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(only for serious intra-day Traders) Thread 🧵 How I use BTC correlation when trading Alts on the 1 minute timeframe I will cover: • Correlation Coefficient • How I measure correlations (with examples) • Practical Tip that you can use today to take better trades (1/n) ↓
(2/n) Correlation Coefficient A common way of measuring correlation is the "Correlation Coefficient" indicator on TradingView. I've used this in the past but I have often found 2 big problems with it: Problem 1) • sometimes the CC (correlation coefficient) shows a high value because recent direction happened to be similar, but the price action of the ALT and BTC look completely different. Problem 2) • sometimes the CC shows a low value because there was a recent small outlier in the recent direction of the price action, however the price action of the ALT and BTC generally look almost identical. In the next post below I will explain my own personal approach for measuring correlation. ↓
(3/n) My way of measuring the correlation between BTC and an Altcoin There are a few variables I am comparing between the Altcoin and Bitcoin: 1) The "timing" of each Intra-day Reversal (blue/red lines). • If both the alt and btc are turning around at roughly the same time, this is a sign of high correlation. • It's showing that whenever imbalances in Market/Limit orders occur in BTC, they are having a noticeable impact on the Altcoin 2) The "direction" of each Intra-day Reversal (blue/red dots) • when BTC starts changing direction and moving "upwards", the Altcoin not only has the same "timing" but also has the same "direction". • BTC makes a low and the Altcoin makes a low at the same time. • BTC makes a high and the Altcoin makes a high at the same time. • This shows that positions in the Altcoin are mimicking that of BTC, another sign of high correlation. 3) The timing of "Volume Spikes" • if the volume in the Altcoin are spiking at the same time as BTC, this is also another sign of High Correlation. • This is showing that large order sizes are being mimicked in the Altcoin.
(4/n) Low Correlation Example In the example below, the 3 variable I spoke about are not in sync. The Altcoin is not "following" BTC's price action and is not too heavily impacted by it. This is a sign of "low correlation". 1) The "timing" of Reversals: • the alt and btc are reversing at different times 2) the direction of each Rotation: • while BTC is moving up or down, the Altcoin doesn't care and is just doing it's own thing. 3) The volume Spikes: • The big surges of volume in the altcoin come at different times and intensities when compared to BTC. • the structure of the volume looks noticeably different as well.
(5/n) Cheat Sheet for how to use Correlations in Intraday Trading <a target="_blank" href="https://x.com/spicyofc/status/1970900797753000358" color="blue">x.com/spicyofc/statu…</a> <a target="_blank" href="https://x.com/spicyofc/status/1970900797753000358" color="blue">x.com/spicyofc/statu…</a>
(6/n) Practical Tip that you can use today to take better trades Quick context: • One of the strategies I like to trade is the "Fast Spike Reversal". If I happen to get a "fast spike" into a level, the first immediate thing I MUST do before considering to take the trade is check the correlation of the coin relative to BTC. If the correlation is HIGH: • I have to be extra cautious and ONLY take the trade if the reversal idea actually looks good to take in BTC. • this is because I have to ignore any analysis I did in the altcoin since BTC is going to pull it around. • Any analysis in the altcoin basically becomes meaningless. I MUST give more focus + attention to BTC in these situations. If the correlation is LOW: • I like this. • Here I can ignore what BTC is doing and just focus on taking advantage of the trapped traders in the Altcoin. If you want more information on how I trade fast spike reversals, you are welcome to check out this thread ↓ <a target="_blank" href="https://x.com/spicyofc/status/1975114291679227974" color="blue">x.com/spicyofc/statu…</a>
(7/n) If you found this useful, just copy Pepe the frog. ↓
