Why You Need to go Whale Watching
By: Steven L. Miller
Tags: Trading, Cryptocurrency, Finance, Investing, Altcoins

Photo by Mike Doherty on Unsplash

7 Lessons Learned From An AltCoin Trader’s Handbook

As Altcoin winter subsides. It feels like an appropriate time to revisit Nik Patel’s guide to trading Altcoins released during the last great bull run.

Original Notes these lessons are from.

1. Buy when the top addresses are increasing their positions and sell when the top addresses are decreasing their positions.

Lesson Learned

Successful strategies applied in traditional financial markets like momentum can be effectively used to trade cryptoassets.

2. Use Rich Lists to Identify Potential Swings in Price Trends

how exactly do I spot and track accumulation and distribution and use that to my advantage? It is really rather simple, and just requires patience and discipline — no sophisticated strategy necessary. For the sake of clarity, I will refer to the Blackcoin explorer I mentioned earlier in this section. My method is as follows: Direct your browser to the block explorer of your choice. In this example, I am using https://chainz.cryptoid.info/blk/#!rich. Screenshot the page so that you can see the top 10 addresses and their amounts. Save this image to a folder for Blackcoin (or whichever coin you are analysing) and date it. Open up a new tab for each of the top 10 addresses. Despite worry of condescension, the (+) transactions you see are accumulation (either, through buying or mining) and the (-) transactions are distribution (or perhaps transfers). Evaluate the most recent transaction history of all of these top 10 addresses, and note down how many of them seem to be, on balance, in accumulation, and how many are reducing their positions. What you will tend to find is the majority of the top 10 addresses in accumulation when a coin is at the lows on the chart, and vice-versa. But make sure you note this down rather than try to remember. Now, repeat this process every day or two for a couple of weeks. Screenshot the rich-list front page, and then note down what is required from the top 10 addresses each time. This is your smart-money blueprint. Using the data you have compiled, observe the changes taking place in the rich-list, and assess whether, on balance, the smart-money seems to be in accumulation across the period of analysis. If you find that the larger addresses seem to be adding to their position, this is a very good indicator that you should also be accumulating at these prices. For distribution, this process is essentially reversed, except that you monitor for distribution every day for a week, since distribution occurs faster than accumulation (as can be observed on a chart). You want to see the majority of the top addresses begin to reduce their position over this period, and this implies that a peak is nearing, and thus you should also be selling.

Lesson Learned

While market depth of cryptoassets continues improving. Whales still disproportionately influence prices. Especially for fixed supply coins ICOing in 2018.

Studying rich lists to understand whales current positioning will improve execution of entry and exit points for your investments.

3. Orderbooks’ Reveal Details About Potential Price Movements

The orderbook is the very first point-of-contact for price-action. There is an exercise I formulated back when I was discovering this that allowed me to develop my pattern-recognition skills: Pick out three to five coin pairs. Any will do, but the most useful for the exercise are midcaps that feature on several exchanges. For example: UBQ/BTC, LBC/BTC, VIA/BTC. For each of those pairs, note down the top two exchanges for volume, respectively. For example: UBQ/BTC: 1. Bittrex 2. Cryptopia. Now for the taxing part: spend as much time as you can every day noting down some important details for each coin pair on both exchanges. You will need to go through as much of the orderbook as time allows you, and note: the time of note-taking; the total bid/buy volume of orders on each exchange; the total ask/sell volume of orders on each exchange; the 10 largest buy orders (at what price they are placed, their sizes in BTC, their quantities in the given coin); the 10 largest sell orders (same details as the buys). Do this for a week, and make sure you record in as much detail as you can. You may do the exercise during the same time period each day, or a different period each day, it doesn’t matter as long as you note it down. Remember, you are developing pattern-recognition, and sometimes that isn’t in the form of the orders themselves but the time you read the orderbook. Market-makers constantly manipulate orderbooks, pulling and placing orders at all hours — what we are watching for is similarities, patterns and mistakes. By the end of the week, you should be mentally drained by the time spent poring over orderbooks. Ideally, you should at least be beginning to notice patterns and recognise details without needing to write everything down, though this takes a lot longer than a week before it embeds itself in your brain.

Lesson Learned

Understanding orderbooks is a critical skill for cryptoasset trading. Visit Coingecko to find the top markets your targeted investments trade in and get practicing now.

