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Penny Coin Correlation Strategy

Small Alts In Relation to BTC

There is a scene in the movie "The Wolf of Wall Street" which portrays the first time Jordan Belfort sold someone a penny stock. Penny stocks are the ones that are more afforable to retail investors with prices ranging from just cents to a few dollars a share. These allow investors to buy up tens of thousands of shares for a fraction of the amount in initial investment. For example, investing 4000 in a 10 cent stock gets you 40000 shares. Small moves in the price of the stock can result in large fluctuations in the value of your investment.

Crypto has taken this and created an even more profitable trading strategy. As we speak there are several altcoins worth only a few cents that are directly correlated to BTC's price action, that is BTC goes up it does too and vice versa when price does down. Many retail investors cannot afford to buy large shares of BTC because of the high ticket price. A retail investor buying 1000 in BTC would only yield about .113 BTC which would only provide modest returns without a 1000x move in BTC, which is completely unreasonable to expect in the short term.

Strategy

So that being said, it is obvious for the investor, day trader, whatever you want to call them, with small capital to be using these penny coins. Penny coins are the crypto equivalent of penny stocks. Small time traders and those who do this as more of a hibby can see legitimate returns using this strategy. It will not involve specififc price points and levels or anything like that, instead it is a structure under which you can place your own price levels for buying and selling.

As I said there are several coins with values in the range of pennies to a coupke dollars that are heavily correlated with BTC. That means they are subject to the same radical moves BTC is making with a greater ROI potential due to colume of coins owned. Specififcally I will be focusing on Cardano (ADA). Cardano is a competitior to Ethereum with it's own blockchain and ecosystem for development of smart contracts. The founder Charles Hoskinson was one of the founders of Ethereum as well, before he decided to create his own research project in Cardano.

Regardless of the fundamentals of Cardano, which are solid and you can find out more in this interview here, the price speculation is what we will be focusing on. As of the time of writing ADA has just broken into the five cent range following BTC's huge spike of nearly 1000 dollars today. Spikes like these are notorious for bull traps and require further confirmation, the best time to have entered into a trade benefiting from today's price action would have been at least a week ago if not longer. FOMO'ing in on a candle like that is a good way to get burned in a possible price reversal.

ADA last nigh was in the 4 cent range trading arounf .04600-.04800. As you can see the ranges are within the millicents. Low prices like these mean that traders can buy 100k of them for only around 187 dollars on 25x leverage. If you own 100k of them, every .0001 move is a 10 dollar move in your investment. That means a move like last nights from .0460 to could result in a profit of 500 dollars, more than doubling your initial investment of just under 200 dollars. Lets compare that to a 200 dollar investment in BTC at 7761, today's open, benefiting from the 1000 dollar move. The initial investment would have yielded only .025 BTC, and after the move that would have been worth only 226 and change after the 1000 dollar move in BTC, a much more modest profit of only 26 dollars or %13. It does not take a math prodigy to understand returns of %200 are greater than 13 % from BTC as a retail investor with limited capital to start with.

List of Correlated Penny Coins

The following is a table listing the penny coins correlated with BTC, BTC's percentage increases/decreases on certain dates , and the percentage increases/decreases the coins benefitted/suffered due to BTC's price action. This is not comprehensive nor is this correlation guranteed to continue but for the time being this is quite the opportunity for those traders just starting out looking to take advantage of BTC without having unlimited liquidity to trade with. The purpose of this table is to show the direct correlation between price movement in BTC and penny coins, and how explosive the price movement is in the penny coins, providing huge ROI's.

Date BTC Price Increase Penny Coin/Increase
4/29 +978 (%12.64) ADA +0.00460 (%9.83) XLM +0.00358 (%5.27) XRP +0.01290 (%5.60)
4/22 +282 (%4.12) ADA +0.00211 (%6.11) XLM +0.00411 (%8.09) XRP +0.00470 (%2.56)
4/06 +570 (%8.42) ADA +0.00404 (%12.67) XLM +0.00639 (%14.72) XRP +0.01890 (%10.56)

Do Your Due Dilligence

This strategy requires correlating price levels across multiple coins. What this means is you have to sit down and track levels of support and resistance on BTC, the parent asset in the correlation relationship, and plot the equivalent levels on thepenny coins price. Due to the dramatic nature of the price movement in the penny coins, which are certainly more volatile in terms of percentage moves/day or even per hour, this can cause serious issues. Underestimating the full range of price movement in relation to the movement of BTC can end with misconstrued levels.

For example, if you predict BTC to fall in price, you should ascertain a specific price level using your technichal analysis skills for a bottom target. Next you must plot that same level in terms of your penny coin's price action. Missing the levels can result in inadequately placed stop losses, buy, and sell areas. The ratio is not 1:1, the penny coins react dramatically to even the smallest changes in price in BTC. It is helpful to watch your market for a few hours and gain a sense of the typical reaction of your market to that of BTC's. If this is not done correctly you will end up on the losing side of the trade, due dilligence is key.