My Edge, what is it? And a crypto update

What is my edge?

As traders, we have to ask ourselves this question routinely—particularly if changing anything.

My edge identifies the market structure, trend and odds-based trades.

Identification of the market structure comes down to experience in the live market. Backtesting is a must but is no substitute for watching price in our chosen timeframe.

The trend is much talked about but remains elusive to most of us. I found the volume-weighted average price (VWAP) indicator on its session setting invaluable here. If trading a higher timeframe (such as the crypto investment), I like the anchored VWAP.

The shorter the time frame we use, the more we seem embroiled in odds-based trades: stops and targets—reward and risk—and the management of a transaction. So I have reintroduced trend line breaks and a two to one no quibble reward to risk. I’m also interested in the study of volume profiling.

As I’m still, and will be for many weeks yet, in the process of moving home—and making the one we’re moving to livable—I’m limited to an hour or so each evening backtesting the day. I do, however, take at least one day a week to dedicate to the charts.

Staying current in the currency markets is vitally important. But time out is also an opportunity to develop and reflect. Therefore, trading with clarity of method with practised (no mistake) purpose is vital.

Simplification is also a product of my time out. When busy in the game, I can be blind to development creep. That is, I introduce too many markets and systems without objectively examining what works and what doesn’t.

Getting back to an honest reflection of ‘what is my edge’? And only doing what that is.

Crypto.

We’d posted buy levels in Bitcoin and Ethereum—provided again below in British pounds.

Bitcoin provided both entry levels before returning to the all-time high. Those that bought, fundamentally and technically, you will find much information to influence whether you now stay or sell.

Taking at least some profit at this point would be sensible. Investing is a different approach. It’s for the long haul. But taking some, if not all, of the gain now is still advisable, and if we have a pullback in price, I will provide a suitable re-entry level. However, there is a 40 per cent chance that the price will continue higher and you are not on board!

Ethereum gave us only the higher entry-level. So we are only half loaded in Ethereum. It, too, although not at an all-time high, is at a distinct technical level. So the same profit-taking argument above with Bitcoin applies equally to Ethereum.

Bitcoin and Ethereum daily bars priced in British Pounds.

Nearly a crypto buy opportunity

On the 7th of September, crypto markets dipped some 20% in value within a few hours.

A move, it is thought, engineered by more oversized crypto holders to remove leveraged traders.

If that were the case, it seemed to have worked!

That is why with crypto, it is best not to use leverage.

What we are considering is a phased value level purchase—dollar-cost averaging, in other words.

We have three value levels on both Bitcoin and Ethereum (yellow lines).

The initial drop in price on the 7th hit the first level in Ethereum and two lines in Bitcoin.

However, achieving a buy on the second level in Bitcoin was too fleeting.

These anchored value-weighted average price (VWAP) levels are slightly different in each timeframe.

In other words, a trader viewing the buy levels on a daily chart will achieve a different entry-level to a trader in a lower timeframe, such as a 30-minute chart.

However, as we are dollar-cost averaging and with a long term hold in mind, the daily chart is more than suitable for our purpose.

Be patient and wait for staged purchases to be at or below the levels indicated by the yellow VWAP lines.

Take only one entry per level per crypto market.

Buy on the way down rather than up as price might not get to the second or third level. That is up to each investor to decide for themselves. And, of course, we must refer you to our disclaimer page.

Have you considered investing in Crypto?

How goes the fund?

I am trading small for the time being and putting a lot of time and effort into my skill development.
August is well known as the holiday month for most industries, undoubtedly reflected in the market.
Volume is exceptionally light so far this month. Being in training mode right now, therefore, is no actual loss of opportunity.
My work continues as an intraday currency trader.
I am significantly more trend-oriented than previously and enjoy incorporating my understanding of the Volume Weighted Average Price indicator (VWAP).
I am using the VWAP in both the session mode with standard deviation lines and (which is proving to be a pleasant bonus) the anchored VWAP.
I’d spent a lot of time previously on the Commitment of Traders (COT) report.
And, although the VWAP and COT are worlds apart in how they have derived and their respective timeframes nonetheless, I feel that being familiar with one has aided my adaptability to the other.

Crypto investment


I’ve had a few questions recently on the best place to put aside money for grandchildren. Long term investing.
The usual ISAs are an option, but if you’ve filled those and want somewhere with a significant oomph, you must consider Crypto.
If you’re looking long term and you are not going to get too stressed about the ups and downs—in essence, you’re happy to use dollar-cost averaging. Then you have to get in on this.
Consider going back in time and having the opportunity to buy Apple while Jobs and Wozniak were still operating out of a garage.
That could be Crypto right now. I know you’re not convinced, but the more I study the subject, the more I realise the potential of Crypto.
In a nutshell, an investment in Crypto has a probability of a 50% loss or a 500% gain.
It could be worth the ride!
I will provide links here soon to simple explanations on what it is all about.
The two that I’m watching are Bitcoin and Ethereum.
They are very different. However, each has an overarching reason to invest.
Bitcoin has a hard limit of 21 million coins, and Ethereum (as early as next year) could provide a yield.
Volatility is mainly due to the small number of big players and low institutional involvement. But that is all changing.
Crypto is a billion-dollar market. However, it has the potential to take a significant slice of the Bond and Gold trillion-dollar market.


