Bitcoin - Nothing Like Losing All You Have!
Bitcoin continues to push higher and where it stops is anyone's guess, but eventually we will get a pullback or at least some sort of consolidation. We do expect any selloff or consolidation is going to be bought up quickly and will be short lived. When those who only 3000-4000 points ago, were calling for a retest of the low, are now putting rocket on their charts in an area of resistance we pause to see how the market reacts.
As we mentioned over and over, those who did not have the courage to buy last year using DCA from 10k down, and laughed at us, were the ones buying here at 8-9k.
Area of Resistance:
Whenever an equity pushes into a major area of resistance, such as the one between 9 and 11k, you pause. You do not get aggressive you pause with caution. Especially with a major psychological level in play as well. These areas are subject to giving way quickly, and if you are not sitting at your computer ready to close it out, you are subject to taking a loss and in highly volatile equities like Bitcoin, the a 10%-20% move can be quick.
However we are now seeing more evidence that this market may be stronger than anticipated in the near term. There are no current signs of weakness in the form of sell orders, as traders exit positions. They are being easily absorbed in the market. We still need a little more evidence, but we are willing to take a trade if the opportunity arises in the very near term.
You have to be patient and let the market reveal its hand, not just assume the market will react one way or the other and jump in on any signal.
Short Interest:
Short interest continues to remain high, but it has continued to be elevated through a 2k point move. This implies the shorts have strong hands. This is not your typical Bitcoin short trader, it may be a sign of something else.
Often larger players are looking to lock in profits, especially when they have a lot of profits on the table. One way to lock in some profits without selling Bitcoin is using a hedging strategy. In stocks we will often Buy a Put or short an index to provide a hedge against our portfolio. With Bitcoin you pretty much have to short outright. Say a larger player has 1000 Bitcoin from lower levels, and wants to lock in some profits at 10k, but not sell his actual inventory.
He can short 100 coins and have a 90% net long position. Since he is both long 1000 coins and short 100 coins he is still net long and has simply locked in profits on 100 coins. Moves up the long makes money, moves down the short makes money. This is a win win for fund managers. Market pulls back to 8k they cover their short and make money. The market moves higher, well they are still in a net long position, with 100 coins locked in at 10k.
They are strong hands because they do not have to worry about being liquidated. Any losses from the short position are offset by their long position. Any gains are additional profits. So they can hold for long periods, but eventually if Bitcoin breaks out they will dump their short positions, add longs and create the buying needed to push the market higher. Just so nice to be the large stack at the table, you can really push things around.
Too Aggressive Trades:
Regardless any trades in these areas should be considered highly aggressive and watched closely. The market is susceptible to profit taking and though it is setting up for a leg higher, it can also reverse and pullback quickly.
The other thing to consider is the market overall is trending. Sure one coin breaks out here and there, but overall the market is moving higher. We are starting to see some alt coins break their range signaling a move higher. The key is not to get over extended in the market. For example, risking 2% on 5 swing trades where all the instruments are in the same sector is risking 10% of your capital.
This would be like looking at Oil and taking 5 trades with XOM MPC EOG SLB and OXY. If the energy sector is beaten up they will all get beaten up. The same goes for cryptos. Nearly all the charts are the same, there are the occasional exception but essentially we see a move with LTC or BTC and the market soon follows. The downside is if Bitcoin sells off quickly and you are in 5-10 coins, you are going to see 10%+ of your trading capital erode. Maybe you close some out early yada yada yada, but essentially you are trading a sector. You pick the best looking chart and that should be your trade.
Last but not least is understanding when a trade is aggressive or not. Trading out of support in a bull trending market is the type of trade we like to take. Continuation patterns are more susceptible of failing so you have to adjust risk accordingly. It is important not to attempt hitting home runs, but attempt to continue building cash equity.
Simple Math:
It only takes 48 winning trades at 10% each to turn 10k into 950k. It only takes 21 winning trades at 25% each to turn 10k into 950k. If everyone was hammering down 10-25% winners on a constant basis they would be sipping Margarita's at the beach, not posting trades or writing articles. Yes I am writing an article and posting trades, but I do not claim to make 3500% a year, if I did I would be sitting in Vegas playing poker! If you are reading this article, well it is safe to say you are not in the 3500% annual winners circle.
Balance is the Key
So we balance our cash and equity positions, and our initial goal was to take a model portfolio we stared last year in the red, and turn it green. Goal #1 is hit. It took us nearly a year to do it but we are up double digits now. Our next goal is to maximize our positions and remove capital at the same time. We are not going to ride the perpetual roller coaster of markets we are going to slowly remove our risk capital out of the market, using position and swing trades.
Trying to get rich quick is the quickest way to the poorhouse. Losing your equity and inventory reduces your gains in the long term, even when the occasional homerun happens like our Facebook trade last week. Nice 1000% gains, but we only risked a fraction of our portfolio. This is key to being successful in the long term. With a 30k account we risked $150 and made 1200 in two days. Homerun baby, so why not risk more?
This is the lure of easy money, and thinking you can do it consistently will deteriorate your portfolio. Sure we could have risked 3k and made 30k, but again if we were wrong that is a 10% hit to our portfolio. Once you blow out a 30k account or take it from 30k to 12k making risky trades, you start to realize that there is no get rich quick scheme. Sure if Bitcoin goes to 100k many of us will be rich, but not if you lost it trading. I am more concerned about losing than winning, because I have blown out a large account. Never a cheap lesson in life I guess
In short we may see a squeeze to the upside from here, and it could easily care us into the 12500-15k area quickly. Sure you can go on BitMex leverage 25-100/1 and hope you hit a homer, but most likely you will end up homeless in the long term. I know many more people that made a lot of money investing and playing for the broader move. I know many also that blew out 150-2 million dollar trading accounts in a short time.
