Experience level: beginner
Today we're going to look at how to use the "biggest loser" strategy to identify good swing trades. This is a good strategy for beginners and veterans alike because it is simple to get started and there is the option to add more in-depth analysis if you want.
How does it work?
In this strategy, you enter a trade on an asset that has fallen more than it should have in the past 24 hours, expecting to catch a retracement and turn a profit.
Why does it work?
When the price is moving quickly, emotions can get the better of some traders, causing them to sell and the price to overshoot the value it should be. When this happens, the price will retrace back to a higher level.
How to identify an asset?
You have a few options here, but my favourite is to use Binance directly. You can use another exchange if you prefer and the process will be similar.
Go to Binance and open up the Exchange. Now open the coin select, choose BTC, and then sort by 24h Change such that the biggest losses are on top.
These are all the assets which have had the largest drops over the last day. They all could have potential, but we want to use some additional criteria to make sure we don't run into problems with the asset being illiquid or getting delisted. It is possible that one of these coins may be on its way to zero, and that is not what you want to buy into!
- Drop of at least 5%
- 24 hour volume of 100 BTC or more
- Market cap of 25 million USD or more
From our list, you can see that RLC, DATA, and WPR fit our criteria for drop size and 24 hour volume.
In order to determine market cap, we can use Coin Market Cap.
There is a search bar on the right-hand side, simply punch in the asset ticker there.
From this, we can see that RLC has sufficient market cap at over $45 million.
Data and WePower are both too small, with only 2.8 million and 5.3 million at the time of writing this guide.
This means RLC is our pick, now time to set our buy and sell orders.
When to buy?
Looking at the 1 day time frame, we can see that this asset is in an uptrend with a pullback. This is ideal, although cross and downtrend can work too, so long as there is some price stability.
If you're a beginner, you can enter now with a Market buy order. If you're more experienced, you can choose to do some additional Technical Analysis to more precisely set your buy order price if you wish.
When to sell?
You should rarely enter a trade without a stop loss to protect you if the trade goes against you and this is no exception.
From the 4 hour time frame we can see a nice support around 6483. This looks like a good place to put our stop loss.
Also from the 4 hour time frame, we can see that around 9000 would be a return to trend. If you want to be more conservative, you might want to set it lower, at around 8200. It has been in an overall up-trend, so I'm going to take this a bit riskier and set one target at 9006 and the other at the other at the previous high of 10599.
Enter the trade
Now that you know your buy and sell prices, you can place your buy order and set alerts, or punch them into your trade management software. Here's what this trade looks like on Signal.
Hopefully this was informative and another strategy to consider adding to your arsenal. You can use it to identify good set-ups and (hopefully) turn someone else's loss into your gain.
Disclaimer: This is not financial advice. Invest at your own risk.