SC Rules In Favour Of Crypto Trading In India

The Supreme Court on Wednesday struck down the curb on cryptocurrency trade in India put up by the RBI.

ETNow reported quoting:

“SC rules curb on crypto currency trade illegal,” the report said while adding that the order lifted ban on trading in virtual currency, cryptocurrency and bitcoins.

Bitcoin, the most valued cryptocurrency in the world, was down 0.39 per cent at $8,815. The market cap of the currency stood at $161 billion.

The Reserve Bank of India had virtually banned cryptocurrency trading in India as in a circular issued on April 6, 2018, it directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those.

Regulated entities that were already providing such services were told to exit the relationship within three months. The RBI had earlier issued circulars cautioning users, holders and traders of virtual currencies, including bitcoins, regarding various risks associated in dealing with such virtual currencies. The April 6 circular was later challenged in the top court.

The Internet and Mobile Association of India, representing various cryptocurrency exchanges, had argued that trading in cryptocurrencies in the absence of a law banning those was a “legitimate” business activity under the Constitution. The RBI could not have denied them access to banking channels to carry on such business, it said.

The central bank defended in the Supreme Court its 2018 circular maintaining that it had constantly been unswerving in its disapproval to allowing any other payments systems and undermining the veracity of the banking system.

It contended that though there was no formal ban on cryptocurrencies under any law in presence in India, it had unswervingly been cautioning all those trading with virtual currencies of the risks integral to them.

The Dow Theory

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The Dow theory is a theory that says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average. For example, if the Dow Jones Industrial Average (DJIA) climbs to an intermediate high, the Dow Jones Transportation Average (DJTA) is expected to follow suit within a reasonable period of time.

The Dow theory is an approach to trading developed by Charles H. Dow who, with Edward Jones and Charles Bergstresser, founded Dow Jones & Company, Inc. and developed the DJIA. Dow fleshed out the theory in a series of editorials in the Wall Street Journal, which he co-founded.

Charles Dow died in 1902, and due to his death, he never published his complete theory on the markets, but several followers and associates have published works that have expanded on the editorials.

Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market, one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks.

The theory has undergone further developments in its 100-plus-year history, including contributions by William Hamilton in the 1920s, Robert Rhea in the 1930s, and E. George Shaefer and Richard Russell in the 1960s. Aspects of the theory have lost ground, for example, its emphasis on the transportation sector — or railroads, in its original form — but Dow’s approach still forms the core of modern technical analysis.

The market discounts all news

This principle explains that any information available in the market is already reflected in the price of stocks and indices. This includes all data such as earnings announcements by companies, rise (or fall) in inflation or even sentiments of investors.

As a result, it is better to analyse price movements instead of studying earnings reports or balance sheets of companies.

The market has three trends

This theory was the first to propound that the market moves in trends. The trends are:

Primary trend is the major trend for the market. It indicates how the market moves in the long-term. A primary trend could span many years.

Secondary trends are considered to be corrections to a primary trend. This is like an opposite movement to the primary trend. For example, if the primary trend is upward (bullish), the secondary trend(s) is downward. These trends could last anywhere between a few weeks to a few months.

Minor trends are fluctuations to the market movement on a daily basis. These trends last for less than three weeks and go against the movement of the secondary trend. Some analysts consider minor trends to mirror market chatter.

Trends have three phases

The theory says that there are three phases to each primary trend: accumulation phase, public participation phase and panic phase.

The beginning of a primary upward (or downward) trend in a bull (or bear) market is known as the accumulation phase. Here, traders enter the market to buy (or sell) stocks against common market opinions.

In the public participation phase, more investors enter the market as business conditions improve and positive sentiments become evident. This results in higher (or lower) prices in the market.

The panic phase is marked by excessive buying by investors. This could result in great speculation. At this stage, it is ideal for investors to book profits and exit.

Indices confirm each other

A trend in the market cannot be verified by a single index. All indices should reflect the same opinion. For example, in case of a bullish trend in India, the Nifty, Sensex, Nifty Midcap, Nifty Smallcap and other indices should move in the upward direction. Similarly, for a bearish trend, all indices should move in a downward direction.

