Twitter: https://twitter.

com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
CONTENTS

The Story------------------------------------------------------------------------3
Overview of Bitcoin price action----------------------------------------------3
Overview of trading tools------------------------------------------------------5
Deep dive into funding/premium index-------------------------------------- 7
Trading Strategy Outline------------------------------------------------------10
Finding Entries and Exits------------------------------------------------------11
A previous trade taken with this strategy-----------------------------------14
Summary-----------------------------------------------------------------------15

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 The Story
With 3+ years in crypto, searching endlessly for a trading strategy that worked
for me, I ended up creating one initially by accident!

Earlier this year, I was collating the best crypto related content on twitter for a
friend who was new to the crypto space. In the process of doing so, I stumbled
across a series of interesting indicators and trading scripts.

My original goal was to create a simple dip buying strategy for my friend, but in
the process created something SO much better.

I present: Dan’s Swing Trade Strategy

Overview of Bitcoin price action

Bitcoin’s price action can be summed up into two distinct driving forces:

1. On a longer timeframe, Bitcoin’s price is driven by investor activity and

it’s adoption curve. The amount of users, how valuable Bitcoin is to
use/hold, as well as how developed the surrounding infrastructure is gives
Bitcoin an underlying ‘price floor’.
2. On a shorter time frame, price is determined by which direction can
liquidate the most traders on derivatives exchanges like Bitmex and Bybit.

Here is a simple illustration to help you visualise:

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
Reflexivity
If you only use one word to describe Bitcoin’s volatility it’s this.

Coined by George Soros, reflexivity is the theory that a two way feedback loop
exists in which investors' perceptions affect the market environment, which in
turn changes investors' perceptions.

Put simple, higher prices beget higher prices, and lower prices beget lower
prices.

Why does this occur?

Because reflexivity is foundational to the nature of Bitcoin, as no other asset on

earth derives such a significant portion of its valuation from its own Network
effects.

Network effect = total number of users of the network

As markets are future looking (people are trying to predict what happens) the
market is collectively deciding what the future adoption of Bitcoin will look like.

But because Bitcoin’s main use case is its ability to make money through
speculation, it creates this two way feedback loop:

This is why we get really big runups and subsequent big pullbacks. Reflexivity is
like a snowball rolling down a hill, getting bigger the further it goes, except it
goes both ways.

Every indicator, tool, script, and strategy is based off of the underlying
concepts as discussed above. This is the base level understanding you need to

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
gain, with which we can branch out from and go down the rabbit hole that is
crypto!

Overview of trading tools

I’m going to explain the simpler trading tools first, and then lastly I will do a
deep dive into the main tool - Funding and Premium Index.

1. Puell Multiple
This is a free public script on tradingview, which is amazing at finding macro
tops/bottoms.

It’s calculated by dividing the daily issuance of new bitcoins (in USD) by the 365
day moving average of daily issuance value.

2. Cuban’s BTC spot buying guide

This tool is very simple. It automatically prints buy signals on any timeframe.
We use it on the 4H and 1D. Buy when the indicator says ‘spot’.

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 3. RSI divergence script
This script is simple RSI with an automatic divergence plotter and alert system.

This script is very important for when we look to sell our positions. RSI
divergence allows us to pinpoint where momentum has shifted with high
accuracy, and thus where we can enter/exit our positions.

4. Unrealised Profit/Loss
Unrealised P/L shows us the amount of profit the average Bitcoin investor is
sitting on. The basic premise is that we sell in the red, and buy in the blue. We
will use this in conjunction with Puell Multiple to find macro tops/bottoms. This
tool is not at all useful for spotting short term tops/bottoms like our other
indicators will be.

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 5. Bitmex Funding and Premium Index
This is the MOST IMPORTANT section of the entire strategy. For you to
implement this strategy effectively, you MUST fully understand the concepts I
am about to outline. I understand that at first it may seem very confusing, so I
will be breaking it down to simplify it as much as possible.

What Is Funding?
Funding is a feature of the XBTUSD perpetual contract on Bitmex, as well
as other derivatives exchanges. It’s related to how far the mark price is
from the index price. It serves as a tool to disincentive the market from
entering positions which would cause the mark price to run from the
index price.

Mark Price: Like an item from the grocery store, the mark price is the price
marked on the item. An item may have a market price, but some items can
also trade at a discount. Mark price uses a moving average mechanism to
smoove out crazy price fluctuations and find the ‘average’ price.

Index Price: Price of the underlying instrument. The index price is based
off of the price of Bitcoin at a number of different exchanges (thus why it’s
called an ‘index’).

