Why MARA out of all crypto-related equities?
MARA tends to be the highest volume traded and most liquid crypto ticker consistently. While it is true that many other crypto tickers (in equities) show up every once in a while which trade much higher volumes, most of those tickers will within a month or two deflate and lose liquidity. MARA keeps its liquidity relatively stable even in bear markets of Bitcoin. This makes it a consistent vehicle to play such a strategy.
For those unfamiliar, MARA is a company that specializes in crypto mining, specifically Bitcoin mining. Companies' revenues are tightly connected to Bitcoin's price performance.
-The higher the Bitcoin goes the more revenue the company can extract.
-The lower the price goes the fewer revenues the will company receive., This makes it very sensitive to Bitcoin price. And especially what makes it so sensitive is the fact that it trades on good liquidity. Tickers that are low-liquid generally do not respond well, even if they are tightly connected on the revenue side to a particular asset.
RIOT is another similar ticker, but I do not see too many advantages of picking RIOT over MARA most of the time.
Advantages of presented two strategies on the article:
The main advantage is that those strategies can be traded on many days across the year, even if Bitcoin is not super strong. Super bullish Bitcoin is not required for this strategy, which makes it a good complimentary edge every week. This is unlike many other patterns or strategies that often do require Bitcoin to be in significant upside performance to extract edge, which is not uncommon in the crypto+equity space.
Two strategies presented are:
Arbitrage play
Clearout play
Arbitrage strategy is played early after the US market open if Bitcoin was significantly weak or strong in pre-market or after-market hours (2% move or more, ideally 3 or 4%). A strong and consistent trend in entire PM/AH session combined with high % move is what we are ideally looking for. Which means only certain days will fit that.
Components of arbitrage play:
-Volatility of BTCs move (score from 1 to 10)
-Trend consistency of BTC (score from 1 to 10)
-Catalyst in BTC (score from 1 to 10)
Ideally, the score should be as close to 10 and as far from lower numbers.
To explain briefly each component:
-Volatility is basically % of the move. It is not enough to see just uptrending or downtrending Bitcoin to play arbitrage on. Volatility needs to be high, in relative terms. Bitcoin needs to establish perhaps the biggest move in the entire month in terms of % to fit a good match on a high score.
-Trend consistency stands for how stable the trend is in the market and AH session (before the US opens). Ideally a stable trend as possible for the highest score (not choppy or trend that flip flops).
-A catalyst is not required, but it doesn't hurt. If there is news that led to Bitcoins move it can help with a higher score. The stronger the catalyst the better.
When we assess the quality of the arbitrage setup before the US market opens, make sure to combine all three components above and see where the score is. The higher the score the more likely it is for MARA to be very good and also a very early entry opportunity (straight from gates open). And vice versa if the score is low.
Very clean arbitrage opportunities are not that frequent. Perhaps once a week when Bitcoin is very strong in the pre-market US session and gives the opportunity to long MARA after the US market opens. Sometimes it's not even once a week. All other opportunities are generally lower quality, because Bitcoin's upside or downside moves on a typical day will not exceed the needed % threshold to open a good opening play on MARA. This is important to keep in mind to not overdo the setup. This is why both strategies make good complimentary use as the setups are not otherwise frequent enough.
Example of strong setup for arbitrage long on October 24th (score 10):
Example of another higher quality setup for arbitrage long on MARA:
Example of possible shorting arbitrage on image below but a mediocre setup because volatility is lacking on Bitcoin. It also led to a failed setup.
Example of a mediocre shorting arbitrage opportunity on image below. The reason why "mediocre" is because the volatility of the move of selloff in Bitcoin is not very high. It is not small either, but not around % levels for the highest quality setup.
Keep a close eye on risk-on or risk-off market sentiment
If SPY is strong and one is playing arbitrage opportunities on the long side of MARA, because Bitcoin was also strong in the pre-market session, then that is an ideal combination. MARA is after all equity asset, and relatively good market capitalization size, which makes it somewhat sensitive to SPY movements as well. Although the sensitivity is nowhere near as strong to SPY as it is to Bitcoin, very important to keep this fact in mind all the time.
SPY will contribute to MARA's performance mostly if there has been a very high volatile move in SPY either in pre-market or after the open. This means that if there is a strong risk-on or strong risk-off move in SPY and general broad markets, one should add that into the calibration of directional targets on MARA. Both Bitcoin and SPY should ideally match the same direction, and be as highly volatile as possible to make the cleanest arbitrage opportunity on MARA.
