Recognizing Accumulation Patterns: Knowing When To Ape
Have you ever tried to buy the dip on your favorite coin, only for it to dip again… and again.. And again…?
Then next thing you know, you’ve become a lifelong community member.
Chances are, you were buying dips during a downtrending distribution phase rather than upwards trending accumulation phase.
As an enlightened ape, you need to know the difference between the two as it will give you guidelines on when to buy and when to sell.
Buy High, Sell Higher
Ever been shilled a token, and you check the chart and think “This is too pumped. There’s no way I’m buying that!”?
Then the next day, it pumps 50%. And the day after that, another 50%. Then it goes parabolic and you’re in full cope mode.
Meanwhile those who didn’t overthink things ape in and ride the momentum. This goes back to the IQ meme we discussed in the last article. Mid-IQers tend to look at pumped charts and think they already missed the move, while left and right curves will jump in and ride the wave of fortune.
The reality is, you’re rarely going to time the bottoms or sell the top. Even if you enter a move 20% too late then sell 20% too early (or too late), you’re still capturing 60% of that move!
That’s why with the Enlightened Ape Strategy (EASY), we’re going to be searching for upward trending tokens and jump in for the ride. It may be a little scary buying these charts because it feels like you’re buying the top but as you’ll see, prices in crypto can always go higher than you expect.
How to Spot Accumulation Patterns
Here’s an example of what a typical accumulation pattern looks like (on a 5 minute time frame):
(This chart isn’t as “clean” because of the big dump around 4:00 - which correlated with a 10% BTC nuke — but the recovery was strong enough to bring it back into an uptrend)
It’s pretty simple. Look for higher highs and higher lows within a tight price range.
The angle of the chart should be 45 degrees or lower. Anything steeper could indicate a parabolic move is already starting and you take on more risk.
Accumulation can be sideways too but can take a while to complete. That’s why we like looking for upward accumulation as they indicate a big move may be right around the corner.
Here are some more examples of accumulation patterns:
You get the idea.
Keep in mind that just because something is trending up, doesn’t mean it’s going to continue keep going up. There’s just a higher probability it does.
At the end of the game trading is a game of odds and it’s much better to bet on an up trending chart than a down trending one.
Sometimes a chart will be in a nice uptrend, then all of a sudden dump. Depending on the size and velocity of the dump and the recovery, we may decide to exit and re-enter when the uptrend structure is confirmed to still be intact.
Yes this means sometimes we will end up selling at a loss and buying back higher (leaving you feeling dumb), but it’s better than bagholding down to 0 on dying momentum. Do you wanna be right or do you wanna make money?
Position Sizing — How To Allocate Properly
We like trading on shorter time frames so we’re usually in 20 or more positions at once. This means each position will only be 5% or less of our total portfolio so we aren’t overexposed in any way.
Due to how volatile these tokens can be, you want to make sure you manage your risk wisely and never put yourself in a position where you lose everything.
From there, we’ll quickly cut losers (next article), and add more to winners. This is different from a lot of the advice you hear of taking your initials out at some point and freerolling the rest. Instead, double down on your winners because they are likely to keep outperforming.
That’s it for today’s article. Next time, we’ll look at identifying when momentum is dying as a signal on when to sell.
If you’ve ever been overinvested in a token and bagheld for a major loss, then this will save you a lot of money.