Ethereum Trading Strategies
In this section, we’ll be looking at some Ethereum trading strategies. This will help us make profitable trading decisions. All we need for this trading strategy is two technical indicators:
The MACD is one of the most common indicators used by traders around the world. It works in a variety of different markets and is used to spot trades before they happen. Our team at TSG has written extensively about how to properly use the MACD indicator. It can be found in our top awarded strategy MACD Trend Following Strategy.
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The MFI indicator is based on price action. It incorporates Volume in its calculation, which is quite similar to other oscillators. In other words, we can use the MFI indicator to measure buying and selling pressure.
We can use the MFI indicator to trigger entries and to take profits.
The easiest way to interpret the MFI indicator is that a reading above the 50 level represents an inflow of money into the cryptocurrency. A reading below the 50 level represents an outflow of funds from the cryptocurrency.
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The other critical MFI thresholds are 20 and 80. An MFI reading of 20 is considered bullish and oversold. A reading above the 80 level is considered bearish and overbought.
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The MFI measures the market sentiment giving you signs. These signs are whether the cryptocurrency is oversold or overbought and to what degree.
Using the MFI indicator is probably the most useful measurement of sentiment available to traders.
Let’s now take one step forward and see how you can make money applying Ethereum trading strategies.
Step #1: Wait until the Money Flow Index drop below the 20 level.
The first rule is that you always want to wait for the Money Flow Index to be in oversold territory. In other words, we need to have an MFI reading below the 20 level.
An extreme MFI reading below 20 suggests that there is very heavy money outflow from Ethereum. As history has repeatedly shown, this information can be used as a contrarian indicator.
The MFI indicator is not a standalone indicator. There are plenty of good cryptocurrencies that have high MFI reading, and most bad ones have low MFI reading.
So, in order to use the MFI indicator, we need to check it against other technical indicators. These are the reason why we also use the MACD indicator.
Step #2: Wait for MACD histogram to break above the zero level
The second rule is to wait for the MACD histogram to turn positive. This is a confirmation that the bullish momentum is starting to build up. Now, we have two rules in place, but these are still not enough to trigger an entry.
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Indicator-based strategies are very unpredictable. This is the reason why we’ve added another confirmation signal before to enter and buy Ethereum.
Now, we’re going to lay down a straightforward entry technique for Ethereum trading system.
Step #3: After MACD turned positive, Buy after MFI also breaks above the 50 level.
As an extra measure of caution, we also like to wait for the MFI indicator to break above the 50 level before to buy Ethereum.
A reading above the 50 level represents an inflow of money into Ethereum. This is the moment when smart money is stepping into the market. We want to trade alongside smart money to really make a profit trading the cryptocurrency market.
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The next important thing we need to establish is where to place our protective stop loss.
Step #4: After Place Protective Stop Loss below the Previous Swing low
In order to minimize our potential loss, we want to place our protective stop loss very close to the market price. At the same time at a price where it should really invalidate our trade signal.
For the Ethereum strategy, the ideal place to hide the stop loss is just below the previous swing low. You can always add a buffer to protect yourself in case of a false breakout.
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The next logical thing we need to establish for the Ethereum system is where to take profits.
Step #5: Take Profits when the MFI enters Overbought territory or above the 80 level.
When it comes to our Ethereum take profit trading strategy we want to cash some profits at the first sign that the market is about to turn against us. Otherwise, we risk given back some of our hard earned gains.
The first indication that the market is about to turn is when the Money Flow Index enters into overbought territory. In other words, when the MFI breaks above 80 levels, we take profits.
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Note** the above was an example of a BUY trade using Ethereum trading strategies. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
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