BTCUSD update: From 19830 to 10700 in two days, basically a 50% retrace. Instead of worrying about why, my focus is evaluating where and when to buy.
The market is a harsh teacher. People who jumped in near the highs expecting this market to go to 30K are now learning about risk. All the coins are retracing 20%+ in a matter of hours. The good news is this type of retrace is normal and healthy and offers opportunity for those who are patiently waiting for a RELATIVELY lower risk area to begin trading or investing. The short term news or reasons behind this are irrelevant while TA will guide more effective timing during extreme price moves.
In terms of TA, the 14450 support (.382 of recent bullish structure) was cleared without any hesitation. This is why waiting for reversal patterns is so important when it comes to timing and managing risk for swing trades.
The 10700 low is the upper boundary of the .618 support zone that expands as low as the 8650 area. As you can see, price has bounced significantly off this area and is presenting a bullish pin bar at the moment. The question is: when do you buy?
This is where your plan comes in. You must first decide what type of trade you are comfortable taking. If you are looking to add to an investment, that is much different than timing for a swing trade.
Buying for the long term is not a bad idea nearer the lows. If you are buying while there is no structure in place, price can easily retrace into the 9 or 8K range. Building a position in small increments is more appropriate in the 10700 to 8500 area compared to much higher prices. If you are buying to invest, there is no precision. Managing risk is more of a function of position size relative to what you can afford. If price happens to go to 5K (less likely, BUT it can anything can happen), you have to be OK with that. RISK is high in these markets, and if you can't handle losing everything that you put in, then you should not invest. Embracing the potential loss is what will help you become immune to the fear during extreme moves. The same fear that pushes the less experienced out of their longs. (Do NOT do this type of investing with margin. If you do not understand why, you need to do some homework). Averaging into a market during extreme retraces is better than buying highs, BUT is NOT safe either, if you seek safety, you are in the wrong market. This is for the aggressive investor.
As far as timing short term trades (swing trading), waiting for a retest of the low offers the best reward/risk relative to the nearest targets. Compared to averaging in, this method offers defined targets and stops. For this strategy, I would wait for a double bottom or failed low near the 10950 to 8650 zone and use the low of that structure to define the risk for the trade. Waiting for the structure on a smaller time frame (4 Hour, 1 Hour) offers more stability than randomly buying any low. As far as potential targets, the 14200 level (.382 of bearish swing) and the 16350 to 17900 area (.618 zone of bearish swing) offer areas that are proportionate to the current correction and provide realistic profit targets to measure reward from.
As long as price stays below the 14200 resistance, it is more likely to retest lows rather than highs. As far as an immediate recovery that new participants have grown accustomed to, I would say the more likely scenario is for the market to go into a broader consolidation after such a retrace which can take a week or two to play out.
In summary, maybe now some people have learned why locking in some profits and reducing risk on highs is so important. A 50% cut in two days is extreme and offers a long term buying opportunity for aggressive investors who know how to embrace loss. Otherwise, getting back in for short term moves still requires waiting since there are no reversal structures in place yet. Your plan is what should guide your decision making, not your feelings.
Marc, I'm curious to hear your explanation about BTC affecting the price of alts. When BTC went on a bull run, the cost ratio between BTC & alts that didn't match or exceed BTC's growth dropped. For example: if an alt valued at $20 went up 2% to $20.20 and BTC increased 10% from $12,000 to $13,200, the 8% spread would be reflected in the cost ratio of the BTC to alt exchange rate. With the correction yesterday, just about every alt had taken more losses than BTC not only with the BTC/alt cost ratio but the USD values were reduced by as much as triple the BTC loss %. This is very concerning to me for several reasons: First, if BTC goes up or down I don't believe it should affect the USD value of the alt because if that's the accepted norm then no coin/token could ever be relied upon for business transactions which defeats their purpose. Secondly, where is all the value transferring to? If BTC leads the downward charge I highly doubt people are selling a higher/stable valued alt for BTC. Moreover, the alts are typically held by crypto veterans who have experienced a few corrections and hold their positions. Therefore, the absence of panic selling in alts does not justify the price reduction equal to BTC's panic selling, let alone 2-3 times more. Lastly, when there's a 120+ billion dollar shift of value it has to go somewhere. Fiat is the obvious answer however I don't believe there's enough fiat exchanges to accommodate every alt to be sold for fiat and the only other option is Tether which has a ~1.2 billion market cap. By the way, that raises a concern as to how many BTC/alts were converted to Tether because if it totaled more than 1.2 billion, were there any reports of any exchange denying the trade because they didn't have enough Tether tokens available? As always, your thoughts are greatly appreciated. Thanks in advance.
WG028366
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@Regera, First off I wouldn't give alt holders that much credit for being "veterans." If anything,its full of pretend traders only looking to scalp profits, with no idea what garbage they are investing in. In alts most have short term targets, not long term. It is annoying, but my theory is that it's a vicious circle. Because bitcoin is the lone trading pair for most alts, traders get out of their alts and head to bitcoin to avoid a more severe drop. Bitcoin is notorious for exploding after the drops, so traders are slow to move back over. Instead they would rather ride the bitcoin wave to the next high. I think this behavior would change drastically when we see more trading pairs and more liquid markets. If, for example, XRP became another primary trading pair to buy most obscure alts, you would not see XRP tied to bitcoin as much. I also think that once tax organizations crack down, less people will be jumping in and out of investments to avoid a 10-25% tax premium on short term gains. I expect this to be announced more officially in 2018.
@Regera, I don't think there is a clear answer to this. The problem is most of the alts are only available in terms of BTC. This adds a layer of complexity that once you add irrational behavior to the mix, it is tough to evaluate on a more economic basis. WGO makes some good points that I agree with as well. For trading purposes, I do not put much focus on the relationship between BTC and alts because it fluctuates dramatically. For me, it is better to simplify.
asbator
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@MarcPMarkets@Regera, I think when BTC chills out, it incentives traders to invest in alts, thus inverse correlation in price with BTC. But when there is danger of general market correction, alts are sold out too, and because their market caps are lower, their price is more volatile.
Also because all alts has strong correlation with BTC, if BTC price falls by lets say 30%, alts that are traded with BTC (no fiat couples or no liquidity) will automatically drop by 30%. That makes that horrible impression that someone pulled away 30% of total market cap.
Lastly, coins that are pump and dump will tank the most. Thats why i always invest only in best projects.
Regera
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@MarcPMarkets, @asbator, Thank you both for your insightful replies. I do tend to over analyze, though I blame it on my background in risk management. As you can imagine, I struggle with the lack of structure and explainable workings of alternates/BTC pairings.
Regera
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*unexplainable. Also, thank you @WG028366 for your input as well.
crimsonronin
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You nailed this call Mark. I think you are one of, if not the best, crypto analyst on TV.
MarcPMarkets
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@crimsonr, hehe thanks for the compliment. I just read the price action, and stick to my plan. One thing for sure is I am certainly not the most popular. Hehe.
asbator
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Interesting that all top 6 analysts was long at ATH promising next 100-300% gains.