When funding is ‘positive’ longs pay shorts for the privilege to be long.

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
When funding is ‘negative’ shorts pay longs for the privilege to be short.

What this feature does is disincentivise traders from market buying

positions in the direction that would further distance the mark price
from the index price. It also incentivises traders to ‘collect’ funding by
opening positions in the direction that brings together the mark and index
price.

For example: The mark price is above the index price (The price of Bitcoin
on Bitmex is higher than the average price of Bitcoin at other exchanges).
Funding is positive at 0.05%. This funding is paid every 8 hours. This
means that longs are paying 0.05% of their position to shorts for every 8
hour period that that funding level remains. Traders who are long are

now incentivised to close those positions which helps equalise mark and
index prices by providing sell pressure. Traders are also incentivised to go
short and collect funding, which further increases sell pressure to equalise
mark/index prices.

Why is this useful?

Funding is an incredible unique trading tool because it exhibits a series of
qualities which make it totally unique from other indicators, including:

- Doesn’t suffer from alpha decay. Doesn’t matter how many people talk
about funding on twitter, if funding is negative, traders are bearish, and
vice versa. No questions asked.
- Funding can never be a ‘trap’ because funding IS the market. It is not
biased and cannot be manipulated by whales.
- It is a pure and authentic measure of future expected price performance.

More specifically, funding is an incredibly useful tool for identifying where

trends are becoming exhausted, and forms the backbone of our swing trading
strategy.

Derivatives exchanges make up the majority of Bitcoin’s trading volume. Most

derivatives traders (especially those on Bitmex) are retail gamblers, and don’t
make money.

As the trading mantra goes “Buy when others are fearful, sell when others are
greedy”

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
Our trading mantra goes “Buy when funding is negative and sell when funding
is positive.”

Why? Because for there to be positive funding, traders on Bitmex must be

incredibly bullish and pushing the mark price above the index price by market
longing Bitcoin. Funding shows us which direction the average market
participant thinks price is going.

And because these traders are on average losing money, we use this information
to counter trade them.

So basically: We trade against the herd of derivatives retail traders. Their

collective sentiment is seen through FUNDING. Funding is THE primary
source of social consensus on whether BTC is perceived to be going up or down.

And as mentioned in the overview of Bitcoin price action, short term price action
moves in the direction that liquidates the largest amount of traders.

If everyone is bullish on Bitmex (market buying longs which pushes funding to

go positive), price will continue down until these gamblers are liquidated.

Premium Index
The premium index is a component of the calculation that goes into finding out
the funding rate. For our trading strategy, knowledge of this mechanism isn’t
necessary, so we will be skipping over it.

Using Funding
You’re probably sitting there thinking: How the hell do I find this information,
and use it to somehow figure out how to trade against the herd?

Well, it’s actually quite simple, and I will outline my process in the charts below:

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
The above chart shows Bitcoin’s price action, with our funding and premium
index tool.

As you can see, the tool has both blue and orange lines. Blue represents the
funding rate, and orange represents the premium. I prefer to analyse the orange,
as from the chart you can see it’s much easier to read.

When the lines are up, that means funding is positive (traders are bullish)

When the lines are down, that means funding is negative (traders are bearish)

Now, just because funding ticks positive for 2 days, doesn’t mean you
immediately sell. Vice versa.

As you can see, each time price hit a top, funding was positive for at least a
week prior.

Aswell, each time the price hit a bottom, funding was negative for at least a
week prior.

So because of this, before I become bullish or bearish on Bitcoin, I must see a

MINIMUM of 7 days of funding in one direction to dictate that the trend has
indeed changed. From this point, I begin selling using my strategy, which I
outline next.

Trading Strategy Outline

- Doesn’t require any fundamental analysis (however can help + provide
confluence)
- Part discretionary, part systematic
- Focuses on high timeframe analysis, typically the 4H and 1D

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 - Requires daily analysis, roughly 30-60mins
- Requires discipline and patience above all else
- Is based off of the trading tools mentioned above + price action
- Focuses very little on targets - price will go where it wants to go
- Will work with incredible accuracy (95%+) for as long as our funding tool
remains accurate

Finding Entries and Exits

When we have confirmation of a change in trend, after seeing 7+ days of funding
consistently either positive or negative, we can begin looking for entries/exits as
seen below.

- Every tool outlined in this strategy is used to buy Bitcoin, however, when
we sell we can’t use Cuban’s spot buying guide.

Finding Entries

1. Secondary Funding Tool

I didn’t mention this tool in the overview, as it’s simply another way of viewing
the original funding and premium index trading tool.

