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| By Chris Coney |
Back when I was still learning how to trade stocks, one of the concepts I was taught was “share character.”
This is the idea that the price action of a certain stock has unique characteristics, bordering on a personality.
Share character manifests itself as certain repeating patterns that are common to that particular stock chart.
I saw this as very similar to getting to know a person. Once I know a person's character, I can predict with a high degree of probability what they are going to do in certain scenarios.
While that might sound like a general description of technical analysis as a whole, share character is a type of analysis that is specific to a single asset.
In other words, it narrows your focus on a single asset, so you can study its behavior closely to learn its patterns and distinguishing traits.
And when I moved over to foreign exchange trading, I found the share character concept still applied. I noticed Cable (the insiders’ nickname for GBP/USD) had a certain character to it once I had been trading it for a while.
This was an incredibly valuable discovery for me because not only could I use technical analysis to determine the odds of one price move over another … but I could also further enhance the accuracy of that prediction by getting to know the asset’s character.
Crypto Character
Back in 2016, when I started publishing daily YouTube videos analyzing and summarizing the developments in the crypto space, there wasn’t much character in individual crypto assets.
Crypto went up or down as if it were one unified asset.
Now that the market is more developed, certain assets are starting to display their own character.
Take this side-by-side comparison of Bitcoin (BTC, Tech/Adoption Grade “A-”) and Ethereum (ETH, Tech/Adoption Grade “B”) for example:
Click here to view full-sized image.
There is quite a bit of correlation here, meaning the chart patterns look quite similar. Although Bitcoin’s recent rally may be more intense, the general pattern is the same.
Now, take this chart comparing Bitcoin with QuickSwap (QUICK, Not Yet Rated):
Click here to view full-sized image.
With these two charts, it’s easy to spot the differences. QuickSwap has shown no response to the huge rally we have seen recently in Bitcoin and Ethereum.
Even if we take QuickSwap in isolation, it has this peculiar trait where it regularly prints large, high wicks (see yellow arrows):
As a side note, the most likely explanation for this is that in the early days, QuickSwap gave out a lot of rewards in its own token. This means there are likely many holders out there looking for opportunities to sell them off whenever the price pumps.
While that may explain this particular trait, it is beside the point I am making today.
Even though character may be explainable in the way I have shown above, most of the time there is no singular explanation as to why an asset behaves the way it does.
In the same fashion, there is no simple explanation as to why a person has a certain character.
Conclusion
During one of my forex training classes, the trainer suggested that we specialize in one or two trading pairs.
The rationale for this is what I have already laid out above: Getting to know an asset’s character gives you a probabilistic edge on top of the advantage good technical analysis already gives you.
In fact, most trading firms and hedge funds have one or more traders who are appointed to trade a single forex pair exclusively.
They spend all day every day staring at the GBP/USD chart and all the associated forces that could affect the price.
That kind of specialism is hard to beat.
So, what am I suggesting? What is the big takeaway here?
It’s this: Keep your crypto asset portfolios small.
Hold and trade a handful of assets, not 50. Get to know those assets using fundamental and technical analysis.
Study their charts so thoroughly that if it starts to form a particular pattern, your brain goes, “This looks like June 2020.”
The brain is a pattern recognition system, and repetition is the mother of learning.
So, continued exposure to the same set of charts will ingrain those patterns in your mind to the point where your mind automatically starts snapping your attention to certain emerging patterns.
In this way, you can stay ahead of the curve and help keep yourself grounded when prices fluctuate.
Like getting to know a person deeply, it’s a commitment, but well worth the effort.
But that’s all I’ve got for you today. Let me know about any emerging patterns you’ve noticed in your favorite crypto(s) by tweeting @WeissCrypto.
I’ll catch you here next week with another update.
Until then,
Chris Coney
