goldbug1
Long

Bitcoin - Bags of Dreams & Ranging Markets

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Back in late June and early July we mentioned that Bitcoin was likely to go through a consolidation or ranging phase which could last weeks or months. Here we are two months into a consolidation and we are still ranging. Nothing has changed and until the market decides to trend, most are simply guessing at the direction.

The only thing that has changed is the strength of the Alt market. While many are still looking for the next big alt rally, we have been rotating out of alts and into Bitcoin . There are many fundamental reasons for this likely fruition, but even without the fundamentals it is clear from the charts.

Technicals:

Bitcoin continues to range between the lower 9k's and 13k . No progress is being made one way or the other, however, as many seek to find the holy grail indicator of trading and investing, they fail to recognize the simple things.

The current price action is near the lower end of the range, and over the past 10 days or so, buyers have been stepping in below 10k as evident of the daily wicks. You won't find this on any indicator, it is purely recognizing price action and order flow.

The 10k level is a psychological level and if broken through 8500 once again comes into play, but there is still broader support in the low 9k area which has held so far. This is an area for potential fake-out, where once again those that are attempting to blindly trade the consolidation are pushed from their positions only to see a bullish reversal.

This happened in mid July with a very breakdown of price which scared many out of the market. Price quickly recovered only to break down once again to retest the low. The prevailing bullish trend had many, that sold under 10k, rushing to get back into the market before once again giving way.

There are numerous resistance and support levels within this range, but the two most important ones currently are 10k for the bulls, and 11k for the bears. Both of these levels are subject to fake-outs and or breakouts and that is the risk here.

With that said, we retain our bullish position in this area, as the market has yet to prove otherwise. Look to buy and swing trades out of the lower end of the range, and either trim or close out trades at the upper. This is not a trending market it is a ranging one, and until something changes, we stick to the strategy of trading a ranging market.

The risk is we break support or resistance and start to trend. Do we know whether this is the next leg for a swing to 20k, or a swing lower to the mid 8's? NO, and neither does anyone else.

All we can do is act on the information available at the current moment. We have no control over the market, but what every trader and investor has control over is risk. Risk management is more important than being right or wrong as it determines the amount of pain you are willing and able to take.

Strong Hands vs Weak Ones

Going into a trade with the mentality of "I do not mind losing this money", puts you in a position of strength not weakness. It allows you to patiently ride through the noise. No different than going to Vegas to play poker with $2500. This does not imply you want to lose, for the trolls out there claiming to bat 999, it implies you are willing and able to lose it without adversely affecting your capital.

If you sit down at a table with $2500, and buy in for $100, are you nervous about calling an all in with AK when you are getting better than pot odds? No, because you limited your risk and one loss is not going to be a huge hit on your bankroll.

However, if you buy in at the 5-10 table with your whole bank roll are you willing to risk it all on one hand even when the odds and probabilities say you should call? NO. You literally put yourself in a position of being a weak player because you are playing with scared money.

Same goes for trading. If you are only risking $100-$200 with a $5000 trading portfolio, a loss or two is not devastating to your capital. If you want to take larger positions, over time add to your trading capital, don't risk it all on a single hand.

Like poker knowing when to increase your risk, and or decrease takes experience. When do you risk 1% vs 5%? We do not attempt to just provide signals to brag about on TV, we look to make our members better traders and investors and the first focus is risk management. It is the easiest thing about trading to master, yet takes discipline which few have. Charting and recognizing buy and sell signals takes experience and time, this should be secondary to risk management. Our goal is to create traders and investors that can think on their own.

What has Changed?

The alt coin market has been relatively weak and this may be a sign of a fundamental change. Not to go into all the analysis of it here, but there are changes happening which make these coins less relevant in the market and the future likely bleak.

Sure there will be the exceptions, but how much are you willing to risk that you are able to pick that exception or two? Bitcoin has proven its acceptance in the markets and beyond the crap spewed out on coin sites that fodder hope, most others have not.

Diversify:

Unlike many we trade multiple markets, including the stock market which provides the most opportunities on any given day due to liquidity and the numerous sectors that are not always correlating. Sure when the market takes a hit like it did on Friday, there were few green tapes in a sea of red.

Many of these crypto hacks are going to fall by the wayside with their grandeur of the next big move for alt-coins and I highly doubt a handful retake their previous ATH's. You may be wishing you bought CVS paying a 4.5% dividend and trading off its low and room to swing higher, than buying $2500 worth of crap.

There will be the exceptions, but Bitcoin has separated itself from the herd and I firmly believe the separation will continue. Why? Market sentiment. We have seen numerous coins with strong charts to start the year, well peter out. Not good and it has us rethinking some of those positions.