However, it is quite useful for spotting exact entries/exits, whereas our main
funding tool is great for spotting the overall trend.

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 1. We wait for 7 days of negative funding (as highlighted in yellow)
2. Once we have confirmation of a change in trend, we use our secondary
funding tool to find buy entries.
3. We buy any big spikes down.

With this tool, during this bottom in the market, we get 2 solid entries

2. Puell Multiple

With Puell Multiple, if we get a buy signal, it doesn’t matter what the previous
trend is, we buy regardless. Any time Puell flashes a green area, we buy
immediately, no questions asked.

As you can see, at the corona crash bottom, we got 3 solid entries.

3. RSI Divergence Script

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 1. Wait for trend change, 7+ days of funding in one direction
2. Once confirmation of change in trend, wait for bullish divergences to
appear on the 1D timeframe
3. Don’t use divergences UNLESS funding has shown the trend is in your
favour. Eg: Only buy based on bull divs if funding has been consistently
negative for 7+ days.

As you can see, we got a perfect entry at the bottom, and didn’t have to worry
about ‘catching any falling knives’.

4. Cuban’s BTC spot buying guide

Similar to Puell, when we get a buy signal (when it says ‘spot’), we buy regardless
of what the current trend is. At the September 2020 bottom, we got 6 perfect
entries at the bottom. How good.

5. Unrealised Profit/Loss

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
 - Unrealised profits at 80%+ is a MANDATORY sell. No questions asked.
- Unrealised losses at -25%+ is a MANDATORY buy. No questions asked.

Why do we use so many different tools to buy and sell?

Because no single tool is perfect and able to give amazing entries to every
bottom and top. If this tool existed it wouldn’t work because everyone would be
using it (alpha decay)

By using a variety of different trading tools we are able to diversify and average
our entries/exits in the market.

Using several tools also guarantees we can get some sort of entry at the bottom
and top

Trade taken using this strategy

On October 7th, after a month of accumulating a Bitcoin long, I tweeted this:

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
As you can see, we had an entire month of negative funding, with which I used
that time to average into a long position.

In that month, I got around 10 different buy signals based off of my strategy, and
had an average entry price of $10445.

Price rallied significantly, and it would’ve been easy to take profits, but my
strategy was telling me the trend was still very bullish (consistent negative
funding the whole way up) and thus was able to hold this position to 15k+.

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
Summary
If you’ve made it this far, I hope you’ve learnt a lot and everything I explained in
this made sense, or is beginning to make sense! It may take a few reads before
you can completely digest everything.

To solidify the trading strategy, I’m going to summarise the main points
below:
- Funding is a tool used by exchanges which have perpetual (unending)
derivative products (Bitmex, Bybit, etc)
- Funding is an incredible trading tool because it cannot be manipulated,
doesn’t suffer from alpha decay, and represents the sentiment of the
market as a whole
- Dan’s Swing Trade Strategy is designed in line with the fundamental
nature of Bitcoin’s price action
- Because Bitcoin is predominantly valued based upon its network effect,
and thus future expected network effect, a two way feedback loop exists,
which exaggerates price rallies and declines.
- The perfect way to describe Bitcoin price action is ‘reflexivity’. It’s the
equivalent of a snowball rolling down a hill, gathering momentum as it
continues further, except it goes both ways!
- We must wait for 7+ days of consistent funding in one direction for
confirmation of a change in trend.
- When Puell Multiple, Cuban’s Spot buying, and Unrealised P/L give buy or
sell entries, we enter these regardless of funding
- When RSI divergence or the Secondary Funding Tool gives a buy or sell
signal, we must first confirm the signal is inline with the current trend.
- This strategy requires patience and discipline above all else.
- We don’t rely upon any fundamental analysis for this strategy, but it can
help as confluence.
- We don’t pay much attention to price targets, price will go where it wants
to go.
- This strategy requires 30-60 minutes of analysis per day
- With a proper understanding of this strategy, you could very realistically
make 15-20% per month, using no leverage.
- We use a variety of trading tools as no single tool is perfect. Each tool
occasionally misses an entry or an exit.
- Stop losses are up to the traders own discretion, as each situation will
require a different approach

Thankyou for reading this far!

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1
I hope you gained a lot of value from this free trading course.

If you have any questions, or want to keep updated with when I buy/sell using
this strategy:

Follow me on twitter @ https://twitter.com/cryptodan19

Join my free telegram trading community @https://t.me/danstradingroom

Twitter: https://twitter.com/cryptodan19
Discord Trading Community: https://t.co/8LgqoEa5ju?amp=1