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How to Trade Crypto — Lesson 1: Top-Down Market Analysis

Why You Should Always Begin by Assessing Macro-Level Timeframes

This tutorial teaches you to trade crypto — primarily large and mid caps like Bitcoin (BTC/XBT), Ethereum (ETH), Litecoin (LTC), XRP, and EOS — through price action-based concepts and theories. Price action-based trading (PABT) assumes it’s possible to effectively trade an asset by studying nothing but the movements of price. PABT typically doesn’t involve the use of indicators (like RSI, MACD, or OBV): indicators are considered unnecessary, unhelpful, and/or misleading when it comes to reading markets and planning and executing trades.

Disclaimer 1: The information contained in this post is for educational purposes only; it does not constitute, nor should you consider it as constituting, financial advice of any kind.

Disclaimer 2: It’s possible this article unintentionally contains one or more errors or misleading claims. Always do your own research (DYOR) before entering or exiting a trade.

Disclaimer 3: If you’re new to trading, I highly recommend reading @CryptoCred’s free and comprehensive Study Guide before reading this article.

Why You Should Always Begin by Assessing Macro-Level Timeframes

The best traders on Crypto Twitter — folks like @TraderX0X0@cryptoeazy@AltcoinPsycho@__BTC3P0__@HsakaTrades@CryptoDonAlt@livercoin@Tradermayne@CryptoCred@RJ_Killmex@CryptoUB, and @trader1sz — share a number of traits in common.

One of these traits is a commitment to analyzing markets in a top-down fashion by progressing from high timeframes (HTFs) to low timeframes (LTFs).

These traders regularly begin their analyses by assessing macro-level price action (PA) first and only then looking for setups on a micro-level.

Opinions vary, but, in general:

  • HTFs are considered H4 (4-hour chart) and up, including H4, H6, H12, Daily, D3 (3-day), Weekly, and Monthly; and
  • LTFs are considered everything below H4, including H3, H2, H1, M30 (30-minute chart), M15, and M5.

Usually, when I refer to “HTFs”, I’m talking about H4, H6, H12, Daily, and Weekly.

The reason the most successful traders analyze HTFs before looking for LTF setups is that:

HTF PA provides the context within which LTF PA operates. Assessing HTF structures and levels allows you to make (better) sense of LTF PA — plain and simple.

Evaluating HTF charts help you to discover:

  • Key levels of support and resistance (actual or potential);
  • Demand zones and supply zones;
  • Macro-level trends in PA (such as weaker and weaker bounces off a particular level — e.g., BTC’s $6k floor, which finally gave way in November 2018); and
  • Possible entries and exits/targets.

Marking off key levels and structures on HTFs before trying to find LTF setups (including possible entries and exits) will help make you a better trader because it will develop your ability to understand why LTF PA unfolds the way it does.

You can then use this knowledge to anticipate — and to effectively trade — price movements on lower TFs.

Below are two examples of how to use top-down (HTF→LTF) analysis to trade crypto.

(Note: for the second example, technically, H12 is a HTF rather than a LTF, but the example still holds because it progresses from Weekly to Daily to H12.)

Example 1: EOSUSD (Bitfinex) — Longing Multiple M30 Rejections of a Key Daily Level — 5.39% Gain; 3.15:1 R:R

This example involves:

  1. Marking off a key level on the daily chart (specifically, the last high pre-break — see Strategy #3 here);
  2. Waiting to see how several M30 candles react to this daily level; and
  3. Entering a long trade once several M30 candles reject at this daily level, and targeting the bottom of the local M30 supply zone for a 5.39% gain based on a 3.15:1 R:R (reward-to-risk).

Let’s take this one step at a time.

1. Find the most important and relevant level(s) on the weekly chart:

2. Wait to see how the daily candle reacts to this weekly level if/when price returns to this level from the other side (i.e., from above):

3A. Enter a long trade once the daily candle closes above the weekly level, and target the daily supply zone:

3B. Enter a long trade once the daily candle closes above the weekly level, and target the daily supply zone:

3C. Enter a long trade once the daily candle closes above the weekly level, and target the daily supply zone:

Summary

What these two examples show is the following:

Top-down market analysis, whereby you define key HTF levels and structures and then progressively move to lower TFs in an effort to find potential trade setups, is a very powerful approach to trading.

Working your way from, for example, a Daily chart to an M30 chart or from Weekly and Daily charts to an H12 chart allows you to craft a trade in line with macro-level PA developments.

Many traders seem hesitant to explore and to try to understand connections between HTF PA and LTF PA, electing instead to trade, for instance, H1, M30, M15 charts exclusively.

Although it’s not impossible to succeed with such a strategy, ignoring HTF levels and zones is done at your own peril.

In my opinion, you should always analyze an asset by working your way from HTFs to LTFs; if you don’t, you’ll miss the very context that makes LTF trading comprehensible.


If you’d like to support my content, you can do so via one of these addresses:

BCH: bitcoincash:qpw20efhlp6frzn4j2fy7yj3z0pcpkdr4ye7d4mysd

BTC: 3LGGmh9XyifSnVbk6fGXvCyBeEpeQap2by

ETH: 0x99f2FAB61072298ac9A24aa9F83220BbD671BB73

LTC: LVs2ZHQLn52xakMPNcCKjRL4uMcUxzvEW2

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About White Wolf Trader

White Wolf Trader
I'm a PA trader. I got into crypto in Q4 2017. I've been trading for 18 months. The essence of my trading is supply and demand, support and resistance, and top-down (HTF to LTF) analysis.

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