Trends are confirmed by volume

The trend in the market should be supported by trading volumes. For instance, in an upward trend, the volume rises with increase in price and falls with decrease in price. And in a downward trend, the volume increases with fall in price and decreases with price rise.

Trends continue until definitive signals indicate otherwise

The theory says that market trends exist despite any noise in the market. That is, during an upward trend, a temporary trend reversal is possible but the market continues to move in the upward direction. In addition, the status quo remains until a clear reversal happens in the market.

Dark Pool Explained

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Dark pools are an ominous-sounding term for private exchanges or forums for securities trading. However, unlike stock exchanges, dark pools are not accessible by the investing public. Also known as “dark pools of liquidity,” these exchanges are so named for their complete lack of transparency. Dark pools came about primarily to facilitate block trading by institutional investors who did not wish to impact the markets with their large orders and obtain adverse prices for their trades.

Dark pools were cast in an unfavorable light in Michael Lewis’ bestseller Flash Boys: A Wall Street Revolt, but the reality is that they do serve a purpose. However, their lack of transparency makes them vulnerable to potential conflicts of interest by their owners and predatory trading practices by some high-frequency traders.

Why Use a Dark Pool?

Contrast this with the present-day situation, where an institutional investor uses a dark pool to sell a one million share block. The lack of transparency actually works in the institutional investor’s favour since it may result in a better-realized price than if the sale was executed on an exchange. Note that, as dark pool participants do not disclose their trading intention to the exchange before execution, there is no order book visible to the public. Trade execution details are only released to the consolidated tape after a delay.

The institutional seller has a better chance of finding a buyer for the full share block in a dark pool since it is a forum dedicated to large investors. The possibility of price improvement also exists if the mid-point of the quoted bid and ask price is used for the transaction. Of course, this assumes that there is no information leakage of the investor’s proposed sale and that the dark pool is not vulnerable to high-frequency trading (HFT) predators who could engage in front-running once they sense the investor’s trading intentions.

Types of Dark Pools

Broker-Dealer-Owned

These dark pools are set up by large broker-dealers for their clients and may also include their own proprietary traders. These dark pools derive their own prices from order flow, so there is an element of price discovery. Examples of such dark pools include Credit Suisse’s CrossFinder, Goldman Sachs’ Sigma X, Citi’s Citi Match and Citi Cross, and Morgan Stanley’s MS Pool.

Agency Broker or Exchange-Owned

These are dark pools that act as agents, not as principals. As prices are derived from exchanges — such as the midpoint of the National Best Bid and Offer (NBBO), there is no price discovery. Examples of agency broker dark pools include Instinet, Liquidnet and ITG Posit, while exchange-owned dark pools include those offered by BATS Trading and NYSE Euronext.

Electronic Market Makers

These are dark pools offered by independent operators like Getco and Knight, who operate as principals for their own account. Like the broker-dealer-owned dark pools, their transaction prices are not calculated from the NBBO, so there is price discovery.

Dark pools provide pricing and cost advantages to buy-side institutions such as mutual funds and pension funds, which hold that these benefits ultimately accrue to the retail investors who own these funds. However, dark pools’ lack of transparency makes them susceptible to conflicts of interest by their owners and predatory trading practices by HFT firms. HFT controversy has drawn increasing regulatory attention to dark pools, and implementation of the proposed “trade-at” rule could pose a threat to their long-term viability.

Leading Vs Lagging Indicators

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Lagging indicators use past price data to provide entry and exit signals, while leading indicators provide traders with an indication of future price movements, while also using past price data. When faced with the dilemma of leading vs lagging indicators, which should traders choose? The answer to this question ultimately comes down to individual preference after understanding the advantages and limitations of each.

Lagging indictors

Lagging indicators are tools used by traders to analyse the market using an average of previous price action data. Lagging indicators, as the name implies, lag the market. This entails that traders can witness a move before the indicator confirms it — meaning that the trader could lose out on a number of pips at the start of the move. Many consider this as a necessary cost in order to confirm to see if the move gathers momentum. Others view this as a lost opportunity as traders forgo getting into a trade at the very start of a move.

