My name is Marek Hawk. In today’s article we look at 3 techniques how to smartly monitor money flow in cryptocurrency field. These simple techniques will help you to distinguish when is the right moment to open trades on Bitcoin and Altcoins, and, I will describe you the right moment when is the right time to leave the position. Perfect guide for beginner or mid-experienced trader. Keep reading if you want to find out how to handle next crypto hype with maximum profits on both sides: Bitcoin and Altcoins.
If you eager to learn more tips from us, we will be glad to see you at our webinar on Tuesday at 20:00 CET where we will share more techniques: short scenarios strategies, consolidation trading tactics and horizontal volume techniques of markets capitalization. Be prepared to handle new crypto hype at maximum potential!
1. Free Tools for Analysis
First, I will share the tools I am using for better visualization of the charts. Very handy tool is Chart Viewer of Coin Trader: https://charts.cointrader.pro/. I will use the screenshots from this tool as it gives us better comparison view of the market capitalization. In case of checking capitalization numbers, I also use https://coinmarketcap.com/ which is well-known.
Before jumping into the charts, it is necessary to mention that market capitalization is not the price. It just gives us a clue about capital inflow and outflow, but in the end, it influences the price very much. We can say that the price is the amount of money expected, required, or given in payment for something. Capitalization gives an idea about the quantity, size of market which in the end influence supply and demand, then also a price. Let’s look at our charts!
The orange line represents history of Bitcoin market capitalization and the blue one represents the capitalization of altcoins. On the right side you see Y axis - the market capitalization value in USD. Unfortunately, we do not have long history data because cryptocurrencies started being traded several years ago, so we can analyze behavior only for several years back.
For the analysis I use 1 day timeframe and 4 hours timeframe to get bigger picture of situations.
2. Basic Correlation Between Altcoins and Bitcoin Capitalization
We need to learn something about inflow and outflow in terms of capitalization. It is more probable after higher inflow that there is a high probability of deeper correction. Beginners usually try to catch a movement after unusual big upside move. In 90 % percent cases they enter late into the markets. Because of that it is necessary to wait for pullback. We saw this through the history several times also in crypto. We can demonstrate this on the screen below:
Since the end of April, we saw the breakout of the resistance levels. Altcoin capitalization raised around 600 % since the level breakouts. Bitcoin capitalization grew around 130 %. Look at the correction of altcoin market cap: – 50 %. Let’s compare it with Bitcoin correction:
Bitcoin correction was not so significant as the pullback of altcoins: half of absolute size only and -37 % from its ATH. Similarly, second wave of the bull-run with the same percentage amounts. Altcoin market cap corrected again with –50 % in relative comparison.
Look at Bitcoin correction, still around 37 % and less significant amount in absolute comparison:
How can this information help you?
Be careful when you are considaring buying at peaks and much more careful with fast volatile movements. Much more safer method of timing the enter is during corrective period. If the markets are correlating, be prepared for trading pullbacks for both markets in case of bull speculation.
3. Market Capitalization Divergence
What I consider as a very interisting measurement – it is a marketcap divergence. Look at third wave of the bull-run in 2017:
During third wave Bitcoin overperformed altcoin with 154 % gain in market cap comparisons. Firstly, we saw that Altcoins were consolidating (B) and Bitcoin was gained significant percentage (A). What happened after third wave is the key event. After Bitcoin capitalization outflow (C), smart money flew into altcoin market (D) and altcoins started growing significantly with Bitcoin.
Another market capitalization divergence I would like to show in this article is the last one. It was formed during April this year. Bitcoin capitalization is slightly growing (G), but altcoins capitalization is in correction (H). The market with positive divergence started growing more dynamically again. Inflow of smart money into Bitcoin market was performed in the same time of smart money altcoins outflow.
4. Last Tip: Pullback Measurements
Last great tip in this article is technique called pullback measurements. It is based on the fact that stronger market, which is going in the same direction as another, is forming weaker pullbacks. It means that one side (bulls or bears) is in control. In case of similar previous movements for both markets it is better to focus on the market with weaker pullbacks unless strong counter movement is performed.
The chart above describes the situation prior the last wave of altcoins in 2017. Bitcoin and altcoins were showing outstanding performance. However, Bitcoin capitalization was showing deeper pullback (F) than altcoin capitalization (E). After correction, altcoins gave traders an opportunity to join the movement. Fifth wave of rally finished with tremendous percentage gain.
We just presented you 3 of our tips we are using for our trading decisions in case of trading cryptocurrencies. These 3 tips are going to help you to decide which market you would like to trade with better potential reward and probabilities on your side.
Invitation to the Webinar: How to Maneuver between Bitcoin and Altcoins: Smart Money Techniques Tips
If you would like to find out more tips and techniques how we maneuver between Bitcoin and altcoins, go to our webinar on Tuesday at 20:00 CET and we will present you much more. Short scenarios strategies, consolidation trading tactics and horizontal volume techniques of markets capitalization. And you can ask any question you want! We will be happy to answer you! Are you ready to handle new crypto hype at maximum potential?