Hello, I will write an article about whales in the cryptocurrency market and answer the given questions. Have a good reading.
- Based on the understanding that you've gained from this class, explain why whales are so feared by small investors?
Cryptocurrency market is a market where one person usually wins and another person loses. Thanks to this cycle, some people win while others lose. Traders with small investment volume are people who are more at risk of losing because their risk threshold is higher than other large investors. This makes the small investor nervous and may create fear of entering the trade. On the other hand, there are high-volume users who know better to control their risk. Big investors, called ''whales '', behave like whales in the sea swallow small fish, and they want to take advantage of this situation. They have the power to squeeze the price in a certain zone and raise it suddenly, or to think that a coin whose price has risen will rise even more and pull the price down at once. This will of course make small investors nervous in this market where there is a winner and a loser. After all, everyone wants to make money, but the success rate is low. Traders with a high risk threshold often hunting by whales and are therefore justified in being wary of them.
- Will we be able to take advantages of the existence of the whale that is so feared?
It's hard to take advantage of the whales' existence. Because we can't see the future or play this game like a whale. All we can do is watch their past actions, wait for the price to break in the case of accumulation, and leave the game before them in the distribution part. This will not always happen, but in some cases it will be possible to make good gains. The important thing is to do fundamental and technical analysis well and follow their movements.
- Find an example of a whale's cycle on a cryptocurrency chart, and do a detailed analysis of the phases in the cryptocurrency chart.
Step 1.
I will now consider the ATOM/USD pair. I choose 4h as the time zone. What caught our eye at first was that the price was compressed between $20.5 and $25. This shows us that someone is tightening the price in this region by trading. We have identified our support and resistance zone. The price is compressed in this region for 9 days 8 hours.This is the accumulation zone.
Step 2.
Where I'm showing with the yellow zone is the zone where this compressed area is broken. So from here on, the price shows a serious increase and the price attracts small investors (fishes).
Step 3.
The fact that the price reaches the saturation point causes the whales to squeeze the price again by buying and selling little by little. Here is the distribution area. The whales are slowly selling their possessions. The reason for this is to prevent people from panicking and to keep people still holding their goods. The price is hovering between the new support and resistance zone, albeit with small sags. But it appears to be in a downtrend. In addition, the price drops below the support level and rises again from there, attracting new traders.
Step 4.
After the 11-day distribution zone, the whales start to sell their goods from the first resistance zone. Volume sales are schleping small investors into panic and people are selling one by one, and a bearish scenario emerges. Here's a little whale cycle for you.
- If you are a “Whale”, what cryptocurrency would you choose to invest or trade, explain why you chose that cryptocurrency.
If I were a whale, I would choose the coin for the following reasons;
- The volume of the coin I will buy must be low.
- After a major downtrend, it may will start the accumulation phase again.
- Being far from the ATH.
These reasons push me towards Internet Computer (ICP). Coinbase suffered a huge decline after the news of being listed on exchanges such as KuCoin. At the moment, it is far from the prices of that period and has a great downward trend. He has time to regroup. It's also low in volume. Low volume means that if I'm a whale, I can more comfortably play with the price of that coin.
- Do a kind of analysis as a whale with the phases that I explained earlier on the chart of your chosen cryptocurrency, show where you will start buying the cryptocurrency, and explain how you will take profit.
First of all, we see that the downtrend is replaced by a horizontal trend. This would be an accumulation zone for me. I would determine the direction of the price by trading between support and resistance at the $41 and $59 levels. This movement may continue in the 5-10 day range of approach.
By making it break the resistance area with volume, I would attract new traders with me and let the price break the old resistance areas and turn it into support. In this way, the support zone will be tested, and new traders will be included in the train in these supports.
After raising the price to a certain level, I would now move on to the distribution section. I would slowly sell the goods I had to the new traders who would join the game. The price that will be stuck at a certain level will create a complete chaos when I sell all the coin I have, and all the traders will start selling. Here I won, they lost.
In short, big traders, described as whales, will always exist and try to profit from small investors. We cannot do what they did. The important thing is to guess what they can do and play by the rules. It is better to lose once than to win unknowingly twice.
Thanks for reading