Leading indicators

A leading indicator is a technical indicator that uses past price data to forecast future price movements in the market. Leading indicators allow traders to anticipate future price movements and therefore, traders are able to enter trades potentially at the start of the move. The downside to leading indicators is that traders are anticipating a move before it actually happens and the market could move in the opposite direction. As a result, it isn’t uncommon to witness false breakouts, or signs of a trend reversal that just land up being minor retracements.

SHOULD YOU USE LEADING OR LAGGING INDICATORS?

There are no perfect indicators. By their very nature, indicators will help traders discover likely outcomes as opposed to a sure thing. It is up to the trader to conduct thorough analysis, with the aim of stacking the odds in their favour.

To further illustrate this point, below is an example of leading vs lagging indicators in EUR/USD, where the leading indicator appears to provide a better signal. Keep in mind that this is purely for demonstration and that the lagging indicator is equally as important.

The market sold off aggressively before retracing to the significant 61.8% level. Using a simple moving average (21, 55, 200), it is clear to see that the faster blue line (21) has not crossed below the slower black (55) line and therefore, this lagging indicator has not yet provided a short signal.

However, upon further analysis traders would be able to see that the market failed to break and hold above the 200-day moving average. The 200 SMA is widely viewed as a great indicator of long-term trend and in this example, is acting as resistance. This supports the short bias for traders eyeing a bounce lower off the 61.8% level.

Traders looking for fast signals will tend to favor leading indicators but can also reduce the time period setting on lagging indicators to make them more responsive. This however, should always be implemented with a tight stop loss to in the event the market moves in the opposite direction.

Traders seeking a greater degree of confidence will tend to favor lagging indicators. These traders often trade over longer time frames looking to capitalize on continuing momentum after entering at a relatively delayed entry level, while implementing sound risk management.

Explained: The Wyckoff Method

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One of the most helpful tools I’ve discovered for trading is The Wyckoff Method, created by Richard Demille Wyckoff, a pioneer in the studies of technical analysis, and one of the five “titans” of TA, along-side Gann (Gann Fans/Squares), Dow (Dow Theory), Merrill, and Elliot (Elliott Wave Theory). Below is a summation of what I’ve gathered and factored into my trading.

The Wyckoff avoidance method means to trade only the best assets in the leading market sectors.

Crypto is an emerging asset class, but there are already ways of determining which cryptocurrency has fundamental value. Focusing on the opportunities in those markets makes your decisions process much clearer:

You want to buy/hold a fundamentally valuable asset when its price is not reflecting its value yet.
You want to take profits and abandon an asset that is appreciating in the short term because of things like tiny market inefficiency or news hype.

FINDING THE MARKET WEAKNESS

You can use any of your favourite technical analysis tools that are good for spotting the weakness of a market — divergences would be a very early sign (and possibly a misleading one) but combined with a three-push formation and lower highs when seen relative to the Bollinger bands would be more reliable.

The general technical gist is that this transition is a substantial one, you should be looking for it on longer timeframes (daily, 3D or weekly charts). The market structure will be similar in all assets in the group you are looking at, but the weakening leader would display the crumbling more strongly.

Another important point in Wyckoff avoidance is to select assets that move in harmony with the market. The bigger picture and relations between different assets of the same class is often overlooked, but it is incredibly useful for market timing.

Assuming we are in a broad crypto bull market, if you can find cryptocurrencies that are performing consistently strong and if you can also find their counterparts, you have your best candidates for your long and short positions:

Strong crypto assets rally quite easily. After the rally comes a retrace, but some of the gains remain.
Weak crypto assets don’t rally consistently. If they do, the retrace kills all the gains.

On legacy markets, it is easy to compare an asset against a composite index: In a bull market, if an asset trades still well below a known resistance line and gains more than the index, it’s typically the strong performer.

The play there is to buy this particular asset, avoiding all the rest of the assets in its group.