For example, if SPY is very strong in pre-market and Bitcoin is as well, that makes a good combination for early arbitrage long opportunity on MARA after the US market opens.
If SPY and Bitcoin are in conflicting moves (one is up other is down) that is not ideal. It's better to shrink target expectations in such cases.
What happens after the US market opens to Bitcoins price matters!
For arbitrage play, do not remain too solidified in bias, based on what happened to Bitcoin in the market session of the US (Asian session). If flows of Bitcoin inverse strongly after the US market opens, it can invalidate the arbitrage play, even if Bitcoin still is somewhat in green (for long on MARA). It's important to keep both the bigger and smaller picture in mind at the same time. Ideally, Bitcoin should keep pushing higher after the US opens or at least hold neutral for good opportunity. Very important. This is not a static approach, it requires calibration depending on what happens after opening as well.
Do not overstay!
An additional rule to implement is that arbitrage opportunities after the US opens (in the first 2 hours especially) are often short-lived. This means for example that MARA will push (if bullish setup) but usually not exceed 50 cent move (typically 20-30 cents), so do not lift expectations too much. Get in and get out for 2R or 3R if possible.
Keep in mind that many setups are presented from a bullish/long perspective, but the same approach (but inverse) applies to the days when BTC is red. It's just that it's enough to explain it from one perspective as the other is just a mirror inverse.
Two entry approaches for arbitrage setup:
Approach 1: Long straight at market open MARA (do NOT be afraid to chase if the score is high as long as risk is respected).
Approach 2: Long the wash if MARA diverges from BTC price but BTC is still holding.
Respect the average volatility of MARA on a daily basis and don't aim for too big moves. 20 or 30 cents on MARA can be already good enough for an average winning trade. Push for higher targets only when Bitcoin has made significantly higher than average daily moves. It all scales proportionally to the volatility of BTC. The more volatile the BTC, the bigger the target on MARA potentially.
Clearout strategy using Bitcoin as lead
Clearout-stop hunts with inverse moves examples on Bitcoin:
The idea behind the clearout strategy is that Bitcoin's price is highly manipulated (especially after the introduction of futures markets) and stop-hunting is very frequently present. More frequently present on this asset than many other large-cap assets. Constant whipsaw moves with heavy swipes are not uncommon at all.
This is because it is a highly leveraged asset with consistent exposure to both long and short-leveraged positions, which allows market makers (dominant controlling funds) to constantly shake out both sides of the market as much as possible.
To see this, make sure you open up a 1-minute chart of Bitcoin (where this behavior is the most common) and study price action up close over as much history as possible. Plot the highs and lows of nearby structures and notice how lows often consolidate, get shaken out and price reclaims it fast back inside. This is the behavior we can aim for to join the market makers and push some positions through the MARA stock.
However keep in mind, the lows and highs that matter aren't just any lows/highs, but generally those with deeper bounces. Once you have two or three lows/highs inside of the structure with very sharp bounces, generally those will be the ones where stop-hunting will take place. So make sure to focus on price structures with this kind of behavior, for example:
Shallow lows vs deep lows:
Deeper structures have more liquidity and trade on higher volumes by default, which makes them more likely to be the areas where those clearout-stop-hunt setups show up.
Wait for support to reclaim for bull setup confirmation, and wait for resistance to reclaim on the way down for bearish setup
This method is useful so that the trader has a robust rule on what determines an entry green light, as well as invalidation of setup. Sure the risk to reward gets smaller for waiting confirmation but on the upside, it creates a robust context to follow the rule based on what happens next for price action.
This is why waiting for the reclaim of the key swiped level is good practice. Once the support is reclaimed (after the initial swipe down) that for example validates the long in MARA, assuming the clearout did have decent high volume and a very sharp knee-jerk reaction (fast down and up). (Use the image a little higher as a guide for reclaim).
Some clearouts happen in Asian and London sessions which disqualifies them from MARA trading
Since MARA is highly illiquid in pre or post-market hours, the only way to trade those clearout-reclaims is when the US market is open. This rule should be followed most of the time without exception. It is too hard to get decent risk to reward if liquidity is super dry, which on most days for MARA will be in pre-market session. This makes this strategy limited to US market hours.
Volume and the speed of the move
Ideally, on the clearout under or above the key level, there should be significant volume traded, if possible highest volume candle of at least past 30 or 50 candles. This way we have higher validity that many stops were indeed hunted.
