There are a few trade indicators that will preform pretty well on a bubble. In fact almost each indicator can be used if its configured properly. But this last part can be hard and can result in missing the drop. That is why i initially advice to only use a Safety in this situation. A safety like the drop-loss is easier to control and manage.
If somebody would like to use a trade indicator instead then an analysis is required. This analysis should indicator how much power there is inside the bubble, so the thing we have to analyse is the trading volume. In here you can see the investment flow. Once you have a estimate about how fast the price is going up (dollar/minute) then you have a direction, a guide line so to say. This will tell something about the expected drop. The drop has almost 2-3times the power of the raise. This means the sell volume is expected to be 2 of 3 times higher then buy volume now.
The thing we know now are the expected raise and drop and the speed of it. The next thing we want to do is find a indicator that is capable of responding fast at a drop and that holds on at the raise. As i said before, almost all the trade indicator are capable of doing this so there are a lot of options. The only trade indicator that are unusable for this situation are the relative trade indicators (the ones that tell if we are relative high, or low) the reason those do not work is because of there relative setup, in the raise we are high so these indicators will send a sell and that what we do not want here. So please move the Stoch, RSI, StochRSI directly aside, those will not help on this startegy.
The ones i would advice to have a look for are the moving averages. Normally i do NOT advice those for the alt-coin because of the low volume but in this case i am sure they will preform well.
Alright, let see how we can use a moving average and how we should configure it. Let first review some facts, a moving average (of any kind) is following the price trend in general. One follows the prices very quick and the second one follows the prices very slow. As soon as the quick following moving average is dropping below the long one a sell signal is produced. When we put this logic inside a backtest at work then we can confirm it will work this way. But a few things should grap our attention on the backtest, and that is the speed of the buy and sell signals. (those signals are relative late) inside a bubble like we do not want this, we want to stay bought and we want to sell as soon as the drop is detected. In order to make this work we need to tweak the settings of the selected moving average. Our target will be to detect the drop sooner and to respond faster. To make this work we have to reduce the length of the short moving average. By default it is 9 or 12 (depending on the chosen indicator) and we need to lower those. By lowering this short moving average we will tell the trade indicator to respond quicker, after all less prices are used and so the last prices will "weight" the most. once thos short moving averages is shorter we are gonna lave a look to the long moving average. This one is set to 21 or 24 by default and again we want to lower those, the reson why we want this is because we want to follow the prices better and deceted changes sooner, aka make the cross-over of the moving averages happening sooner. This way we can sell sooner on top.
I can only hope this description gives a idea which things you need to tune and to which direction in order to get some good trade signals in a bubble. If i would describe this as a image that i would say the chart should look like this:
You have the price in the uptrend, directly and closely behind it is the short moving average. This one follow very close but may not signal a sell already. The long moving average has to follow the price trend quick too, but not to fast.
A little disclaimer... normally when i skype or mail users i normally give advice to use a long timespan of the moving averages. Aka i tell to raise the update speed from 10minutes to 30minutes or more for better signals. In this case i will give a different advice. In this case its recommended to lower the timer, set it to 5 minutes updates or less. The reason of this advice of the because of the expected rapid movement of the drop, we want to be on top after all so we have to update faster. Aka detect the drop faster and sell higher.
As last thing i would like to point out the differences between the moving averages, i am sure this will be very interesting to have a look at: (and so my
of my post earlier becomes more clear)
- MA indicator (this is a SMA based moving average, the signals are solid but slow)
- MACD indicator (this is a EMA based moving average, the signals are faster then the SMA but still relative slow)
- DEMA (this is a EMA+correction based moving average, the signals are relative fast)
- TEMA (this is a EMA+double correction based moving average, the signals are fast)
Please note this is just a suggestion of a possible strategy, there is much more possible. The PPO, Regression slobe, Aroon and so on can be used too. Just do not use the relative indicators, those will not work here.