“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.” Jesse Livermore
Forgot to mention, TV has now fixed the bug with some of us not being able to comment. I was one of those which is why I did not comment on the last article.
As we mentioned over and over, those who did not have the courage to buy last year using DCA from 10k down, and laughed at us, were the ones buying here at 8-9k.
Area of Resistance:
Whenever an equity pushes into a major area of resistance, such as the one between 9 and 11k, you pause. You do not get aggressive you pause with caution. Especially with a major psychological level in play as well. These areas are subject to giving way quickly, and if you are not sitting at your computer ready to close it out, you are subject to taking a loss and in highly volatile equities like Bitcoin, the a 10%-20% move can be quick.
However we are now seeing more evidence that this market may be stronger than anticipated in the near term. There are no current signs of weakness in the form of sell orders, as traders exit positions. They are being easily absorbed in the market. We still need a little more evidence, but we are willing to take a trade if the opportunity arises in the very near term.
You have to be patient and let the market reveal its hand, not just assume the market will react one way or the other and jump in on any signal.
Short Interest:
Short interest continues to remain high, but it has continued to be elevated through a 2k point move. This implies the shorts have strong hands. This is not your typical Bitcoin short trader, it may be a sign of something else.
Often larger players are looking to lock in profits, especially when they have a lot of profits on the table. One way to lock in some profits without selling Bitcoin is using a hedging strategy. In stocks we will often Buy a Put or short an index to provide a hedge against our portfolio. With Bitcoin you pretty much have to short outright. Say a larger player has 1000 Bitcoin from lower levels, and wants to lock in some profits at 10k, but not sell his actual inventory.
He can short 100 coins and have a 90% net long position. Since he is both long 1000 coins and short 100 coins he is still net long and has simply locked in profits on 100 coins. Moves up the long makes money, moves down the short makes money. This is a win win for fund managers. Market pulls back to 8k they cover their short and make money. The market moves higher, well they are still in a net long position, with 100 coins locked in at 10k.
They are strong hands because they do not have to worry about being liquidated. Any losses from the short position are offset by their long position. Any gains are additional profits. So they can hold for long periods, but eventually if Bitcoin breaks out they will dump their short positions, add longs and create the buying needed to push the market higher. Just so nice to be the large stack at the table, you can really push things around.
Too Aggressive Trades:
Regardless any trades in these areas should be considered highly aggressive and watched closely. The market is susceptible to profit taking and though it is setting up for a leg higher, it can also reverse and pullback quickly.
The other thing to consider is the market overall is trending. Sure one coin breaks out here and there, but overall the market is moving higher. We are starting to see some alt coins break their range signaling a move higher. The key is not to get over extended in the market. For example, risking 2% on 5 swing trades where all the instruments are in the same sector is risking 10% of your capital.
This would be like looking at Oil and taking 5 trades with XOM MPC EOG SLB and OXY. If the energy sector is beaten up they will all get beaten up. The same goes for cryptos. Nearly all the charts are the same, there are the occasional exception but essentially we see a move with LTC or BTC and the market soon follows. The downside is if Bitcoin sells off quickly and you are in 5-10 coins, you are going to see 10%+ of your trading capital erode. Maybe you close some out early yada yada yada, but essentially you are trading a sector. You pick the best looking chart and that should be your trade.
Last but not least is understanding when a trade is aggressive or not. Trading out of support in a bull trending market is the type of trade we like to take. Continuation patterns are more susceptible of failing so you have to adjust risk accordingly. It is important not to attempt hitting home runs, but attempt to continue building cash equity.
Simple Math:
It only takes 48 winning trades at 10% each to turn 10k into 950k. It only takes 21 winning trades at 25% each to turn 10k into 950k. If everyone was hammering down 10-25% winners on a constant basis they would be sipping Margarita's at the beach, not posting trades or writing articles. Yes I am writing an article and posting trades, but I do not claim to make 3500% a year, if I did I would be sitting in Vegas playing poker! If you are reading this article, well it is safe to say you are not in the 3500% annual winners circle.
Balance is the Key
So we balance our cash and equity positions, and our initial goal was to take a model portfolio we stared last year in the red, and turn it green. Goal #1 is hit. It took us nearly a year to do it but we are up double digits now. Our next goal is to maximize our positions and remove capital at the same time. We are not going to ride the perpetual roller coaster of markets we are going to slowly remove our risk capital out of the market, using position and swing trades.
Trying to get rich quick is the quickest way to the poorhouse. Losing your equity and inventory reduces your gains in the long term, even when the occasional homerun happens like our Facebook trade last week. Nice 1000% gains, but we only risked a fraction of our portfolio. This is key to being successful in the long term. With a 30k account we risked $150 and made 1200 in two days. Homerun baby, so why not risk more?
This is the lure of easy money, and thinking you can do it consistently will deteriorate your portfolio. Sure we could have risked 3k and made 30k, but again if we were wrong that is a 10% hit to our portfolio. Once you blow out a 30k account or take it from 30k to 12k making risky trades, you start to realize that there is no get rich quick scheme. Sure if Bitcoin goes to 100k many of us will be rich, but not if you lost it trading. I am more concerned about losing than winning, because I have blown out a large account. Never a cheap lesson in life I guess
In short we may see a squeeze to the upside from here, and it could easily care us into the 12500-15k area quickly. Sure you can go on BitMex leverage 25-100/1 and hope you hit a homer, but most likely you will end up homeless in the long term. I know many more people that made a lot of money investing and playing for the broader move. I know many also that blew out 150-2 million dollar trading accounts in a short time.
“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.” Jesse Livermore
Forgot to mention, TV has now fixed the bug with some of us not being able to comment. I was one of those which is why I did not comment on the last article.
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