There are so many different variables involved with trading crypto. Because of this, it's easy to get overwhelmed with information and either make a poor trading decision or none at all.
Good traders will have a trading system they stick to. Having a system does a few things. First, it makes you better at taking that particular trade, since repetition begets mastery. Second, and this is even more important, it narrows the variables you need to look at when choosing whether or not to take a particular trade.
Even full-time professionals have a hard time keeping up with crypto. The industry is evolving and innovating at break-neck speed. Couple that with the fact that most everything is on a public ledger and you have a lot of information to sift through. The key is distinguishing the signal from the noise. To do so, I suggest you define which information you think is absolutely crucial and disregard the rest.
One way to achieve this selective ignorance is by developing your own trading system. The system will include which tools and indicators you use, along with a framework for how to interpret the different signals. If you're new to trading, I recommend exposing yourself to a lot of different styles at first. Then, when you're ready to develop your own system, you can pick and choose from what you've learned–like a martial artist who studies under a master for years before developing his own style.
To give you an example of a trading system, I've compiled a pre-trade check list below. The following are examples of things you could use to bolster your confidence in a trade.
Pre-Trade Check List
Support/Resistance
The first item on our check list is a high time frame level of support or resistance. This is a moment in price history that describes a local top or bottom.
So what qualifies as "high time frame"? It depends on who you ask, but generally the 4H chart and up. Generally, the higher the time frame, the better, as it indicates more significant levels for price to react off of. In other words, a weekly change in market structure should weigh more heavily in your decision-making process than a daily one.
Look for large scale historical market shifts from which to place your trades. This will give you a confident point of entry, as well as an obvious place to put your stop loss (directly above or below where your thesis is invalidated).
BTC + ETH Pair
One of the key differences in trading crypto vs traditional markets is that the former is often denominated in BTC (and increasingly, ETH). We're in crypto because we think fiat is trash, after all. This definitely makes sense in a bull market, when the only reason to trade alts is to outperform BTC. One could also make the case for denominating in USD during a bear market with the aim of accumulating more crypto when the market bottoms.
BTC and ETH pairings add an extra layer of complexity when determining whether or not to take a trade. I'm not saying don't ever look at any given coin's chart in USD, but make a habit of looking at the BTC pairing as well. There's no point in longing an alt that's going up in USD, but is lagging Bitcoin. Alts are much more volatile than BTC. So all you'd have done in this instance is increased your risk without increasing your reward.
For this reason it's always a good idea to look at the chart of the coin you are thinking of trading versus BTC. If you're hunting a long on an alt and it's going up in USD but showing a clear downtrend relative to Bitcoin, you're probably better off just longing BTC.
The same can be said of ETH pairs. Is ETH outpacing BTC? Then you probably want to denominate your trade in ETH.
Funding Rates
Funding rates are the premium paid by users to hold a position on a perpetual futures contract, a type of derivative. When funding rate is positive, traders who are long pay the shorts. Conversely when the price of the perpetual is below the spot price, shorts pay longs. It's the mechanism by which futures and index prices eventually converge.
Why should we care? Because one of the reasons traders prefer perpetual futures is the ability to trade them with leverage. So, funding rate is one way to try and gauge the degree of leverage in the system.
High leverage leads to increased volatility. The consequences of this were illustrated recently on September 6 when most of the market experienced a violent sell off. The event was likely caused by leveraged positions getting stopped out and forced to close. These forced liquidations then created a cascading effect which led to price dropping even further.
This is an example of why it's a good idea to check funding rates before placing a trade, whether or not your trading spot or on margin.
*Tip: You can check futures funding rates at viewbase.com/funding.
Open Interest
"Open Interest" describes the number of open or outstanding derivatives contracts for a particular market (both long and short). Whereas "volume" refers to the number of contracts traded in a given period, "open interest" denotes the number of contracts that remain un-settled. Open interest is most simply understood as the amount of potential activity in any given market.
Traders use it in conjunction with volume and price to gauge market sentiment. A rising price accompanied by increasing open interest indicates a continuation of the upward trend, whereas a rising price with a drop in open interest could indicate an imminent reversal.
*Tip: There are a handful of places to view open interest in crypto but the best has to be The Block's Crypto Dashboard (also chock full of a lot of other useful on and off chain metrics).
Conclusion
The preceding concepts are only a few of the factors one can use to develop a crypto trading system. Keep in mind that with trading systems there is no right or wrong. If there is a 100% foolproof trading system whoever is in possession of it is unlikely to share.
The preceding tips and tools will at least give you a good starting place to develop your own system. Give them a try and see what you like and what you don't. With trading, as with everything, the best way to learn is by doing.
If you're new to trading and looking for some more starter resources and education I have two quality recommendations that I learned a lot from.
The first is @tradermayne on Twitter, who specializes in price action trading. He has a lot of free videos on Youtube as well as a Discord server he's pretty active on.
The second is @cryptocred on Twitter, who co-writes a free weekly newsletter called Technical Roundup and has also put out an excellent educational video series on Youtube.
