Trading market cycles is one of the simplest and most passive ways to make money investing in crypto, which is why it is my preferred method. Active trading and flips can yield larger returns, however, trading market cycles is significantly more passive and still incredibly rewarding if done correctly.
Before we go through some very basic ideas that we can use to know when it may be a good time to buy, it’s important to understand what market cycle trading means. The premise is simply buying deep into a bear market when prices are low and selling in a bull market when prices are high. It’s important to understand that the absolute bottom and tops of the market do not need to be identified, but the closer you are able to get to the extremes, the greater the profit.
The idea here is not to get everyone to use these exact ideas shown, but to get you thinking about ideas like this because there are many variations out there. There are an infinite number of ways to use price action to identify market cycles, I’m only choosing these examples as they are quite simple and straightforward.
I am going to introduce a few simple price action topics, then we will go through some examples of applying these at the end.
Retracement
The retracement strategy is simply buying a coin after it has retraced to a specific level. For this, I often use the general assumption that most altcoins retrace 95% of their price in a bear market. That is a massive assumption to make, and certainly does not prove true for all altcoins but it does work pretty well as a starting point to get our first data point.
While this level will almost never be the perfect entry, the 95% retracement often gets us a decent entry on any coins that we have big conviction in. And this makes sense if we think about it in terms of what the retracement means. In words, the retracement is telling us to buy in slightly higher than the price hit in the previous bear market. We are accepting that remaining 5% may or may not trace back, with the idea that the next bull run could see equal or greater price action than the last.
As a general rule of thumb, I often apply a 95% retracement rule to altcoins and 80% retracement to Bitcoin. If the coin you are looking at has been around for several market cycles, just back-test what worked for that coin on previous market cycles. The retracement values are not meant to be a firm, concrete solution, but they do provide a good ballpark that gives us a good place to start looking.
Key Support Levels
This part is a bit more tailored and does provide much more concrete price targets.
The strategy here is to identify previous major support and resistance levels that we think price may revisit. A good target for this is to use price action just before the previous bull-run began, as a retest of those levels or near those levels is often very likely.
I often separate this idea into 2 key levels for my own strategy. I look at the historic price in the price action area of interest, and I find 2 key levels in price action; 1 to identify a less (or the least) aggressive target and one to identify an aggressive target. You can use as many levels as you’d like as long as you can manage them. I choose two because it gives me the ability to look at a chart and describe them using both extremes of the spectrum such as “This level is almost guaranteed to be reached” and the other as “If we get a large capitulation event, this could be an amazing entry”.
Example: ADA (Cardano)
Let’s start this off by looking at the price over the last few years so we know what area we are investigating. When we look at the historic price action, this is what we will see:
The box in red is the main area of interest for us as this is where we will investigating for our price targets. Aside from that, we only need the recent all-time high price from the bull market for our retracement tool.
Let’s start with identifying the retracement level. Because ADA is an altcoin, I will start with the 95% retracement level to give an initial estimate. The retracement, shown on the chart below gives us a 95% retracement at $0.175
95% Fib Retracement Target = $0.175
Now we can move onto our key support levels. For this, we are really focused on the price action before the bull run (the red box in the chart shown previously). So we can zoom in that section a bit to determine where we identify these key levels. I remove the Fib retracement tool while doing these. The chart below explains how I got to my price action levels of interest for ADA:
First Key Target = $0.191 Second Key Target = $0.114
Full recap of the targets we identified, in order of their price level:
Key Level : 0.191
Fib Retracement : 0.175
Key Level : 0.114
Now What?
With these levels identified, it comes down to how you want to manage them and your portfolio. First, these levels are not always perfect because a coin may hold up exceptionally well over the bear market which could make these targets unrealistic. So the first thing is look at the results we came up with and see if they feel fundamentally reasonable.
Let’s assume they are reasonable, next we can decide how we want to handle this info. This comes down to each person’s portfolio and risk management. One example of what can be done is that you use each of these levels as a buy-in targets and manage entries that way. If you wanted to invest $300, you could decide to enter with $100 at each target, or you could stagger and weight the entries with something like $50, $100, $150 increments. This is just an example of how you could tailor this strategy with any other strategies you may have, such as DCA (dollar cost averaging).
Conclusion
This post is not intended to be a playbook on how to invest in ADA during this bear market. These ideas were chosen because they are very simple price action ideas. There are countless ways to use price action, so everybody should find what they like the most (An easy example of other methods would be using high timeframe moving averages).
One last thing that is helpful when using strategies like this is to know when the buying opportunities have passed. For example, if you are staggering your entries in 3 targets, and only 2 get hit, you have capital on the side that you intended to invest but never got your opportunity. Having a back-up plan for what to do in these situations is very important to reduce stress and impulse decisions later.
To take this strategy and expand on it, I recommend creating a spreadsheet to log all of these levels and all of the coins you are interested in trading through market cycles. This will help you stay organized and manage all of the critical levels you are interested in. From there, you can outline your portfolio distribution and make sure you aren’t too over-exposed to certain assets or sectors, manage risk and be extremely prepared for when the time comes to make these macro trades!
