How to invest in Bitcoin and other cryptocurrencies

Warren Buffet said in 2021 commission free trading is “taking advantage of society’s gambling instincts”. This is all good and well, but when professional investors and hedge funds charge premiums (FUM typical model 2% management, 20% performance) and an entry point of $1.1m AUM, who can afford it?

A hedge fund may seem like the 'safe' choice, but when you look at the return it can be hard to justify the cost.

  •  A study (1998-2010) showed Fund Managers absorbed between 84% and 98% of the total profits.

Rise of the retail Trader

This year Bloomberg reports that retail investors now account for nearly a third of all U.S stock market trades.

 

 

Yet, most retail investors don’t pay for financial advice.

Many guess or following social popularity to choose stocks which can result in high loses.

So how do you analyse and pick stocks and crypto like the pros?

  1. Fundamental Analysis

Fundamental analysis is evaluating an asset's value and factors that could influence its future value. These can be external events such as quarterly announcements, competition, financial statements, company announcements, broader industry trends and news.

  1. Sentiment Analysis

Sentiment analysis simply put means, 'what do people think and want?' Has the Reddit Army or Twitter groups mobilized, cause if they have then prices will move, violently. According to CNBC, the Doge coin moved 800% "after the Reddit board talked about making it the cryptocurrency equivalent of GameStop."

Reddit board?

While the companies may not have performed well, or the coin was made as a joke, communities moving to support these assets matters! Hedge funds made visible efforts to move against them causing a huge surge in trading activity and trading entrants.

Result:

The market prices of all of these assets moved significantly, proving to be very volatile in short periods of time. Did you miss it?

  1. Technical Analysis

This is the complex bit, or if you're a mathmatical genius then simple stuff.

"Evaluating financial assets through mathematical patterns or algorithms to identify predictable changes and forecast the future direction of the price."

There are a number of tools in the market that supply the data and charts, but do you have enough knowledge adn time to use them effectively?

Applying different algorithms and using your own interpretation is where deep knowledge is required.

It takes considerable time to watch the charts, understand the algorithms, and hope that you don't miss it!

It's an ideal area for automation, then perhaps you can analyse 20 or more stocks in a day.

Selfless plug: Dcypher automates analysis of the entire U.S. stock market (NASDAQ, NYSE) and cryptocurrencies in real-time against numerous algorithms, including our own Machine Learning. The signals can be auto traded to simplify the investment and let you enjoy life.

6 must know algorithms used by professional traders.

  1. Moving Average Convergence Divergence (MACD)

    MACD, short for moving average convergence/divergence, is a trading indicator used in technical analysis of stock prices, created by Gerald Appel in the late 1970s. It is designed to reveal changes in the strength, direction, momentum, and duration of a trend in a stock's price
  2. Simple Moving Average (SMA)

    A simple moving average (SMA) is an arithmetic moving average calculated by adding recent prices and then dividing that figure by the number of time periods in the calculation average.
  3. Exponential Moving Average (EMA)

    EMA is a type of weighted moving average (WMA) that gives more weighting or importance to recent price data.
  4. Bollinger Bands

    Bollinger Bands were developed and copyrighted by famous technical trader John Bollinger, designed to discover opportunities that give investors a higher probability of properly identifying when an asset is oversold or overbought.
  5. On Balance Volume (OBV)

On-balance volume provides a running total of an asset's trading volume and indicates whether this volume is flowing in or out of a given security or currency pair. The OBV is a cumulative total of volume (positive and negative).

  1. Average True Range (ATR)

    The average true range (ATR) is a market volatility indicator used in technical analysis. It is typically derived from the 14-day simple moving average of a series of true range indicators. The ATR was originally developed for use in commodities markets but has since been applied to all types of securities.

 

A single algorithm on its own has limited value given it’s designed to identify a specific pattern, therefore in order to determine a ‘buy’ or ‘sell’ for cryptocurrencies and stocks that suits the individuals risk and preferences, multiple algorithms are needed as part of a Trading Strategy.

 

Trading Strategy

A trading strategy determines the behaviour of when you buy and sell. A simple example is passive strategy where investors buy and hold for long term, whereas an active strategy looks for short term movements to make a profit. There are many different active trading strategies each with their own market environmentals and associated risks. Some common active trading strategies include Day Trading, Swing Trading and position trading. 

 

For a retail trader, the trading strategy is the main mechanism to personalize their approach to suit their financial position, risk appetite and market focus. Traditionally, professional traders have been the only group able to afford expensive systems to cater for their need to personalise strategies. However this is where Dcypher differs, we have designed our back end to allow us to create numerous pre-tested trading strategies, and even allow experienced traders to create and implement their own custom strategies. We will share more details around our personalised trading strategies in a later blog. If you would like to experience our pre-tested trading strategies, please download the Dcypher trading app for iOS or Android.