Sizing. Now you know why when I take position trades, I take them small, that and not using margin is what protects your sanity in times like this. Getting big too early puts you at the mercy of the market. We are now below the 10988 to 8656 (.618 of recent structure), but there is another wide zone just below.
The 8171 to 4983 is the .618 area of the entire structure from sub 100 low to the 20K high. In terms of , this is a good place for Wave 2 to bottom out and that is what we are seeing here, a broad wave 2. So at this point, if you bought in at earlier prices and are still holding, this is where your careful sizing keeps you in play. I am just going to hold what I have and not going to add until stability reappears.
These are great prices IF you have been flat, because believe it or not, the risk is lowest at these levels relative to potential reward. In order to continue building my position, I now need to see stability return in the form of a higher low on a large time frame like a 12 HR or above. If you are out looking to get in, this is a good time to start very small. This means if you were planning to invest 1K, only buy $100 worth, or 10% of your target size. IF and when the market firms up, you have 9 more units to buy which will occur at different prices as the market cooperates. This keeps your risk low and allows you to position yourself for the next leg up.
What about shorts? In my opinion opening new shorts now is no different than buying at the top. When a market looks the most obvious, that is the time to do the opposite. Even leading up to this situation, if I was able to short, I would only consider such positions on day trading time frames because the longer term risk is too high. Unless you are looking to take quick profits, I would avoid it all together.
Keep in mind, perspective is a big part of successful trading. From the beginning of my trading plan in this market, I bought small and waited. I did not place any stops, but I used my fractional size to protect me from situations like this. I am always considering these scenarios, even though I cannot determine if they will actually unfold, but I can prepare in case they do and that is why I always emphasize a focus on risk first, not rewards. Everyone is an expert in vertical markets, but it is these conditions that truly separate the professionals from the herd.
In summary, perspective is the key here. My perspective is , even in the face of this selling because that is the type of position I have taken from the beginning. If I was day trading these markets it would be a different story, but I stick to my plan.The difference between this and being stubborn is the long term outlook. As long as this technology continues changing the world, I want to be invested in the long run, IF that changes, then the premise behind my position will be negated and that is when changes must be made. I plan to buy more after the market finds stability which is not a single event, but more of a process that can take days to unfold. It is at these extreme points where you must be the most aware of your emotions and not letting them get the best of you. Have a plan with a relevant basis and stick to it.
Questions and comments welcome.
Thats the rotation zone, whether or not you like it.