Bitcoin - Beware of Impulsive Trades and Fake-Outs

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Often new traders focus on indicators and candle stick patterns and ignore the structure of a chart. In their search for the holy grail, they rely too much on lagging indicators which have little meaning in the course of short term price action. From Death Crosses and triangles, to more moving averages than cases of Natural Light at a redneck picnic, there is a false representation in how to use these. This article is not about the oscillator traders, it is about being patient and waiting for higher probability setups.

I need to put out the disclaimer that this is about Swing Trading specifically, not other strategies like Dollar Cost Averaging or scalp trading. Unfortunately many have no clue that these are different strategies and will quickly point to how we were buying for the long term at 8k. While this is true they fail to mention that our average cost since last May 2018, when we entered our first position trade at 8160, is currently sitting at 4239. So trolls get your facts straight, and I am not one to brag, but I am sick of the wannabe traders on here blabbing false info, because of their own trading failures, with no quality post other than a chart with triangles, MACD's, RSI's and other useless indicators.

Our focus for this week is on fighting back the impulsive tendencies in trading, and to put your focus on longer term gains. As I mentioned in the article yesterday, impulsive tendencies are deep within our DNA and our designed by nature to take advantage of natural events. Yet these same emotional traits that are intended to keep us on alert, or take advantage of food an water when available, are the same emotional traits that are a detriment to trading. During the time of the gatherer, before the common era, it was important to act quickly when an opportunity presented itself, and be greedy when they did. This is still burned into our DNA and an emotional trait of herd animals like wolves and lions.

Early on wolves and lion packs that have no experience, often act on impulse in an attempt to take down a prey animal. Please no Pita comments, this is just a fact of life so deal with it. It takes time for a new Wolf or Lion pack to develop the patience and strategy to increase their percentage of kills. Initially they are impulsive and just react, often giving their prey an opportunity to get away. They are hungry, they see a target and go after it. However, a more mature wolf or lion pack, will push back that feeling of hunger, take their time and look for a higher probability kill setup. Sometimes they track for days, slowly waiting for the highest probable time to trounce. Trading is no different.

The same hunger that pushes young herds to be impulsive in their hunting is the same greed that pushes new traders into being impulsive in trading. We have mentioned for two weeks, that this is a risky area to take a long or even a short trade, as the environment is not favorable for a higher probability successful trade. I even mentioned it in my last TV article over a week ago which you can read below but in summary, have patience there is simply nothing to do. The past couple days we have been enforcing this, even with a trade signal setup on the charts. We mentioned this was a difficult position to trade, and was subject to a fake-out either long or short. In simple words, there was nothing to do in the crypto market, unless you want to trade penny coins, which is silly in my opinion. They are simply too volatile, but hey some are making a killing right? To be troll clear I am not against buying or position trading penny coins, but swing and day trading, your nuts.

Regardless, Bitcoin is simply in a tight consolidation and these types of consolidation result in the accumulation of both short and long positions by market participants. There are both short and long signals here, and this becomes a battle of the bulls and bears. In the end one wins, and the breakout attracts more participants, and as stops are triggered and the herd piles in we get a strong breakout. Yet a breakout to the upside was risky here as the position is near a major resistance area , or just below. This provides an opportunity for a larger operator who has accumulated during this consolidation to raid the market. This is exactly what we saw this morning. Only an hour or so after I posted our mid week report about the risks of trading we saw a fake-out.

In order for the market to meet our criteria for trading we need to see a pullback to a support level AND a trade signal. We need to see some sort of structure that supports our trade one way or the other. We simply do not have that yet. The levels we are looking at are 3100-3650. Pretty broad range but really the market needs to find support, or breakout taking out 4k before we are interested. A breakout above 4k would put more weight in the formation of a bullish trend , but until 4500 is taken out, it only increases the probability, it does not confirm it. Until evidence of a trend is in place, we assume this is a range bound market and will only look to buy or trade into weakness or on a trend continuation if one arises that fits our strategy. Maybe we miss a bullish swing, but a miss is not the same as a loss, and many still do not understand this yet.

Often the impulsive nature of new traders has them greedy for short term gains, which results in future lost opportunities. How many have lost their trading capital last year, over trading an unfavorable environment? More than will admit I'm sure. I received numerous emails on signal services having 5-10-20 trades on at one time and they lost 40-60% of their capital. This is capital suicide and the epitome of irrational and impulsive trading. Having 10 trades with a 2% risk factor in a correlated market exposes you to a 20% loss in the sector if the market pulls back. Many new to trading, yet are self proclaimed crypto trading experts, do not have the experience to understand this simple phenomenon. They have 5-10-20 trades in the crypto sector, which is no different than having 5-10-20 trades in MPC , XOM , CVX FANG and six other oil stocks. You are pretty much trading oil . You have too much risk in one sector.

This type of trading is based on greed and impulsive natures. Like a pack of wolves, it takes experience to know when the position of the market offers a higher probability trade setup. Understanding and controlling these emotions in the long run will make you a better trader no matter what your style is. Again for the pack of trolls out there Dollar Cost Averaging is an investing strategy for the long term, and right now is probably the best strategy to have, and one reason we are seeing the type of price action we have.

So why are fake-outs becoming more common? This in itself is a sign of something else happening in the market. I am writing an article on why this is happening tomorrow and it will detail why buy the dip here is probably the best strategy moving forward.

I appreciate all of you that continue to follow and post alternate opinions and give me a thumbs up. Hopefully my articles are insightful and I much appreciate the positive feedback both in comments below and in private messages. Yes I do agree they should have a thumbs down button, but in fairness they should have a troll tag too. Many would have more troll tags than flies at the 4H pig auction!!!!

Hey Buggo,

Still planning on sharing with us why fake break-outs are more common?

I'm guessing that bigger players want to accumulate longer?

I'm sure you know better about markets than me though ;)

Thanks for this post anyway :)
@Magnus @Boon2 and everyone else clogging up this blog ... go get your own channel and let ppl decide if they want to follow you. Noise.
+3 Reply
Boon2 dwk8081
@dwk8081, LOL your a troll with not one idea to share, why are you even here if you don't share your idea's beside trolling?

You add absolutely no value to TV at all, troll!
BTCUSD H4 Update, Z down? Checkout the idea detail's and all the update's for the complete picture.
Very good post guys. A lot of traders don't talk about the bull and bear traps and fakeouts so its nice to see you covering this. We're in a long trade right now and with resistance and a trend line break we could see an uptrend starting to form! Thanks for the great TA guys!
I am definitely agree with you Mr. Cowboy.. I always see your TA first if it appear on TradingView for more than a year
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