The Dow Theory

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.

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

What are Trendlines?

A trendline is a line drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame. They show direction and speed of price, and also describe patterns during periods of price contraction.

The trendline is among the most important tools used by technical analysts. Instead of looking at past business performance or other fundamentals, technical analysts look for trends in price action. A trendline helps technical analysts determine the current direction in market prices. Technical analysts believe the trend is your friend, and identifying this trend is the first step in the process of making a good trade.

To create a trendline, an analyst must have at least two points on a price chart. Some analysts like to use different time frames such as one minute or five minutes. Others look at daily charts or weekly charts. Some analysts put aside time altogether, choosing to view trends based on tick intervals rather than intervals of time. What makes trendlines so universal in usage and appeal is they can be used to help identify trends regardless of the time period, time frame or interval used.

A similar strategy involves something called a moving average. This involves tracking the typical prices of a crypto asset over a set period of time — and whether it’s a week, 10 days, 30 days or more is up to you. Comparing moving averages over a shorter time frame with a longer one can uncover new trends and enable you to pick up on significant levels of recent growth and decline that a more long-term statistical breakdown wouldn’t reflect too clearly.

Use Trendlines to predict the price movements of your cryptocurrencies or XcelToken Plus on an Exchange site of your choice.

How to use the Ichimoku Cloud indicator while trading?

As mentioned yesterday we will be going over Ichimoku Cloud trading structure, which does not need any extra pointers on the chart. This Ichimoku trading strategy is relevant for every trading instrument and timeframe.

Placing a trade when the price closes outside the cloud

This technique could also be coined the Ichimoku Breakout Trading Strategy. This is because the trade trigger occurs at the point the price breaks through the cloud. First, you open your trade in the direction of the respective breakout and then hold the position until the security breaches the Kijun Sen (blue line) on a closing basis.

Sequence of Events

When analysing the price action for potential trade entries, we walked through the following sequence of events:

First, the price of Intel goes through the Tenkan Sen (red) and Kijun Sen (blue) in a bullish fashion. Although these indications are bullish, we still need extra approval to take a long position.

Second, the price of Intel breaks through the cloud in a bullish fashion as well. We open a long position (first green circle) and wait for the best strategy.

Third, Intel had a few unsuccessful attempts to break the Kijun Sen (blue), but lucky for us, the price never breaks on a closing basis, and the upward trend remains intact.

Fourth, the price breaks the Kijun Sen in a bearish direction and closes below the Kijun Sen. This price action means we need to exit our position and begin seeking other opportunities.

So, What Happens Next?

In the next 4 hours, the price does another bullish break through the Tenkan Sen (red) and the Kijun Sen (blue). At the same time, Intel also breaks the cloud in a bullish direction once again. We take another long position based on the bullish price action. On this run-up, Intel, unfortunately, broke the Kijun Sen (blue) on a closing basis; therefore, we exited our long position with a decent profit.

These are two trading examples of how Ichimoku Cloud trading strategy could be effectively applied. Note that in the second case, the signal to exit the position wasn’t very strong, but should still be honoured.

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.

Cryptocurrency Trading Strategy: Buy-and-Hold Cryptocurrency Trades

XcelToken Plus is an ERC20 token on the Ethereum Blockchain Platform that is created to build, engage and foster a large crypto-community within the hospitality, retail and gaming sectors. XcelToken Plus is now available on 14 diverse cryptocurrency trading platforms where you can use the below cryptocurrency trading strategy:

Ways to Enter Buy-and-Hold Cryptocurrency Trades

Many investors simply buy cryptocurrencies and hold them until they feel it’s a good time to sell. These stockholders often do-little technical examination before incoming trades and may in some cases prefer not to use stop loss orders.

Traders and investors with technical examination skills may prefer to enter cryptocurrency trades after weak or significant price retracements. Other participants like to enter the market on a break of resistance. This adds the benefit of motion sanction.

Buy-and-Hold Tips for Trading Cryptocurrencies

Use larger time frames for technical analysis, for example, daily, weekly, and monthly charts.
If using stop losses, don’t place it too close to your entry.
Leverage should be minimalized or no leverage should be used. Holding leveraged cryptocurrency trades for months or years can be costly.
If possible, take advantage of pullbacks to get a better entry price.
If the uptrend is non-volatile and very strong, don’t wait for deep retracements. At-market entries may be considered in this instance as well as breakout entries.
Keep an eye on vital factors that may influence the long-term viewpoint of the cryptocurrencies you’re trading.

Use the Buy-and-Hold Cryptocurrencies Trades a good cryptocurrency trading strategy while trading with XcelToken Plus on any of the 14 platforms that it is listed on.

Cryptocurrency Trading Strategy: The Balanced Portfolio Strategy

If you need balance in your life this may be the best cryptocurrency trading strategy for you. A balanced portfolio strategy comprises of buying numerous cryptocurrencies, for the same volume across the marketplace.

Say you invest in-

Litecoin

Bitcoin

XcelToken Plus

You have a budget of $900. You’d invest $300 into each coin allocating your asset evenly. This way you’re distributing the risk across the board.

This is a good way to test dissimilar coins, when you’re uncertain of which ones will do well for you or not. You’ll rapidly find out which currencies have the best shot in succeeding. From there you may want to only invest in one or two coins that have given you the lion’s share of profit.

The only disadvantage to this approach is that, for example, one of the coins produces a 10% gain while the other two lose 5%, you would be stuck with no profit, however this is rarely the case. Of course this would work in inverse the opposite could happen as well, so again, you’re fundamentally scattering out your risk across several coins with this approach.

Tip: Make sure each coin you invest in are utilize diverse utilities. For example: one privacy coin, one security coin, one equity coin, etc.

Use the unbalanced portfolio strategy a good cryptocurrency trading strategy while trading with XcelToken Plus on any of the 14 platforms that it is listed on.

Cryptocurrency Trading Strategy: The Unbalanced Portfolio Strategy

The unbalanced portfolio strategy is simply designate a ratio of crypto for investment into each coin solely on how well you think it will do. You’ll assign the maximum percentages to the ones you think will perform the best.

If Litecoin has proven itself to you as the most profitable, then that’s the coin you invest the most into. For Example: Litecoin — 60% ETH — 15% XcelToken Plus — 15% Ripple — 10%

Prearranged fractions are what you would go off of, for each following buy.

This is best suitable for those that have done widespread enquiries into each coin. Fractions for each coin can be altered, but make sure you have an sophisticated motive before doing so.

Main downside for this strategy is foreseeing proportions erroneously and missing out on the best gains.

Use the unbalanced portfolio strategy a good cryptocurrency trading strategy while trading with XcelToken Plus on any of the 14 platforms that it is listed on.