*This trading strategy is based on Fibonacci Ratio and Elliot Wave Theory. As with any trading strategy theory, do your own research and make your own decisions as leverage trading is dangerous. Use at your own risk.*
Okay, today we are going to do a little exploration. I want you to imagine that you are trading with derivatives using high leverage. We are going to look at a market between a couple of different time scales, collect some information, draw some conclusions and then decide on what the best plan of action.
First off, it is of extreme importance to view every market in a number of different time scales. In order to come up with any accurate projections on which way a market is going to go, this is imperative. If you view a market and choose to only look at the price and volume for a single day, you will be unaware of the dangers that may lie beneath the surface of that market. A long position buy into a bearish market can be like a step onto the thinning ice of a lake in springtime. Other times it can be quite the opposite. If you are trading at high leverage to avoid the risk of exposure, then you must know when it is the right time to buy long into a bear market and when to stay the fuck off of the lake.
This example will be for trading XRP/USD at 100X leverage. Always make sure that you have enough collateral in your trading account to survive any unexpected drops in price. You don't want to get liquidated before the rise. As I write this article I am actually watching the market do exactly what I thought it would so I hope you guys enjoy.
*I'm going to go ahead and call these images Figures 1, 2, 3, and 4 starting at the top left to the right (the same as reading a book).*
In figure 1 we can see what looks like the end of a small bull run. Not shown here, is a much larger scale image on the price of XRP, which shows that we have actually been in a bear market for quite some time. Kind of confusing, huh? To confuse this a little more, this bear market is in reality the much larger retracement of a much larger bull market for crypto, which has been correcting since bitcoin's last big rise to over 14,000.
Taking all this into account, we know that the market has been falling, as see in figure 2 and 3.
One of the biggest mistakes that a trader can make is to go against the major trends of a market, right? This is usually true. When spot trading in order to make profit you usually would go with the market trend, but even then you would need to be aware of all the different pressures within a market as the larger scale pressures will eventually prevail against the smaller scale pressures.
In this case, when trading at high leverage, we are not looking for long term exposure. Our strategy must be tailored to get in quick at the right place and get out quick to take our newborn profits. Look at the bearish wave formation in figure 2 and 3, which I have broken into sections. These sections are, small 'motive waves' (a motive wave is a wave in the same direction as the overall market is actually headed on average) making up a larger 'motive wave' in this bearish trend. If we look at all 5 segments of descent shown in figure 2 and 3 as one, singular 'motive' wave traveling down, then we can expect to see a market correction in the opposite direction.
If this is true and we were to sell at 100X leverage, the market would turn around and make it's correction, possibly liquidating our new investment if we did not hold enough collateral in our account for it to survive. What's more, is that in the much larger time scale, pressure is forming from the larger bull market (mentioned in the first part of this article) for the market to begin rising again. This means that the market could turn around and never return to our sell price, leaving our investment either surely liquidated or suffering loss. This is not so much our concern, however, as we are trading on a small timescale for minimum exposure and maximum profit.
In figure 4, a somewhat smaller timescale is shown. This timescale is that on which we are actually trading at our high leverage. The price has dipped significantly and the moving averages seem to be headed down still. If we had not looked at our larger timescale to make a projection, we would probably sell here, trying to follow the overall market trend.
Instead, because we were savvy and looked at our larger timescale to make a projection based on wave theory and the simple mechanics behind market corrections, we should choose to buy here on high leverage. Once again, we are not looking to stay invested here for long. We are also not expecting a great and permanent rise. As of now, we are just making profit on an expected correction in a bear market.
DO NOT GET CAUGHT thinking that the market is going to keep on rising! Once you have made a profit close your positions and re-evaluate. It is likely that you will be able to buy in at least a couple more times and make a profit, but if the retracements of the rising price are getting smaller then GET OUT. The longer that you buy into a bear market, the more risk you have of having it drop off and sink your investment like the Titanic. Make new projections based on the new data. Do not be too quick to buy in again, as the market can very easily continue in it's bearish trend.
I hope that this helps all you fellow traders! I'll hurry up and post this as my projection has already begun occurring :)
-Original Article and Image by Jonathan Caleb Williams
