Take Advantage of Volatility


Take Advantage of Volatility

If there is one thing both crypto bulls and bears can agree on, it's that the crypto markets are Volatile! 

You need a double dose of Dramamine just to study the charts, let alone take a trading position. 

Volatility may seem bad, but if you're looking to trade, volatility really means opportunity.

The crypto markets trade 24 / 7 / 365, which ends up being more than 120 additional trading hours each week compared to the 38 available trading hours of the lazy stock market.. not including holidays.

Combine that with the fact that crypto prices swing harder than a Columbian Tango dancer, and you've got yourself something juicy.

There are many ways to trade using volatility, but these are my favorite three that you can build a reliable strategy around in both bull and bear markets.

1 / Bollinger Bands

Bollinger Bands consist of a moving average, typically of the stock's closing price, and two standard deviation lines plotted above and below the moving average. 

The upper band typically represents an overbought condition, while the lower band represents an oversold condition.

Basically, when the price crosses above the upper band, there is likely increased sell pressure coming to bring it back to equilibrium or the moving average.

Similarly, when the price drops below the lower band, there will likely be buying pressure soon to follow, bringing the price back to the moving average.

Where to calculate the upper and lower bands is the key. 

Also, determining when a new equilibrium is being established is more of an art than a science.

2 / Relative Strength Index (RSI)

Relative Strength Index (RSI) is a technical indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions.

You might see the RSI shoot up during an unexpected rise in price, which could mean the run-up was abnormal and is likely to pull back some.

The challenging aspect of using RSI with crypto markets is that the majority of the gains are had during these short run-ups.

In a bull market, it's not unheard of to see a 15% rise overnight, and the price sets a new floor.

A good time to use RSIs would be when the markets are trading consistently sideways, and you're more likely to see these abrupt rises and drops return back to neutral.

Common thresholds include when the RSI reaches above 70, indicating overbought conditions, and falling below 30, indicating oversold conditions.

3 / Ichimoku Clouds

Ichimoku Clouds, developed in the 1930s by Goichi Hosoda, a Japanese journalist and analyst, plots multiple moving averages above and below the price in the form of shaded areas known as bullish or bearish 'clouds.'

The indicator is built using five calculations, resulting in a cloud that represents the difference between two lines.

A price above a cloud indicates an uptrend, while a price below a cloud indicates a downtrend. A price swing into a cloud that is bullish indicates resistance, while a price swing into a cloud that is bearish indicates support.

Span A and Span B are the names of the two cloud lines. When Span A is higher than Span B, the cloud is green; when Span A is lower than Span B, the cloud is red.

A price that is above a red cloud indicates a bullish divergence, while a price that is below a green cloud indicates a bearish divergence.

The cloud, which is the area between Span A and Span B, is the most commonly used element of Ichimoku Clouds. The price is considered bullish when it is above the cloud and bearish when it is below the cloud.


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