The technically suggested time to sell comes when the price approaches a resistance area. Then you can look which stock was performing poorly in the rally: It’s is going to be the one that should drop the most in the coming retrace and therefore it is technically the best candidate for a short.

We now also have composite indexes in cryptocurrency markets, but the information you can get from them is still fairly questionable. Remember, the crypto markets are still very new.

Wyckoff’s insights are keenly relevant right now, and used well will help you make a good entry point as the bear market plays out its final stages. Add it to your toolbox

Understanding Ichimoku Kinko Hyo

Ichimoku Kinko Hyo translates as “one look equilibrium chart”. It was designed specifically for quick and easy decision making. Ichimoku Kinko Hyo is a gauge that looks compound to traders with 5 seconds attention spans. Once you know what it does, it makes your crypto trading choices way faster though. Mastering Ichimoku Cloud transaction really brings you one step closer to the actually realistic goal of crypto trading: Creating high-probability verdicts without costing you your whole day inspecting your Trading View charts.

Ichimoku Cloud Lines Explained

The Senkou and The Kumo

“Senkou span” is the name for the borders of the filled cloud, or “Kumo cloud”. The span is filled with green color in case the market is bullish. It will turn red in bearish markets, when the two spans swap.

Senkou lines are major support/resistance areas – they attract the price. Traders set their entries, exits and stops around them – usually leveraging additional information from other indicators.

The TK lines and The TK Cross

The “TK lines”, or Tenken and Kinjun, are the balance lines – fast and slow moving averages.

They are moving averages, so traders will look for their cross when they are looking for a trend reversal. Because of their names, this cross is called “TK cross”.

Nonetheless, TK lines are also important when there is no cross in sight. If the price sticks around them, it signals that the asset is neither overhyped nor underpriced. If the price action travels very far from the TK lines, it signifies the price is way out of balance and a pullback is likely, but it is by itself not a trigger to open a position for the pullback.

In more balanced markets the price stays around these lines and traders watch how it is bouncing off them or crossing them when they are looking for a good entry.

The Chinkou

The “Chinkou” span is a lagging indicator, use it to confirm a trend strength. Chinkou line above the candles means the market is strong. When there is a strong action and the lagging line crosses the candles, it is a sign the trend is weakening and becoming undecided.

Stay tuned for tomorrows blog to understand how to read the Ichimoku Kinko Hyo.

Aspects of Technical Analysis

Since we are already acquainted with what Technical analysis is, (please read the Introduction blog to get started if you already haven’t) let’s jump right into the aspects of technical analysis that you should definitely pay attention to:

Trend Lines

Trend lines, or the typical direction that a coin is moving towards, can be most beneficial for traders of crypto. That said, isolating these trends can be easier said than done. Crypto assets might be substantially volatile, and watching a Bitcoin or crypto price movement chart will probably reveal a selection of highs and lows that form a linear pattern. With that in mind, Technicians understand that they can overlook the volatility and find an upward trend upon seeing a series of higher highs, and vice versa – they can identify a downtrend when they see a series of lower lows.

Additionally, there are trends that move sideways, and in these cases, a coin doesn’t move significantly in either direction. Traders should be mindful that trends come in many forms, including intermediate, long and short term trend lines.

Resistance and support levels

As there are trend lines, there are also horizontal lines that express levels of support and resistance. By identifying the values of these levels, we can draw conclusions about the current supply and demand of the coin. At a support level, there seems to be a considerable amount of traders who are willing to buy the coin (a large demand), i.e., those traders believe that the currency is priced low at this level and therefore will seek to buy it at that price. Once the coin reaches close to that level, a “floor” of buyers is created. The large demand usually stops the decline and sometimes even changes the momentum to an upward trend. A level of resistance is exactly the opposite – an area where many sellers wait patiently with their orders, forming a large supply zone. Every time the coin approaches that “ceiling”, it encounters the supply stacks and goes back.

There is often a situation in which trade-offs can be between support and resistance levels: gathering close to support lines and selling around the resistance level. This opportunity usually takes place when lateral movement is identified.