Intro
Trading market cycles is one of the simplest and most passive ways to make money investing in crypto, which is why it is my preferred method. Active trading and flips can yield larger returns, however, trading market cycles is significantly more passive and still incredibly rewarding if done correctly.
Before we go through some very basic ideas that we can use to know when it may be a good time to buy, it’s important to understand what market cycle trading means. The premise is simply buying deep into a bear market when prices are low and selling in a bull market when prices are high. It’s important to understand that the absolute bottom and tops of the market do not need to be identified, but the closer you are able to get to the extremes, the greater the profit.
The idea here is not to get everyone to use these exact ideas shown, but to get you thinking about ideas like this because there are many variations out there. There are an infinite number of ways to use price action to identify market cycles, I’m only choosing these examples as they are quite simple and straightforward.
I am going to introduce a few simple price action topics, then we will go through some examples of applying these at the end.
Retracement
The retracement strategy is simply buying a coin after it has retraced to a specific level. For this, I often use the general assumption that most altcoins retrace 95% of their price in a bear market. That is a massive assumption to make, and certainly does not prove true for all altcoins but it does work pretty well as a starting point to get our first data point.
While this level will almost never be the perfect entry, the 95% retracement often gets us a decent entry on any coins that we have big conviction in. And this makes sense if we think about it in terms of what the retracement means. In words, the retracement is telling us to buy in slightly higher than the price hit in the previous bear market. We are accepting that remaining 5% may or may not trace back, with the idea that the next bull run could see equal or greater price action than the last.
As a general rule of thumb, I often apply a 95% retracement rule to altcoins and 80% retracement to Bitcoin. If the coin you are looking at has been around for several market cycles, just back-test what worked for that coin on previous market cycles. The retracement values are not meant to be a firm, concrete solution, but they do provide a good ballpark that gives us a good place to start looking.
Key Support Levels
This part is a bit more tailored and does provide much more concrete price targets.
The strategy here is to identify previous major support and resistance levels that we think price may revisit. A good target for this is to use price action just before the previous bull-run began, as a retest of those levels or near those levels is often very likely.
I often separate this idea into 2 key levels for my own strategy. I look at the historic price in the price action area of interest, and I find 2 key levels in price action; 1 to identify a less (or the least) aggressive target and one to identify an aggressive target. You can use as many levels as you’d like as long as you can manage them. I choose two because it gives me the ability to look at a chart and describe them using both extremes of the spectrum such as “This level is almost guaranteed to be reached” and the other as “If we get a large capitulation event, this could be an amazing entry”.
Example: ADA (Cardano)
Let’s start this off by looking at the price over the last few years so we know what area we are investigating. When we look at the historic price action, this is what we will see:
The box in red is the main area of interest for us as this is where we will investigating for our price targets. Aside from that, we only need the recent all-time high price from the bull market for our retracement tool.
Let’s start with identifying the retracement level. Because ADA is an altcoin, I will start with the 95% retracement level to give an initial estimate. The retracement, shown on the chart below gives us a 95% retracement at $0.175
95% Fib Retracement Target = $0.175
Now we can move onto our key support levels. For this, we are really focused on the price action before the bull run (the red box in the chart shown previously). So we can zoom in that section a bit to determine where we identify these key levels. I remove the Fib retracement tool while doing these. The chart below explains how I got to my price action levels of interest for ADA:
First Key Target = $0.191
Second Key Target = $0.114
Full recap of the targets we identified, in order of their price level:
Key Level : 0.191
Fib Retracement : 0.175
Key Level : 0.114
Now What?
With these levels identified, it comes down to how you want to manage them and your portfolio. First, these levels are not always perfect because a coin may hold up exceptionally well over the bear market which could make these targets unrealistic. So the first thing is look at the results we came up with and see if they feel fundamentally reasonable.
Let’s assume they are reasonable, next we can decide how we want to handle this info. This comes down to each person’s portfolio and risk management. One example of what can be done is that you use each of these levels as a buy-in targets and manage entries that way. If you wanted to invest $300, you could decide to enter with $100 at each target, or you could stagger and weight the entries with something like $50, $100, $150 increments. This is just an example of how you could tailor this strategy with any other strategies you may have, such as DCA (dollar cost averaging).
Conclusion
This post is not intended to be a playbook on how to invest in ADA during this bear market. These ideas were chosen because they are very simple price action ideas. There are countless ways to use price action, so everybody should find what they like the most (An easy example of other methods would be using high timeframe moving averages).
One last thing that is helpful when using strategies like this is to know when the buying opportunities have passed. For example, if you are staggering your entries in 3 targets, and only 2 get hit, you have capital on the side that you intended to invest but never got your opportunity. Having a back-up plan for what to do in these situations is very important to reduce stress and impulse decisions later.
To take this strategy and expand on it, I recommend creating a spreadsheet to log all of these levels and all of the coins you are interested in trading through market cycles. This will help you stay organized and manage all of the critical levels you are interested in. From there, you can outline your portfolio distribution and make sure you aren’t too over-exposed to certain assets or sectors, manage risk and be extremely prepared for when the time comes to make these macro trades!