But how do I invest?


The first advice in Crypto is don’t use leverage. It would be best if you bought it. And this is easier than you might think. Again, I will provide the links on how-to soon.


To get you thinking.


Even though we are dollar-cost averaging, it is better to not throw money at it willy nilly.
I want to provide critical moments based on VWAP signals and technical analysis on value and break out points.
You would then do your purchasing.
One of the advantages of Crypto is that you can buy small amounts. Let’s say you had £1,000 (or multiples of) to invest in Crypto.
I’d follow Chris Lee’s suggestion (more of his links in the next blog) and split the investment equally between the two coins.
Of the split amount, I’d put half (£250 split into quarters, say) into value entries and the remainder into breakout entries. Then, finally, I’d give you the timing to enter each.
That is enough for now. As I say, this is food for thought, with more to follow soon.

Develop your own trading style

There are so many styles of trading, so what makes sense is the direction we go.

However, we do spend an awful lot of time following what we happen to come across initially.

To a developing trader, I’d say try a wide field of methods to see what fits best.

But even a good find is constantly evolving.

In years gone by, day trading acquired a bad name. So much so that present traders, to make the distinction, refer to it as intraday trading.

Day or intraday trading has changed due to improvements in technology—and consequently tighter bid/ask prices—and greater liquidity.

More (if not the majority) proprietary firms are intraday trading today.

What I’ve liked recently is anything by Mike Bellafiore. Start with Chat With Traders episode 162, followed by One Good Trade (available on Audible) and The Playbook—an inside look at thinking like a professional trader.

As he is known, Bella teaches stock trading, but the material is excellent for whatever we have on our screens. For example, if you haven’t considered watching the order flow (also known as Depth of Market)—and the chances, like me, are no. Then Bella will make you reconsider.

The VWAP is an excellent tool for stocks and shares, commodities and (probably) indices. Not as valid for FOREX. Read The VWAP roadmap by Zach Hurwitz.

I trade gold (XAU/USD) intraday, which can provide a VWAP signal throughout the day (UTC+1) and recently the DAX (DE30) from early morning until early afternoon and watching again the US 500 (S&P) and US 2000 and US 30 from midafternoon (New York stock exchange open) onwards.

I watched bitcoin for a few weeks and decided to give it a miss—at least for now. A great introduction to bitcoin, and one that will change your mind if you have a negative bias, is the Digital Slowmad letter by Chris Lee.

Trading gold and bitcoin

What am I trading at the moment with the fund?

Gold and Bitcoin. 

To be more exact, in comparison with the US dollar.

Firstly the yellow stuff. 

It is highly liquid, meaning it has no gaps on the chart—even at the lowest measurements like the one-minute bars or 100 tick bars.

Trading over the last few weeks, gold has generally traded bullish at between $1,750 and $1,900 per ounce.

I get a good read on gold with my only ‘where am I to the broader market’ indicator: the institutional volume-weighted average price or VWAP.

Beyond that and awareness of the previous day’s price action, it’s all down to traditional technical analysis.

Is it a good idea for an intermediate to trade gold? Probably not, but if they do only on the proviso that their risk management is faultless. As with any pairing but particularly gold. 

Bitcoin

Bitcoin is a very recent trading possibility because its price fell recently by 50% from some $65,000 per coin.

Today trading in the region of $36,500, bitcoin entries are available, but pockets still need to be significant.

But let us go back one. 

I am a big fan of the future of bitcoin. For many reasons but mainly:

  • We can buy .00000001 of a coin (it’s available to anyone).
  • It is decentralised. (Presently a perceived disadvantage that I think will become a significant advantage).
  • It will top out eventually at 21 million total issues of the digital coin. (Compare this to the US dollar that seems to be never-ending printed).
  • It follows fixed rules.

The distribution between competitive financial assets is namely: gold, negative yield bonds and crypto. 

That amounts to some £30 trillion in market cap, with bitcoin presently taking only $1 trillion. That distribution will change and, accelerated by the economic effects of the pandemic, relatively quickly. 

But I get away from the intraday considerations.

Bitcoin characteristics are similar to any other highly liquid asset during the London and New York trading sessions.

However, we avoid the New York close as some significant gapped price changes at this time have occurred.

Moreover, the margin required on bitcoin is significant, which is on a so-called professional 1:500 leveraged account. 

And within that large margin, sensibly, it needs to be a low percentage of one’s overall account. 

So not a realistic consideration to most retail traders.

Other than that, as with gold, bitcoin seems to be represented suitably by the VWAP indicator—but it is early days to determine the VWAPS overall utility in this instance.