So what happens during breakout of resistance or support level? There is high probability that this is an indicator which is strengthening the existing trend. Further reinforcement of the trend is obtained when the resistance level becomes support level, and being tested from above shortly after the breakout.

Note: False breakouts occur when a breakout happens, but the trend doesn’t change. Hence, we must use some more indicators, such as trading volume, to identify the trend.

Moving averages

Another technical analysis tool for crypto currencies and technical analysis in general, in order to simplify trend recognition, is called moving averages. A moving average is based on the average price of the coin over a certain period of time. For example, a moving average of a given day will be calculated according to the price of the coin for each of the 20 trading days prior to that day. Connecting all moving averages forms a line.

It is also important to recognize the exponential moving average (EMA), a moving average that gives more weight in its calculation to the price values of the last few days than the previous days. An example is the calculation coefficient of the last five trading days of EMA 15 days will be twice that of the previous ten days. In the following graph we can see a practical example: If a 10-day moving average crosses above a 30-day moving average it might tell us a positive trend is coming.

Trading Volume

Trading volume plays an important role in identifying trends. Significant trends are accompanied by a high trading volume, while weak trends are accompanied by a low trading volume. When a coin goes down it is advisable to check the volume which accompanied the decline. A long-term trend of healthy growth is accompanied by a high volume of increases and a low volume of declines. It is also important to see that volume is rising over time. If the volume is decreasing during increases, the upward trend is likely to come to an end, and vice versa during a down trend.

Introduction to Technical Analysis

Crypto traders have several tools to evaluate the cryptocurrency market. One of them is a method known as Technical Analysis. Using this process, traders can get a improved understanding of the market sentiment and isolate significant trends in the market. This data can be used to make more educated predictions and wiser trades.

Tech Analysis considers the history of a coin with price charts and trading volumes, no matter what the coin or project does. As opposed to technical analysis, fundamental analysis is more focused on establishing if a coin is over or under valued.

To get a better idea of technical analysis, it is crucial to understand the fundamental ideas of Dow Theory that tech analysis is based on:

The market considers everything in its pricing. All existing, prior, and upcoming details have already been integrated into current asset prices. With regards to Bitcoin and crypto, this would be comprised of multiple variables like current, past, and future demand, and any regulations that impact the crypto market. The existing price is a response to all the current details, which includes the expectations and knowledge of each coin traded in the market. Technicians interpret what the price is suggesting about market sentiment to make calculated wise predictions about future pricing.
Prices movement aren’t random. Rather, they often follow trends, which may either be long or short-term. After a trend is formed by a coin, it’s probably going to follow that trend to oppose it. Technicians try to isolate and profit from trends using technical analysis.
‘What’ is more important than ‘Why’. Technicians are more focused on the price of a coin than each variable that produces a movement in its price. Although multiple aspects could have influenced the price of a coin to move in a specific direction, Technicians assertively review supply and demand.
History tends to get repeated. It is possible to predict market psychology. Traders sometimes react the same way when presented with similar stimuli.

Stay tuned for an in-depth explanation of the various nitty-gritties of this type of analysis.

Explained: Margin Trading For Cryptocurrency

Margin trading with cryptocurrency allows users to borrow money against their current funds to trade cryptocurrency “on margin” on an exchange. In other words, users can leverage their existing cryptocurrency or dollars by borrowing funds to increase their buying power (generally paying interest on the amount borrowed, but not always).

For example, you put down $25 and leverage 4:1 to borrow $75 to buy $100 worth of Bitcoin. The only stipulation is that no matter what happens, you’ll have to pay back to $75 plus fees. In order to ensure they get the loaned amount back, an exchange will generally “call in” your margin trade once you hit a price where you would start losing the borrowed money (as they will let you borrow money to trade, but they don’t want you losing that money). A margin call can be avoided by putting more money into the position.

A given exchange will have a range of different leveraging options (2:1, 3.33:1, 4:1, 100:1, etc.). Margin trading can be done short (where you bet on the price going down) or long (where you bet on the price going up). Further, it can be used to speculate, to hedge, or to avoid having to keep your full balance on an exchange.

