The information in this article will deal with volatility in cryptocurrencies, as well as how to use it in various situations. It is very important to correctly understand the information below, I am not writing about risk management this time, you must understand this yourself and make appropriate decisions that will be logical and rational in your situation!
Volatility = opportunity
Volatility is the range of price movement per unit of time.
Momentary volatility for each individual instrument may be different, depending on what phase the particular instrument is in. Understanding the reasons for the actions taking place on a particular instrument can provide more opportunities and variety to modify your trading strategy, depending on the market situation. The strategy must be thought out in advance, but at the same time flexible, depending on the prevailing circumstances at the moment.
High volatility is a wide range of price movements over a relatively short period of time (hours/days). High volatility always attracts traders, as they see an opportunity to make money on the volatility of a particular instrument. Cryptocurrencies tend to have high volatility.
Low volatility is the stagnation of the price at one price level for a relatively long period of time, or a moderate movement of the quote over a relatively long period of time. Instruments with low volatility are not of interest to traders.
It is very important to understand that without a manipulator, the price of any cryptocurrency instrument tends to zero, this is an axiom, a postulate and a law. To test the operation of this law, simply open any illiquid cryptocurrency exchange and see where 50-70% of coins and tokens are traded, and how often the exchange delists. Once again, after the manipulator / developer releases his creation into free swimming, the price of this asset tends to 0.
Volatility, on the contrary, contributes to inciting interest, then intelligence or greed turns on, who chooses what.
Reasons for high volatility
Accumulation of instrument / liquidity drain / position acquisition
In the accumulation phase of a particular crypto asset, on the chart you can observe price waves (volatility), waves of interest. Often candles on growth appear aggressively, with volumes, an asset is bought up in the faith-killing phase. After the “buckets” in the glass for buying, they are removed altogether or gradually move further on the quotes and the price of the asset gradually falls, by itself.
The manipulator, as it were, releases the instrument for a while and the price descends to its zone of interest, after buying it resumes and another trace or wave of interest remains on the chart. This focus will be repeated until the planned position is reached. You also need to keep in mind that the coin can go out of the current range up or down to reaccumulate, such level changes kick out stuck random passengers.
Pump dump
Before the distribution, the instrument is pumped up, the allotted resources + received at an intermediate level from sales are spent on this. At this time, the volatility is very high, the community begins to use pump-dump nightingale more and more often. This is a very unstable time. Trading pumps and dumps is like playing with a casino, the strategy does not work here, the tactics do not work either, more likely you will be unlucky. The time when a pump stops or a dump starts is an unknown variable, it starts and ends abruptly.
Beginners are often led to such tricks, their role is to give energy to the impulse, and subsequently there is a burnout from emotions and experiences. The reason is greed and a complete lack of experience.
Distribution of the instrument / provoking interest / dropping parts
In distribution, volatility is maintained artificially. The crowd is misled that the growth is about to continue, giving hope with another wave of growth, but at the same time, the position accumulated at much lower price levels is being dumped.
Think about it, will you be interested in buying cryptocurrency if the price is pumped up with one stick and the price is reset with one stick on the chart? - I think not, in most cases, although there may be exceptions. To do this, after pumping, a relatively small correction is made and the position is held in a certain price range, in which the position is reset. There will be several such price ranges as the quotes decrease to the initial set zone. And each will have increased volatility. Each new decline is a "bone" to the crowd, which will attract new participants in the pursuit of the bottom - look, the price is on the next day, a good opportunity, fly in people, they are silent about just about - the next bottom is a gift.
Reasons for reduced volatility
Let's consider a number of reasons for a decrease in volatility on a particular instrument, there are always reasons for everything.
The instrument is ready to be pumped, but the general market sentiment is not conducive or the time is not yet right
Let's do a thought experiment, imagine that you manage an asset. You have already collected a position for the previously planned volume, everything is ready for you, but the moment is not quite right, the market is negative, there is no influx of new users, you have the resources to pump up the price, but to whom will you sell after the pumping?! To dump a large position, you need a buyer who will create this liquidity, and if you can’t find a buyer in the afternoon with fire, then where can you get that very liquidity for unloading?!
In this case, it is logical to postpone the stage of pumping and distribution until the moment when circumstances favor the previously conceived plan.
In this case, it would be logical to reduce the volatility to the minimum values by closing the price with walls from above and below. In addition, this action solves another problem, which is discussed in the next paragraph.
Creating a false impression that no one is interested in the tool - in cases with TOPs
This paragraph applies only to top cryptocurrencies, random scams are not included here. Low volatility on low-liquid scams may indicate both that preparations are underway for pumping, and that the manipulator has lost interest in this instrument and this is the beginning of the end.
Low volatility works as a filter for many market participants - scalpers, those who work intraday and on short-term trades. This group of market participants does not see any reason for themselves to work with an instrument that has made 1-3 waves up and down over the past few months, they are not interested in such instruments.
Low volatility reduces the chances of unwanted (untimely) media coverage, money loves silence, at the moment of taking a position! An information and media explosion (euphoria) occurs at the beginning of the distribution phase!
Those who bought on the highs have every chance not to endure and fix losses during the time when the instrument is traded at the bottom, and the volatility is reduced. Moreover, at this time, “experts” call such tools a hopeless scam due to the lack of hype. You need to understand that the hype always appears after the asset has made several hundred or thousand percent of the position set price, and when the set is set, there is complete silence in the information space. Cheap is a scam, expensive is a promising asset (sarcasm).
The purpose of reducing volatility is to reduce the visibility of the instrument and minimize the interest of casual passengers before pumping. Often before the “shot” there is a dump, and the less liquid the instrument, the stronger it can be.
The principle of working with low-liquid scams - fixed and forgotten
If the instrument you are interested in has low volatility, it will not be possible to earn or increase the number of coins in the short term. But if you are interested in increasing the number of coins, it may make sense to find low-liquid instruments with high volatility for short-term speculation.
The mechanism-principle is very simple - getting a profit from short-term transactions and partially pouring it into more reliable instruments for which you have long-term goals. Thus, you can increase the number of coins of a really worthwhile instrument at the time of its low volatility and silence in the information space. It is important that the instrument, the volume of which you want to increase, is located exactly in the accumulation zone.
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