I have a bit of time so let's have a little thread on why I rarely trade altcoins and why you probably should avoid it too and also if you decide to trade them, how to do it properly. For those that hate thread emojis, here are nine of them. π§΅π§΅π§΅π§΅π§΅π§΅π§΅π§΅π§΅
So the crypto market is heavily correlated and tied together, although most new people coming to space don't even know Bitcoin exists, the correlation matrix is still very high with every coin being between .5-1 correlation.
This obviously creates an issue, although you might be a die-hard fan of some L2 project or something else when Bitcoin won't perform well your beloved coin will sink with it. as well.
If you cut out the amazing groundbreaking technology that every single altcoin is about to deliver to the world, altcoins are essentially high beta assets to Bitcoin. This means they move the same as Bitcoin but more to both downside and the upside.
What does this actually mean tho? On the left, there is DOM for BTC and on right there is DOM for SOL (they are denominated in the underlying.)
You can see that at the best bid/offer for BTC there are around 32 coins on bid and 22 on offer, Solana has 304 and 254.
You can see that at the best bid/offer for BTC there are around 32 coins on bid and 22 on offer, Solana has 304 and 254.
If you convert that to USD obviously the value in the Solana order book is much lower compared to Bitcoin. Since all markets are correlated and there is a lot of algorithmic buying and selling going on when Bitcoin will move up, Solana will move as well but
way more because it is thinner market therefore it takes a less size to move it.
This often creates a false idea of "altseason" as you can see on the image where SOL broke through multiple technical levels but none of them worked at retest simply due to the fact Bitcoin was weak
This often creates a false idea of "altseason" as you can see on the image where SOL broke through multiple technical levels but none of them worked at retest simply due to the fact Bitcoin was weak
This of course is a problem if you get baited into the premise of an uptrend, go long 20 different altcoins that are just thin versions of Bitcoin and if BTC decides to reverse you are screwed.
So since now, the bull market is over and you cant get away with stupid 3am drunk leverage long that worked out simply because everything went up is there a way to trade altcoins profitably?
I would say there definitely is but since you are not in the crypto "cool" club that benefits from insider info, you will have to get more creative and more short term viewing these things more like penny stocks than anything else.
For example, buythedips.io provide a very interesting comparison of different coins based on volatility and performance, this way you might be able to choose coins for upcoming day/days that will actually perform well and break correlation for the short term.
Another great tool is coinalyze.net which lets you see the orderflow of the different coins, this way you could have noticed by looking at CVD that the spot market is absorbing futures selling pressure which is a bullish signal that leads to short term pops.
If you don't know what CVD is it is explained here btw tradingriot.com
The last example would be looking at the newly listed coins (not VC crowded trash) that are purely driven by speculation upon listing so you will notice they are very speculation driven, a lot of times it is worth using on-chain tools such as dexscreener to see orderflow.
To sum things up correlated markets are nothing new, it is the same in index futures or in forex but since crypto is such a retail market people fail to understand simple concepts and end up getting hurt most of the time.
If you liked the thread make sure to read the blog at tradingriot.com. There is a bunch of cool stuff there about trading.
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