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Trend Following
A trading strategy that consists of buying an asset in anticipation of the beginning of a strong uptrend and then selling that asset before the trend reverts is probably the most straightforward trading idea and the one every trader tried to pursue at least once. As the famous Wall Street quote states, “The Trend is your friend”.
On the other hand, just like the underlining concept can appear to be very easy, it can be tricky to identify a real strong uptrend at its early stages.
Coinrule provides the tools to screen the market 24/7 in search of the signals of a new uptrend developing and can give a warning about a possible downtrend forming.
A way to identify a new uptrend developing is to look for sudden and strong price movements. In May 2016, BTC had a daily price change of more than 11%. That day, the price change alone flashed a strong “buy” signal.
Of course, a trend following strategy should always try to avoid the FOMO traps. To do that you need to catch the price moves that show significant underlining strength, in this case the risk/reward of the trade will be more interesting. Usually, a strong price move at the beginning of a new trend is also coupled with a significant volume increase.
With Coinrule, it’s easy to set up an automatic trading strategy, to buy when certain price conditions are met.
In the example shown, we built a rule that will promptly buy the asset that has a price change of more than 5% and a volume increase of 500% in the last 3 hours. When the condition is met, the algorithm will send a buy order of 100 USD worth of that coin to the exchange.
You can also define when to take profit on that trade within the same rule. After buying the coin the bot will look for the additional price condition that will trigger the sell order.
On the other hand, the sign of a major uptrend developing could be represented by the breach of a significant price level. A resistance is a price that historically has proven to be difficult to overcome. Only a very solid underlying demand for the asset can revert the trend, and very often that is the signal that a new uptrend is starting.
For example, during 2018, every time LINKBTC cleared a previous high, that lead to a new leg up in the uptrend. The more significant was the resistance breached, the more solid was the upward price movement generated. When finally in January 2019 the All-Time-High was passed, the price spiked around 30% in a few days.
These are the signs of a sustainable uptrend we are looking for to implement a trend following strategy. Please note that the described trend was so strong, that the price increased more than seven-fold in 6 months.
The price levels are editable at any time so you can adjust your rule depending on the ongoing market conditions. We are also working on adding technical indicators to the rule conditions for a more advanced trading experience!