How Margin Trading Cryptocurrency Works – Call Prices and Liquidation

This brings us to the next point. As noted above, you have to have enough funds to cover the bet you are taking. If you don’t have the funds, your position will automatically be closed, “liquidated” or “called in.” As, although the lender will let you use their money for a fee to margin trade, any money lost and any fees paid will come out of your funds. This is like the friend who let you borrow $50 in the Investopedia quote above; the lender is letting you borrow money, not have it to lose.

Specifically, if your balance falls below the “Maintenance Margin Requirement (MMR)” due to the price going the opposite way that you bet on, the exchange will either start liquidating your assets to get its money back or will simply request the funds from you. This is called a “margin call.” TIP: A margin call can be offset by contributing more funds to the order book you have the margin in (ex. BTC/USD). When you deposit more funds, you increase your margin ratio and improve your call price.

In other words, technical jargon aside, the concept here is: margin trading allows you to make bigger bets than you otherwise would at the cost of extra fees and extra risks. When you take a bet, you can use the lender’s money, but if the bet goes the wrong way, the funds come out of your pocket. You take all the risk.

That is the gist of margin trading; with that information, you know just enough to be dangerous.

Should You Use This Strategy?

We strongly suggest staying away from margin trading unless you have done research, are experienced, and are margin trading with a very specific purpose such as hedging. Losing money trading cryptocurrency is stressful enough without borrowing funds plus interest to create leveraged positions. That magnifies your stress level.

Of course, if you are less conservative than we are and want to trade on margin anyway, your next step should be reading all the documentation on margin trading for a given exchange before getting started. Understanding how to open and close margin positions, and making sure you understand margin ratios and calls, as well as brushing up on some margin trading strategy, is part of the next step. We’ll assume you are already well versed in technical indicators.

WARNING ON RISKS, RATIOS, AND BET SIZE: Margin trading cryptocurrency is one of the riskiest bets you can take. Cryptocurrency is risky, and margin trading is risky. Put them together on a highly leveraged moonshot, and you could find yourself owing a great deal of money rather quickly (especially with low volume high volatility altcoins). Unlike with regular trading, you can lose your entire initial investment margin trading. Further, the more you leverage, the quicker you can lose it.

For example, if you go long on a 4:1 margin and the position goes down about 25% from where you opened the position (or a little less since you’ll likely owe fees), the margin will be called in, and you’ll be left with nothing. Think of it this way; you put down $25, you borrowed $75, and thus with fees you only have a little under $25 to lose of the total $100 you are betting. If it goes up, then you can keep the position open as long as you like (as you aren’t risking the lender’s $75), but if it goes down your position will be liquidated based on the rate at which you are leveraged unless you put more funds in. Do an 8:1 leveraged position and it will be called in twice as fast at around 12.5%, do a 2:1 position and it will be called in at around 50%. Yes, you can always add to your position to prevent it from closing, but this is the exact sort of rabbit hole that loses people money. For an obligatory horror story and fair warning of the perks and perils of margin trading, see the Reddit post “How I Lost Nearly 200 BTC trading this past month.”

Components Every Strategy Is Required To Have

Whether you’re after automatic day trading strategies, or novice or into advanced tactics, you’ll need to take into reason three vital components; volatility, liquidity and volume. If you’re to make profits on tiny price movements, selecting the right stock is vital. These three essentials will help you make decisions very easily:

Liquidity – This allows you to speedily come in to and exit trades at a valuable and stable price. Liquid asset strategies, for example, will focus on gold, crude oil and natural gas.

Volatility – This tells you your latent profit range. The more the volatility, the better the profit or loss you may make. The cryptocurrency marketplace is one such example well recognized for high instability.

Volume – This measurement will tell you how many times the asset has been traded within a set period of time. For day traders, this is better known as ‘average daily trading volume.’ High volume tells you there’s substantial interest in the asset or security. An increase in volume is regularly a pointer a price jump either up or down, is fast impending.

While you are investing in XcelToken Plus and about to trade on one of the 15 crypto-exchanges that it is listed and tradable on, it is suggested that you keep the above points in mind.