4. Understanding Order Depth Can Reveal Forthcoming Bullish Price Moves

Order depth: Though it can be rare to find, what you should be looking for is a bid/buy side that is thicker and heavier than the ask/sell side of the orderbook. Usually, what you will find is the opposite, since the primary purpose of trading altcoins for many people, myself included, is to increase the value of my portfolio in BTC, not any other cryptocurrency, and so, traders are more often looking for the exit than the entry. Furthermore, what you may find is that the surface-level buy depth is larger than the sell depth. What I mean by surface-level is that, of the orders within a given percentage of the current price, there are more buy orders than sell orders; and this is particularly true on Bittrex, where the default order depth viewable is not the entirety of the orderbook. This is far more common than finding the same to be true of the entire orderbook. However, do not dismiss this, as it can be an indicator for short-term demand, and thus, an incoming bullish move. I say ‘can’ because of the aforementioned manipulation ever-present in the orderbooks, which we will get into further into this section…. a bid side valued at a higher total amount of BTC than the ask side is often a diamond in the rough, due to the rare occurrence of such order depth.

Lesson Learned

Because it is rarely true. When you find a cryptoasset with more buy orders than sell orders.

This could indicate a short term price spike is in play due to high demand for the token. You need to look for secondary bullish indicators when evaluating these trades potential though.

Since Orderbooks are subject to constant manipulation.

5. Structure Trades Based on Clean Orders

a ‘clean order’ is one that exhibits the most effortless and comprehensible numerical values. The most obvious examples of this are orders comprising of multiples of 5 or 10, such as a bid of 10000 UBQ at 0.00015BTC, or an ask of 5000 UBQ at 0.0002BTC. These are both clean orders, so to speak. Often, these kinds of orders will be spread throughout the orderbook, indicating significant price-levels. You may see something to the effect of 10 orders of exactly 5000 UBQ in the sell-side, with each order placed at 5000-satoshi intervals. This is a pattern that is easy to recognise, and almost always is a footprint that the market-maker is forced to leave behind when manipulating price. What’s more, it is a footprint that literally displays the blueprint for a potential pump. Very rarely does one find such an orderbook that is not the work of a market-maker laying the groundwork for a future pump. How can this information help you, as a speculator? Well, aside from the obvious value that one gets out of getting to know your maker, or, in this case, market-maker, you can use these orders to structure your own trades; use the given framework as the skeleton upon which your positions are fleshed out. Use the clean orders to find confluence with your own technical targets, for example. This concept also translates to order value in bitcoin-denomination, and is another way by which one can spot manipulation and the intentions of market-makers. The thing to look out for here is an order that totals to a clean, round number in bitcoin. For example: 12736 UBQ placed in a sell order at 0.00019629BTC gives a total order value of 2.5BTC, which is very clean, and the sure sign of a potential spoof order or suppression order. The reason this is a sure sign, in my opinion, is simple: how often does a regular market participant have a large position in a coin that totals to a clean amount of bitcoin at an arbitrary price?

Lesson Learned

Clean Orders, quantity or price, are signs of the foundation being laid for a pump. Use them to structure your own trades accordingly.

6. The Importance of Distinguishing Walls from Legitimate Large Orders

the purpose of a buy wall or a sell wall is to drive inexperienced market participants into the opposing orders, thus filling the orders required by market-makers to position themselves better. What often follows is a swift change in momentum — with a sell wall of equal or greater measure being placed and the buy wall being pulled, for example — and the inexperienced traders dumping their just-bought altcoin at a discount right into the jaws of the shark. The way to recognise whether a large order is a wall or truly an order waiting to be filled is to watch to see the frequency with which the order is changed or removed. A wall tends to get pulled and shifted around very frequently, whereas true orders remain in the orderbook indefinitely. Also, sometimes you will see an order dumped into the buy wall, or bought from the sell wall, and these walls will subsequently get pulled. This is another means of identification. So, instead of playing the prey the next time you encounter walls, utilise your other methods of analysis and then, if all aligns, buy into a sell wall or exit into a buy wall. Play the market-maker, not vice-versa.

Lesson Learned

Understanding the nature of large orders is critical to effective trading. A large order that is constantly shifting is the sign of a wall.

Do not trade against walls. Walls are being used by large market players to positions their own trades and scare you out of yours.

Right before the market turns your favor.

7. Not all Messes are as Dirty as They Seem

“The final note of this section is on non-clean orders, or messy orders. These, by definition, are much more unclear and indistinguishable but work in exactly the same manner as clean order patterns. You are ultimately looking for the same thing: similarities in orders at important or regular intervals in the orderbook. By placing orders with awkward numerical values, market-makers are attempting to disguise their footprint. However, they are often lazy. Rather than placing several orders, each with an entirely different numerical value at arbitrary intervals, they must give themselves a recognisable framework, and so, what you will often find is 5 orders of 7327.8872501 UBQ at 1500-satoshi intervals, or something to that effect. When you find these identical but numerically-messy orders, make a note of them, as it is likely these are of significance and will be used to manipulate price in the same manner as the clean orders do.”

Lesson Learned

Market Makers often take rudimentary steps to disguise orders. Learn to recognize these signs and position your trades accordingly.

Thank you for Reading

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