So is it horrid to invest in some alts? The same thesis holds true as our poker example above. Are you calling a 4 bet with 5-7 OS at an aggressive table? Probably not. If you are in the small blind does it hurt to call with that hand for $1? Probably not.

It is all about managing your risk, and many are going to look back and tell their grand kids, "ohhh I once owned a lot of Bitcoin".

Their grandkids will respond. "What happened Grandpa?"
"Well lets just say each of you is going to inherit a lot of TRX , XLM and XRP."
"What are those grandpa?"
"Bags of Dreams kids, dreams"

Summary:

It is important for investors not to focus on one investment, but their portfolio overall. I do not mean cryptos, but your overall portfolio of investments. Gold has been a winner and I have been investing steadily since 2015. It was a long road, but the discipline and cost averaging is now paying off.

We recently have been building up a cash position in the stock market to buy the dip. We recently added to our Bitcoin position and trimmed off some alts. Two different reasons. We trimmed out some stocks because we are near a high and the recent bounce provided an opportunity to lock in some profits. We also added a short position and are looking to add another.

With alts, they are simply weak and we want to be in stronger charts not weaker ones. I do not care how good a platform may be, market sentiment determines the price not the fundamentals. You are never going to outsmart the market, but you can see how the market is positioning.

In the end, regardless of what any one investment does, another is making money. You trim some off into highs when sentiment is high, and look to accumulate into lows when sentiment is ugly. This won't make you rich overnight, and though we have had our fair share of home runs, we do not swing for the fences. We look for base hits and continual growth, not hope.

For you young investors out there, diversify! If you don't own some stocks and metals along with your bags of TRON you are putting all your money on the table and hoping your hand holds. Don't be that guy!

Comment:

Just as a follow up and what we have been mentioning to our members is relative strength. I know a lot of these gurus have their followers in a lot of crap coins because that is all they know.

The market determines winners and losers and most of these are still 80% or more off their previous highs. They are also showing weakness here. Maybe the alt coin market returns, but maybe it doesn't.

Either way they are going nowhere without Bitcoin. So where do you want to be overweight? Bitcoin or Alts? Especially some of the crap ones not necessarily the larger ones. Regardless why throw good money into a boat with structural damage? Because of a philosophy?

Like the structure in a boat, we look at the structure in a chart, and the structure is not very good with exception of maybe Monero. This is why we trimmed out some recently.

You follow who you want to, but I can tell you many are taking pain from the gurus hoping that this market is going to rally. Based on what? The rally of 2017? No different then all the dotcoms businesses that went out of business.
Planning to buy any alts when you see a reversal coming?
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Mate, I'm a big fan of yours and definitely use your analysis to fine tune my own. However, $BTC is looking very doomy and gloomy on the monthly chart. Do you see a greater possibility of correction for the coming months?
Cheers from the antipodes.
+1 Reply
always wise words from the man himself, i do agree bitcoin will range if this critical support holds. Otherwise, lower support is on the table. But looking at long-term, bitcoin is about to hit homerun, sooner or later
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Descending triangle in the house?
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Thank you for your wisdom, it is always incredibly well thought out.

I love how you weave story with technical analysis and life lessons. Truly a gift.

Not many understand that the only thing better than compounding interest is making many, small, good decisions.

Regarding market sentiment diverging from fundamentals...

How do you view the role of market makers in this asset class, specifically bitcoin/altcoin cycles as a mechanism of wealth transfer?

Most markets have some aspect of sector rotation to capitalise on mean reversions.

Do you think this is just a myopic , biased projection of how markets are expected to behave?

Or is it just that, when faced with the current positioning of PMs, Stocks, Bonds, BTC, FX, Geopolitics, and debt, that it makes zero to no sense, to take on that additional risk?

"Many, Small, Good Decisions."

On a "fundamental" note...

I'm wondering if you read the book "Homo Deus" by Yuval Harari.

He paints a logical picture as to how our society has evolved to where it is today, due to: data/information revolutions, and our ability to organise ourselves in such large numbers.

As a software engineer and futurist, all I can see (and I fight hard against this bias), is incredible potential in this space.

As an investor, maybe I won't beat BTC with my altfolio, but I believe there is a high probability that I'll beat USD.

Investing in privacy, foundation technology, and ecosystems likely to grow fast in adoption (i.e. Enjin - Video games are usually strong early adopters) is how I'm positioning myself with a smaller part of my portfolio.

Accumulating slowly, diligently, and making sure to never overweight myself.

Once again. Thank you! *clap clap clap*
+2 Reply
Super indicator

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make your analysis more easy free indicator of fibs support and resistance line
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BTC, MJ stocks, silver and cash..
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Your analogy on risk and strength/weakness was fantastic. It clicked. Thanks.
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