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Tether trading strategy can teach you a way to catch a falling knife while taking very little risk. The bottom rotation trading technique taught in this step-by-step trading guide is more suitable for day trading.
Our team at Trading Strategy Guides is working hard to put together the most comprehensive PDF guide to different cryptocurrency strategy. Previously we have covered OMNI Cryptocurrency Strategy, which is another cryptocurrency build on the Bitcoin blockchain that acts as a bank account with zero fees.
There is a trading technique that we have developed where you can risk very little and catch a very strong intraday reversal. If we can develop this skill of catching a falling knife, we’re going to be able to better control our risk and maximize the upside.
If you’re a tech savvy, you can also use an algorithm and program it to capture this trade setup. However, before catching falling knives, there’re two things you’ll need to learn to do:
- Discipline – follow the rules
- Repetition – doing the same thing over and over again
If you learn these two things, you’ll be able to catch a falling knife!
Moving forward, we’re going to explain what is cryptocurrency Tether (USDT), and last but not least we’ll share the key trading rules to bottom rotation trading with which you’ll be able to catch falling knives.
What is Cryptocurrency Tether (USDT)?
Tether is a cryptocurrency that is pegged to the US Dollar. The idea behind cryptocurrency Tether is to create a stable currency relative to the US Dollar which is subject to inflation. That’s much needed in the cryptocurrency community and extremely useful for the cryptocurrency exchanges that don’t want to deal with fiat money like Binance exchange and Poloniex exchange.
The Tether cryptocurrency price is at par with the USD’s price. Since Tether has almost a 1:1 ratio with USD it means that the Tether cryptocurrency price will always have a 1:1 ratio with Bitcoin price.
At the moment of writing this step-by-step cryptocurrency guide, Tether is a top 10 cryptocurrency having a total market cap of more than $2.4 billion.
Now, before we’ll outline a method on how to buy cryptocurrency Tether, we always recommend taking a piece of paper and a pen and note down the rules of the Tether cryptocurrency trading strategy.
For this demonstration, we’re going to look at the buy side.
Tether Cryptocurrency Trading Strategy
To catch a falling knife is the Wall Street slang for buying an instrument that has seen a steep decrease in their price and trying to pick the bottom before the reversal happen. Catching a falling knife work only if you have a systematic trading strategy to approach the market otherwise you’ll find yourself that catching a falling knife with the bare hands can be painful.
You have to avoid taking trades based on intuition, especially when trying to catch a reversal. In this case you need to be precise as possible and we’re going to teach you a very simple daytrading strategy
These are our trade criteria to bottom rotation trading:
Step #1: Wait until Tether Cryptocurrency price moves in a horizontal consolidation
After a strong bearish trend wait until the market starts to develop a horizontal consolidation where the price moves back and forth without any clear direction. We need to see a perfect horizontal consolidation as part of the bottom rotation setup.
The consolidation is the first price structure that needs to be satisfied for being able to catch a falling knife.
Today’s example is a 15-minute Tether chart:
During these times of consolidation when the cryptocurrency price moves back and forth the institutional money accumulates their positions.
However, before the trend reversal to happen, the smart money will deploy one more trick to fool the retail traders. See below:
Step #2: Wait for a fast breakout (clear-out of stop losses) of the support level
Right before the reversal to happen, you’ll often time notice a false breakout below the consolidation support level. There is no conspiracy that stop hunting do happen in all markets and this trade setup clearly emphasizes this aspect.
Two things happen when we break away from this consolidation, and both things are adding confluence to the bullish case scenario:
- The stop losses of those who got long off of support will get triggered.
- New traders will short the market because of the downside breakout.
Next, the price structure needs to abide by the following rule:
Step #3: The breakout need to be faded at the same speed as the Tether Cryptocurrency Price dropped.
The key characteristic of this reversal setup is that we need to see a quick rally after the initial support false breakout. The false breakout followed by the quick recovery should develop a “V” shape type bottom.
Next, we’re going to outline what key condition needs to be satisfied when trading Tether coin and how to buy cryptocurrency Tether.
Step #4: Buy at the first close above the broken support level. You can have a second entry once we break above the top of consolidation.
You can buy once the cryptocurrency Tether price closes back above the broken support level. You can initiate a first small position and buy cryptocurrency Tether once we close back above the previous support level.
It’s always nice to buy cryptocurrencies at the bottom and see it shoot up.
It kind of depends on your trading style and risk tolerance how you manage your trades, but we always recommend on the first initial position to only allocate a low amount of your trading capital. You have to keep in mind that the reversal is completed only after we have a break in market structure and subsequently a breakout of the top of the range.
Once we see a break to the upside of that sideways action, the reversal has been confirmed and you can consider this to be a swing trade. Generally, with this situation you can close the initial trade so we can have a risk-free trade.
This brings us to the next important thing that we need to establish for our day trading cryptocurrency strategy, which is where to place your protective stop loss.
Step #5: Place Protective Stop Loss below the “V” bottom and the Second SL below the Consolidation Bottom
The ideal place to hide your protective stop loss is few pips below the “V” shape bottom. For the second entry use a protective stop loss below the consolidation support level.
Also, since the first trade is closed once the consolidation top is broken we basically ensure an almost risk-free trade on the second position. We’re going to use the profits made on the first trade to ride the trend reversal.
Last but not least, we also need to define where we take profits when trading Tether coin.
Step #6: Take Profit equals two times the consolidation price range.
We use a simple dynamic take profit strategy.
We simply measure the consolidation price range, multiply it by two and project that number to the upside to determine out take profit. The easiest way to visualize your take profit level is to simply draw a box around your consolidation and copy paste that box two times to the upside.
Note** the above was an example of a BUY trade using the Tether trading strategy. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
Conclusion – Tether Trading Strategy
Tether trading strategy is a simple cryptocurrency strategy that can dramatically increase the size of your winning trades. To ensure consistency, use the same trading routine every day and manage your risk carefully. Don’t forget that trying to catch a falling knife comes can be dangerous that’s why we always preach to religiously follow the trading rules.
If you’re interested to learn more about different types of trading techniques please click on the Blog section where you’ll find in-depth trading strategies and how to take advantage of them.
Thank you for reading!
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