Additionally, the price should start inversing back inside of the level as fast as possible. My rule is 1-5 candles for a higher quality setup.
For the volume of Bitcoin, make sure to use either futures Bitcoin asset or Bitcoin-Thether (BTCUSDT), as those two have the highest market-making participation and most reliable volumes. Avoid spot Bitcoin (BTCUSD) and non-leveraged Bitcoin assets as those are less reliable.
But keep in mind, that high volume and fast reclaim are not necessary, they are just added value to a higher quality setup.
To summarize:
-high volume clearout candle
-fast reclaim within just few candles
Example of high volume and fast reclaim:
Let's get to some examples of clearout strategy
Remember that the above is highlighted just Bitcoin and its behavior. The strategy is aimed at trading MARA and not just Bitcoin itself, although traders can combine trading both of them at the same time. This approach is especially suitable for those who only want to trade equities and nothing else, and have no interest in touching crypto currencies in any matter, especially for US residents as Bitcoin futures markets are hard to access for those.
The idea is, therefore, to wait for the clearout setup to show up on Bitcoin and then trade the MARA stock. All of the setup examples below are on the same data and time for both assets Bitcoin and MARA.
Keep in mind, that most setups shown are winning for the sake of materializing the lesson, but by no means one should assume that every trade should work out as easily.
Example 1:
Example 2:
Example 3:
Example 4
Main issue of MARA: Low volatility and low range typically
This leads to a lower risk-to-reward profile by default on trades. If the ticker has low volatility and there is no reason to expect a major move (if one is extracting only a single leg of a move) this shrinks the RR profile on trades. This is something that has to be accepted as fact, so do not expect 1:10 RR trades on MARA frequently. That is surely a good way to get stopped out too much or to not hit profit targets too much. Lower your RR, because the ticker's typical behavior suggests that this is the right thing to do. If the ticker has a wider spread and low range it is required to lower RR expectations.
Behavior dictates that which brings us to the fact that there is no such thing as "wishful RR on trades", which one can see sometimes when traders trade 100 different instruments each with fixed RR expectations. That is nonsense. Always adjust expectations to the behavior of the asset. Some assets are highly volatile and some are not. Some have high liquidity and tight spreads and some do not.
Avoid using this strategy when Bitcoin is in a depressed bear market
What is meant by "depressed bear market" is for example around 2022 end of the year where prices got not just crushed but remaind pinned into weakness for while. This leads to major shrinking of volatility both on Bitcoin and MARA afterwards, and limits RR too much.
These two strategies work especially well when Bitcoin is more volatile, or to be precise when Bitcoin is in a semi (or proper) bull market. That lifts the average price of MARA and increases volatility and liquidity on MARA, therefore expanding RR. In very deep bear trends when MARA price collapses (mid-2022) it's better to avoid and stop using it because the RR will fall out of favor. By "bull market" you do not need Bitcoin to be in 2021 type of hype, all it needs is a steady up trend for a few months with some decent upside %. That is enough as it will help elevate MARA price over while already.
Research history well while using both MARA and Bitcoin
The strategy is outlined above. But to really understand how a high quality versus low quality opportunity looks like or how many times the setup fails it requires one to study as much historical price action as possible. The more charts you scroll through the more realistic picture one can build. So take your time and scroll those charts through!
One problem is that not many platforms have plenty of MARAs and Bitcoins intraday data, usually they have only one instrument. Which means one might have to combine two different platforms for each asset to study those relationships. Personally i use MT5 which has several months of data, which is quite okay. But not perfect as ideally its better to have two years. And keep in mind you will need to use 1 minute charts, not 1 hourly or daily.
Conclusion
This is a relatively easy strategy to implement and in my belief one that can teach traders a lot. The reason is that it teaches traders how the relationship of asset pricing by market makers and funds works. When they are using a leading asset (Bitcoin) to reprice other assets that are lower on the market capitalization chain (MARA) based on what is happening.
Every asset globally has a relationship to some other assets similarly to how Bitcoin and MARA match each other. The more you practice such trades and strategy the more you can figure out underlying pric e mechanisms and why some assets move the way they do. One can start to see that moves in MARA are not random, as are not in most assets.
Movements have their origin from their "mother" asset. No matter what ticker you trade daily, figure out what that mother asset is, and then study the relationship mechanics between them.
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