chart in bright pink divergences between price and RSI and these are at almost all of the major trend changes. Why couldn't you see what was coming...because we weren't looking.
Use basic trend lines to define the market structure. Note the breach of any trend line.
Sell when the ADX turns red, or when the RSI drops below 50% (goes red on my RSI DIv indicator, but you can use a standard RSI Indicator). I use the OBV indicator for confirmation of a signal.
Buy when ADX turns green, or when the RSI rises above 50%. Use OBV for confirmation.
As for today, we are out of the market. I watch the 4 hr chart for early indications that we are getting a change of trend, and of course, if you are sharp enough you can trade this same strategy on that chart but it requires more attention. Have fun with this strategy and tell me what you think. Once you've had a play try using the Multi Time Frame RSI for better (earlier) signals.
